Agent Arrested and Convicted for Selling an Annuity.

[scagnt83]

You really need to read the appellate decision. I've copied it so you can see what they said literally word for word on this subject:.

I am much more aware of the facts of this case than you seem to be. And I have read the recent decision along with about every other court decision relating to this case. Like I have said multiple times: I do not disagree that the sale was legal and conformed to state suitability guidelines.

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This is the appellate judge who KNEW it was a long term annuity. HE had NO issues with it.

Actually he only ruled that the sale did not constitute theft. He made no ruling on the suitability of the product. Only that it was not theft.

 

[sonic1]

His job was not to rule if it was suitable. But once again, read the response he wrote in his decision. He goes through all the reasons why this couldn't of been unsuitable. That is literally what that paragraph addresses.

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And please don't misinterpret my position as saying you're not familiar with this case in anyway. Or that in fact you are not more familiar with it than I. My whole point is just to show that age was not a factor that he considered when addressing the suitability.

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What I meant to say, was that age was not an issue when he addressed its suitability.

 

[scagnt83]

You might be surprised to know that over 90% of ALL fixed and indexed annuities end up being passed on as a legacy. Call any carrier you use and challenge my information.

Nope, not surprised at all considering they are mostly designed as a retirement vehicle... and since retirees eventually die......

And one of the main advantages of an Annuity is that it is an efficient way to pass money on to loved ones.

Any experienced annuity agent is well aware of the stats of this industry and the benefits of the product.

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I understand that reasonable people can disagree but just saying a long term annuity is bad because the client is older gives no reason. It's just a random statement. Specifically, if liquidity is fine what's the issue going with better caps?

In this case the issue is that he went well beyond life expectancy.

Today, an 80 year old has a life expectancy of 11 years. When this particular transaction happened it was less than that.


I understand that she did not intend to use it and that it was legacy money. But she also was not rich either. Sh#t happens in life. Things can change very quickly. There is no reason to lock money up longer than needed, especially late in life. That is a basic financial planning principle.

He could have accomplished similar results with a shorter term product.

 

[sonic1]

Once again, if liquidity is an issue then you shouldn't be selling it to them in the first place. Under your theory of a 7 year, they'd have to wait a full 7 years to not have their money under a surrender. So if "stuff" happens with your 7 year they'd still have to wait 2.65 years till life expectancy. And no, you cannot accomplish similar results of a 14 year annuity with a seven. I may defer to your understanding of this case but the math is not a matter of debate. When we design annuities, there is a clear advantage to longer term products. Until you learn how they're priced you'll probably never understand.

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Once again,

"there was no evidence that Schuber had any intention or need to make such a withdrawal, the penalty did not apply if she became hospitalized or moved to a long-term care facility"

When stuff happens, our industry has built in safeguards for our clients.

I definitely understand your caution and appreciate it. Let's leave it as a professional disagreement for which reasonable persons differ.

 

[scagnt83]

And as well, it IS rare if not almost impossible to find similar caps of the same crediting method of in your example a 7 year vs a 14. You were comparing an AP2P vs a monthly average. The monthly average would historically have to return right at 15% to get the cap of 7. Therefore, when the markets up 9.5% and you're getting 9.5% on the 14 year, your client with the monthly average will more than likely only receive a 4.5% credit. Take that times 7 out of 10 years and you're down over 30%. In general, the only time that they would be close is when there is a bonus on the longer term annuity but not on the shorter one. Finally, the AP2P cap for the Great American policy you're referring to is actually 6%. It is what actuaries call "bonused". Meaning it's window dressed to make it more attractive on year one. It will, as sure as the day is long, drop considerably after year 1 (yes I sell both carriers, and they both are good companies). As far as Glenn's marketing practices, I am not familiar with any of it. Marketing an IAV with its rollup rate as an account value is generally misrepresenting the annuity (with the exception of Athene's Benefit 10). If you'd like to PM me I'd be willing to help you better understand how annuities are built and priced.

I was going by memory last night on the GA caps.

The 7 year product is not bonused. You are thinking of the 10 year product (American Valor) which currently has a 2% Bonus.

If you mean that the 6% cap on the Legend is a "bonus" cap, then you know something I dont. Most any fia allows for drops in the caps. And most have gone down on renewal over the past 6 or 7 years.
But in my experience flex premium IAs have more of a reason to keep caps at decent levels. (if they didnt the client would just go with another product)


6% or even 5% is still a very strong Ap2p Cap. It is nothing for a conservative 80 something year old to turn their nose up at. And lets remember that with Glenn's case we are talking about CD money that was making less than 2%.



