Competing Against Bonds W/Fixed Annuities

[BiggitySwat]

I knew exactly where you were going with this insuranceexec when I read your response. I just read an article discussing how dangerous it can be for an insurance agent to give investment advice...and no, I'm not series 7 licensed

Soon, insurance agents will only be able to say that fixed annuities are terrible and that if you must buy one, you should only buy one directly from a carrier or from a FP (that's a joke).

So then what CAN you say if a client says, "I love bonds so tell me why a fixed annuity is a better option?". What's considered "investment advice"?

To my knowledge (and according to my FMO, before I became securities licensed), any advice or information you give to the client which persuades them to liquidate a securities position and replacing it with an annuity can get you into trouble. You can talk all about guarantees, income stream for life, tax deferral, potentially higher gains than banking instruments, etc. as benefits of the annuity, but try not to compare it to a security.

In other words, you want to swing more for "this is an annuity, an insurance product, a savings vehicle, and it may or may not work for you. I'm not saying it's better or worse than your bonds, but here are some of the ways it's different....." rather than "Bonds are risky and subject to credit default, let's sell your bonds and get you into an FIA."

Just an FYI, unless held in a qualified account (which many aren't), Corporate and treasury bonds are subject to federal income tax, which can drag down the returns. Also, bonds will pay interest semiannually which means the client will HAVE to take the distribution, versus having the choice to leave their accumulated gains inside their annuity to enjoy triple compounding.

Annuities are backed by the general account of an insurance company (if fixed/indexed), and there are many insurance companies that have had a longer successful operating history than banks. Notable examples: Allianz, Sun Life, Mutual of Omaha. If the company fails, there is the state guaranty association for added safety.

Compare the above safety benefits to a bond or bond fund, which have no guarantees to hold their credit and also have no guaranty or FDIC type organization to back them in the case of default.

This is what makes a security a security - a security always has risk and zero guarantees, versus insurance products designed to provide peace of mind over returns.

 

[cloisbarton]

To my knowledge (and according to my FMO, before I became securities licensed), any advice or information you give to the client which persuades them to liquidate a securities position and replacing it with an annuity can get you into trouble. You can talk all about guarantees, income stream for life, tax deferral, potentially higher gains than banking instruments, etc. as benefits of the annuity, but try not to compare it to a security.

In other words, you want to swing more for "this is an annuity, an insurance product, a savings vehicle, and it may or may not work for you. I'm not saying it's better or worse than your bonds, but here are some of the ways it's different....." rather than "Bonds are risky and subject to credit default, let's sell your bonds and get you into an FIA."

Just an FYI, unless held in a qualified account (which many aren't), Corporate and treasury bonds are subject to federal income tax, which can drag down the returns. Also, bonds will pay interest semiannually which means the client will HAVE to take the distribution, versus having the choice to leave their accumulated gains inside their annuity to enjoy triple compounding.

Annuities are backed by the general account of an insurance company (if fixed/indexed), and there are many insurance companies that have had a longer successful operating history than banks. Notable examples: Allianz, Sun Life, Mutual of Omaha. If the company fails, there is the state guaranty association for added safety.

Compare the above safety benefits to a bond or bond fund, which have no guarantees to hold their credit and also have no guaranty or FDIC type organization to back them in the case of default.

This is what makes a security a security - a security always has risk and zero guarantees, versus insurance products designed to provide peace of mind over returns.

You are correct you do not want to compare, only position your product to show how it can meet the clients needs.

 

[insuranceexec]

To my knowledge (and according to my FMO, before I became securities licensed), any advice or information you give to the client which persuades them to liquidate a securities position and replacing it with an annuity can get you into trouble. You can talk all about guarantees, income stream for life, tax deferral, potentially higher gains than banking instruments, etc. as benefits of the annuity, but try not to compare it to a security.

In other words, you want to swing more for "this is an annuity, an insurance product, a savings vehicle, and it may or may not work for you. I'm not saying it's better or worse than your bonds, but here are some of the ways it's different....." rather than "Bonds are risky and subject to credit default, let's sell your bonds and get you into an FIA."

Just an FYI, unless held in a qualified account (which many aren't), Corporate and treasury bonds are subject to federal income tax, which can drag down the returns. Also, bonds will pay interest semiannually which means the client will HAVE to take the distribution, versus having the choice to leave their accumulated gains inside their annuity to enjoy triple compounding.

Annuities are backed by the general account of an insurance company (if fixed/indexed), and there are many insurance companies that have had a longer successful operating history than banks. Notable examples: Allianz, Sun Life, Mutual of Omaha. If the company fails, there is the state guaranty association for added safety.

Compare the above safety benefits to a bond or bond fund, which have no guarantees to hold their credit and also have no guaranty or FDIC type organization to back them in the case of default.

This is what makes a security a security - a security always has risk and zero guarantees, versus insurance products designed to provide peace of mind over returns.

Are you recommending to tell the client this when presenting the annuity? If not when would you bring this up? As it is clear that the State Guaranty Association is in NO way to be indemnified by the producer to solicit an insurance transaction.

 

[BiggitySwat]

Are you recommending to tell the client this when presenting the annuity? If not when would you bring this up? As it is clear that the State Guaranty Association is in NO way to be indemnified by the producer to solicit an insurance transaction.

I don't come out and say this for annuities or drop their name to commensurate a sale, but I like the fact that when I write an annuity, and the backing carrier fails, there is always some kind of fallback deal to protect the client.

That being said, I don't come and and say it (nor do I pump the FDIC if I were to sell a bank CD), but during the few times a client asked, I did mention that the state guaranty association exists, who they are, and what they do.

 

[insuranceexec]

I don't come out and say this for annuities or drop their name to commensurate a sale, but I like the fact that when I write an annuity, and the backing carrier fails, there is always some kind of fallback deal to protect the client.

That being said, I don't come and and say it (nor do I pump the FDIC if I were to sell a bank CD), but during the few times a client asked, I did mention that the state guaranty association exists, who they are, and what they do.

that is good!......... Like it needs to be inflated any more. Very good rebuttal.


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[Justin Bilyj]

question then, if you have a 6/63 or a 7 can you make the comparison of a security with an annuity???

 

[insuranceexec]

question then, if you have a 6/63 or a 7 can you make the comparison of a security with an annuity???

With a 6 you can not talk about Stocks and bonds as they require a 7. A 6 allows you to sell and discuss mutual funds, VA, and performances associated with VUL's

 

[Mr. Bill]

There is a big difference between giving "advice" and "information". Where an insurance - only person will get in big trouble is if the client says "I liquidated my bonds to put into an annuity because the insurance agent said I should". Always remember there's a broker on the other side of the bond transaction, and that broker will say or do almost anything to keep the assets under management.

 

[insuranceexec]

Very correct assessment there Mr. Bill. One benefit of being securities licensed is that of the ACAT transfer.

 

[BiggitySwat]

question then, if you have a 6/63 or a 7 can you make the comparison of a security with an annuity???

Like Insurexec said, it depends on the security. With the 7, you can engage in discussion regarding most securities, including REITs, bonds, stocks, funds, ETFs, partnerships, etc. Probably one of the nicer things about having a 7 is having more freedom to discuss how securities and annuities together can provide a diversified plan for a client, versus just being stuck to an insurance/annuity discussion.

Also, if you sell an annuity and you have a 7/66, the broker on the "other end" who just lost AUM can cry all they want and get no where, as long as you have the supporting paperwork and support from the client to vouch for you in any dispute regarding suitability, etc.