Insurance Agent Forum

[sman]

Did anybody get an email from Key Financial on Friday titled:

30% Par Rates and Fuzzy Math


If so, do yourself a favor and don't quote the numbers they use. They are misleading at best and could get you in hot water. For example, they do a comparison between an investment in the S&P 500 and a hypothetical index annuity. Problem is, they don't include the reinvestment of dividends in their comparison and thus incorrectly state what the real return would have been in the S&P 500.

In addition, they use the beginning of the worst bear market in history for their comparison. That's a sure way to make your advice sound good. But that's not indicative of what markets have done historically. I believe if you are going to show how a hypothetical index annuity would have done in the worst bear market, you should also show a bull market.

They also imply that an investment in the DJIA from Feb. 1966 to August of 1982 would have resulted in a loss of 22%. Nothing could be further from the truth. In fact, an investment in the DJIA (if there were such an investment) from 02/01/1966 through August 31, 1982 would have yielded an average return of 4.24%. That's a big difference from a 22% loss.

They just showed the difference in point change of the DJIA and lead you to believe that because the DJIA was 22% lower after that 16 year period that an investment would have done the same thing. Not so. Therein lies the power of reinvesting dividends.

I see this type of misleading from the index annuity crowd. They bend and twist numbers to get the sell. Why not show all options and let the client decide instead of using fear to get the sell? And let me state that I sell index annuities occasionally. I just don't believe they are a fit for everyone.

I guess my point here is to make sure you don't just take an FMO's "research" as truth. Ultimately it's you that may have to face the regulator.

[healthagent]

When I was being courted to sell EIA's the "manager" told me that 9 out of every 10 stock investors ends up losing money. I asked him to email me his source. 2 years later - still waiting for the email.

[sman]

Originally Posted by healthagent

When I was being courted to sell EIA's the "manager" told me that 9 out of every 10 stock investors ends up losing money. I asked him to email me his source. 2 years later - still waiting for the email.

I don't know about those numbers. However, DALBAR has done many studies on this and the last one I saw showed that from 1985-2004, the average mutual fund investor achieved a 3.7% return while the S&P 500 achieved a return of 11.9%. The biggest reason for the discrepancy is investor behavior. The average investor buys and sells at the wrong spectrum of the investment cycle. They will usually jump in at or near the top or buy the "hot" fund and they jump out when the market corrects, thereby solidifying their losses.

[djs]

Originally Posted by sman

I don't know about those numbers. However, DALBAR has done many studies on this and the last one I saw showed that from 1985-2004, the average mutual fund investor achieved a 3.7% return while the S&P 500 achieved a return of 11.9%. The biggest reason for the discrepancy is investor behavior. The average investor buys and sells at the wrong spectrum of the investment cycle. They will usually jump in at or near the top or buy the "hot" fund and they jump out when the market corrects, thereby solidifying their losses.

I've heard this many times. While usually pointed at either stock or mutual fund investing (i.e., someone is selling something else), the phenomonen is true with virtually every investment type. The point of this number is that most people need a good money manager, not necessarily a different investment vehicle.

Dan

P.S. It would be interesting to see how someone came up with this number. I don't dispute its validity, just seems a bit opportunistic.

[sman]

Originally Posted by djs

I've heard this many times. While usually pointed at either stock or mutual fund investing (i.e., someone is selling something else), the phenomonen is true with virtually every investment type. The point of this number is that most people need a good money manager, not necessarily a different investment vehicle.

Dan

P.S. It would be interesting to see how someone came up with this number. I don't dispute its validity, just seems a bit opportunistic.

I'm sure DALBAR can provide you with that information. I think the name of the report is:

Quantitative Analysis of Investor Behavior

If you just google "dalbar study" you can find some brief information from different years. But I don't think you'll find the full report without paying for it. Here's a copy of a synopsis on their website for market timers that was released in April of 2004:

DALBAR Study Shows Market Timers Lose Their Money

(Boston, MA – April 1, 2004) It is widely believed that rapid fire trading produces huge profits for traders at the expense of the average investor. But the latest DALBAR study shows that market timers actually lose money instead of making healthy profits.

Examining the flows into and out of mutual funds for the last 20 years, the DALBAR study of investor behavior found that market timers in stock mutual funds lost 3.29% per year on average. Over a period when the S&P grew by 12.98%, the average investor earned only 3.51%.

This finding challenges the actions of regulators and the mutual fund industry to curb market timing. The victim of market timing is not the average investor, but the investor that tries this technique. The average investor actually benefits from the losses of market timers.

