Why Bother with Fixed if Variables Have Lock-ins?

[Norwayguy]

I ran into a guy recently who knew exactly how hisn variable annuity worked. He even knew the fees. That was the first time that has happened to me. He was a retired CFO.

Otherwise 99% (used to be 100%) of people who I talk with regarding their currently owned Variable Annuities are surprised by one or both of these:

1. Their fees are more than the $25 annual fee. The jaws drop when they see, on average, 3% - 4% in fees

2. Thier income account is not a guaranteed 5% interest but a rollup rate. The confusion starts when I explain to them they need to take that only as an income stream. "What do you mean I am not getting 5% guaranteed interest!?"

It is the responsibility of the variable annuity agent to explain these two major concepts. However, I will gladly do that job for them and earn the business.

Another observation with these VA's - more often than not, these people have more than 90% of their nest eggs in these VA's. Talk about suitability concerns!

Having Previously sold VAs and informing clients of the fees I can attest that they have selective hearing as I now come back in the house and show them once again the fees they are agahst at the fees.

 

[0b1kanobee]

Having Previously sold VAs and informing clients of the fees I can attest that they have selective hearing as I now come back in the house and show them once again the fees they are agahst at the fees.

Another thing about fees................nobody cares when they are getting a 9% return (net of fees).

 

[Norwayguy]

Another thing about fees................nobody cares when they are getting a 9% return (net of fees).

Yeah but they do when they are losing money and paying fees.

 

[scagnt83]

Another thing about fees................nobody cares when they are getting a 9% return (net of fees).

And how many investors are actually getting that??
The answer is not many. Maybe some over 2009 and 2010; but when you look at most large cap based funds, again, its not many.
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I would say Mutual Funds are a tad less complicated when compared to a VA with these living benefits...

IDK...

First you have Stock based funds:
growth funds, value funds, equity income funds, index funds, small/mid/larg cap funds, sector funds, socially responsible funds, regional/global funds, emerging market funds, etc


Then you have Bond Funds:
Corporate, agency, municiple, treasuries, short term/intermediate, high yield

Then you have Balanced Funds, Target Date Funds, Funds of Funds, MM funds



Then come the fees:
Management fees, 12b-1 fees, "other expenses", Account Fees, Redemption Fees, Exchange Fees, Purchase Fees


Then you have Loads which are dependent on the 4 different share classes....

The you have any Management or Advisory Fees the Broker charges.



To properly explain a portfolio of mutual funds vs. a VA should take about the same time imo... and if the MFs are FULLY explained, then they can be just as complicated imo

 

[0b1kanobee]

I don't know of any other product that can have you fully in the market and provide all the guarantees a VA can. I think some have a full return of premium 10 years later, not that I would buy one for that but the market won't do that. Now whether someone should be in a VA or not is not the issue because as we know, sometimes they are appropriate and sometimes they are not and it is a case by case bases just like ANY product.

If I were retiring today and my situation was like most I meet with, I could assure you that even though I don't sell a VA, I would probably have some money in a VA, especially with fixed rates where they are.

I have one small FIA and I think I'm gonna see if I can get a small VA (like real small). If I ever offer them, I will at least be able to say I have owned one for x amount of years myself.

 

[scagnt83]

I don't know of any other product that can have you fully in the market and provide all the guarantees a VA can.

The problem is that your statement is an oxymoron.

If someone needs guarantees the market isnt the best place for them.

And if they do feel the need to be in the market (to have that increased possibility), they should be in dividend paying blue chips & historically strong bond funds. If the market does perform well they will outperform most retail funds.


The problem with VAs is that most advisors sell them as being in the market with the safety of a 6% guaranteed return.


If the client feels they need the guarantee, they shouldnt be directly in the market... at least not stocks & stock funds.

There are too many alternatives now with IAs.

 

[dgoldenz]

I also wonder how many people would buy VA's if they knew exactly how much they were paying in fees every year. 3-4%?!

 

[VolAgent]

I also wonder how many people would buy VA's if they knew exactly how much they were paying in fees every year. 3-4%?!

Not too far off the fees for managed money. They are in the 2-3% range once you are all in. There are some advantages that a VA brings that managed money doesn't. Although, I suspect most VAs get sold inside an IRA now, which does negate some of the advantages.

 

[0b1kanobee]

If someone needs guarantees the market isnt the best place for them.

Depends what guarantees you are referring to. Guarantees on principal or guarantees on income? Are we talking about a 40 Y.O. making 400k per year or a 65 year old that needs to make 400k last all her life? (I'm quoting my brother here LOL)

Between an IA and a VA, which one do you think has the best odds of beating inflation? Which one do you think has the best odds for growth? What purpose if any do you think a VA has?

I just got off the phone with my brother, he was the number 1 agent for ING last week (fixed products) in the entire country and the number one agent for Symetra 2 years ago in the entire country with fixed products (for the year) and we were chatting briefly about VAs. He said this was the exact reason he refuses to get on any forum because too many people paint with too big a brush. Something about a bunch of Suzie Ormons and a snicker. I think he said he wrote 20+ VAs this year and lost count of how many he re-papered.

My point is that he is in the top 10% of annuity producers in the country. I asked him if there was anything wrong with my statement and it being an oxymoron and he said no. It all depends on the situation, age of client, ect. ect. Too many factors come into play to have any kind of decent discussion about these types of things.

He said he just lost a case because he didn't present a VA to a couple. He went down that path but they weren't 'feelin' it so he ended up offering them a JN fixed 10 year Elite. He just got an email saying they went with a VA from another adviser and he had never even heard of the VA or the carrier/company. He has no intentions of saving the sale. Said he didn't want them anyway after she said something like she likes to stop in every week and see her adviser.

 

[Norwayguy]

Depends what guarantees you are referring to. Guarantees on principal or guarantees on income? Are we talking about a 40 Y.O. making 400k per year or a 65 year old that needs to make 400k last all her life? (I'm quoting my brother here LOL)

Between an IA and a VA, which one do you think has the best odds of beating inflation? Which one do you think has the best odds for growth? What purpose if any do you think a VA has?

I just got off the phone with my brother, he was the number 1 agent for ING last week (fixed products) in the entire country and the number one agent for Symetra 2 years ago in the entire country with fixed products (for the year) and we were chatting briefly about VAs. He said this was the exact reason he refuses to get on any forum because too many people paint with too big a brush. Something about a bunch of Suzie Ormons and a snicker. I think he said he wrote 20+ VAs this year and lost count of how many he re-papered.

My point is that he is in the top 10% of annuity producers in the country. I asked him if there was anything wrong with my statement and it being an oxymoron and he said no. It all depends on the situation, age of client, ect. ect. Too many factors come into play to have any kind of decent discussion about these types of things.

He said he just lost a case because he didn't present a VA to a couple. He went down that path but they weren't 'feelin' it so he ended up offering them a JN fixed 10 year Elite. He just got an email saying they went with a VA from another adviser and he had never even heard of the VA or the carrier/company. He has no intentions of saving the sale. Said he didn't want them anyway after she said something like she likes to stop in every week and see her adviser.

You've gotten kind of of the original topic...The OP asked why even bother with Fixed annuities when VAs offer these lock-ins and the simple fact is there are many reasons to still offer Fixed Annuities and the main one being if your client needs access to the account value and not just an income stream.