Annuity Question

[padthaiforlunch]

I would agree. My point was, if it is ok to do it with an FIA, why is it not ok to do it with a variable annuity?

Not talking about 403(b) contributions here.

Many VA's I run across were set up with money that was already in mutual funds. If it's IRA money, they already have tax-deferral, so what's the point of a VA except the commission? Sure, you have guys selling the income rider, but that's a pretty thin reed.

Not sure what you mean here. To the best of my knowledge, you can't put one annuity inside another annuity.

Sorry, typo. I meant:

Wrapping an IRA in a variable doesn't pass the smell test.

 

[VolAgent]

Not talking about 403(b) contributions here.

Many VA's I run across were set up with money that was already in mutual funds. If it's IRA money, they already have tax-deferral, so what's the point of a VA except the commission? Sure, you have guys selling the income rider, but that's a pretty thin reed.

I never assumed you were talking about 403(b)s.

Again, I fail to see the difference between putting an FIA versus a VA, both with income rider, inside an IRA. Both are primarily bought for the income rider, so the main difference between the two is where the account value is placed.

A number of VAs will even let you get fairly aggressive with the investments and still get the benefits of the income rider. I see that as a huge advantage when the objective is income.

Neither of these products is perfect, and I've found just as many if not more unhappy with their FIA versus their VA. I guess it just depends on how it was sold and when.

I do find it amusing how both VA and FIA guys seem to hate each other with a passion.

And Chapress, I think a lot of people will be singing exactly the opposite tune in a few years when their VA is up massively, and the FIA is lagging.

 

[padthaiforlunch]

I'm not a fan of income riders.

 

[TRSecurity]

And Chapress, I think a lot of people will be singing exactly the opposite tune in a few years when their VA is up massively, and the FIA is lagging.

The key word here is "think." Regardless of how smart you are, you can't predict the market. With a FIA, you know what you are getting into at a minimum.

Of course if pork bellies go up big during the same time you have a FIA, you can say - "I shoulda coulda bought pork bellies." But, I take this away from Chapress's comments - you won't be worse off with a straight-up FIA if market conditions are bad.

Depending on the age and goals of the client, I think income riders can be a great thing. They are a planning tool. (I think a combination of different products usually makes more sense than putting everything in one type.)

The main difference between an income rider in a FIA versus a VA - what if the client changes their mind? What if they decide not to take the income stream and need to walk with a lump sum? Which of these products would provide a higher walk-away value under various market scenarios?

 

[VolAgent]

The main difference between an income rider in a FIA versus a VA - what if the client changes their mind? What if they decide not to take the income stream and need to walk with a lump sum? Which of these products would provide a higher walk-away value under various market scenarios?

I never claimed I can predict the market. There isn't a person alive who can. In the long term, the market will go up as it is a reflection of the economy. And trust me, if the economy suffers long term, so will FIAs.

What I find amusing is everyone's attempt to make these products a one-size fits all. There is no perfect product, and they all have uses and expenses. There is nothing wrong with FIAs, but to claim that they are "superior" to VAs is misleading. They are different with different risks.

 

[padthaiforlunch]

But FIA's tend to serve my clients better than VA's.

 

[VolAgent]

But FIA's tend to serve my clients better than VA's.

Then you better sell some FIAs!

 

[Larry Tew]

Many VA's I run across were set up with money that was already in mutual funds. If it's IRA money, they already have tax-deferral, so what's the point of a VA except the commission? Sure, you have guys selling the income rider, but that's a pretty thin reed.

Sorry, typo. I meant:

Wrapping an IRA in a variable doesn't pass the smell test.

Sorry, but your reasoning on this is what doesn't pass the smell test. Why would a person put a tax deferred in a tax deferred? Because the tax deferral of the annuity (fixed or variable) isn't why the annuity is used. The main reasons to use the annuity are the income options and the death benefit protection in a down market. Deferral has nothing to do with it, and that fact is now a footnote or disclaimer on practically all qualified plan annuity illustrations.