“This finding is consistent with the well known behavior of investors to brag about their gains, but remain silent about losses” said Lou Harvey, DALBAR President. “The occasional money makers create the illusion that all timers are winners all the time. The fact is that most timers lose money most often and this data now confirms it.”

The full analysis is available by contacting DALBAR at 617-723-6400 or at QAIB@dalbar.com
DALBAR, Inc., the nation’s leading financial-services market research firm, is committed to raising the standards of excellence in the financial-services industry. With offices in both the US and Canada, DALBAR develops standards for, and provides research, ratings, and rankings of intangible factors to the mutual fund, broker/dealer, discount brokerage, life insurance, and banking industries. They include investor behavior, customer satisfaction, service quality, communications, Internet services, and financial-professional ratings.

###

For information contact:
Tara Runnals
DALBAR, Inc.
617-723-6400
trunnals@dalbar.com

They have another titled, "Market Chasing Mutual Fund Investors Earn Less than Inflation".

Again, not sure what they are using to derive their numbers, but DALBAR is a respected organization and they aren't likely putting out incorrect or inaccurate information.

[healthagent]

The problem with pulling stats is the market and investments are so broad you can search for and find any stat to suit your purpose.

This is why the best research is called "double blind." The subject doesn't know they're being tested - the person giving the test doesn't know what the study is for. Then you get true results.

So an example would be hiring someone to research market returns but don't tell them why. Then present those results to a client without the client knowing the goal of the presentation:

What IS the better overall investment:
Mutual funds
Perm life
EIA's
Etc...

When you have an agenda the results will always match what you set out to find.

[sman]

Originally Posted by healthagent

When you have an agenda the results will always match what you set out to find.

Yep. That's exactly what people do when they use the years 2000-2002 in their index annuity vs. the S&P 500 scenario. Of course, I don't know many people who invest solely in the S&P 500 when investing in the markets. I have clients that lost very little money in those years due to broad diversification. I never see someone comparing an index annuity to the years of the mid to late 90's. I wonder why?

For the CD investor, an index annuity might be a great alternative. It gives them the safety they seek and opportunity for a better return. But to compare an index annuity to an equity investment isn't comparing apples to apples. And using numbers like the ones Key Financial sent out in the email is borderline criminal in my view.

[Mr. Bill]

Also remember that EIAs don't include the dividends, which have accounted for about 4.5% of the returns of stocks (9.5%) since 1900, according to John Bogle...

"They just showed the difference in point change of the DJIA and lead you to believe that because the DJIA was 22% lower after that 16 year period that an investment would have done the same thing. Not so. Therein lies the power of reinvesting dividends."

Interesting post!

[James]

Originally Posted by healthagent

The problem with pulling stats is the market and investments are so broad you can search for and find any stat to suit your purpose.

This is why the best research is called "double blind." The subject doesn't know they're being tested - the person giving the test doesn't know what the study is for. Then you get true results.

So an example would be hiring someone to research market returns but don't tell them why. Then present those results to a client without the client knowing the goal of the presentation:

What IS the better overall investment:
Mutual funds
Perm life
EIA's
Etc...

When you have an agenda the results will always match what you set out to find.

Are you suggesting that the Dalbar Study is really a flawed study to help sell annuities?

[healthagent]

I believe that study only addresses people who try to time the market.

[sman]

Originally Posted by healthagent

I believe that study only addresses people who try to time the market.

John,

They do have a study about market timers. However, the original study I mentioned spoke specifically to investor behavior. Many investors get emotional and make poor decisions because of greed and fear. That has nothing to do with timing the market. Since mid-December I've received many calls from clients invested in the market. They are concerned. Several wanted to move to a money market. I think we are near the low end of the downturn (unless we get some additional bad news). To move to a money market now only guarantees the losses. Usually when a person gets fearful of the market and moves to some type of cash position (such as a CD or money market), they generally miss out on the upswing of the market. If they ever do get back in, it's usually near the top of the upswing. And we start the cycle all over again. They aren't trying to time the market. Their emotions are controlling them and, as I said, causing them to make poor decisions. My job as an advisor is to make sure I do everything I can to prevent the investor from harming themselves.

[healthagent]

Well stupid is as stupid does. The same people who buy high and sell low are by no mean candidates for other financial vehicles - they are out for quick money.

The best thing for people do to is payroll deduction into their 401K as their primary investment tool. It's dollar cost averaging at work - not market timing. Max the 401K, then start the bidding on where else to place additional money.

[sman]

Originally Posted by healthagent

Well stupid is as stupid does. The same people who buy high and sell low are by no mean candidates for other financial vehicles - they are out for quick money.

The best thing for people do to is payroll deduction into their 401K as their primary investment tool. It's dollar cost averaging at work - not market timing. Max the 401K, then start the bidding on where else to place additional money.

