Insurance Agent Forum

[senior-advisor-indiana]

Salpro, I think you will definetly want to use a FMO for Annuities. Most will give you the top contracts anyway and help with case design.

[elliottmarks]

Thanks for the welcome, Salpro! Try the NAVA and NAFA's websites at first. I'll also post book titles for you but I can't remember them off the top of my head, have to check the ol' book shelf in my office. The best way to gain credibility and knowledge quickly, however, would be a designation... the Certified Annuity Specialist from IBF is the best i've seen.

The annuity appointment process is usually faster than the life and health side. You absolutely want to deal with an IMO. try Welcome!, these guys are good. I'm NASD registerd and my firm requires that all index annuity business be submitted through them... if you have a securities license you will experience the same thing. Also, i've you're looking for an FIA friendly broker dealer check out Fortune Financial Services - Broker Dealer

[salpro22]

Originally Posted by elliottmarks

Thanks for the welcome, Salpro! Try the NAVA and NAFA's websites at first. I'll also post book titles for you but I can't remember them off the top of my head, have to check the ol' book shelf in my office. The best way to gain credibility and knowledge quickly, however, would be a designation... the Certified Annuity Specialist from IBF is the best i've seen.

The annuity appointment process is usually faster than the life and health side. You absolutely want to deal with an IMO. try Welcome!, these guys are good. I'm NASD registerd and my firm requires that all index annuity business be submitted through them... if you have a securities license you will experience the same thing. Also, i've you're looking for an FIA friendly broker dealer check out Fortune Financial Services - Broker Dealer

I appreciate links and information.

[elliottmarks]

Salpro,

Try finding any thing by John Huggard... here is one title:
John Huggard's variable annuity book: Investing with Variable Annuities: Fifty Reasons Why Variable Annuities May be Better Long Term Investments

I'll post some more shortly

[elliottmarks]

if you're serious about selling annuities you may to sign up on this website also:

Annuity, Annuity Advice, variable annuity, living benefit variable annuity

[James]

The Annuity Advisor - National Underwriter Store

Written by, John Olsen, CLU, ChFC, AEP and Michael E. Kitces, MSFS, CFP®, CLU, ChFC

Hey, you can even talk to these guys on various of forums, maybe here? They come with a lot of experience and they are not out to sell anything, well maybe their book.

Ps, this book is basically the nuts and bolts behind Annuities, it has really nothing to do with selling Annuities.

[Ahnuld]

Originally Posted by elliottmarks

I have a lot of annuity experience and I'll try to share a little knowledge that I have about the index side. They are called FIXED index annuities for a reason and that is because the client's investment is not placed in a sub account which is the variable annuity equivalent to a mutual fund but rather it is invested in the companies general account. The Insurance company mainly invests in bonds which are laddered... a very small percentage is allocated to options. The options portion is where the insurance company makes money... or tries to, the margins are actually quite slim. Their risk is controlled by establishing cap's, limiting participation percentages and what can, in my opinion, be described as some pretty shady crediting methods.

The best index annuity i have ever seen was the Key index offered by Keyport in the late '90s.... there was no cap and the client locked in gains annually and did not participate in losses.... That product isn't around anymore and Keyport took a bath on it. Actually, the failure of that product financially for keyport is what many in the annuity world believe may have led to the "smoke and mirrors" that we see today by combining caps, participation rates and different crediting methods.... oh, and not to mention that the company reserves the right to lower the cap at anytime.

I'm not saying that I'm not a fan of Index annuity's... I believe they have their place and client. I only wish the companies were a little more transparent with how the client will be credited their INTEREST... not market gains.

Well said. I remember Keyport, too. Weren't they purchased by Sun Life? But I digress. EIA's have been touted as excellent investments for investors wanting to participate in market returns without bearing market risk. Well, maybe.

They do offer safety, but head-to-head with the market, they do not perform as well. Again, without going into arguments for/against, graphs, charts, ledgers, hypothetical performance, etc. over the long haul, the market out-performs EIA's.

EIA's were introduced in 1995, and since then they have had their up's and down's and their share of detractors, most notably those agencies from the securities sector, the SEC and NASD; proponents of EIA's are viewed as the competition. Maybe so.

The bone of contention is that the SEC et al view EIA's as a security to be sold by reps with security licenses. The insurance industry holds a different position and views EIA's as exempt from registration as securities under Section 3(a)8 of the 1933 Securities Act and Rule 151 adopted in 1986 as a safe harbor definition.

EIA's are complicated and the client deserves an explanation of the mechanics of EIA's. I've agents who've spent the time explaining EIA's to suitable prospects and have used them effectively with results much to their client's pleasure. Today's market volatility may well be an example with safety winning out over market losses.

