Need Advise from a VA Expert on Suitability.

[yogooglethis]

In 2006 my 76 yr old mother was advised by her Raymond James " adviser" to 1035 exchange her existing Western Reserve Life Freedom Deferred VA he had sold her in 1993 in to the American Skandia Advisors Life Vest II deferred VA.

The WRL contract had a 35k cost basis and had grown to 97,605 from 1993 to 2006.The policy didn't have any bell and whistles other than a free nursing home rider but what it did have was a good choice of sub accounts,much lower overall fees about 2% (M&E = 1.25%) vs aprox. 4% with new contract ( ME = 1.65%),a fixed account that guaranteed at least 4% even on additions vs 0% guarantee on new contract and a higher interest rate of 4% ( vs 3% on new contract) on annuity payout options.Since the WRL contract was issued in 1993 it was based on the 1983 annuity mortality tables vs the 2000 annuity mortality tables on new contact.I believe the 1983 annuity table would pay more based on lower life expectancy.The new contract has a enhanced death benefit based on highest periodic value for which she pays .25 basis point
American Skandia was bought out by Prudential and now is the Advanced Series Life Vest II Deffered annuity.In 9/2010 when my mother was 78 the agent sold her the Highest Daily Lifetime 6 Plus rider that cost 85 basis point of the PWV.In 10 years when my mother will be 88 the Enhanced Guarantee of 200% of PWV kicks in.What sucks is that Prudential will reallocate her sub accounts to bonds if the market starts to rally or diving limiting her upside and downside but she still has to pay the 85 basis points based on the locked in PWV even if her account values goes down.

My mother had no idea of what she bought and told me she did it because the agent said it was better.This Raymond James broker dealer has replaced about 8 annuitys of hers over the last 20 years.I had no idea this was going on.

I got a copy of the replacement form from Prudential and my mother had initially checked "yes" she would like a written comparative analysis between the existing and new policy but then scratched it out and checked " no ".When I asked her why she did that said that after the agent saw that she had checked yes he told her she had checked the wrong one and told her to check no.

What do you VA experts think about this? Was this a suitable exchange in 2006 and was it a suitable sale of an income rider that has a 10 year maturity in 2010 when she was 78 years old. I am thinking about writing a letter to the compliance department asking prudential to pay her what her old contract would have her paid her if she annuitized at 4% in 2006 based on 1983 mortality tables or what it would pay her now and she had but the whole account value in the 4% fixed account.

 

[Norwayguy]

I always hate Monday morning quarterbacking.

First question you mentioned this agent has replaced 8 annuities of your mothers over the last 20 years. What percentage of her assets does this 1 annuity represent? What I'm getting at is this her only annuity or does she have others?

Second question what did your Mother say was her goal or concerns mentioned during the client meetings when these replacements happened?

 

[VolAgent]

It sounds bad, but here is the thing.

You came on here because you are upset. You don't like this and it colors your view of the situation. You have already decided you don't like it, you present it in a way to make it clear you don't like it, and you're looking for someone to confirm your opinion of the situation.

I'm sure the broker could paint a great picture about why this improved your mother's situation. And I'm even more sure the truth lies somewhere in between. It could still be an unsuitable transaction, or it could be a good one.

What do the suitability forms say? What is the reason for the replacement?

 

[iceco1d]

Is your mother planning on taking income from this product? If so, HD6 is a scarce benefit you cannot get now.

Note: She doesn't need to wait 10 years to start income, she could start it immediately if she wants.

If she doesn't care about income, then HD6 probably was a bad choice.

Something that caught my eye...

1. At 1.65% M&E, this is an "L" share contract with a 4 year surrender.

2. I am fairly certain that Raymond James does not allow their FAs to sell "L" share VA contracts.

 

[yogooglethis]

I always hate Monday morning quarterbacking.

First question you mentioned this agent has replaced 8 annuities of your mothers over the last 20 years. What percentage of her assets does this 1 annuity represent? What I'm getting at is this her only annuity or does she have others?

Second question what did your Mother say was her goal or concerns mentioned during the client meetings when these replacements happened?

This Annuity is 20% .She has another VA that is also about 20% that she has has already annuitized.

My mother was looking for wealth preservation mostly The reason for the exchange in 2006 was that the American Skandia supposedly had better sub accounts to choose from but at higher sub b fees of 1% vs .8 % she was paying.In 2010 when she bought the rider she thought the GMWB was a guarantee of doubling or quadrupling her principal when she looked at the sales brochure.She said she would be called in the Raymond James office for the "annual review" where they made recommendations.Although she wasn't afraid of equities she never understood the consequence of now paying ordinary income versus capital gains if she was in just a mutual funds.Raymond James could have just put her in mutual funds but I think it was the commissions that drove the choices
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Is your mother planning on taking income from this product? If so, HD6 is a scarce benefit you cannot get now.

Note: She doesn't need to wait 10 years to start income, she could start it immediately if she wants.

If she doesn't care about income, then HD6 probably was a bad choice.

Something that caught my eye...

