Monthly Average Vs Point-to-Point Cap

jjjtrio · 04-15-2009, 12:25 PM

I would like to get your thoughts on the advantages and disadvantages of both.

From what I can come up with it looks like the Point-to-Point is still the best way to go in a FIA. Am I wrong?

insuranceexec · 04-15-2009, 12:36 PM

Absolutely. I recently ran several hypothetical's that compared three different crediting methods:

Annual Pt. to Pt.

Monthly Pt. to Pt.

Monthly Averaging

I picked several different dates in '98 so that my example would carry some merit. Over a 10 year period both the monthly pt. to pt. and annual out performed the monthly average by almost 16% over the ten years. Great Question.

jjjtrio · 04-15-2009, 12:48 PM

That's what I've been coming up with. The annual is also outperforming the monthly cap by a small amount. Have you come to the same conclusion?

Ichiban · 04-15-2009, 12:53 PM

Historically speaking Point to Point performs the best of course depending on the Cap (or Participation, Spread) that is on the strategy. I also like it because it is the easiest for a client to track and understand. With a monthly average the index may be higher at the end than at the start but the client may still get a zero return because of the effect of averaging.

Really it comes down to what type of market you are expecting though. All the strategies have certain markets that they can excel in. In an economic environment that is rather turbulent an Averaging approach seems most prudent. If you are expecting consistent or sustained growth over where you are now then the point to point makes sense.

I am not a fan of the monthly point to point. It sounds good and offers a lot of upside but there is no cap on a negative month only on a positive month so in january the market goes up 4% you have a 2.5% cap you get 2.5% next month it goes up 2% you get 2% so you are at 4.5% so far then March comes and drops 7% you are at -2.5%. Of course at the end of the year you can get nothing less than zero but a few bad months can really strip your returns.

jjjtrio · 04-15-2009, 01:01 PM

That is exactly my thoughts.

Thx for your input.

insuranceexec · 04-15-2009, 02:18 PM

Originally Posted by jjjtrio

That's what I've been coming up with. The annual is also outperforming the monthly cap by a small amount. Have you come to the same conclusion?

On average of about 2.6% per year. But as it has been said, every method works best in different types of economic environments.

Personally, I would recommend using annual pt. to pt.; which is my favorite. Easiest to understand, but you do have to be careful of the caps, spreads and participation.

One method to stay away from would be the threshold crediting method; regardless of the strategy. Great topic.....

0b1kanobee · 10-22-2009, 05:43 AM

Insuranceexec

On the LSW Gold for instance you can choose between the daily average and point to point (fixed in there as well).

Are you still sticking with point to point.

I did one a couple of days ago and did 50% fixed, 40% point to point (ending) and 10% daily.

It can be changed once a year..............

insuranceexec · 10-22-2009, 05:47 AM

Originally Posted by 0b1kanobee

insuranceexec

On the LSW Gold for instance you can choose between the daily average and point to point (fixed in there as well).

Are you still sticking with point to point.

I did one a couple of days ago and did 50% fixed, 40% point to point (ending) and 10% daily.

It can be changed once a year..............

Give me a call tomorrow and I will walk you through it. I still think that pt. to pt. is better, but you have to be careful of the cap, participation, and/or spread.

scagnt83 · 10-22-2009, 06:03 AM

Does anybody know of agents that actively manage indexed annuities? Such as hypothesize future market conditions and allocate accordingly on an annual, bi-annual, or quarterly basis?
I realize that this would depend on the amount of times you can reallocate each year for that specific product. But it would be an interesting experiment to try.

Also the performance triggered fia index accounts are great. Lincoln Financial has them, and I think a few others do as well. But the account has a set credited interest rate, if the chosen index meets or exceeds the previous year you are credited the full amount. At one time earlier this year lincoln was offering 7.5% in this account, and all it has to do is be the same or more the next year and you get all 7.5....its great!!

insuranceexec · 10-22-2009, 07:29 AM

Originally Posted by scagnt83

Does anybody know of agents that actively manage indexed annuities? Such as hypothesize future market conditions and allocate accordingly on an annual, bi-annual, or quarterly basis?
I realize that this would depend on the amount of times you can reallocate each year for that specific product. But it would be an interesting experiment to try.

Also the performance triggered fia index accounts are great. Lincoln Financial has them, and I think a few others do as well. But the account has a set credited interest rate, if the chosen index meets or exceeds the previous year you are credited the full amount. At one time earlier this year lincoln was offering 7.5% in this account, and all it has to do is be the same or more the next year and you get all 7.5....its great!!

American National has a good short term performance triggered annuity with ROP.

For the most part rates have dropped on performance triggered annuities, and all index annuities for that matter.