So...elliotmarks' closing remark, "I only wish the companies were a little more transparent with how the client will be credited their INTEREST... not market gains" is right on the money (Hey. I heard that groan. Please forgive the pun).

Stay tuned.

[JS17]

I agree with all things said about annuities. If you are going head to head though, the Allianz MasterDex 5 PLUS (new and improved) out performs the Aviva/Amerus, expecially for lifetime income.

[Winter]

Originally Posted by Ahnuld

They do offer safety, but head-to-head with the market, they do not perform as well.
.

Or as poorly either.

Winter

[elliottmarks]

Allianz offers some interesting products... it's a shame their name is mud currently.

[JS17]

I don't really think its Allianz as much as the fact that they have the lion share of the business so there are more incidents reported...and usually it is due to misrepresentation by the agent who doesn't take the time to discuss the way it works.

[URDRWHO]

Are you State or Fed RIA, CFP, fee only, etc. For 17 years (15 Series 7, 2 years State RIA)I hung out with my brethren in the securities coral. I know how many think, what they say and how they act. Some are good ...some are bad.

If you are a State RIA, I really don't think the State SEC has anything against you jumping in her. If you are a CFP there isn't anything in the membership that says you can't get on a forum.

Jump on in...

Originally Posted by CHUMPS FROM OXFORD

As a Financial Planner with millions of $$$ under management..I'm dying to get involved with these types of threads.

But...it is strictly forbidden, so I'll just watch and listen.

[URDRWHO]

The NASD is about taking its annual $500 fee (is it more these days). Period! The BD is all about taking 30,40,50 percent of your commission. Period! They are all in it together. If you go back and investigate, the NASD was never to be the only SRO for the BD's. They have remained the only SRO through manipulation of power.

Regulate Thyself (Better)
"In the wake of the Wall Street scandals of the past few years, it was inevitable that government regulators would take a look at how the self-regulatory organizations (SROs), such as the NYSE and the NASD, were doing their jobs. If the SROs were really on the ball, why did so many abuses occur? "

Two-Tiered Justice?
"However, a recent SEC report shows that the NASD is far less enthusiastic about policing itself — despite the fact that such self-regulation is part of its charter."

Another NASD Election, Another Brawl?
"It's that time again — time for another NASD election, and with that the inevitable impassioned debate over whether the regulator is beholden to the big wirehouses that pay the lion's share of dues, to the detriment of the independent majority."

RR Commentary
"Never has so much time and effort been spent by the Commission and the NASD to accommodate the wishes of just a few powerful member firms to the disadvantage of other firms, registered representatives ("brokers"), other industry employees and investors."

SEC's Inspector General Silent on SRO Oversight
"The SEC charged that large market makers conspired to fix Nasdaq quotes and that the NASD knew about it. Other regulatory failures were discovered as well, leading SEC Chairman Arthur Levitt Jr. to claim that "the NASD did not fulfill its most basic responsibilities." Levitt acknowledged that the SEC "should have acted sooner" in cleaning up the problems."

This fight was going on around the time I was going State RIA. My State SEC guy sid they would fight tooth and nail to not let the NASD power grab.

The NASD's Power Grab
"The NASD is worried that brokers are playing a game of "regulatory arbitrage"--giving up their securities licenses to become investment advisers (IAs) and thereby sidestepping strict SRO oversight for lax adviser supervision. In response, the SRO has asked the SEC for regulatory authority over advisers (which it hasn't gotten, at least not yet)."

NASD Slips Liability-Limiting Clause into Restriction Agreements
""The National Association of Securities Dealers is taking some heat for a new clause it quietly inserted in some broker/dealers' restriction agreements that limits a member's right to sue the SRO. The wording, added to some new agreements this year, requires a member firm to agree that it can sue the NASD only in cases of "willful malfeasance" by the regulator."

SROs to SEC: "We Like Our Cartel"
"SROs to SEC: "We Like Our Cartel"
The NASD and the NYSE have warned the SEC about the dangers of allowing upstart SROs to regulate alternative trading systems. But the NASD and the NYSE blasted the idea of competing SROs."

NASD Member Calls for Boycott of NASD Election
"In 1993, Davidson had a run-in with the NASD when he garnered enough signatures to challenge a board candidate chosen by NASD District 10's nominating committee. He subsequently sued the NASD for alleged mishandling of the election. The SEC and the NASD's own Rudman Committee later criticized the NASD for improper conduct in the contest. But a New York federal court threw out Davidson's claim last June on the grounds that NASD members have no right of action against their regulator."

When I was a State RIA it was a breath of fresh air because I was governed by the State Securities Administration. They are not about gaining power and wealth for the corporation. Do you know the NASD is a Corporation?

Need I go on? Signing on with the NASD is like signing on with the devil.

