How Do You Sell Annuities

[James]

You guys are speculating about annuities rather than what the market actually looks like and the profile of buyers. Lots of people do not have company retirements plans, are not comfortable with securities, want to stay ahead of CD's, or have a 401k plan left over from a former employer.
Nor are they interested in whole life. It is a very viable option for many even though it may be unsuitable for some. But that is true of any financial product.

Winter

Well, annuities is what the thread is about, you do bring up a good point. Lot of money out there floating around in orphan type of accounts, like low hanging fruit. Yet I'm sure if we allow the annuity to fall by the wayside in our arsenal, WL will soon follow. I do not think those that think it is incorrect for clients (working with insurance agents) to take money out of securities to be placed in an annuity will view the same thing with insurance products, including WL and the UL.

Obviously a lot of people get scared over this type of talk, plus they seem easily persuaded like lambs heading for the slaughter. Fact is simple, some would like to change the meaning of securities to mean All Investments.

 

[James]

You guys are speculating about annuities rather than what the market actually looks like and the profile of buyers. Lots of people do not have company retirements plans, are not comfortable with securities, want to stay ahead of CD's, or have a 401k plan left over from a former employer.
Nor are they interested in whole life. It is a very viable option for many even though it may be unsuitable for some. But that is true of any financial product.

Winter

Remember that old sales pitch for annuities? XX amount today will buy you XXX of lifetime income! Not a bad little pitch.

 

[djs]

Client has leftover 401k from previous employer and has no 401k plan where he works now. Funds lost 50% of value after 2001 crash and now he wants to control his own retirement account rather than their former employer who is no longer contributing.

Winter

So what is the advantage of this to the client over rolling it into an IRA? You can put the money into a money market account, so its not a security issue.

Rolling a 401K into an annuity makes no sense to me. There are probably some great reasons to do it, and I'm definitely not saying it's wrong, just that I don't see any value in it.

Annuities have a lot of purposes, but the biggy is the fact that you can put virtually unlimited amounts of money in them and have them grow tax free. It's really the only vehicle you have that has this benefit. That said, if you really look at it, you are almost always better off funding a 401K first (especially if there is matching), an IRA second, and an annuity last. With this logic, rolling a 401K to an annuity seems strange.

I understand the control, and getting money out of a previous employer. This is good. IRA's may have more flexibility than most 401K's.

Dan

 

[Winter_123]

So what is the advantage of this to the client over rolling it into an IRA? You can put the money into a money market account, so its not a security issue.

Rolling a 401K into an annuity makes no sense to me. There are probably some great reasons to do it, and I'm definitely not saying it's wrong, just that I don't see any value in it.

Annuities have a lot of purposes, but the biggy is the fact that you can put virtually unlimited amounts of money in them and have them grow tax free. It's really the only vehicle you have that has this benefit. That said, if you really look at it, you are almost always better off funding a 401K first (especially if there is matching), an IRA second, and an annuity last. With this logic, rolling a 401K to an annuity seems strange.

I understand the control, and getting money out of a previous employer. This is good. IRA's may have more flexibility than most 401K's.

Dan

Well, there has never been a suggestion on my part, if you are responding to me, that you should not fund a 401k first. My comments were in response to the suggestion that it never makes sense to put 401k funds into an annuity but in fact lots of 401k funds are orphans from former employers and it can make plenty of sense there.

In addition many straight fixed annuities and indexed annuities have outperformed the portfolios of many, many clients- particularly for those whose performance was negative 45% after 9/11. There are plenty of people out there who hoped to retire five or six years ago but they are just waiting for the market to get up to where it was then. When you have experiences negative growth the more modest gains of an annuity can look good sometimes.

Also, you mention the priority of 401k first, then iras, and then annuities. However, the last two are not always an either/or choice. If you roll 401k funds into an annuity that has been designated as an IRA then it remains as qualified funds with no tax penalty or hit. It can be both an ira and an annuity.

A good flexible premium annuity makes a good retirement plan for folks who contribute regularly regardless of whether qualified or even if they want to place more into a non-qualified annuity. The fact some may prefer mutual funds and the risks that go with that does not change anything. The nature of a suitability analysis is that you determine that some people have risk tolerance and some don't.

Winter



Winter

 

[djs]

Actually, my question is a lot more specific. What would motivate me to want to move 401K (or IRA) money into an annuity? You mention returns during a very specific period of time that can be beaten (pretty easily), but yet, these types of investments, especially when you mention the term annuity, have to be looked at for the long term. It isn't mutual funds against annuities, with mutual funds being aggressive and annuities being conservative. The investment vehicle doesn't make the investment style. You can be invested in an IRA in a money market account, pretty conservative, pretty stable. Annuities can be variable, with market risk associated to them.

