- 477
Why would a compliance officer have a field day? Not sure of the point you are trying to make.
Who Has the Most Leinant Suitabillity?
- Thread starter taz
- Start date
Why would a compliance officer have a field day? Not sure of the point you are trying to make.
- 11,457
What is the #1 job of a compliance officer? To protect the firm.
From what? Complaints from clients.
Annuitizing would keep the firm and the rep out of harms way. Why? Because there was no new transaction where the firm or rep would gain from giving that advice.
However, recommending the client to pay 4.5% in surrender charges to move the funds to another investment or annuity (with new sales charges for mutual funds, new fees for AUM, or a new surrender schedule for a new annuity) does NOT look like a transaction that was made in the best interest of the client, REGARDLESS of the perceived increase of benefits.
So the email message from the compliance department will look something like this: "What is the financial justification for charging 4.5% to exit the current annuity in order to enter a new surrender schedule, charge new mutual fund fees, or move into an AUM program?"
What possible justification would a rep have that would work to keep the firm protected?
There is only one way that I could think of: Let the client liquidate the annuity on their own without any input from the rep. Then let the rep show the different options while implicitly stating that the liquidation of the annuity was not solicited at anytime.
When I was securities licensed, I had a client who came to me with $150,000 proceeds from a home equity line of credit. We discussed possible investment ideas, but I contacted my compliance officer afterwards - just to be sure that a recommendation couldn't get us into trouble. He asked if I had solicited the home equity funds or recommended that he take out the loan. I absolutely had nothing to do with that part. So he recommended that I document that and make an appropriate recommendation. (I think I recommended some C-share mutual funds, so compensation was low and it was only a 1-year CDSC to maximize liquidity and minimize his expenses.)
I must've done a switch letter to indicate and have the client sign that the home equity proceeds was unsolicited by the advisor, but the investment recommendation was solicited.
Anyway, protecting your firm, your licensing, and your livelihood should come first before making recommendations that would appear sketchy on paper. Having the client pay 4.5% and then recommending a new product sure can look like "churning".
From what? Complaints from clients.
Annuitizing would keep the firm and the rep out of harms way. Why? Because there was no new transaction where the firm or rep would gain from giving that advice.
However, recommending the client to pay 4.5% in surrender charges to move the funds to another investment or annuity (with new sales charges for mutual funds, new fees for AUM, or a new surrender schedule for a new annuity) does NOT look like a transaction that was made in the best interest of the client, REGARDLESS of the perceived increase of benefits.
So the email message from the compliance department will look something like this: "What is the financial justification for charging 4.5% to exit the current annuity in order to enter a new surrender schedule, charge new mutual fund fees, or move into an AUM program?"
What possible justification would a rep have that would work to keep the firm protected?
There is only one way that I could think of: Let the client liquidate the annuity on their own without any input from the rep. Then let the rep show the different options while implicitly stating that the liquidation of the annuity was not solicited at anytime.
When I was securities licensed, I had a client who came to me with $150,000 proceeds from a home equity line of credit. We discussed possible investment ideas, but I contacted my compliance officer afterwards - just to be sure that a recommendation couldn't get us into trouble. He asked if I had solicited the home equity funds or recommended that he take out the loan. I absolutely had nothing to do with that part. So he recommended that I document that and make an appropriate recommendation. (I think I recommended some C-share mutual funds, so compensation was low and it was only a 1-year CDSC to maximize liquidity and minimize his expenses.)
I must've done a switch letter to indicate and have the client sign that the home equity proceeds was unsolicited by the advisor, but the investment recommendation was solicited.
Anyway, protecting your firm, your licensing, and your livelihood should come first before making recommendations that would appear sketchy on paper. Having the client pay 4.5% and then recommending a new product sure can look like "churning".
Last edited:
- 8,707
No mention was made of what the current annuity is doing..... I have tons of policies that I would never touch still earning a guaranteed minimum of 4% compared to something today.
- 477
As I stated earlier he should never have the client pay the 4.5% penalty.
Why do you think taking $80,000 of the $135,000 and annuitizing where she can never have access to the money again is alright?
Most people if aware of the fact they cannot access there money would pass expecially when their are other options if presented to them by someone licensed and knowledgeable in other areas besides annuities.
Last edited:
- 11,457
Because according to this post above, she doesn't have access anyway:
Hmmm... You've been asking about annuitizing an illiquid contract will prevent access to the money... but the money isn't accessible now... so it's a moot point.
Hmmm... You've been asking about annuitizing an illiquid contract will prevent access to the money... but the money isn't accessible now... so it's a moot point.
- 8,707
There is annuitizing and then there is annuitizing big difference between just life and a 5 year annuitization which a lot of policies allow as a way of avoiding surrender penalties.
Finally just how great is an income rider on an IRA with RMDs yes most waiver surrender charges for RMDS and unlike annuitization the customer does not lose whatever value has not been paid out but with RMDs it's kind of a moot point.
Just so you know, there are several products that offer liquidity after annuitization...not saying this is one, but they do exist.
- 11,457
Exactly. I never recommended a specific term of payment, just a period certain of some kind should be chosen so the annuitant or beneficiaries receive the full value of the contract.
- 477
Thanks, that is really good to know. I always stayed away from annuitization because of the liquidity.
----------
A moot point????? She does have access to the money now but will have to pay a penalty, if she annuitized she probably has no access to the money period. That is a big difference.
- 11,457
Who are you to change the client's priorities?
If the client wants lifetime income, and the current annuity has surrender charges, then the best choice is to annuitize the existing contract.
Unless you're going to change the client's objectives, your point is moot.
----------
Every annuity that is set up for lifetime income is ILLIQUID. Whether it's an annuitized annuity or a quasi-annuitized annuity (lifetime benefit riders).
You keep bringing up liquidity. That wasn't our job and that's not what the OP is asking about.
If the client wants lifetime income, and the current annuity has surrender charges, then the best choice is to annuitize the existing contract.
Unless you're going to change the client's objectives, your point is moot.
----------
Every annuity that is set up for lifetime income is ILLIQUID. Whether it's an annuitized annuity or a quasi-annuitized annuity (lifetime benefit riders).
You keep bringing up liquidity. That wasn't our job and that's not what the OP is asking about.
Similar threads