The Long Arm of the NASD

"Yes, NASD is entitled to great leeway when it makes demands during an investigation. However, “great leeway” does not mean carte blanche. What the self-regulator too often forgets is that members and their associated persons are denied the protection granted to citizens in a state or federal court when it warns: There is no constitutional due process at the NASD…there is no Fifth Amendment protection. The SEC admonishes that such constitutional protections: “are not available when NASD makes a Rule 8210 request; in such a case, the only recourse against possible overreaching by NASD is for the person to whom the request is directed to refuse to comply, and to appeal any consequent disciplinary action to the Commission…”

My record for the 17 years I did security stuff is squeaky clean, not one complaint. For the 25 years I've had an insurance license, I've never had one complaint.

Can you tell that I feel the NASD /SRO situation needs some competition?

Originally Posted by sman

Index Annuities are a good product for the right situation and for the right percentage of a portfolio. There is no one size fits all. And I wouldn;t want to see someone put their entire nest egg into an IA. When running historic numbers, I think it's safe to say that an IA should average somewhere in the 4%-6% return range. Generally better than a traditional fixed annuity or CD, but will likely underperform the equity markets over any 10-year period.

As far as how the companies make money on these products, it's fairly simple. There are 3 basic "buckets" where these dollars go. First and foremost, the carrier will take the cost of paying administrative expenses (including commissions and the companies profit) out of the money. Next they have a required amount they must set aside to meet the guarantees of the contract. And lastly, they use what's left to purchase options on whichever index the IA uses for it's crediting method.

So, if $1 is invested, the company may take out $0.05 to cover the admin charges, commissions, etc. They may need to set aside $0.90 to cover the guarantees. Then they'll take the last $0.05 and purchase options on the index. Regardless of what the market does, the company already has it's profit. If the market goes up, they exercise the options and apply the interest to the contract. If the market goes down, the option expires worthless. Keep in mind, this is a simplistic explanation.

When you see a company offering a big bonus or a higher than usual participation rate, it's usually made up for somewhere else. Like in the guarantee or a longer surrender period. Some plans have a guarantee of 2% interest on 87.5% of the amount invested, but may have a higher participation rate or cap. While others, like ING, have a plan that has a guarantee of 3% interest on 100% of the money, but has a lower participation rate. One isn't necessarily better than the other. I'm of the opinion that the guarantees will likely never come into play. But people like guarantees.

As for the NASD involvment, I believe there are a couple of reasons. Number one, I think the NASD member firms (i.e. - broker dealers) have been seeing large amounts of money leaving to go to IA's. So they've put pressure on the NASD to try and get these products regulated just as equity products are. Secondly, many agents have abused IA's and taken advantage of people while offering poor advice. I have mixed emotions about the NASD getting involved. I don't really mind there being a requirement to have a securities license to offer an IA (although an IA is a fixed annuity and has a guarantee return - you can't say the same about equities). But I really don;t like the idea of having to run it through the broker dealer and taking a cut on commissions. Not all BD's require this (not yet anyway).

There's a great website where you can plug in the parameters of an IA (such as crediting method, bonus, aprticipation rates, caps, etc) and get historic results. This assumes, of course, that the IA would have had the same parameters for the entire length of the contract. But it gives you a general idea of which IA's might be better than others over the long haul. The website is Welcome to Annuity Marketing Services. You will have to register to be able to use the calculator. But you can use any alias and email address you like to do so. If you are an analytical person, you'll have fun running the different hypotheticals for many different contracts from many carriers.

[URDRWHO]

Many years ago I dropped the term EIA from my vocabulary. I prefer the term FIA.

Originally Posted by elliottmarks

I have a lot of annuity experience and I'll try to share a little knowledge that I have about the index side. They are called FIXED index annuities for a reason and that is because the client's investment is not placed in a sub account which is the variable annuity equivalent to a mutual fund but rather it is invested in the companies general account. The Insurance company mainly invests in bonds which are laddered... a very small percentage is allocated to options. The options portion is where the insurance company makes money... or tries to, the margins are actually quite slim. Their risk is controlled by establishing cap's, limiting participation percentages and what can, in my opinion, be described as some pretty shady crediting methods.

The best index annuity i have ever seen was the Key index offered by Keyport in the late '90s.... there was no cap and the client locked in gains annually and did not participate in losses.... That product isn't around anymore and Keyport took a bath on it. Actually, the failure of that product financially for keyport is what many in the annuity world believe may have led to the "smoke and mirrors" that we see today by combining caps, participation rates and different crediting methods.... oh, and not to mention that the company reserves the right to lower the cap at anytime.

I'm not saying that I'm not a fan of Index annuity's... I believe they have their place and client. I only wish the companies were a little more transparent with how the client will be credited their INTEREST... not market gains.