Client asking about commission

JJ2713

Guru
274
How do you handle a client asking about the commission you're making from selling the client an annuity?

Whether it's a SPIA or DIA with a 2-4% commission or a FIA with a 5-7% commission.
 
How about countering with this:

Mr Client, do you ask that question of your auto insurance agent? Your homeowners insurance agent? When you buy goods and services do you ask the providers how much profit they are making off the sales? Or how much the salary is of the individual you are dealing with? Mr Client, you work for the XYZ Widget Company. When you sell widgets do you tell your customers how much profit you make from the sales or what your salary is? Mr Client, I make a living selling these products and you are getting good value for your money. My commission is not really something you need to know.

OTOH, Leveena has a good idea, too.
 
How do you handle a client asking about the commission you're making from selling the client an annuity?

Whether it's a SPIA or DIA with a 2-4% commission or a FIA with a 5-7% commission.

You asked this question in 2 forums... note there are regulations regarding the answering of that question as it is specific to annuities... may want to read through some of your companies instructions.
 
How about countering with this:

Mr Client, do you ask that question of your auto insurance agent? Your homeowners insurance agent? When you buy goods and services do you ask the providers how much profit they are making off the sales? Or how much the salary is of the individual you are dealing with? Mr Client, you work for the XYZ Widget Company. When you sell widgets do you tell your customers how much profit you make from the sales or what your salary is? Mr Client, I make a living selling these products and you are getting good value for your money. My commission is not really something you need to know.

OTOH, Leveena has a good idea, too.

In the age of transparency and "fiduciary standards" with money management matters... it's very much an issue and people want to know. They want and feel a need to know why you're selling a particular policy.

I would talk about my own due diligence process as to how you pick the policies you offer.

Understandable policies & index interest segments: some of these policies are so confusing that if *I* can't understand them, it's reasonable to assume that others won't.

Issue ages: If an annuity contract is limited to age 65 versus 80 (as an example in California), there's usually a reason.

There are other factors, but it takes a fiduciary mindset to do your due diligence before you offer a policy to the client. Then after doing all that, the compensation is based on the premiums paid to the contract and how long the money is promised to the insurance company.

Also, should it come up for surrender charges, I'd review this article:

How to explain annuity surrender charges to avoid complaints | ThinkAdvisor
 
How about countering with this:

Mr Client, do you ask that question of your auto insurance agent? Your homeowners insurance agent? When you buy goods and services do you ask the providers how much profit they are making off the sales? Or how much the salary is of the individual you are dealing with? Mr Client, you work for the XYZ Widget Company. When you sell widgets do you tell your customers how much profit you make from the sales or what your salary is? Mr Client, I make a living selling these products and you are getting good value for your money. My commission is not really something you need to know.

OTOH, Leveena has a good idea, too.

To me, there is a significant difference between the sale of an annuity and these other products. In each of these above scenarios the customer is paying for an identifiable product or outcome. With an annuity sale the customer is giving a set amount of dollars in return for a payout. The more dollars that go towards commissions, the less the eventual payout. In the scenario of a car or home insurance, the amount of dollars paid does not change the eventual payout.
 
In the age of transparency and "fiduciary standards" with money management matters... it's very much an issue and people want to know. They want and feel a need to know why you're selling a particular policy.

I would talk about my own due diligence process as to how you pick the policies you offer.

There are other factors, but it takes a fiduciary mindset to do your due diligence before you offer a policy to the client. Then after doing all that, the compensation is based on the premiums paid to the contract and how long the money is promised to the insurance company.

I agree.

And of course, going through a extensive process with the client to determine what they need and fits them best is the fiduciary way, as well as the logical/moral way.

There are people who have been a bit brainwashed into thinking that earning a commission is evil and not in their best interest. The fee-only financial advisors market this angle a lot.

However, sometimes a financial issue/problem can only be solved with a financial product and not a stock market investment strategy. And a commission is paid on financial products.

So, dealing with these people can be difficult when they ask about the commission. And if the commission is rather high, it can be a problem.

For example, if they want lifetime income and that's the best strategy to use for their situation, an annuity that pays lifetime income fits. But if they want liquidity and the ability to cancel the contract, then a SPIA won't work, only a FIA+'lifetime income rider' works. But the FIA can have double commission of a SPIA, depending on the surrender charge.

Anyway, I'm just saying it can be a challenge discussing commissions with clients who want to know.
 
It's only an issue if you don't know how to respond.

First - if the commission isn't big enough... you aren't solving a big enough problem, or aren't solving it on a large enough scale.

Second - the "Fiduciary angle" only applies to securities selection within a given portfolio. Take them back in time when broker/dealers like Merrill Lynch were "market makers" for various stocks and earning commissions on each share of stock they sold.

Market Maker

The term "fiduciary" has been co-opted by the media and investment advisors (rather successfully) in order to turn people against commission-based products. The problem, is that most people don't understand the value proposition of these commission-based products or the contract protections of insurance products.

This is one of my favorite articles on the "fiduciary farse":
The Evolution of Lee Munson
 
Back
Top