Top 5 reader comments this week on ProducersWEBBlog added by Lauren McNitt on December 16, 2011
Top comment no. 1
Tony Orr adds several points to Lew Nason's blog, The truth about fixed indexed annuity income benefit riders:
Great article Lew.
There are several additional deceptive sales tactics used by advisers who sell VAs. I will use the following points to illustrate:
1. Advisers use an 8 percent annual return rate.
2. They forget to mention that with a hypothetical All-In annual fee of 3.5 percent, a $250k deposit in a VA with an eight year surrender schedule will cost the owner about $85k in fees over the eight year period.
3. If the primary goal of the client is to receive guaranteed income for life, use an FIA. Using a 4% annual return rate (instead of 8 percent) and add a 0.65 percent rider fee, the total cost equals about $15k over the same eight year period. Advisers fail to provide this information to their clients.
4. Using the All-In fee example from above, the "Annual Fee Adjusted Net Return Rate" for the VA equals 4.42 percent, whereas the Annual Fee Adjusted Net Return Rate for the FIA equals 3.40 percent. Is the extra 1.02 percent return rate spread worth the $70k fee difference? In my opinion, I think not. Especially when the VA ending account balance is only $29k ahead of the FIA. (VA assumes an unrealistic 8 percent linear return rate)
Until producers know how to offer a cost benefit comparison between the VA and FIA, the VA advisers will continue to deposit $140 billion per year in to their products, while the FIA producers deposit $30 billion per year in theirs.
Top comment no. 2
Ryan Pinney comments on Why the U.S. will continue to succeed: Let's forget the doom and gloom, by Philip Eide:
Philip, I enjoyed the article and see the value of your sentiment. I also agree that we need to more actively engage in the political process. Even more importantly we need to support our professional associations like NAIFA and AALU that our lobbying on behalf of us and our clients to protect the products and services we offer. The value of tax-free death benefits, deferred taxation on annuities, and the power of cash accumulation and income available as inside build-up in life insurance is truly incalculable.
Unfortunately, it is also at extreme risk due to governments overspending and constant need to find new revenue source (increase taxes). This is just compounded by the states and federal governments creating unnecessary, over burdensome, and redundant regulations.
Top comment no. 3
Why are financial advisors ignoring the opportunity of selling life insurance?, by Ken Godfrey clarifies why financial advisors aren't focusing on selling long term care insurance for Barbara Hanson:
OK-now I understand why long-term care insurance is not on the FA roster, either. Sales process for LTC insurance can be lengthy and even when the client agrees to apply for the coverage, the underwriting process may take an additional 90 days or longer to complete, not simple transactions, need special expertise and additional CEU and training, maintenance issues, delayed commission, long tail for issues/legal exposure.
Same issues as life insurance, and yet their clients who are turning 65 years old will face a 70% chance of needing LTC services. Hopefully, FA's will pair up with LTC specialists to prevent the loss of their clients' assets, and be the hero when the kids/spouses keep their "saved" assets with that smart FA who protected ALL their money. Thanks for the insight on "why?" LTCi ihas often been ignored, or worse--not even recommended, by FA's.
Top comment no. 4
Hank Glass comments on Lisa McLeod's article, The sales rep who loved, and why you should be very afraid:
You are absolutely right. We have an advisor that has closed 97 of his last 97 cases and he is the most passionate advisor we have.
Just talking with him over the phone makes you feel like he's really out there making a difference. He has a unique strategy that he applies to every one of his cases, but it's his passion for his trade that truly shines through.
Top comment no. 5
Stephen Forman commends Ike Devji for bringing attention to long term care in his article, Why failing to plan for extended family’s finances creates liability for you, and gives Devji a few suggestions:
It's great that as an asset protection attorney you're helping to spotlight the role LTC insurance can help your clients in planning for their futures.
I might suggest broadening the base of clients for whom you consider LTCI ("older folks who are likely to need care") for a number of reasons, the first being our very human inability to predict who among us will or won't ultimately need care, what kind it will be, and for how long it will last. Second, the younger clients are when they apply, the more likely they are to qualify for good health discounts (and to qualify at all), the more options they may have, and the less they will pay over their lifetimes.
I am also curious about your Medicare & Medicaid Planning business. Although Medicaid Planning carries a huge profesional liability risk (ie advising clients how to qualify for a bankrupt program whose benefits, triggers, quality, and access cannot be predicted from year to year with any certainty), I recognize that it's extremely popular. However, I must confess I've flat-out never heard of "Medicare" Planning. Are you at liberty to describe what "Medicare Planning" is?
I'm disheartened to hear that individuals are losing their homes in order to qualify for Medicaid: they are allowed to exempt $500,000 in home equity in all states but a few (in which they can exempt $750,000), so these were clients of above-average means. If nothing else, perhaps their tragedy will serve as an example that better alternatives exist.
Stephen D. Forman
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