I Just Met an Annuity Salesperson with Fuzzy Math

[Charpress]

I think selling annuities as an "investment" based on those outdated and tired S&P charts is an example of a rip-off, but in a different way.

First of all, the odds of running into a potential client who hasn't seen the graph and heard the S&P pitch -which basically is "Beat the S&P without any downside", is pretty slim.

Secondly, it is a pitch that is hard to believe. In other words, a long and complicated uphill battle to convince someone about something they are instinctively doubting.

Finally, the returns aren't what they used to be when those charts had some meaning. Just look at the typical returns with today's caps and spreads compared to pre-2008.

And one more point, nearly everyone after 2008 with an indexed annuity went to interest only at 2.5% (at the time) for some if not all of their strategy allocation. Many clients I see have not gotten out of that habit even with still lower guaranteed rates we have today.

The income riders with guaranteed annual income bucket increases is a much easier concept than the "beat the S&P" pitch.

After the last several years and with this administration, people are nervous. They don't care about the S&P graph or ANY promise that involves the market. They want safety and guarantees and they want to come out better than the real rip-off loser in the room which is something called a "certificate of deposit" -the best to go broke slowly and safely.

 

[mjbinniland]

I think selling annuities as an "investment" based on those outdated and tired S&P charts is an example of a rip-off, but in a different way.

First of all, the odds of running into a potential client who hasn't seen the graph and heard the S&P pitch -which basically is "Beat the S&P without any downside", is pretty slim.

Secondly, it is a pitch that is hard to believe. In other words, a long and complicated uphill battle to convince someone about something they are instinctively doubting.

Finally, the returns aren't what they used to be when those charts had some meaning. Just look at the typical returns with today's caps and spreads compared to pre-2008.

And one more point, nearly everyone after 2008 with an indexed annuity went to interest only at 2.5% (at the time) for some if not all of their strategy allocation. Many clients I see have not gotten out of that habit even with still lower guaranteed rates we have today.

The income riders with guaranteed annual income bucket increases is a much easier concept than the "beat the S&P" pitch.

After the last several years and with this administration, people are nervous. They don't care about the S&P graph or ANY promise that involves the market. They want safety and guarantees and they want to come out better than the real rip-off loser in the room which is something called a "certificate of deposit" -the best to go broke slowly and safely.

I still own a $390000 mortgage that comes due in March 2017. I am hoping that capitalization rates improve so that I can earn a decent income off of the ~ $800000 I will have to invest at that time.

 

[Charpress]

One more thing about the S&P pitch charts, and then I'll shut up about them.

The fact is, you can dance those things around to have them show anything you want them to show. In that way also, they are BS.

Just go to the Standards & Poors Website and you can download your own historicals. Don't like what the chart is showing? Just adjust a by few months at the start or at the end. Make it a 9 or 11 year chart instead of 10. A few months can make a huge difference in the beginning and ending values of a portfolio.

If your BS chart is intended to show people how miserable the S&P has performed, a few changes can have your chart showing 2% returns instead of 7% returns. Still don't like what you're seeing? Just uncheck the box that adds divided returns to the figures. People that want to show the S&P doing well include dividends. People who don't, well they show the graph without dividends.

How do I know all this? I used to customize my own S&P returns charts to show the latest info as of a seminar date. Did I ever adjust the beginning date? -you bet. I always tried to be fair in what the charts represent, but like I said, BS is BS. I don't use them to tout annuities, I use them to show people how miserable the returns of the S&P can be when you look at being invested in stocks and MFs when you retire and 2008 comes along. Then you have an S&P chart with negative returns over a period of time. Showing people what a $500k nestegg looked like in 2000 and then in 2008 is dramatic.

Then show them the huge BS that brokers use about being able to safely withdraw 4% (in 2008 most were saying 5%) a year from investments while in retirement. Tell that to someone who retired in 2008. Those folks had about a 6% chance of making it through retirement taking out 4% a year from $500k -assuming they weren't smart enough to stop the 4% withdrawals.

The brokers wanted everyone to feel warm and cozy thinking the broker was going to buy and sell to ever better stock and funds and let them take out 4-5% a year without losing principle. Those folks who retired at the wrong time ended up either having to drastically reduce their lifestyles or go broke way before they got put into a Medicaid accepting nursing home.

 

[sman]

I never claimed that a variable was a ripoff.

I may not be the sharpest knife in the drawer so maybe you can explain just what the following statement (which you said) means:

"I think these index annuities are a bigger ripoff than variable annuities"

I did not "calculate" the exact return.

So when you said the following:

"I looked at his chart and informed him that the return was actually 4.8%"

We're supposed to know you meant that wasn't an "exact" return? And by the way, it's the Rule of 72, not the magic of 72.