Rates were higher at the first of the year when the outlook was bleak for the majority of the indices. Now that the majority of them are turning around; rates are going down.

This is how the annuity companies hedge against paying the client too much. I hope this helps.......

scagnt83 · 10-22-2009, 05:21 PM

I will have to check out the american national triggered annuity with ROP, thanks.
Yes, the inverse relationship of the indices and eia rates in interesting. Personaly I believe that eia rates are a bit low at the moment, considering future market potential. But I know all about having to hedge an investment. And the insurance companies crunch a lot more numbers, and pay a lot more attention to market conditions than I do, so who am I to argue...lol.

But back to my original question:
Has anyone experimented with reallocating funds in the different accounts of eia clients on a yearly, bi-yearly, or quarterly basis. To see if they can get above average eia returns.
I have run some projections before and agree that yearly point to point or triggered is the way to go for the long term. But some years...or half years....would have much higher returns with the monthly cap or average.
I realize that the nice thing about annuities, especially eias, is that they are pretty turn key. But if you had a knowledable wealth manager in your office to give a quarterly outlook on the indices, and have your assistant do the reallocation paperwork appropriately. You might be able to generate higher returns than most.
Has anyone experimented with this at all???

Franz Kafka · 10-22-2009, 11:05 PM

Originally Posted by scagnt83

But back to my original question:
Has anyone experimented with reallocating funds in the different accounts of eia clients on a yearly, bi-yearly, or quarterly basis. To see if they can get above average eia returns.
I have run some projections before and agree that yearly point to point or triggered is the way to go for the long term. But some years...or half years....would have much higher returns with the monthly cap or average.
I realize that the nice thing about annuities, especially eias, is that they are pretty turn key. But if you had a knowledable wealth manager in your office to give a quarterly outlook on the indices, and have your assistant do the reallocation paperwork appropriately. You might be able to generate higher returns than most.
Has anyone experimented with this at all???

Well if you ever get good at that let me know. I can find you a nine figure income job trading options future (because that's what you're trying to do).

In my experience there are 3 things that can happen when you try to time the market for your client.

1. You can time the market perfectly and your client will wonder why she's only getting x% when you're such a genius.

2. You can miss the market by small margin and your client will wonder how long you've been in the business because he thinks you're still learning the ropes .

3. You can miss the market by big margin and your client will think you have just fxxxed him.

On the other hand, if you PROMISE/GUARANTEE him 0% on his money, he will hug you and thank you when the market tanks, sidelines or jumps. AJIMO

scagnt83 · 10-23-2009, 12:05 AM

Originally Posted by Franz Kafka

Well if you ever get good at that let me know. I can find you a nine figure income job trading options future (because that's what you're trying to do).

In my experience there are 3 things that can happen when you try to time the market for your client.

1. You can time the market perfectly and your client will wonder why she's only getting x% when you're such a genius.

2. You can miss the market by small margin and your client will wonder how long you've been in the business because he thinks you're still learning the ropes .

3. You can miss the market by big margin and your client will think you have just fxxxed him.

On the other hand, if you PROMISE/GUARANTEE him 0% on his money, he will hug you and thank you when the market tanks, sidelines or jumps. AJIMO

Lol. How do you know im not already making 9 figures a year?

.....lol (just for the record, unfortunately im not...yet)

But you are right, I am talking about trying to time the market. I think this would be easiest with the S&P and Dow, for obvious reasons. But there are a lot of outfits out there who have fulltime traders or wealth managers on staff, and could very easily do this. I dont think that you would be getting 12% or anything, and im not proposing telling the client that you will make more money in this product than the other guy.....without some pre-established track record that would be beyond stupid! But just as an added service factor, review the current market conditions compared to your clients allocation, just as you would (or should) with a VA or stock/mutual fund portfolio.
Im suprised that nobody has tried it yet. But on the other hand im not. Customer service from the agent is one of the biggest problems this industry has. So I guess its not that suprising that no one with the ability has taken their customer service to this level.

Most of my clients who are in an EIA are 55+. So the gurantee/safety aspect is a huge issue. So I am totally with you on the no promises of huge returns part! And guranteed principle is a very powerfull thing!

dgoldenz · 10-23-2009, 12:44 AM

Originally Posted by scagnt83

But back to my original question:
Has anyone experimented with reallocating funds in the different accounts of eia clients on a yearly, bi-yearly, or quarterly basis. To see if they can get above average eia returns.
I have run some projections before and agree that yearly point to point or triggered is the way to go for the long term. But some years...or half years....would have much higher returns with the monthly cap or average.
I realize that the nice thing about annuities, especially eias, is that they are pretty turn key. But if you had a knowledable wealth manager in your office to give a quarterly outlook on the indices, and have your assistant do the reallocation paperwork appropriately. You might be able to generate higher returns than most.
Has anyone experimented with this at all???

