Variable Vs Index Annuities

[DHK]

I know he had them. So have I.

I have found that VAs have high M&E costs along with the sub accounts, in addition to the rider fees - could easily reach 3.5% expense ratio.

Index annuities have primarily a rider fee, which will generally be less than 1% AND have no market risk to principal.

Care to back up why you believe the comment is crazy?

 

[scagnt83]

That comment is crazy!! Do you have a security license?

If you are selling a VA for the guaranteed income rider then there is no reason to have that money in the market. If you are selling a VA for pure accumulation then there are better options imo.


The only real advantage I see to VAs these days is that some offer investment options not available on the retail market. Some VAs, like JNs RIA approved VAs, do have reasonable fees.

But again, it comes down to the purpose of that money. The majority of VAs are sold as a sort of "swiss army knife". It does a little bit of everything but its not the best at anything.

Years ago I was a 6. I am currently close to taking my 65 and plan to start an RIA sometime later this year. I dont know the VA market like I used to. But the last time I took a hard look at things everything was being watered down a good bit. (like the annuity industry in general)

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Care to back up why you believe the comment is crazy?

Because he sells VAs...


Dont get me wrong. They can be a suitable sale. Im just not a fan for reasons Ive already stated. But to each their own. I think brokers are crazy to sell VA GLWBs over IA GLWBs!

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What about something like jacksons elite access? All in around 1.8 and some actively managed mutual fund accounts doesnt sound too bad.

I am not securities licensed btw but I always thought it was a good product.

Jackson & Jefferson both have the best VAs in my opinion. If I sold VAs it would be one of the two.

1.8? That is not including the Rider fee though correct?

 

[Golfnut2112]

DHK, I sell both variable and indexed annuities although only maybe 10 a year.

The reason I thought it was crazy is because it is such a blanket statement about the VA's.
He is right when he talks about the fees because they are way to high in a VA expecially if you add an income rider ( which I never do) that said I would still prefer a short surrender charge VA to an indexed annuity because I feel they will outpeorm an indexed anniuty even if you allocate only into bonds. As far as the other fees if you invest money with a fund family you are going to have managment fees either in a mutual fund or within a VA so that is really a mute point. The fee's I really hate are the M&E charges which may be as high as 1.6% in the ones that guarantees your premium as a death benefit. I'm not sure if you seen the new M&E charges some companies are coming out with. They are as low a .75% but does not even guarantee the DB will be premiums paid, when I call the companies nobody can give me a reason for the fee its just there without purpose.

 

[Newby]

DHK, I sell both variable and indexed annuities although only maybe 10 a year. The reason I thought it was crazy is because it is such a blanket statement about the VA's. He is right when he talks about the fees because they are way to high in a VA expecially if you add an income rider ( which I never do) that said I would still prefer a short surrender charge VA to an indexed annuity because I feel they will outpeorm an indexed anniuty even if you allocate only into bonds. As far as the other fees if you invest money with a fund family you are going to have managment fees either in a mutual fund or within a VA so that is really a mute point. The fee's I really hate are the M&E charges which may be as high as 1.6% in the ones that guarantees your premium as a death benefit. I'm not sure if you seen the new M&E charges some companies are coming out with. They are as low a .75% but does not even guarantee the DB will be premiums paid, when I call the companies nobody can give me a reason for the fee its just there without purpose.

Have they ever been able to describe. 12b1 fees without snickering?

I hate to give any credibility to Suzi Ormon, but this is sort of how the public sees it too if they find out equity indexed annuities exist after only being pitched variables.
http://youtu.be/zzx6GZjgvAo

 

[Golfnut2112]

Have they ever been able to describe. 12b1 fees without snickering?

I hate to give any credibility to Suzi Ormon, but this is sort of how the public sees it too if they find out equity indexed annuities exist after only being pitched variables.
http://youtu.be/zzx6GZjgvAo

Variable annuities do not have 12b1 fees, they are in mutual funds. They are fees paid to the broker servicing the account with class A being the lowest and class C being the highest. The big downfall on VAs are the M&E charges, the downfall on all annuities are the taxation as ordinary income on withdrawals and no stepped basis on death. Like I said, I will recommend either annuity depending on the client's needs but most of the time a mutual fund works better.