Some say annuities have fees. Mutual funds don't have fees?

Some say people sell annuities for the commission. Mutual funds don't pay commission?

What about non-qualified mutual funds moved to annuities? The biggest reason is to manage the increasing tax created when one compounds interest or dividends in a taxable environment such as non-qualified mutual funds.

 

[nfsmarketing]

Just curious, it seems like you primarily sell FIAs. Do you put any in retirement accounts?

(To the Suzie Orman statement) YIKES.... RUN!!!
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I'm not a fan of income riders.

There are a number of pretty effective income riders available on fixed, indexed annuity products that either have no cost or a small fee (usually less than .80%). When the client definitely wants to take money out, why not?

 

[scagnt83]

It seems that most agents either lean towards VAs or to the fixed side. It seems like only a small amount of us sell a fair amount of both.

Personally I dont care what product I sell as long as it the best solution to fit my clients needs.

Lots of clients want to be in the market. Lots of clients have the risk tolerance to be in the market. But lots dont.


Why put a VA in an IRA?
Easy, the riders available. Or in other words, the security it provides for the riskier part of your portfolio.
It allows you to take more risk with your investment choices but still have some security associated with them.
(I tend to prefer accumulation riders, but income or DB riders are very effective too, and I have been utilizing them more and more.)

Also, the investment options available. Its hard to duplicate some of the options available with a smaller amount of money to work with.

A VA with a good company will be no more expensive than comparable mutual funds in a brokerage account.


And the long surrender period argument that was mentioned earlier is not valid. There are VAs out there with no surrender charges whatsoever. And there are plenty of IAs with looooonnngggg surrender charges on them.



I totally agree with Larry's assesment of moving NQ mutual funds into a VA for the tax deferral.
The compounding interest and multiple taxation of NQ mutual funds can destroy a portfolio; especially if the money manager is not trading in a tax efficient manner.


Dont get me wrong; I am a huge fan of IAs and sell them often.
They are very effective and a great way to get guarantees along with increased up side potential. I find them a great fit for many clients portfolios.

After accounting for fees, you need to make a consistent 8% in a VA to keep up with a good quality IA. And we know that when in the market you have some years that are up, and some that are down. So in reality you will need a 9%-10% average return in your VA to match an IA.
Now this is totally possible, but you will have to go with riskier investment options to achieve those returns. This is why the riders are so valuable.


Also, there are less variables in how the product works with VAs. If the market has a 30% year, the company cant go and cap the returns at 5%.

I look to IAs for the client that says they are comfortable with a 5%-8% return.

There are some clients that are in the market because they feel that they "have to be" to get where they need to be; but at heart they would like less risk.
IAs are a great fit for many people like this.

There are some clients that "want" to be in the market and are currently in mutual funds/stocks/whatever, but know that they need to start hedging their risk since they are closer to retirement.
VAs can be a great fit for this type of client. And there are LOTS of these clients out there.


There are lots of agents who are against VAs for whatever reason. I feel a lot of it is because of the lack of being registered. Also, a lack of knowledge about current VA options probably has a lot to do with it as well.

And there are a lot of agents who just dont want to risk having a client come to them and ask why their account is down. If due diligence is done at the beginning it will help minimize client frustration in bad years.
Also, proper asset allocation helps with this too. Not "putting all the eggs in one basket".
If you split the money between a FA/IA and a VA, then they still will have positive returns for the year and will not be down as much.

Clients have multiple needs and problems; use multiple products to help solve them.
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And trust me, if the economy suffers long term, so will FIAs.

.

Very true!!

If any of you think that if the economy suffers long term that the IAs you sell will somehow thrive, think again. It will be "hello guaranteed rates" time.
And we all can see what the current rates are in the current economic climate....

You may say "well thats what I have the riders on there for", but there are a lot juicier riders on VAs if your selling riders.
Its rare that I sell a rider on an IA.

But if I am selling riders; imo the VA riders are superior to the IA riders available. And in the long run will be used more often.