I received an illustration from a well-known GA for an annuity prospect I've been talking with. Perhaps some of you would like to comment on this and perhaps answer my question. (Let's not make this into a flame war on FIAs pro and con, OK?)
From the GA:
Here is a product from Lincoln Benefit Life. It is the Saver's Index Annuity Plus. It is a 5 year decreasing surrender charge annuity and after the 5th contract year all funds are available penalty free. They also have an option to turn on an "income rider" to get income from the policy as well. Let me know what you think of this.
I wrote her back:
This is an interesting product. But let me ask this. What is the best fixed rate product you can get me today? My bet is 4.5%
I'm sure my sophisticated client is going to ask me this: "If you are going to cap my total return at 7% on the indexed product but I could get 4.5% in a fixed product, why should I take the risk for 2.5 or maybe 3 points? Assume the 7% cap AND if 2 of the 5 years show no increase in the index but the other 3 allow me the full 7%... over the whole five years I will only see a 4.2% return ((7x3)/5) since there is no minimum interest in the zero years."
How do I answer that? How do I sell this product in what looks to be a sideways market where if there IS any increase in S&P (or whatever index he chooses) it may be in the 2% and 3% range... not above 7%. If the cap was 15% I could see it, but at 7 points, I don't see were the possible limited reward is worth the risk of zero return. Talk to me. You're the annuity expert! What am I missing here?
EIA's are not designed to make a lot of money. If you're lucky, you can expect to earn a 4-6%, maybe a 7% return over a 10 year period.
They need to be positioned as savings vehicles, not investment vehicles. They are great alternatives to cd's and govt. bonds and poor substitutes for equities. If your guy wants to know exactly what will happen, put him in the fixed annuity.
EIA's are not designed to make a lot of money. If you're lucky, you can expect to earn a 4-6%, maybe a 7% return over a 10 year period.
They need to be positioned as savings vehicles, not investment vehicles. They are great alternatives to cd's and govt. bonds and poor substitutes for equities. If your guy wants to know exactly what will happen, put him in the fixed annuity.
With low caps and high spreads, what is the selling point of FIAs? Why bother with them if for all the risk your client will take all he/she will get is maybe an extra 2% reward over traditional fixed annuities. What am I missing here? It's gotta be something big and basic. Everyone and their dog in the insurance biz are touting FIAs. Why? For two points more (in a good year?)
FIAs have a great engine... great potential... but with the current low caps and high spreads they have a "governor" on them (for those who know go-karts!). Why bother with them. Where is the reward?
FIA's have better potential over longer period of time than myg fixed.
But a little research shows that North American Formula Choice is currently crediting 9.15% sp500 annual pt to pt no spread 100% participation.
Find the mnl equiv. of product. for direct sale. Yeah, cust service is slow. But get through the holding and the rep can e-mail you all paperwork.
ING and NA have 5% 5 year fixed.
OM has 4.75% 3 year fixed.
The reasoning for an fia is the potential to get a better return on your savings.
While the following is a 10 year product, consider any 5 year growth. While the market is sideways now, and may very well fall, it may also start recovery in within a couple of years.
Does your client want ~5% guaranteed, or is he willing to risk a minimal return for a shot at more over the course of the term? Or would he rather get 3 year guar., and review fia potential later?
For $1 of premium (numbers are for illustration only):
.10 admin & profit.
.65 on bonds to return premium and min. guar. interest. (price of bonds is dependent on interest rates and rate of return. Higher return offered by carrier in lieu of index options since fixed return has higher cost than guar. min.).
.25 (or whatever remains after cost of bonds) is used to purchase options. If market improves, options exercised; otherwise expired.
With low caps and high spreads, what is the selling point of FIAs? Why bother with them if for all the risk your client will take all he/she will get is maybe an extra 2% reward over traditional fixed annuities. What am I missing here? It's gotta be something big and basic. Everyone and their dog in the insurance biz are touting FIAs. Why? For two points more (in a good year?)
