What is "Suitability?"

[scagnt83]

This thread is a hoot, a lot of heat getting thrown around.

I wasnt trying to say anything bad about anyone. A Private Mortgage can be a great investment for the right person. Just like an Annuity can be a great investment for the right person. But they have very different levels of risk, I was just trying to point out those risk factors.

I know GulfMan, he is just asking out of curiosity. He doesnt sell annuities.

 

[VolAgent]

I wasnt trying to say anything bad about anyone. A Private Mortgage can be a great investment for the right person. Just like an Annuity can be a great investment for the right person. But they have very different levels of risk, I was just trying to point out those risk factors.

I know GulfMan, he is just asking out of curiosity. He doesnt sell annuities.

Never said you or anyone else was. It simply felt like a lot of passion in the responses. Definitely not FE level, but some passion by many responding.

 

[LGilmore]

maybe my fault for it sounding passionate. I just think some agents are duped into certain products by the numbers and they pay no attention to the risk involved.

Probably few here remember Executive life and their 15% return for the life of the policy life product. Executive life was pretty much entirely funded on junk bond purchases. They were able to pull it off for a while, then the bottom fell out. Rumor back then had NYL buying the book. I got flooded with calls from FL by panicked seniors whose retirement fell apart. I have no idea how they got my number, but when you hear people sobbing on the other end of the phone, with no idea what to do, it does effect you somewhat passionately.

We... our job.. if we're professional.. is to look at what's presented to us with a skeptical eye. I don't look at what's right with something until I review what's wrong with something. The upside of products is only one part. Understanding the downside and being able to explain to clients the downside effectively is our job.

A downside doesn't necessarily mean non purchase, but it does educate the consumer, which protects your business and their money.

 

[nylife11023]

Fixed annuities and indexed annuities are not investments. They are insurance products.

A lot of people would disagree with you on this when discussing indexed annuities.

I'm one of them.

An "insurance product" is used for protection from sudden death of an individual where those who have an insurable interest in that individual would suffer financial harm.

You can make the same argument for an indexed annuity, but it would be a stretch if not an outright lie.

Given the complexities of indexed annuities...

- Choosing the 'best' index
- Choosing the appropriate crediting method
- Choosing the opportune time to buy to establish a benchmark date
- Explaining (understanding) the surrender costs
- Understanding any income components that are attached
- Choosing which annuity is best for different client situations
- Understanding what an index is and how it is computed and how it 'moves'
- Understanding what annuities are invested in and the risks they have

... it is beyond the scope of the insurance license... and is even beyond the knowledge-level of most of those who hold securities licenses to sell these products.

As much as the annuity industry wants people to believe that these are slam-dunk simple... like CDs... the truth is that these are very complex [derivative] products.

In my opinion indexed annuities (actually indexed-anything) should be sold by people who have had more than just a few hours of (online) course work in what they are, how they work, the risks involved, etc., etc.

[Before you yell and scream that I don't understand what indexed annuities are, save your time and your allocation of electrons because when you tell me that no one can lose any money with an indexed annuity I can show you all the ways that those who sell annuities can be wrong (and often are) in the advice they give on what annuity to buy, what index to choose, what crediting method to apply, etc. and exactly how easy it is for buyers to not make any return at all for years and years on the money they INVEST... which is indeed a LOSS for them (but not the carriers who are more than happy to not pay annuity owners a penny... it makes little difference to them if the owner wins or loses. Their a$$es are covered via the futures and options markets. They have much better odds of winning than a Vegas casino!)]

 

[walthamny]

Something like this generally fits people in the very HNW area. If you have 100 million, sure you can make the arguement that putting 500K into something like this would give diversity and higher income, the liquidity risk is simply not there for someone who is worth 100 million or more.

However, for someone who has 500K and you only put 125K into such a product, sure you will get a nice commission and even if you explain all the product features and the client agrees in writing and on video and the pope witnessing their signature, it won't surprise me in few years circumstances change and they want liquidity. Or they die and the beneficiaries dont care anything about what your client has said or has signed, they will sue you because they want the funds fast.The beneficiaries are not going to wait 28 years to get a somewhat higher yield. By the way, your life insurance E&O won't cover you in a case like this.

The reason these things work in the High net worth area is that usually these securities are sold to a personal trust, and trust departments have someone independently reviewing them for principal and income beneficiaries.

If you want to sell these type of securities, join a wealth management firm or a family office.

 

[VolAgent]

A lot of people would disagree with you on this when discussing indexed annuities.

I'm one of them.

An "insurance product" is used for protection from sudden death of an individual where those who have an insurable interest in that individual would suffer financial harm.

One, that is not what an insurance product is. That is what a life insurance policy is. An insurance product is much broader, it is simply the transference of a risk to a third party in exchange for a specified premium(s).

An annuity is an insurance product that was originally designed to be the opposite of a life insurance policy, protection against living too long. While generally not used that way, that is most definitely what an indexed annuity is. Due to the definitions used in regulations and how an indexed annuity works, it does not meet the legal definition of an investment. You can argue all day long until you are blue in the fact, it won't change the definition. Thus, any insurance agent with half a brain will not refer to an indexed annuity as an investment. Now, if you don't agree with this, then you need to get the SEC and state security regulators to change their stance on this. Until then, you are just ****ing in the wind.

Now should indexed annuities be more highly regulated? That is a different topic completely.

 

[DHK]

A lot of people would disagree with you on this when discussing indexed annuities.

I'm one of them.

An "insurance product" is used for protection from sudden death of an individual where those who have an insurable interest in that individual would suffer financial harm.