I'm looking for where my logic is wrong. I don't sell a lot of annuities, because they are a tremendous tool, but for the right person, for the right reason. I've always viewed them as a tax shelter type of device, rather than a pure retirement play.

What am I missing? Why would I rollover my 401K to an annuity? Yeah, I know you can have an annuity inside an IRA, and at the right age, an annuity might make sense, but I personally would be hard pressed to recommend it as a general option for the vast majority of people out there.

Now, get a windfall inheritance, house sale income, etc, and you have a great beginnings of an annuity!

Dan

 

[James]

Actually, my question is a lot more specific. What would motivate me to want to move 401K (or IRA) money into an annuity? You mention returns during a very specific period of time that can be beaten (pretty easily), but yet, these types of investments, especially when you mention the term annuity, have to be looked at for the long term. It isn't mutual funds against annuities, with mutual funds being aggressive and annuities being conservative. The investment vehicle doesn't make the investment style. You can be invested in an IRA in a money market account, pretty conservative, pretty stable. Annuities can be variable, with market risk associated to them.

I'm looking for where my logic is wrong. I don't sell a lot of annuities, because they are a tremendous tool, but for the right person, for the right reason. I've always viewed them as a tax shelter type of device, rather than a pure retirement play.

What am I missing? Why would I rollover my 401K to an annuity? Yeah, I know you can have an annuity inside an IRA, and at the right age, an annuity might make sense, but I personally would be hard pressed to recommend it as a general option for the vast majority of people out there.

Now, get a windfall inheritance, house sale income, etc, and you have a great beginnings of an annuity!

Dan

So what is your take on Slott's "Ticking Tax Time Bomb"?

 

[Winter_123]

Actually, my question is a lot more specific. What would motivate me to want to move 401K (or IRA) money into an annuity? You mention returns during a very specific period of time that can be beaten (pretty easily), but yet, these types of investments, especially when you mention the term annuity, have to be looked at for the long term. It isn't mutual funds against annuities, with mutual funds being aggressive and annuities being conservative. The investment vehicle doesn't make the investment style. You can be invested in an IRA in a money market account, pretty conservative, pretty stable. Annuities can be variable, with market risk associated to them.

I'm looking for where my logic is wrong. I don't sell a lot of annuities, because they are a tremendous tool, but for the right person, for the right reason. I've always viewed them as a tax shelter type of device, rather than a pure retirement play.

What am I missing? Why would I rollover my 401K to an annuity? Yeah, I know you can have an annuity inside an IRA, and at the right age, an annuity might make sense, but I personally would be hard pressed to recommend it as a general option for the vast majority of people out there.

Now, get a windfall inheritance, house sale income, etc, and you have a great beginnings of an annuity!

Dan

We have established that it would not be rigtht for you so I cannot think of any reason why you would do it. However, the market is comprised of many different types as discussed. There are many, many people who have been stuck in CD's or savings accounts for years and are not going into securities. It does not match their risk tolerance or their wishes. We may know what is better for them but they have a different view and thye are in charge and are adults. An indexed annuity, for example, can be a very worthy consideration for them even if it is not your/our choice.
Assuming again, that we look at it from the suitability of the client rather than at all of the spiffy American Funds, or Fidelity funds that we think they should be in. You have people who have 200,000 in CD's that they just roll year after year. We can talk endlessly about how that is not right for them but it is a fact of life that they do not want to go into the market. An annuity is a good consideration for them, if they want. It would not be right for *you* though. Except, the market is made up of people who are not us.

Winter

 

[James]

So, an Insurance Agent goes out and gets them a fancy IA or RIA license so they can sell Annuities safely?

RIAs Face Increased SEC Scrutiny: Are You Ready?

What I'm wondering is when the boys from the SEC comes around for inspections, what woud their take be on you telling them, "I only got this fancy license so I could sell Annuities!"? I'm thinking they may have a somewhat "Jerk" reaction?

Then I'm wondering this, what would they think of some IA claiming to be charging a planning fee, collecting a commission and possibly claiming they are collecting AUM fees? Now I really don't think anyone could get away with triple dipping into their clients pockets, but I've seen some crazy things go on.

Ps, AUM on annuities, that is something! Do people really do that???

 

[senior-advisor-indiana]

Why is everyone suggesting the 65. Why not just get the 6 & 63 ? From my understanding you would just have more compliance issues and costs with the 65.

 

[indaville]

Why is everyone suggesting the 65. Why not just get the 6 & 63 ? From my understanding you would just have more compliance issues and costs with the 65.

With the 6 & 63 you have to be a rep. of a Broker Dealer, and deal with their rules/attitudes and FINRA. When you are a 65 if you have your own RIA you work directly with the SEC, there are no middle men, and most of FINRA's crazy rules do not apply.

Matt