FIAs have a great engine... great potential... but with the current low caps and high spreads they have a "governor" on them (for those who know go-karts!). Why bother with them. Where is the reward?
Al
2% is 40% better than 5%. Your use of the word "governor" leads me to believe that you don't understand that these are savings vehicles and not growth vehicles. Think of it as removing the governor from a fixed annuity.
2% is 40% better than 5%. Your use of the word "governor" leads me to believe that you don't understand that these are savings vehicles and not growth vehicles. Think of it as removing the governor from a fixed annuity.
I disagree. I don't believe you understand the concept of risk as well as opportunity cost.
A true savings vehicle has zero risk and always some return.
With some FIAs there is the risk that you will get a zero return for several years and an overall lower return at end of term than had you been in a fixed investment.
Is it not possible that depending on the crediting method used that a five or ten year FIA could return absolutely zero?
You want the client to risk a total return of zero or a possible return of 7% when he can get a guarantee of 5%?
Risk should get rewarded, and to me the possibility of two points is not an adequate reward compared to the risk. My thinking is that if there is the possibility of zero return there should be the possibility of 100% or maybe 200% return. If I'm going to gamble away a sure 5%, I should have the ability to get 10 or 20 percent.
I've been running numbers the past few days... and please, please, please correct me if I'm wrong but the way that a lot of FIAs are structured, the only winners at this craps table are the agents and the carriers. The customers are the suckers.
Again, if you disagree, please engage in the dialectic. The mission (this board as well as this thread) is not about who is right and wrong (I'm happy to be wrong) but in the education of the participants.
I disagree. I don't believe you understand the concept of risk as well as opportunity cost.
A true savings vehicle has zero risk and always some return.
With some FIAs there is the risk that you will get a zero return for several years and an overall lower return at end of term than had you been in a fixed investment.
Is it not possible that depending on the crediting method used that a five or ten year FIA could return absolutely zero?
You want the client to risk a total return of zero or a possible return of 7% when he can get a guarantee of 5%?
Risk should get rewarded, and to me the possibility of two points is not an adequate reward compared to the risk. My thinking is that if there is the possibility of zero return there should be the possibility of 100% or maybe 200% return. If I'm going to gamble away a sure 5%, I should have the ability to get 10 or 20 percent.
I've been running numbers the past few days... and please, please, please correct me if I'm wrong but the way that a lot of FIAs are structured, the only winners at this craps table are the agents and the carriers. The customers are the suckers.
Again, if you disagree, please engage in the dialectic. The mission (this board as well as this thread) is not about who is right and wrong (I'm happy to be wrong) but in the education of the participants.
Al
You're the one who can't figure out how to sell an FIA to your own client, not me. You asked for help and I offered some help. I have no interest in the outcome of your situation and I definitely have no interest in arguing with you. Knowing about the product and knowing how to sell it are two different things. I happen to know both.
You're the one who can't figure out how to sell an FIA to your own client, not me. You asked for help and I offered some help. I have no interest in the outcome of your situation and I definitely have no interest in arguing with you. Knowing about the product and knowing how to sell it are two different things. I happen to know both.
Good luck to you and have a profitable day.
So much for the idea of this board and thread being a vehicle for education.
I'm sure this agent knows both product and sales. But my guess is that he is (from his post here) lacking in people skills so while he may have total product and sales knowledge, my bet is he lacks one last necessity... clients.
Folks, I think this man is a classic case of what is wrong with our industry. We get so wrapped up in product and learning (slick) sales techniques and scripts that we forget that one of our prime directives is to TEACH.
Who would want to entrust their money to someone with this man's attitude? If you can't teach in this venue, you can't teach face to face. I'm sure most of us here will agree that we are not product peddlers... but educators. I think this is a concept that this man needs to better appreciate.
Friends, you don't want to be the FIA salesman who just beats the hell out of the client until he or she forks over the money. There are a lot of guys out there like that (and I am assuming this man is one but I'm happy to be wrong if I am) and it is what the SEC 151a is trying to fix. I was against it, but after this agent's post, I'm starting to think maybe it is a good idea.
