Has anyone ever heard that it is Unethical to offer a bonus annuity to help cover the surrender charges of an annuity that is being replaced.
I am currently working on an individual who has an annuity that is valued at about 300K. This annuity represents a very small percentage of her networth so suitability is not a concern. The customer is currently invested in a fixed indexed annuity with an 7% surrender charge, 30% participation, monthly averaging, and a 2.5% spread tied to the nasdaq.(HORRIBLE) She has owned this annutiy for about three years and her sole purpose of this annutiy is to help supplement her income in another 7 years. I suggested that we replace her existing annuity for a bonus income annuity, that she could annuitize with in her time frame. I will not go into the particulars, lets just say that it is by far a superior product.
The bonus annuity will pay a 10% bonus to offset the penalty she will sustain when making the change. The agent that sold her the original contract has told her that it is ILLEGAL for an agent to offer a bonus to offset such penalties, and that he would have my license revoked........LOL. I called my local DOI and they said the would have to check into it and get back to me.
HAS ANYONE EVER HEARD OF THIS?
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I thank you for the great article. I would agree that there are a great many agents who do not know how to present the pro's and con's of a bonus annuity. I always start a presentation by saying:
"There is no perfect annuity, there is good and bad with all of them." "The trick is to find the good you like and the bad you can live with."
I would deduce from reading the article that that individual that I spoke of in my first post would be well suited for the annuity that I presented, because all of the material facts were discussed and disclosed. I would say the biggest problem in the article was the the plaintiff claimed that they were never told of the bonus recapture charges and of the reduced interest they would receive as a result of taking the bonus. As long as the annuity is presented in a manner whereby the client understands that the company is paying the bonus and the guaranteed income interest rate for the clients future business in the form of taking an income then it would be a suitable product. Please correct me if you think that I am wrong, or if you would like to offer a different perspective. I thank you in advance.
Has anyone ever heard that it is Unethical to offer a bonus annuity to help cover the surrender charges of an annuity that is being replaced.
I am currently working on an individual who has an annuity that is valued at about 300K. This annuity represents a very small percentage of her networth so suitability is not a concern. The customer is currently invested in a fixed indexed annuity with an 7% surrender charge, 30% participation, monthly averaging, and a 2.5% spread tied to the nasdaq.(HORRIBLE) She has owned this annutiy for about three years and her sole purpose of this annutiy is to help supplement her income in another 7 years. I suggested that we replace her existing annuity for a bonus income annuity, that she could annuitize with in her time frame. I will not go into the particulars, lets just say that it is by far a superior product.
The bonus annuity will pay a 10% bonus to offset the penalty she will sustain when making the change. The agent that sold her the original contract has told her that it is ILLEGAL for an agent to offer a bonus to offset such penalties, and that he would have my license revoked........LOL. I called my local DOI and they said the would have to check into it and get back to me.
HAS ANYONE EVER HEARD OF THIS?
I seems to me that the client was definitely sold a "dog" as we call it on the consultant side of the business. I have not heard of any laws that would cause a revocation of your license. I think the key here is disclosure of the product and product suitability, which from your other posts that I have read I am sure that you know what you are doing. The agent is definitely trying to conserve this case. But, if you would like I will hop on the horn Monday and talk with a couple of contacts I have at the home office about suitability/compliance to see what they say on the subject.
Did you happen to use one of the income bucket annuities?
I seems to me that the client was definitely sold a "dog" as we call it on the consultant side of the business. I have not heard of any laws that would cause a revocation of your license. I think the key here is disclosure of the product and product suitability, which from your other posts that I have read I am sure that you know what you are doing. The agent is definitely trying to conserve this case. But, if you would like I will hop on the horn Monday and talk with a couple of contacts I have at the home office about suitability/compliance to see what they say on the subject.
Did you happen to use one of the income bucket annuities?
It is definitely a dog! I am not a fan of running hypothetical illustrations on past EIA performances; but did so on this particular dog for my own curiosity. The last 10 years this product (DOG) would have earned 2.2% assuming no spread.........LOL, throw the 2.5% spread in there and the product falls down to its guaranteed minimum which is 1.5% on 90% of the premium. I did sell an "income bucket annuity" as it was a good fit for the client. I will be calling compliance Monday morning to verify, and will write back to give an update.
I did sell an "income bucket annuity" as it was a good fit for the client. I will be calling compliance Monday morning to verify, and will write back to give an update.