You can make the same argument for an indexed annuity, but it would be a stretch if not an outright lie.

Given the complexities of indexed annuities...

- Choosing the 'best' index
- Choosing the appropriate crediting method
- Choosing the opportune time to buy to establish a benchmark date
- Explaining (understanding) the surrender costs
- Understanding any income components that are attached
- Choosing which annuity is best for different client situations
- Understanding what an index is and how it is computed and how it 'moves'
- Understanding what annuities are invested in and the risks they have

... it is beyond the scope of the insurance license... and is even beyond the knowledge-level of most of those who hold securities licenses to sell these products.

As much as the annuity industry wants people to believe that these are slam-dunk simple... like CDs... the truth is that these are very complex [derivative] products.

In my opinion indexed annuities (actually indexed-anything) should be sold by people who have had more than just a few hours of (online) course work in what they are, how they work, the risks involved, etc., etc.

[Before you yell and scream that I don't understand what indexed annuities are, save your time and your allocation of electrons because when you tell me that no one can lose any money with an indexed annuity I can show you all the ways that those who sell annuities can be wrong (and often are) in the advice they give on what annuity to buy, what index to choose, what crediting method to apply, etc. and exactly how easy it is for buyers to not make any return at all for years and years on the money they INVEST... which is indeed a LOSS for them (but not the carriers who are more than happy to not pay annuity owners a penny... it makes little difference to them if the owner wins or loses. Their a$ are covered via the futures and options markets. They have much better odds of winning than a Vegas casino!)]

The (sometimes inept) competency of those selling the product does not change the classification of the product itself.

Fixed Indexed Annuities are NOT securities because they do not invest directly in the index, nor do they directly purchase the stock options that allow for the opportunity for indexed-interest credits. The stock options are purchased by the general investment account of the insurer.

Yes, it is possible to own a FIA and not have a gain. But to call that financial harm... would be the stretch.

An annuity, when properly sold, solves for 4 areas, as outlined by Stan "the Annuity Man" in his "The Annuity Stanifesto" book:
P = Principal Protection
I = Income for Life
L = Long Term Care
L = Legacy (life insurance is superior though)

You'll notice that 'Growth' was not in there at all. I know, that doesn't stop some peddlers from promoting it as a "be all and end all" product... but I can't control other agent's actions. My job is to provide clarity where there was confusion.

 

[Gulfman]

I wasnt trying to say anything bad about anyone. A Private Mortgage can be a great investment for the right person. Just like an Annuity can be a great investment for the right person. But they have very different levels of risk, I was just trying to point out those risk factors.

I know GulfMan, he is just asking out of curiosity. He doesnt sell annuities.

LOL...that's correct i don't. I'm just throwing out an idea after meeting a national lender who sells these things. I was doing some discovery work to see how they fit with insurance and retirement accounts, etc. Low risk IMO. Borrower doesn't pay the mortgage, you foreclose. ALL mtgs he owns are HOEPA, reg z and sec.32 compliant.

I've owned a few priv.mtgs myself and never had a problem with them and i also know a couple of guys who made "a lot" of money with private mortgages. Personally, I know little about the biz of selling priv.mtgs and that's why i asked about its "suitability" aspect.

As far as EO goes, i'm not sure its available for selling priv.mtgs since they aren't a security and the Lender has a national license. I'll have to find an EO agent who can answer that question. Anyone know of one to call?

***BTW, a company called "woodbridge" in sherman oaks sells the crap out of something very similar...but theirs is definitely a security. They sell commercial mtg. notes without the mortgage---just the note. (i assume they are lic.to sell securities), because that's exactly what that is. My guy is selling residential seasoned mortgages with the note, attached to a specific piece of property.

~G

 

[nylife11023]

Thus, any insurance agent with half a brain will not refer to an indexed annuity as an investment.

OK, so you are implying that there are insurance agents who have only half a brain. We can agree on that. I'm curious what percentage of agents are part of this group? Ten percent? Forty percent? I'm sure your number would differ from mine, but since neither of us could prove our hypothesis the argument is moot.

Now, if you don't agree with this, then you need to get the SEC and state security regulators to change their stance on this.

This has been going on for quite some time and while the political climate is not 'ripe' for such a change right now, my guess that in my lifetime (probably sooner than later) there will be a number of high-profile cases about indexed annuities such that the requirements for selling them, as well as the disclosures necessary will be increased... at least to the point where the half-brain agents won't be pitching them as investments.

Until then, you are just ****ing in the wind.

It would not be a post by you on this forum if it didn't contain a vulgar personal implication. You never disappoint.

Now should indexed annuities be more highly regulated? That is a different topic completely.

It is a topic we would probably disagree on. Given the complexity of these products I believe they should be sold by those formally trained in them... at least 100 hours of course work.

Of course I also believe that no one should be allowed to sell any financial product without having a the ability to matriculate through a credible four-year college education with a year of coursework (perhaps at the graduate level) of business, finance, economics, etc. In many states you have to have more formal education to groom a dog or style hair or paint fingernails than to sell complex financial instruments.

At some level, a fiduciary standard/rule might help this situation, but I believe that most agents on this board believe that fiduciary and suitability are the same thing and there is no convincing them otherwise so trying to argue for such a fiduciary standard, much less more stringent regulation on this board is pointless.

And yes, everyone here knows that anyone who 'dares' disagree with you is an %$#@! so please spare us your scatalogical invectives. We get it. We do, we do.

 

[VolAgent]

You really seem to have me confused with someone else. I guess I shouldn't be surprised. You seem to think you more than you really do as well.