Anyway "dannysdad" thanks for what you DID post. It was instructive. I'm sorry you copped a 'tude' and decided to walk away... but that is your privilege.
So much for the idea of this board and thread being a vehicle for education.
I'm sure this agent knows both product and sales. But my guess is that he is (from his post here) lacking in people skills so while he may have total product and sales knowledge, my bet is he lacks one last necessity... clients.
Folks, I think this man is a classic case of what is wrong with our industry. We get so wrapped up in product and learning (slick) sales techniques and scripts that we forget that one of our prime directives is to TEACH.
Who would want to entrust their money to someone with this man's attitude? If you can't teach in this venue, you can't teach face to face. I'm sure most of us here will agree that we are not product peddlers... but educators. I think this is a concept that this man needs to better appreciate.
Friends, you don't want to be the FIA salesman who just beats the hell out of the client until he or she forks over the money. There are a lot of guys out there like that (and I am assuming this man is one but I'm happy to be wrong if I am) and it is what the SEC 151a is trying to fix. I was against it, but after this agent's post, I'm starting to think maybe it is a good idea.
Anyway "dannysdad" thanks for what you DID post. It was instructive. I'm sorry you copped a 'tude' and decided to walk away... but that is your privilege.
Al
Let me see if I have this right....You don't know how to make a sale to a client that doesn't trust you enough to not argue with you. You ask for help. I sincerely try to offer some assistance and you want to argue with me? Then you get your panties in wad when I tell you that I'm not interested in arguing?
Does it make you feel better to draw the attention of others to me, so that they will be distracted from the fact that you don't look too good here?
You don't know me or anything about me. I'm not in business to TEACH. I'm in business to DO. If my clients learn something in the process, that's great. Getting them to take action is way more important than to TEACH them. While guys like you are busy teaching, guys like me are busy getting your clients to take action.
I hope that SEC 151a passes, too. I have a Series 7 and I won't miss a beat. It will dislodge a lot of my competition from the game. EIA's are not a big part of my business. I've probably only done about $1,500,000 in EIA business, so far this year.
How can I walk away when there's nothing to walk away from? Are you going to buy something from me? If not, I'm not going to waste anymore time on you.
I'm not in business to TEACH. I'm in business to DO. If my clients learn something in the process, that's great. Getting them to take action is way more important than to TEACH them. While guys like you are busy teaching, guys like me are busy getting your clients to take action.
Are you going to buy something from me? If not, I'm not going to waste anymore time on you.
OK. If that attitude and agency methodology works for you, great. Happy to hear it. I disagree with the old school "It's all about me and all about the money" but there are still a lot of old guys (mentally) who follow your lead... so who am I to argue.
It's not how I do business, but I'm probably not even close to being as successful as you are... and probably never will be.
I believe in karma and that what goes around, comes around. I'm nice to everyone, I help everyone, I spend time with everyone... no fee, no commitment, no obligation.
Like I say, I'm sure I don't make even 30% of what you make. But you know something? My clients love me, my community respects and values me... and I like myself for how I conduct my agency. That (collectively) has to be worth something in life.
Is your client interested in converting to guaranteed income at some point? Is income less important than leaving something to beneficiaries?
If income is an issue, then I would go with a guaranteed minimum going into an income bucket. Show him 7.2% or even 12% simple interest accumulation. If leaving something to kids is important, but not paramount, then show him guaranteed income accumulation bucket with guaranteed 6% rollup for kids.
There's lots of amazing stuff out there (and coming out Tuesday) that makes the old FIA look like a Model A jalopy.
Bad news Al. You hijacked your own thread and turned it into a shouting match. That will qualify you to join my ignore list. That will make three so far.
RIP AL3
------------------------------------
"People who think they know it all really annoy those of us who do"
Have you noticed Ben Bernanke in the last few days and the smug look on his puss.
Guess what? Virtually all his assets are in annuities.
That's a good point. Nobody thinks about the $$$ value of their "emotional assets". All my clients with FIA are emotionally wealthier now (too bad my current shop won't allow me to sell them).
