Source of Funds

[VolAgent]

You know I am big on suitability but I've got another take on it...Assume 9% surrender charge and its now a maximum possible loss of 9% on his entire investment account, You never see these questions on Mutual fund apps yes I know there is suitability as well but the mutual fund account can lose more than 9% in a day.

What percentage of a client's liquid net worth would your compliance officer let you put into mutual funds?
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Almost 100%. Those liquid assets are mutual funds. He wants out of them. Wants this annuity and take lifetime income in 5 years for the rest of his life. Net worth is 130k but that includes 84k in mutual funds. (which I'm rolling)

I hope for your sake that the carrier rejects it. Sounds like an E&O claim waiting to happen. It isn't just about potential for loss of principal due to investment risk, but about access to money. If all his net worth is in the annuity or even mutual funds, then he has to sell or suffer surrender charges to get the money he needs. That is unsuitable, he does need something more liquid.

 

[HarryRenard]

Almost 100%. Those liquid assets are mutual funds. He wants out of them. Wants this annuity and take lifetime income in 5 years for the rest of his life. Net worth is 130k but that includes 84k in mutual funds. (which I'm rolling)

I've recently had problems with Allianz, North American and Equitrust and the highest purchase was around 70% but you never know, but dont strecth that suitability form because if there is a problem down the road you will have some trouble.

 

[0b1kanobee]

When I filled out the suitability it asked his for his liquid assets. I called the company to verify whether or not his current mutual funds that I was rolling qualified as in his liquid assets. The answer was yes even though those were going to be rolling into the annuity.

What I was told was that what is difficult with suitability was when someone is rolling non-qualified money and it is most of the money they have sitting in a bank that doesn't fly. Those are the types of people who then 6 months to a year later want access to their money.

He can still take 10% after the first year. But it was made very clear to me to put the mutual funds into the current liquid assets section since they are his current liquid assets. I had 4 pages of suitability questions here in Florida.

He said he would sell his Harley before he touched that money or start taking social security but is waiting till he is 65 if he can, Plus he is still working. All his vehicles are paid for including his new 20k Harley.

 

[HarryRenard]

What you were told sounds right it is true that they are tougher on NQ funds. Hopefully you will be fine.

 

[Norwayguy]

What percentage of a client's liquid net worth would your compliance officer let you put into mutual funds?

Not sure have never asked or run up into it...probably because I would never put all my eggs in an annuity or mutual funds.

 

[scagnt83]

Almost 100%. Those liquid assets are mutual funds. He wants out of them. Wants this annuity and take lifetime income in 5 years for the rest of his life. Net worth is 130k but that includes 84k in mutual funds. (which I'm rolling)

If his only liquid assets where the $84K in MFs, I would leave at least $10K in MFs where they are at..

What your describing is a suitability disaster. (im not saying that you cant get it approved, im just saying from a planning standpoint)

 

[VolAgent]

Not sure have never asked or run up into it...probably because I would never put all my eggs in an annuity or mutual funds.

That is my point. It wasn't so much about change in account value, after all a variable annuity can change in value too. It was about having too much of your net worth in any one product.

 

[0b1kanobee]

If his only liquid assets where the $84K in MFs, I would leave at least $10K in MFs where they are at..

What your describing is a suitability disaster. (im not saying that you cant get it approved, im just saying from a planning standpoint)

I did run that by them. His answer was, "why should I leave 10k in mutual funds when if I absolutely had to I could take 10% of this product after the first year? Plus Mr. insurance man, wouldn't that lower my payment for life? I would still have 10k at risk and every time I call my broker and even ask him about the money he gives me the same old song and dance. Besides if I really need the money, I can always sell my bike or get a loan on it from the bank, access my line of credit on my house or call one of our kids. If I didn't have this money which keeps losing value anyway, I am sure I could come up with a way to get money I may need".
That was pretty much how he felt and honestly I can't argue with the guy. I did suggest a money market account and then they both said, more or less, "when we have access to this money we spend it. That is why I have a brand new Harley out there, new sod in the yard and a few other things we don't need."

I meet with them just yesterday because I needed an initial on a paper and she said she was actively seeking a part time job as she hasn't worked in 20 years. Sitting down with me she said made her realize she can work part time and by not working she was blowing through her nest egg along with her losses. They are extremely happy because I showed them where they were spending too much money in their budget (actually they didn't have a budget) and now they do because I put them on one. For the next five years they have a budget to follow. Then he starts taking social security, his annuity income (for life) plus he has pensions from two airlines and her social security will have kicked in (less than a year from now).

If it were my parents sitting across from me, I would of done the same thing. There is nothing that I would of changed. Now they can actually start building that bank account up a bit (their liquid monies) with their new budget and her working. This women doesn't let any grass grow under her feet. If she wants a job, she will make somebody give her one. I suspect she will clean 4 houses per week (2 a day) as per my suggestion and what she likes doing. That would be an extra $700 per month after fuel and expenses for 8 days. Not too shabby.

 

[BNTRS]

Document this well, just in case. It's unlikely to really blow up in your face, but CYA.

I know some people who took a lot of money someone had and put it in an annuity. The money was in an account at a bank, when the bank's financial wing discovered what had happened, and where the money went, they actually called FINRA (actually it was the NASD at the time)

The money did represent nearly all this person's assets, they went through the whole deal, hearings with the lawyers and all that.

Apparently the lawyers that work for the regulators really don't understand annuity products (surprise, surprise), but ultimately they decided that it was unsuitable and allowed the client to pull the money without surrender, which she did, why I don't remember.

The advisor's who sold the annuity never got into any real trouble, but to this day realize they could have.

Document it well...

 

[0b1kanobee]

Document this well, just in case. It's unlikely to really blow up in your face, but CYA.

I know some people who took a lot of money someone had and put it in an annuity. The money was in an account at a bank, when the bank's financial wing discovered what had happened, and where the money went, they actually called FINRA (actually it was the NASD at the time)

The money did represent nearly all this person's assets, they went through the whole deal, hearings with the lawyers and all that.

Apparently the lawyers that work for the regulators really don't understand annuity products (surprise, surprise), but ultimately they decided that it was unsuitable and allowed the client to pull the money without surrender, which she did, why I don't remember.

The advisor's who sold the annuity never got into any real trouble, but to this day realize they could have.

Document it well...

I will and that is why I stated earlier that most of your troubles with source of funds stem from using non-qualified monies, like money in the bank.