Commission payout schedules

[ValeRosso]

Is the client taking income immediately or much later?

Just remember that you don't want to have your compensation based on a depreciating asset.

That said, what you posted looks like an Athene schedule. I would have no issue taking a trail from them. Most of the reps I work with use option 2.

It's an Athene schedule. What does taking money immediately or later change with commissions, or why did you bring that up?

 

[ValeRosso]

The income aspect is important as well. Is the client planning to keep it for life? Or is this just for accumulation and going to get moved to a new annuity after the surrender period?

If its income based, then when will they start taking income? If its before y10 then your original math does not add up due to a depreciating asset. Even more reason to take 1 or 2.

If its purely for accumulation, they might not even have it in 10 years unless thats just the surrender schedule. And that is a whole other issue if you are selling 10y products for accumulation in the current inverted rate environment.

This one is going to be a lifetime payout, so they'll presumably keep it for life. They'll be taking income after one year.

What do you mean by depreciating asset here? I multiplied the commission rate by the original principal. Is the commission rate instead prorated as time goes on, so I should have ran a decreasing principal calculation? If so, then yes, my math was wrong. I assumed you use the original principal for the calculations in Option 2 and 3.

 

[Allen Trent]

I would personally prefer the trails to build residual income. Also, me being higher current income tax bracket from self employment could defer that up front 5% into 2-3% after taxes.. might be better net building residuals for transitioning to slowing down or retiring years

Just look at what most people in the financial industry have done. They have went from up front commission products to products that have trail or AUM based Income.

 

[Life Hawk]

All up front, 100% each time.

Why?
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Granted, this is a very unique situation, particularly for those with broker/dealer licensing... but it still would make me leery of EVER taking a trail commission option.

Agreed... position the product, take the commission and move on. Too many things can happen, and very little to no control.

 

[Allen Trent]

Agreed... position the product, take the commission and move on. Too many things can happen, and very little to no control.

Why not sell A share mutual funds instead of being RIA & getting AUM fees like so many are moving to? Several in this thread saying to take the lump sum have been going this route with investments

 

[DHK]

Why not sell A share mutual funds instead of being RIA & getting AUM fees like so many are moving to? Several in this thread saying to take the lump sum have been going this route with investments

Vested interest from all parties involved, particularly with the RIA business structure.

Trail commissions are still based on the insurer's compensation and their own general investment account performance, securing reinsurance on annuity promises, etc.

Those risks aren't in RIA investment portfolios... but they don't have the guarantees of annuities either.

 

[Life Hawk]

Why not sell A share mutual funds instead of being RIA & getting AUM fees like so many are moving to? Several in this thread saying to take the lump sum have been going this route with investments

Because I tend to spend a majority of my time on the life side of things, I just feel that this is the better model for my own business. That's not to say, that there may be others that see it differently. I like knowns over unknowns. I practice this with my clients, and I practice what a preach.

 

[scagnt83]

This one is going to be a lifetime payout, so they'll presumably keep it for life. They'll be taking income after one year.

What do you mean by depreciating asset here? I multiplied the commission rate by the original principal. Is the commission rate instead prorated as time goes on, so I should have ran a decreasing principal calculation? If so, then yes, my math was wrong. I assumed you use the original principal for the calculations in Option 2 and 3.

You are mistaking Renewal Commissions with Trail Commissions.

Renewal Commissions are based on the Premium.

Trail Commissions are based on the Accumulation Value.

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In your case, the accumulation value is going to decrease very quickly. You will have decreasing trail comp starting year 3.

Im assuming that income is based on an Income Rider with a bonus up front and benefit base that is a good bit higher than the actual accumulation value.

That means the % coming out of the Accumulation Value is going to be around 7% or more.

$100k decreasing by 7% per year over 10 years gives you $48k in year 10.

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Take Opt1 or 2. Me, Id take 1.

 

[scagnt83]

 

[ValeRosso]

Why not sell A share mutual funds instead of being RIA & getting AUM fees like so many are moving to? Several in this thread saying to take the lump sum have been going this route with investments

I mean that's a totally different license, but sure that's an option.