OK. If that attitude and agency methodology works for you, great. Happy to hear it. I disagree with the old school "It's all about me and all about the money" but there are still a lot of old guys (mentally) who follow your lead... so who am I to argue.
It's not how I do business, but I'm probably not even close to being as successful as you are... and probably never will be.
I believe in karma and that what goes around, comes around. I'm nice to everyone, I help everyone, I spend time with everyone... no fee, no commitment, no obligation.
Like I say, I'm sure I don't make even 30% of what you make. But you know something? My clients love me, my community respects and values me... and I like myself for how I conduct my agency. That (collectively) has to be worth something in life.
YMMV.
Al
Who told you that you can't make a lot of money and still have people like and respect you? Who told you that you have to screw people to make money?
Personally, I find you to be arrogant, whiny, and unlikeable. Go ahead and get the last word out of your system then get on with the rest of your life.
Bad news Al. You hijacked your own thread and turned it into a shouting match. That will qualify you to join my ignore list. That will make three so far.
RIP AL3
I didn't think I was shouting. I was mildly disagreeing. I think you are right to ignore me. I know I'm outspoken and that I say things people (like you?) are happier not to hear or think about. Indeed, I think more people here should follow your lead.
You did the right thing. I wish others who can't hold a civil conversation and engage in a professional dialectic (at least most of the time... we all go a bit 'nuts' every so often) would ignore not only me... but others who raise their blood pressure to dangerous levels.
This board would be so much better off without the constant bickering an flaming. Perhaps if everyone set the "ignore" switch to all of those whom they simply can't deal with... this board (the standard forums, not the non-insurance one which was designed for bickering) might become more of an educational venue and less of demagogic one.
I disagree. I don't believe you understand the concept of risk as well as opportunity cost.
A true savings vehicle has zero risk and always some return.
With some FIAs there is the risk that you will get a zero return for several years and an overall lower return at end of term than had you been in a fixed investment.
Is it not possible that depending on the crediting method used that a five or ten year FIA could return absolutely zero?
You want the client to risk a total return of zero or a possible return of 7% when he can get a guarantee of 5%?
Risk should get rewarded, and to me the possibility of two points is not an adequate reward compared to the risk. My thinking is that if there is the possibility of zero return there should be the possibility of 100% or maybe 200% return. If I'm going to gamble away a sure 5%, I should have the ability to get 10 or 20 percent.
I've been running numbers the past few days... and please, please, please correct me if I'm wrong but the way that a lot of FIAs are structured, the only winners at this craps table are the agents and the carriers. The customers are the suckers.
Again, if you disagree, please engage in the dialectic. The mission (this board as well as this thread) is not about who is right and wrong (I'm happy to be wrong) but in the education of the participants.
Al
Al,
FIA's have a minimum guaranteed rate of return - think 2-3%.
Typically, when one thinks of risk, it is to the principal. If you go on the basis that carriers will be around to return premium, plus any interest, then there is no risk in the traditional sense.
Is it possible that an FIA could return 0% over 5 or 10 years? Let's modify the question:
Is it possible that an FIA could return the minimum guaranteed interst rate over 5 or 10 years?
Well sure, worst case scenario. How much chicken little have you (your client) eaten?
Do you expect the market to be down for a full five or 10 years? Or a majority of those years with little growth?
Consider this:
100k 5 years @5% compounding will be $127,628.
Now, an FIA with 8% cap, using nasdaq.
If started in 2000, there would be 3 years of no growth. Beginning in 2003, nasdaq started growing:
Who told you that you can't make a lot of money and still have people like and respect you? Who told you that you have to screw people to make money?
You did. Asked and answered.
Personally, I find you to be arrogant, whiny, and unlikeable. Go ahead and get the last word out of your system then get on with the rest of your life.
Correct me if I'm wrong but I hypothesize that you find a lot of people, in your words, "arrogant, whiny, and unlikeable." See my reply to "rabbi" above. You might want to follow his lead. I suggest it.
Question for annuity pros
Linear Mode
