Do You Use Monthly Cap? How Much?

[scagnt83]

I always hear about the annual p2p method for IAs.
It seems that most advisors are using it as the predominant crediting method.


I usually tend to blend the Yp2p along with the monthly p2p cap.


With the market fluctuating so much these day, it seems like the Mp2p cap is a strong option to pick...


Take the market crash in 08' for example:

If you had a 2% cap on the monthly p2p method.

And looked at the returns from 10/2007 - 10/2009

For 10/07-10/08 you would have received a 3.77% return (the S&P was down 40+%)

For 10/08-10/09 you would have received a 12.8% return (the S&P was approximately 8.8% positive)


It seems like its a strong option.
Assuming a 2% cap, all you need to do is have 3 months of 2%+ growth and you have a good return.

Obviously I dont allocate 100% to any one crediting option, and I do realize that the cap will niot always be a constant 2%; but it seems like an underused option.


Thoughts?

 

[Joey Ramone]

I use monthly because their is the potential to exceed the annual cap. There is nothing wrong with what you're thinking by blending the methods.

 

[bcoughlin]

The problem is 1 or 2 monthly drops wipe out the 3-4 capped out gain months. Potential is there for large gains in mpt2pt, but I only do ap2pt. I have seen too many years where the mkt is up and client gets zero on mpt2pt. Won't happen in apt2pt.

 

[Keanureeves]

Yes Bcoughlin you are right to some extent that's the case so 3-4 capped out gain months.Scgant you are right most of the people P2P method for IAS.
Yeah,most advisors are using it as the predominant crediting method.

 

[0b1kanobee]

I have a client who dropped about $120k in an ING with another agent and I. My partner allocated 90% in the monthly and 10% in the fixed. Zero was put into the annual. This is coming up on the year mark and if it was not for the 5% first year bonus, my client wouldn't of made squat. Thankfully he doesn't understand his statements but you bet your bottom dollar I'm gonna blend that account when the 30 day window opens.

The reality is, he could have had some huge gains but it didn't work well for him obviously. If there was an option on the index to say the S&P 500 would be down in a year, I would be leaning in that direction because it is up pretty good right now. It has an income rider on it so I'm not too worried but I just don't like to look bad. On the flip side, those clients who were in the ending account have done well.

I prefer to blend the account crediting methods.

 

[padthaiforlunch]

So he has his annual statement, but the 30 window hasn't opened yet?

And I wouldn't be too concerned about looking bad. People aren't (hopefully) buying annuities from you because they think you can predict market direction.
The market did what it did and the product you sold acted accordingly. Well, maybe I would be concerned about looking bad if rates on the crediting method were that bad.

 

[Bobrobb]

Respectfully, putting money in the fixed account defeats the purpose of the FIA. The product already protects the client from losses. Insurance companies change caps, participation rates and spreads according to market conditions as option costs change. If the product is sold as a really 'Great CD' vs something compared to the market we're not getting phone calls in the middle of the night like stock brokers.

 

[0b1kanobee]

So he has his annual statement, but the 30 window hasn't opened yet?

I said it was coming up on the window.

I guess I should say I'm not so concerned about looking bad, I'm just hard on myself. I didn't realize my partner stuck him all in the point 2 point. I prefer the ending with a little point 2 point mixed in. This way I never get a client ask "why did we allocate all of it in one bucket" which goes contrary to my "I like to spread money around" usual advice in general.

With the first year bonus, he still makes over 5%.

And yes, the nice thing about these products, is for the most part we don't have to deal with ongoing phone calls, at least till tax time when RMDs and other things come up.

 

[Joey Ramone]

If the product is sold as a really 'Great CD' vs something compared to the market we're not getting phone calls in the middle of the night like stock brokers.

Exactly...