So was it the Aviva Income Select Bonus or the Allianz MasterDex X?
Tell that to my clients who I took out of VA's last year; And yes I am securities licensed. Every annuity has good and bad points. The trick is to find the good you like and the bad that you can live with. Go back and try to develop a half decent VA and then come back to the board and post something meaningful. I look forward to your future posts.
Spoken like a true securities only guy. I once thought that way as well. Products have gotten much better with much shorter surrender periods. And lets not forget, the index annuity should never be compared with a securities investment. They are two different animals and not designed to do the same thing.
How much wealth has been lost in the market over the last 12 months? Now look at how much wealth was preserved in index annuities in the last 12 months. They aren't for everyone, but you shouldn't paint with such a broad brush.
I keep hearing "in down times like this the client would have been better off with an annuity."
No - in down times like this the client would have been better off with a CD.
I believe you are taking that quote a little out of context. Whoever said that was likely referring to being better off than if in the market. In addition, there are features that could make an index annuity more attractive and beneficial than a CD.
I keep hearing "in down times like this the client would have been better off with an annuity."
No - in down times like this the client would have been better off with a CD.
The problem with a CD is that they were never intended to keep with the core rate of inflation. The two things that the Federal Government keep out of the inflation rate (CPI) is food and energy. The gov't releases a statement stating that inflation was only 4% when in fact it is really around 10% when factoring in the two aforementioned sectors. The gov't has an incentive to make the inflation rate look lower than what it really is to keep China and the other foreign governments from liquidating their positions in US currency. Yes in a down year a fixed interest rate or a CD is better than no return at all. The client I am referring to on here is wanting a lifetime income only. The Aviva product that is mentioned on here pays a guaranteed 7.2% on the income side.
Believe what you like on wikipedia, but CD's were designed to increase the cash reserves of banks and financial institutions while paying a very modest interest rate. Again the problem with the reseves of these establishments is that the reserves have been allowed to dwindle down to next to nothing; leaving very little room for error. And then you have IndyMac need I say more.
The Aviva product that is mentioned on here pays a guaranteed 7.2% on the income side.
What does that really mean? Assuming there is 100,000 in the annuity when one starts their income stream, are they guaranteeing the recipient and/or heirs will receive the 100,000 plus 7.2% per year? How can a company truly guarantee such a yield, seems a bit misleading.
I keep hearing "in down times like this the client would have been better off with an annuity."
No - in down times like this the client would have been better off with a CD.
Jack,
In a down market most index annuities have a reset feature to allows the annuitant to start the following year from the new starting point. Hypotheticall speaking if a client bought an index annuity January 1st and the S&P500 was at a $1000 and the following January of the next year the S&P500 was at $900. The client's upside performance would have a new starting point at $900. So the client would now participate in the markets performance upside from $900. It is important to remember all index annuities are not the same, please be careful in selecting the best product for your clients needs.
The Aviva product that is mentioned on here pays a guaranteed 7.2% on the income side.
What does that really mean? Assuming there is 100,000 in the annuity when one starts their income stream, are they guaranteeing the recipient and/or heirs will receive the 100,000 plus 7.2% per year? How can a company truly guarantee such a yield, seems a bit misleading.
First of all, there is nothing at all wrong with taking someone out of a poorly designed annuity and using the bonus of the new annuity to pay the penalty on the old annuity. It is done all the time. Any decent insurance company is going to put you through the suitability wringer on this to make sure you are doing the right thing.
You have to be careful that you are talking about a NET plus since on the transfer the penalty is taken out before the new bonus is applied. Also, you had better have a significantly better product and a solid reason for making the move.
On the 7.2% issue, that amount is only guaranteed as a minimum amount of growth on the INCOME SIDE of the ledger, or "income bucket" as we prefer to call it. What I tell clients who can't believe someone can pay them 7.2% is:
"Look at it from the insurance company side. They aren't really giving you anything until you start taking income. At that point they don't guarantee a minimum. In the meanwhile, they have your money and are giving up nothing but some entries on a ledger sheet that is carried over to your annual statement."
"The longer you delay taking income, the bigger your account gets and the larger the percentage of income you can take. BUT, you are now older and the actuaries know how much guaranteed lifetime income you are likely going to see."
The whole thing is brilliant from the insurance company perspective. It can also be a great deal for the customer who wants guarantees as to how much income they can get at any particular stage of their life.
Unethical Bonus Annuity Presentation
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