State Farm Agents to Stop Selling VAs and MFs Due to DOL

Sep 19, 2016

  1. DHK
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    http://www.chicagobusiness.com/arti...-farm-is-pulling-the-plug-on-investment-sales

    Based on my own experience, this is going to be a good thing. Look at the expense ratio here on this State Farm S&P 500 Class B mutual fund:

    https://www.google.com/finance?q=MUTF:SNPBX&ei=E3TgV6nOJ-vNiQKomJrwCQ

    1.36% per year with a 5% deferred sales charge??? This fund should be CRIMINAL to sell!

    I don't know if State Farm will be closing their proprietary mutual funds or not, but they probably won't be seeing any new funds if their agents won't be selling it.

    Agents will still be able to sell life insurance and fixed annuities (probably not indexed annuities though).

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    The bad thing about this... is that it was caused by government regulators rather than free market forces.

     
    Last edited by a moderator: Oct 10, 2017
    DHK, Sep 19, 2016
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  2. Golfnut2112
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    Golfnut2112 Guru

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    Why is that? The fund has over an 8 % 1 and 3 year average return and better than a 12% 5 year returnr. The 1.36 fee will lower once it becomes an A share and the 5 year surrender is lower than indexed annuities. Granted it is only a 3 star rated fund it has still preformed a LOT better than indexed annuities with the low caps and long surrender charges.
     
  3. DHK
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    DHK Guru

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    Apples and oranges. Indexed annuities are principal protected, while mutual funds are not. Different markets and different purposes.

    Let's compare apples to apples: An S&P 500 INDEX fund should be left to vanguard and other no-load fund families. What are THEIR expense ratios? About .25% and lower.

    I wouldn't dare sell a loaded index fund (A, B, OR C-shares) on a commission basis. After all, what additional value are you (speaking generally, not specifically at a Golfnut2112 or any other poster) really providing for that extra compensation? To sell an index fund, not much.

    If you're selling mutual funds, or any other package of securities, you really should be advocating some kind of active portfolio management comparing to risk profiles of risk-free rates, and/or compared to index performance.

    Otherwise, if a broker's advice is to just "stick it in my expensive index fund", the client would be FAR better off paying a one-time consultation fee and executing the transaction with E-trade.
     
    DHK, Sep 19, 2016
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  4. Tahoe Ray
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    Tahoe Ray Guru

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    Indexed annuities should be compared as a bond alternative...not an equity one.
     
  5. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Your joking right? You do realize that is a S&P 500 Index fund right??

    You are paying for the S&P 500 and it gave you 4% under its benchmark... you paid 1.36% to under perform the benchmark by 4%.


    You took the same risk as the S&P 500 but got 4% less in returns. And you paid 1.36% for the privilege.


    By the way, I have uncapped IAs on the books that did over 8% the past couple of years. Of course like all investments, timing is everything. And just like the mutual fund in question here, there are some really crappy annuity products on the market. But just like that mutual funds competitors, there are some competitive annuity products on the market right now.

    But if you are going to compare an indexed annuity to equities you are basing your assumptions on a faulty premise in the first place.
     
    scagnt83, Sep 19, 2016
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  6. Golfnut2112
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    Golfnut2112 Guru

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    Actually I looked briefly on my phone and did not realize that. Since that is an indexed fund with that high of an expense, yeah it sucks. I never compared index annuities to equities because it's apples to oranges, they are more comparable to bonds but you can thank insurance companies and some agents for misleading people thinking they are going to get market returns.I do sell indexed annuities, in matter of fact I just got the info on Ohio National's new one coming out on October 3rd and all ready have people in mind that it would be appropriate for.
    I really believe indexed annuities should pay a 1% level commission and not have a surrender period longer than 5 or 6 years max.
     
  7. Tahoe Ray
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    Tahoe Ray Guru

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    Your wish may very well come true...
     
  8. Golfnut2112
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    Golfnut2112 Guru

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    I know, like the saying goes be careful what you wish for.
     
  9. Norwayguy
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    Norwayguy I have spent way too much time here.

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    Like you I missed the part about it being an index fund and saw the expense ratio and thought so it's about standard for a managed fund.
     
  10. MW Agent
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    MW Agent Super Genius

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    The client with an expensive index fund will likely be much further ahead than the same client sold an actively managed fund.
     
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