 

[DHK]

DHK, I sell both variable and indexed annuities although only maybe 10 a year.

The reason I thought it was crazy is because it is such a blanket statement about the VA's.
He is right when he talks about the fees because they are way to high in a VA expecially if you add an income rider ( which I never do) that said I would still prefer a short surrender charge VA to an indexed annuity because I feel they will outpeorm an indexed anniuty even if you allocate only into bonds. As far as the other fees if you invest money with a fund family you are going to have managment fees either in a mutual fund or within a VA so that is really a mute point. The fee's I really hate are the M&E charges which may be as high as 1.6% in the ones that guarantees your premium as a death benefit. I'm not sure if you seen the new M&E charges some companies are coming out with. They are as low a .75% but does not even guarantee the DB will be premiums paid, when I call the companies nobody can give me a reason for the fee its just there without purpose.

I agree with you on all these points, except I would almost always include an income rider... as it gives a material difference to choosing the annuity over funds. Without it, to me, they were just expensive mutual funds with ordinary income taxation on the growth. In fact, our firm at the time made it a mandatory requirement - particularly for qualified funds.

I don't recall that I ever recommended a short-surrender (L-share) VA. I know one decent producer who was doing that primarily to build up "asset-based" trails of 1% per year... but I couldn't wrap my head around his logic of making such recommendations suitable.

 

[Golfnut2112]

I agree with you on all these points, except I would almost always include an income rider... as it gives a material difference to choosing the annuity over funds. Without it, to me, they were just expensive mutual funds with ordinary income taxation on the growth. In fact, our firm at the time made it a mandatory requirement - particularly for qualified funds.

I don't recall that I ever recommended a short-surrender (L-share) VA. I know one decent producer who was doing that primarily to build up "asset-based" trails of 1% per year... but I couldn't wrap my head around his logic of making such recommendations suitable.

Most of my clients are already retired so there is no need for the income rider, I recommend annuites only when they have a tax issue. What most people forget including suzie orman is that you can transfer money between sub accounts without taxes which is a huge advantage. I just talked to a client this week that invested $100,000 back in 2008 and it now it is worth $206,000 we transfered money around and did not have worry about paying tax on the gains. I only sell maybe 10 annuities a year both indexed and variable depending on the risk tolerance of the client. The other point about being expensive mutual funds is correct to a certain degree. If you buy some funds and stay within those fund families your right, however if want numerous options you would need a wrap account which may charge 1-1.25%. One of my favorite VA's has 275 investment options, no surrender charges and the M&E is only 1%.
Also as far as the 1% trail and the short or no surrender charges, that is a good thing. If people dont like the performance they can walk and the trails you make gives you the freedom to watch the accounts and not worry about paying your bills. I really believe indexed annuites should operate the same way. They pay huge upfront commisions with huge surrender charges, if they lower the surrender charges people could just walk if unhappy.

 

[scagnt83]

He is right when he talks about the fees because they are way to high in a VA expecially if you add an income rider ( which I never do) that said I would still prefer a short surrender charge VA to an indexed annuity because I feel they will outpeorm an indexed anniuty even if you allocate only into bonds.

If you are selling VAs without income riders then you are in the 10% minority of VA producers.


Over a 20 year period a VA should certainly outperform an IA. Funds invested directly in the market should always outpace a fixed product over the long term. If you are comparing an IA to a VA, then you need to figure out your risk tolerance and the purpose of that bucket of money.


As I said before, a VA can be a suitable sale. But imo there are more suitable options out there for the majority of a prospects needs.

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you can transfer money between sub accounts without taxes which is a huge advantage.

Good point.
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and the trails you make gives you the freedom to watch the accounts and not worry about paying your bills. I really believe indexed annuites should operate the same way. They pay huge upfront commisions with huge surrender charges, if they lower the surrender charges people could just walk if unhappy.