Jackson National has a brochure they send out to agents showing the hypothetical performance of the different allocation options in the most recent 20-year period (point-to-point, monthly averaging, monthly sum). 16 out of the 20 years, the monthly sum option came out on top for returns. Of course, this will change depending on the cap levels, but there's a comparison for you.

Franz Kafka · 10-23-2009, 01:22 AM

But there are a lot of outfits out there who have fulltime traders or wealth managers on staff, and could very easily do this.

I have to disagree on this. It's one thing to analyze company going concerns etc but quite another thing to predict the market move in one year periods. Reward potential is tremendous in options market because of this difficulty.

I guess what I'm trying to say is that it's not the "numbers" that make happy clients - but rather the right "perception". And that's what we are all really selling - a perception.
If I were you, I wouldn't try to make my job any harder than necessary.

scagnt83 · 10-23-2009, 02:59 AM

Originally Posted by Franz Kafka

I have to disagree on this. It's one thing to analyze company going concerns etc but quite another thing to predict the market move in one year periods. Reward potential is tremendous in options market because of this difficulty.

I guess what I'm trying to say is that it's not the "numbers" that make happy clients - but rather the right "perception". And that's what we are all really selling - a perception.
If I were you, I wouldn't try to make my job any harder than necessary.

I hear ya. Thanks for your input. We do however agree on the fact that the perception and purpose of the product is what we are really selling when it comes to EIAs. Gains should not be the primary need being met with an EIA.

I just thought it was an interesting client servicing idea. My shop isnt set up for something at that level, nor do we have the market expertise inhouse....but I know there are outfits out there that could.... oh well

0b1kanobee · 10-23-2009, 03:16 PM

I know LSW provides there previous crediting rates going so many years back on a few of the annuities so they have already done the research for you based on their products.

There are some factors that come into play here which has been discussed already (crediting methods, length of annuity, caps, participation rates, ect.) so you just can't compare company to company with a broad stroke.

Best thing I have found so far is to learn about a few companies and a handful of products that you know very well. With all of them out there, you can't know the ins and outs to them all although there are a few exceptions for some folks on here who seem to know about many companies.

I prefer myself to know a handful very well because I just couldn't keep up with all of them. Plus if I spend too much time researching for the client I lose them while their interest is peeked.

Had a guy who wanted to invest 500k a few weeks ago and spent too much time formulating a plan with different products that would kick in for him over the years and even though I stayed in touch over 10 days (working other clients as well), I lost him. He decided to invest in properties and become a landlord at 60. Go figure!

I'll call him back in a few months and stay in contact because I see troubles for this man and property going down in value here in Florida. Maybe he will decide he made the wrong decision.

insuranceexec · 10-23-2009, 06:15 PM

I have always found that a 3-4 call sales close worked the best for me.

1st appointment (Referral) General introduction and fact finding. Typically an hour or so in length, and I would schedule another meeting with them while in the home.

2nd appointment: I would go back over the fact finder, uncovering the problems, and would tell them I would "TRY" to find them a solution.

I would say something to the effect of: "Let me see what, if anything, I can do to help improve your current situation."

I would then schedule the 3rd appointment.

3rd appointment: Re-develop the problem; present the solution, and clse the deal. 82% of my sales came on the 3rd appointment. If I could not get them closed here I would set one final appointment.

4th appointment: Just a regurgitation of the 3rd. If I failed to close them on this appointment; it was generally a lost cause. I only sold 2% of appointment after the 4th call.

I would never get mad and would always ask them if I could keep in touch with them in case their situation changed.

I would then make it a point to have either myself, or my secretary call them at least once a month to check in. This I found worked extremely well.

Follow up, follow up, and follow up is what makes people successful in this business long term. I hope this helps.....

scagnt83 · 10-24-2009, 03:34 PM

I agree. Follow ups are key. I recently gained half of a high networth individuals assets, and did a comprehensive financial plan that included estate planning with some very high life premiums! This was a casual aquantance who a year ago told me to call him back in a year. He was so suprised that I actually called him after a year like he requested, that he said he was sold on me and my services.

From him I recieved a referal to his boss, who is one of the wealthiest business owners in town. Im now looking at a corporate benefits package for his multi million dollar company!

All because I bothered to write something down in my calander and pick up the phone for 2 minutes a year later!!

InsureGuy5 · 10-30-2009, 02:35 PM

With the recent market volatility, the one and two year point to point accounts have been doing very well. I prefer to have the lions share of the funds in those annuity baskets.