1. At 1.65% M&E, this is an "L" share contract with a 4 year surrender.

2. I am fairly certain that Raymond James does not allow their FAs to sell "L" share VA contracts.

It says 1.65% on the schedule page but I don't see L shares in the prospectus only B shares.This is an American Skandia contract I don't think there is any surrender charge


She was more concerned about growth and wealth preservation which at her age she should just be concerned more about wealth preservation I know.


OK so if she starts taking income now from her PWV for life now the monthly income would be less than if she annuitized it.How is that a good deal or am I missing something
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It sounds bad, but here is the thing.

You came on here because you are upset. You don't like this and it colors your view of the situation. You have already decided you don't like it, you present it in a way to make it clear you don't like it, and you're looking for someone to confirm your opinion of the situation.

I'm sure the broker could paint a great picture about why this improved your mother's situation. And I'm even more sure the truth lies somewhere in between. It could still be an unsuitable transaction, or it could be a good one.

What do the suitability forms say? What is the reason for the replacement?

No suitability form was required at that time according to prudential.The agent requested that my mother change her initial "yes" that she would like a written comparative analysis between the existing contract and the new contract to "no" on the replacement form

 

[Norwayguy]

You said she was more concerned about growth and wealth preservation. Mutual funds would have as you pointed out the benefit of capital gains over income taxes but provided you protection like the income rider does nor the death benefit most VAs have. Your also looking at now paying income taxes after she benefited by not paying those capital gains every year on mutual funds even when they might have lost money and you are looking at capital gains rates today while ignoring they are lower today with Bush tax changes let's not forget these dollars go back at least to 1993 I believe you mentioned.

This is what I hate about after the fact. My recommendation is sit down with the advisor and go back to 1993 and go over the notes his recommendations might make more sense when you go off of the notes from the time period instead of what the client now says.

And some pellet say I'm anti variable annuity

 

[yogooglethis]

You said she was more concerned about growth and wealth preservation. Mutual funds would have as you pointed out the benefit of capital gains over income taxes but provided you protection like the income rider does nor the death benefit most VAs have. Your also looking at now paying income taxes after she benefited by not paying those capital gains every year on mutual funds even when they might have lost money and you are looking at capital gains rates today while ignoring they are lower today with Bush tax changes let's not forget these dollars go back at least to 1993 I believe you mentioned.

This is what I hate about after the fact. My recommendation is sit down with the advisor and go back to 1993 and go over the notes his recommendations might make more sense when you go off of the notes from the time period instead of what the client now says.

And some pellet say I'm anti variable annuity

Adviser no longer around.I think if i sold something so complicated to an 78 woman who has children I would ask if they should be included in the decision.Whether what this agent did was right or wrong may be up for debate but one thing I know for sure is that my mother had no understanding of what she bought.These VA contracts are written so that they are only understood by the lawyers that wrote the contracts. I read the policy 10 times and barely understand it and still not sure what all the fees are but i know they are almost 5%.Do you know if Prudential runs illustrations for the GMWB?

 

[Norwayguy]

Adviser no longer around.I think if i sold something so complicated to an 78 woman who has children I would ask if they should be included in the decision.Whether what this agent did was right or wrong may be up for debate but one thing I know for sure is that my mother had no understanding of what she bought.These VA contracts are written so that they are only understood by the lawyers that wrote the contracts. I read the policy 10 times and barely understand it and still not sure what all the fees are but i know they are almost 5%.Do you know if Prudential runs illustrations for the GMWB?

I know icecold can answer your question, I never sold Prudential VAs and am not an expert on that rider. The simple answer should be Yes.

 

[iceco1d]

Yes, Prudential can run illustrations for the GMWB.

Also, the benefit to starting lifetime withdrawals vs. annuitization is that it's not annuitization! When your mother starts taking lifetime withdrawals, she doesn't give up her principle. So if there is anything left when she passes, you get it (whereas with annuitization, it's likely gone).

Question: What is the current contract value and what is the current protected withdrawal value?

 

[yogooglethis]

Yes, Prudential can run illustrations for the GMWB.

Also, the benefit to starting lifetime withdrawals vs. annuitization is that it's not annuitization! When your mother starts taking lifetime withdrawals, she doesn't give up her principle. So if there is anything left when she passes, you get it (whereas with annuitization, it's likely gone).

Question: What is the current contract value and what is the current protected withdrawal value?

contract value 95,916
PWV 109,460
death benefit 107,712 highest periodic value rider
annual income now 6,567 or 547.25 monthly i
10 yr Income guarantee 186,807 mother would be age 88
20 yr 373,615 99

I had prudential run an Annuitization quote on 95,916 an a Life Income with 15 year certain would pay 607.96 per month .She or her heirs are guarenteed 109,432 in this scenario.If she lives to age 100 she gets 145,910

First if my mother starts taking withdrawal now it does start decreasing her account value right? If she starts taking PWV withdrawals of 547.25 now and lives to 100 she collects 131,340. Prudential customer service said if mother dies before PWV is paid out heirs receive death benefit less payments.Is this how it works?

What does cut off date age 85 and annuity date 11/1/2016 on policy schedule page mean.I thought I read somewhere that she has to annuitize at age 85 anyway.