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One more thing about the S&P pitch charts, and then I'll shut up about them. The fact is, you can dance those things around to have them show anything you want them to show. In that way also, they are BS. Just go to the Standards & Poors Website and you can download your own historicals. Don't like what the chart is showing? Just adjust a by few months at the start or at the end. Make it a 9 or 11 year chart instead of 10. A few months can make a huge difference in the beginning and ending values of a portfolio. If your BS chart is intended to show people how miserable the S&P has performed, a few changes can have your chart showing 2% returns instead of 7% returns. Still don't like what you're seeing? Just uncheck the box that adds divided returns to the figures. People that want to show the S&P doing well include dividends. People who don't, well they show the graph without dividends. How do I know all this? I used to customize my own S&P returns charts to show the latest info as of a seminar date. Did I ever adjust the beginning date? -you bet. I always tried to be fair in what the charts represent, but like I said, BS is BS. I don't use them to tout annuities, I use them to show people how miserable the returns of the S&P can be when you look at being invested in stocks and MFs when you retire and 2008 comes along. Then you have an S&P chart with negative returns over a period of time. Showing people what a $500k nestegg looked like in 2000 and then in 2008 is dramatic. Then show them the huge BS that brokers use about being able to safely withdraw 4% (in 2008 most were saying 5%) a year from investments while in retirement. Tell that to someone who retired in 2008. Those folks had about a 6% chance of making it through retirement taking out 4% a year from $500k -assuming they weren't smart enough to stop the 4% withdrawals. The brokers wanted everyone to feel warm and cozy thinking the broker was going to buy and sell to ever better stock and funds and let them take out 4-5% a year without losing principle. Those folks who retired at the wrong time ended up either having to drastically reduce their lifestyles or go broke way before they got put into a Medicaid accepting nursing home.

It bothers me to no end when an agent tries to fit a square peg into a round hole. Somehow the IA is the "perfect" fit for every person's situation. And I especially loved 2009 when all the IA providers were touting how they would have outperformed the market over the prior 8 years or so. As if a person who invests in the market invests solely in the S&P 500.

I have no problem with IA's when sold properly. I almost want the source of funds regulation to come to pass.

Until just this month my BD didn't care about IA sells. Now any IA sell that involves liquidation of securities must be approved by the BD. It doesn't run through them, but they have to see the details before it can be submitted to the IA carrier.

 

[KidsGotHeart]

I may not be the sharpest knife in the drawer so maybe you can explain just what the following statement (which you said) means:

"I think these index annuities are a bigger ripoff than variable annuities"




So when you said the following:

"I looked at his chart and informed him that the return was actually 4.8%"

We're supposed to know you meant that wasn't an "exact" return? And by the way, it's the Rule of 72, not the magic of 72.

----------



It bothers me to no end when an agent tries to fit a square peg into a round hole. Somehow the IA is the "perfect" fit for every person's situation. And I especially loved 2009 when all the IA providers were touting how they would have outperformed the market over the prior 8 years or so. As if a person who invests in the market invests solely in the S&P 500.

I have no problem with IA's when sold properly. I almost want the source of funds regulation to come to pass.

Until just this month my BD didn't care about IA sells. Now any IA sell that involves liquidation of securities must be approved by the BD. It doesn't run through them, but they have to see the details before it can be submitted to the IA carrier.

Ty.........................

 

[LGilmore]

Until just this month my BD didn't care about IA sells. Now any IA sell that involves liquidation of securities must be approved by the BD. It doesn't run through them, but they have to see the details before it can be submitted to the IA carrier.




So you have to now submit your outside sales to your BD before you can transact it?

 

[Tahoe Ray]

Until just this month my BD didn't care about IA sells. Now any IA sell that involves liquidation of securities must be approved by the BD. It doesn't run through them, but they have to see the details before it can be submitted to the IA carrier.



So you have to now submit your outside sales to your BD before you can transact it?

That is commom with most B/Ds....in fact, many regulate the approved carriers, regardless of the origination of the funds (and require their own forms...).

 

[sman]

So you have to now submit your outside sales to your BD before you can transact it?

Kind of. The only OBA business they are remotely involved in (outside of annual disclosure) is the IA business which results from the liquidation of securities. Even then it's just a matter of completing the new form and sending them a copy of the paperwork. But the business doesn't run through the BD (i.e. - no haircut on commission). Additionally, if the client is writing a check, transferring a CD or a 1035 from another fixed annuity then it's business as usual. Dealing directly with the carriers for contracting and submitting business just like any other independent insurance agent.

And currently my BD has no restrictions on which IA I can sell. Of course that can change, but it's been that way for the last 7 years I've been with them.

All other insurance business is direct through the carriers and commission is paid directly to me. My BD has no idea what my income is from those sources. Only that I do life, health and fixed annuity business disclosed as an OBA.

 

[pfg1]

Until just this month my BD didn't care about IA sells. Now any IA sell that involves liquidation of securities must be approved by the BD. It doesn't run through them, but they have to see the details before it can be submitted to the IA carrier.




So you have to now submit your outside sales to your BD before you can transact it?

One of my friends has to submit all his outside annuity business through his BD as well. They only allow certain products that meet their parameters to be sold.



To the OP... I suggest you should look at how Indexed Annuities work as show by someone who can educate you on them, vs try to sell one to you. They are a nice product that meet certain needs. Whether its right for you... ?

Bottom line, despite what some reps will say... FIA's are not really built with a focus on accumulation, but rather for modest potential growth (with principal protection) and lifetime income potential (using riders). Sure, some years they accumulate quite well.... but that's not the selling point, imo. I don't sell a ton of annuities, but the FIA's that I have sold are probably averaging 4-7%/yr, but have no chance of losing any $. If your goal is "growth", you might want to look at some other products.

If downside protection or lifetime income potential is something you are interested in, a FIA may be a good fit for you, for some of your money anyhow. If you are more concerned with growth than downside protection, a variable might be a better fit.

 

[Charpress]

A friend was told by his BD last year that he could no longer handle fixed or indexed annuities -period. Variables were fine -but through them only.

He moved elsewhere once he did a quick calculation on how much he makes on the fixed annuity side.