Glad to know you've never made an irrational decision John. If it were only as simple as you make it out to be. Heck, you've seen it over and over in the health insurance field. How many people make irrational decisions no matter how much education you give them? That doesn't mean they don't need health insurance. You can survey one million people and ask if they would prefer buying high and selling low and you'd get a 100% response rate of "NO". But that's when emotions aren't involved. It's amazing what happens to rational behavior when someone sees $250,000 drop to $200,000 in 2 months time. Sound reason goes out the window and they just want to "stop the bleeding". That really makes an easy sell for an index annuity. But that doesn't make it the right thing to do.

I believe I've heard you discuss on this forum that you really don't invest money for people. If that's true, how could you speak to investor behavior in up and down markets? Other than what you read of course. I've dealt with it personally and I can assure you irrational behavior exists and it's hard to manage at times. Just as the person who is adamant, no matter what you say, that their MEGA plan is the greatest thing since sliced bread. You can throw all the proof at them that you want, but they just get irrational at times.

[healthagent]

The only thing I'm against is the original post - letters or emails to agents bashing investments in order to hit their agenda of boosting EIA sales.

You can dig up legitimate data for or against any type of investment vehicle from stocks to bonds to CDs to perm life. Everything has its positives and negatives.

What I disagree with is insurance agents with zero financial training and skewed stats sitting down with people and scaring them into thinking life vehicles are the answer.

Nothing is "the answer." The only answer is a properly designed and allocated portfolio designed by an industry expert - someone properly licensed and trained to give advice.

This also pertains to health. I talk to health insurance agents bashing HSAs yet can't tell me anything about them.

Another point to make - where do health agents learn about HSAs? Where do life agents learn about CDs, 401K's and equity investments?

We have agents - both life and health - giving clients advice and in many cases have little to no training.

I've spoken recently with a few agents trying to get me to sell annuities. I get solicited often. 2 of 'em recently told me how much money they were making. I asked both a few very detailed questions about the annuities they sold - both crapped out.

[sman]

Can't say I disagree with anything you said there John. That was my point in the OP about the info Key Financial sent out. It is definitely skewed AND inaccurate. Yet, you will find agents that will use this very data to sell an index annuity.

[healthagent]

8 hours a day for 5 days of training. I had to watch both video training and be trained by a senior rep - then after 40 hours of training I had to take a test - took me over 3 hours about the product - 80% to pass.

After I passed the test I had to role play with my manager who rated me on my product knowledge - after that I had to tail a senior sales rep for 3 days watch him present and go over everything.

And this was all to sell Beemers. Every time I sold a Beemer the client got a customer service call.

Two weeks of in-class training - then a test. Then we had to go an appointments with a senior rep for one week and split commissions. After that we had to practice pitch the manager. After all that, and you passed everything you could sell on your own.

And this was for Century 21 Cabinet Refacing. Every time I sold a deal the customer got a customer survey call.

For this field I got appointed with all the carriers in MD. 80% would not send me a sample policy. 100% would not formally train me. 3 bitched with me about sending brochures.

None of my carriers require any type of formal training, none check up on sales tactics, and could really care less.

I'm for mandatory product training - every carrier should require all new agents to complete a course on their products.

[slushhhpuppie]

Originally Posted by healthagent

Another point to make - where do health agents learn about HSAs? Where do life agents learn about CDs, 401K's and equity investments?

We have agents - both life and health - giving clients advice and in many cases have little to no training.

Absolutley. There is nothing I hate more than bashing the other guy infront of a client but occasionally I find myself saying "The insurance agent who told you that is 100% wrong".

If insurance agents want to dispense advice and act as an "adviser" rather than an "agent of the carrier" they had better get their 65 and set-up an RIA just like the rest of us.

[James]

Originally Posted by slushhhpuppie

Absolutley. There is nothing I hate more than bashing the other guy infront of a client but occasionally I find myself saying "The insurance agent who told you that is 100% wrong".

If insurance agents want to dispense advice and act as an "adviser" rather than an "agent of the carrier" they had better get their 65 and set-up an RIA just like the rest of us.

Sure, that will solve all the problems in the world including obesity! You'll are just to funny.

[sman]

Originally Posted by James

Sure, that will solve all the problems in the world including obesity! You'll are just to funny.

Maybe not. But it would likely mean that the adviser would actually know better than to use these types of tactics and numbers. However, crooks will be crooks no matter how much knowledge they have.

Lastly, what does this mean?

"You will are just to funny"

[healthagent]

Originally Posted by sman

Lastly, what does this mean?

"You will are just to funny"

YouTube - Goodfellas -Funny Guy