I cant agree with that last part at all. Its true many IAs do not pay a trial, but now more and more are starting to.

But to say that IAs have huge upfront commissions compared to VAs is just not accurate. Maybe 10 years ago that was accurate. But today the average comp is probably around 6% for a 10 year product. And like anything else in this industry, the lower comp products seem to be the most competitive more often than not.

Now you can go find a product or two that will be contrary to what I just said. But lets compare the cream of the crop...

JN 5 year Elite Access VA: 6.5%
Athene 5 year Target Horizon IA: 8.5%

Thats 2% more.... but at the same time you pay a premium for the security of never going negative.

That Target Horizon 5 has a 2.55% Spread against the S&P on a point to point basis.
The JN VA is at a 1% Fee.

So the client is paying an extra 1.5% in fees and risks an extra 2% in surrender charges, in exchange for never taking a loss due to a drop in the market.


Or you could compare JNs 7 year VA to NWLs 7 year IA...

JN- 8.5% 1st year surrender charges , 1.3% M&E/Admin

NWL- 9% 1st year surrender charges , 2% spread with 80% Participation Rate


You can go out there and find examples contrary to mine... but I can do the same with VAs. I admit not to the same extent as you could IAs, but I can still do it.

You can find products like JN or Jef Nat with reasonable fees and surrender charges. The same can be said for the IA market. Your generalization is way more off than mine possibly was...

 

[Golfnut2112]

If you are selling VAs without income riders then you are in the 10% minority of VA producers.


Over a 20 year period a VA should certainly outperform an IA. Funds invested directly in the market should always outpace a fixed product over the long term. If you are comparing an IA to a VA, then you need to figure out your risk tolerance and the purpose of that bucket of money.


As I said before, a VA can be a suitable sale. But imo there are more suitable options out there for the majority of a prospects needs.

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Good point.
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I cant agree with that last part at all. Its true many IAs do not pay a trial, but now more and more are starting to.

But to say that IAs have huge upfront commissions compared to VAs is just not accurate. Maybe 10 years ago that was accurate. But today the average comp is probably around 6% for a 10 year product. And like anything else in this industry, the lower comp products seem to be the most competitive more often than not.

Now you can go find a product or two that will be contrary to what I just said. But lets compare the cream of the crop...

JN 5 year Elite Access VA: 6.5%
Athene 5 year Target Horizon IA: 8.5%

Thats 2% more.... but at the same time you pay a premium for the security of never going negative.

That Target Horizon 5 has a 2.55% Spread against the S&P on a point to point basis.
The JN VA is at a 1% Fee.

So the client is paying an extra 1.5% in fees and risks an extra 2% in surrender charges, in exchange for never taking a loss due to a drop in the market.


Or you could compare JNs 7 year VA to NWLs 7 year IA...

JN- 8.5% 1st year surrender charges , 1.3% M&E/Admin

NWL- 9% 1st year surrender charges , 2% spread with 80% Participation Rate


You can go out there and find examples contrary to mine... but I can do the same with VAs. I admit not to the same extent as you could IAs, but I can still do it.

You can find products like JN or Jef Nat with reasonable fees and surrender charges. The same can be said for the IA market. Your generalization is way more off than mine possibly was...

Do you know anything about IUL's? I wrote one that was issued 2/11/14. On the 2/11/15 statement no money was made even though the s&p went from 1800 to 2068. It was a point to point crediting method. I know I need to call the company just wanting to know if im missing something before I do

Thanks

 

[Norwayguy]

Do you know anything about IUL's? I wrote one that was issued 2/11/14. On the 2/11/15 statement no money was made even though the s&p went from 1800 to 2068. It was a point to point crediting method. I know I need to call the company just wanting to know if im missing something before I do

Thanks

First question was it a monthly pay or annual dump in because if it was monthly only 1 month would really be reflected in that statement. Also it's likely costs are taken first before funds get to the index. And how was this set up increasing death benefit max funded to guideline premiums?