And if you do look at historical models of caps you know that nothing is ever consistent. And years that Ap2p is 0, MA might be positive, and vice-versa. Nothing is definitive or as simplistic as your example makes it out to be.

Dont get me wrong, I dont use MA much. I like Ap2p along with a portion in MS if its an option. But you cant say that over 10 years if Ap2p does 9% per year the MA will do 4.5%.

It all depends on the market timing. If you take 5 different scenarios you will get 5 different results.


But to bring this discussion back on point; if a person needs to chase 9% or 10% returns a Fixed Indexed Annuity is not the right product for them.

 

[sonic1]

I'm not referring to a bonus on the product. When there is an inflated first your cap we call it "bon used". I am not once again referring to a premium bonus or an interest bonus.

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I think we're on the same page with most of this. When I say a product that offers higher caps is better I don't mean that they are "chasing returns" in the sense of risking their money. Anyone whether they are conservative or not if given the chance would prefer higher potential if the downside is still zero. And yes you are correct, you can run a scenario that will show any crediting method in a positive or negative light. I have the good fortune of being able to back test all 14,000 buy dates for the S&P. That is where I get my historical returns from. Not from a recent ten-year or a selective ten year but actually by using a long-term all inclusive calculator that our company and many of our clients (insurance carriers) use. It really is about the math. I don't mean that disrespectfully.

 

[scagnt83]

Once again, if liquidity is an issue then you shouldn't be selling it to them in the first place. Under your theory of a 7 year, they'd have to wait a full 7 years to not have their money under a surrender. So if "stuff" happens with your 7 year they'd still have to wait 2.65 years till life expectancy. And no, you cannot accomplish similar results of a 14 year annuity with a seven. I may defer to your understanding of this case but the math is not a matter of debate. When we design annuities, there is a clear advantage to longer term products. Until you learn how they're priced you'll probably never understand.

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Liquidity should always be an issue in an agents mind. Because it is always an issue in a clients mind.

And keep in mind that Glenn sold a 10 year product with a 5 year mandatory annuitization.

So it was not a true 14 or 15 year product with caps well above the others.

I am fully aware that a 14 year product can accomplish different goals.
What you dont seem to understand is that an 80+ year old very rarely needs the chance of those higher returns when you take into account their age and LE.

I am well versed in how annuities are priced and modeled.
I am also well versed in real life selling, suitability, and financial planning.
And unlike most agents, I hold myself to a higher standard than just simple suitability.

Again, in most situations, the same goals can be achieved with a shorter term product. This has nothing to do with the products, and everything to do with the real life needs/wants of the majority of 80+ year olds.

A product by itself is not good or bad. It is all in how it is used.

I realize that a 14 year product might make sense in some situations for an 80 year old. But not in most.

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When I say a product that offers higher caps is better I don't mean that they are "chasing returns" in the sense of risking their money. Anyone whether they are conservative or not if given the chance would prefer higher potential if the downside is still zero..

Not true. I see it every day with clients.

No offense, but you sound like an internal wholesaler for an insurance company....

 

[sonic1]

I'm actually an agent who also works at an actuarial firm. I've been in the business since 1988.

Once again, I believe you're going in with a good heart to your clients. But know that I am sitting in front of as many clients as you in any given month. The difference is, I understand these products more intimately and it helps me help my clients.

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And yes, it is true... Anyone given the choice of higher caps with the same downside risk chooses higher caps. It's silly to argue otherwise.

 

[scagnt83]

And yes, it is true... Anyone given the choice of higher caps with the same downside risk chooses higher caps. It's silly to argue otherwise.

Your leaving out so many variables in this equation it isnt even worth discussing anymore.

There are downsides other than negative returns.

Negative Return vs positive return is not the only variable that should be considered in an annuity purchase. Your statement is too simplistic to be relevant to a real life situation, especially the one this thread is about.

But as long as your sales pass minimum suitability guidelines no one will stop you. Doesnt mean it wont bite you in the ass one day like it did Glenn.

In Glenn's case, the client probably fully understood the product. But it didnt matter. Because the son, bank, DOI, AG, Judge, & Jury where only interested in the surrender charge and the clients mental capacity at the time of sale. The product was explained to them all multiple times.

 

[VolAgent]

And yes, it is true... Anyone given the choice of higher caps with the same downside risk chooses higher caps. It's silly to argue otherwise.

That is an overly simplistic statement. Yes, all things being equal, a higher cap is better.

But a 14 year product has a lot more risk than a 7 year product. If you fail to grasp those 7 more years of losing access to your money is not a risk, then I'm a bit worried that you are missing the picture.