Why Bother with Fixed if Variables Have Lock-ins?

[VolAgent]

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.

As your brother says, its all relative.

How would someone in a VA fared in comparison to inflation over the past 10 or 12 years, particularly when viewed against an IA? Of course, how would the IA done versus a VA in the 80s or 90s?

 

[dgoldenz]

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.

An average person could throw darts at a board of low-cost index funds and do better over the course of 40 years than paying 2-3% a year in fees to have someone "manage" their money. Never ceases to amaze me what people pay in fees for what is often bad advice. If "money managers" were able to consistently beat the market, they'd be running a big hedge fund and making billions of dollars.

Hey, let's charge you 1% in fees and then stick you in funds with another 1-2% in fees. How's that sound? Great! Let's get started.

 

[0b1kanobee]

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.

Yeah I know and I'm about to write two tomorrow (fingers crossed) for those reasons plus some others.

 

[Norwayguy]

Yeah I know and I'm about to write two tomorrow (fingers crossed) for those reasons plus some others.

I don't hate VAs, lord knows I sold a lot of them back when I had my securities license but there is something very calming to me to never worry about what the market is doing to my clients accounts....I know I would meet with my clients and reallocate accounts etc and when I left my former agency I had an 18 month non solicitation agreement which even though I wasn't bound by it (long story for different thread) I abided by it but one calling my former clients 18+ months later many had not had a review since I left and those that did the agent said everything looks find attempted to increase contributions and left when clearly needs had changed as well as the results in the accounts.

I mean there is something wrong when a client calls concerned about thier account and thier "Agent" says I will get back to you next quarter.

 

[0b1kanobee]

An average person could throw darts at a board of low-cost index funds and do better over the course of 40 years than paying 2-3% a year in fees to have someone "manage" their money.

What if the person doesn't need 40 years? What if they only need 20? What if they only need 10?

What if their situation keeps changing? That dart board idea doesn't start to look so good now does it?

That's the thing with numbers, charts and graphs. With the right time frame you can make just about any statistic come to whatever favorable opinion one desires or appear a certain matter of fact way.

BTW David, I'm not really disagreeing with you. 40 years provides a good buffer to make mistakes. As the clock winds down though the time frame for wrong moves and badly thrown darts is not a good strategy.

 

[Todd King]

What if the person doesn't need 40 years? What if they only need 20? What if they only need 10?

What if their situation keeps changing? That dart board idea doesn't start to look so good now does it?

That's the thing with numbers, charts and graphs. With the right time frame you can make just about any statistic come to whatever favorable opinion one desires or appear a certain matter of fact way.

63.7% of all statistics are made up on the spot....just like this one!

 

[dgoldenz]

What if the person doesn't need 40 years? What if they only need 20? What if they only need 10?

What if their situation keeps changing? That dart board idea doesn't start to look so good now does it?

That's the thing with numbers, charts and graphs. With the right time frame you can make just about any statistic come to whatever favorable opinion one desires or appear a certain matter of fact way.

So people should be dropping $10k, $20k, $30k, $50k/year to change asset allocations once in a while? How much does that work out to per hour? A difference of 1% in annual fees for someone investing $10k per year amounts to about $500-600k over the course of 40 years. A 2% difference amounts to about a $1M difference over 40 years. How many people would still pay these fees if they were actually shown those numbers?

If people actually learned anything about finance in school they wouldn't be leaking retirement money for the ridiculous fees that so many advisors/companies charge.

 

[ScottLFB]

I've run into a number of VA guys in the last month who are all talking about that Prud HD product.. It amazes me how I have to explain their own product to them and what that 5% really is.. All they know is that it's a 5% "guaranteed rate", then I have to explain the difference between cash accumulation and Income account values in order to see that return...

Best Rate Guarantee I have right now is 4.25% 1st yr 3.25% yrs 2-7 MYGA.. Fixed and Securities Agents are loving it right now as long as they're not drinking Broker/Dealer kool-aid and having to send all the Fixed thru the B/D for a Haircut..

 

[0b1kanobee]

BTW David, I'm not really disagreeing with you. 40 years provides a good buffer to make mistakes. As the clock winds down though the time frame for wrong moves and badly thrown darts is not a good strategy.

I think you missed this part David. But to answer questions David, I honestly don't know. I'm not the guy to talk to about accumulating money and how to do it.

I can tell you if it is apples to apples then the way to go is the way that costs less money (apples to apples). I have a client who has done very well for herself and has never used an adviser her entire life till she met me for her annuity. She still actively trades and makes a better return than my annuity provides (so far) but that isn't why she bought the annuity.
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Best Rate Guarantee I have right now is 4.25% 1st yr 3.25% yrs 2-7 MYGA.. Fixed and Securities Agents are loving it right now as long as they're not drinking Broker/Dealer kool-aid and having to send all the Fixed thru the B/D for a Haircut..

And that is a great product providing you aren't selling it to someone who needs the opportunity to beat inflation coupled with guaranteed income over the next 7 years. For someone that needs opportunities for growth and is older, that product won't do it.

I think we all get a little boner every time we run across an agent who doesn't know his product and at the same time we all get a little bit of that black eye because of it because whether you like it or not, we all get grouped in the same lot.

Just look at David's post. Because so many people have lost money while paying good money to earn it, he thinks that every adviser client relationship works this way and I say that because he hasn't defended it only attacked it. I think if he takes a step back or I do we will both realize he is not talking in terms of absolutes. I know plenty of people paying fees who have lost money and made money. To say that one way is right or wrong is saying any other way doesn't work and that is simply not true.

 

[financemama]

You've gotten some great advice here, there are many differences between fixed and variable annuities that you need a clearer view of. The products are right for different people depending on your preferences, risk aversion, and future plans. An Annuity FYI expert could help you with any questions for no charge.