Brent D. Gardner, ChFC wrote:
- quote -

Not that I necessarily "malign" VAs, but the deal-killers for me are I
think more mundane:

1. When used as a long-term accumulation vehicle, they turn long-term
capital gains into ordinary income. If the overall planning favors
long-term capital gains, as it often does, that would be one strike
against the VA wrapper, and one that could cost quite a bit in net
returns. While favorable treatment of CGs might change at some point in
the income, estate, or charitable/gift contexts, it seems unlikely that
the entire advantage will go away. Until it does I think investment
advisors need to favor LTCGs over ordinary income for higher-bracket
clients, and perhaps for most clients, simply because a 10%+ advantage
in taxes is that much higher an effective return. Not to mention the
loss of basis step-up at death.
Caveat: if you're using strategies that generate a lot of taxable income
year to year, or that could, then you'd balance the tax benefit of the
wrapper vs. the loss of CG treatment.

2. The investment alternatives don't look like those in an unconstrained
portfolio, at least for my practice.

3. I have yet to hear a client ask for a "guaranteed" anything; it just
hasn't been a high-priority goal in the selection of investments and
wrappers.

I'll restate my point though that these kinds of decisions depend in
part on the type of practice you have, and the the types of clients you
work with. I take a very active role in investment management, and if I
didn't, the VA illustrations would be more compelling. And at the end of
the day, you can make money either way.

-Tad

"zak" <zhendsch[at]yahoo.com> wrote in message
news:a7a1bede.0401061127.622ea875[at]posting.google.com...
- quote -

That's often how I sell the plan in the qualified/IRA market. Using
proprietary software, I can illustrate how much one needs to save to
guarantee a specified income at retirement. Then we invest for growth, with
a GMIB rider as a safety net. At some point, they can either save less, or
retire early, but as long as they stick with the plan, they are guaranteed
to have enough to retire on when they need it most.

The beauty of a defined benefit plan is "fully funded" benefits. Actuarial
assumptions are often very conservative. When actual returns are higher than
anticipated, the required premium/contribution to the plan decreases. If one
owns a VA with a GMIB rider, they can keep adding to the plan, enjoying both
increased guaranteed income AND potentially higher returns from the
underlying portfolio. Just like Fixed Index Annuities, these living benefit
riders are relatively new to retail investors, BUT -- they've been available
to instututional investors for decades. Pundits talk about "what ifs" ad
infinitum, and use anecdotal evidence to tear them down. In reality,
insurance companies have a LOT of experience with these plans, and they are
priced accordingly. AM Best keeps a wary eye on them, and currently, most
are in excellent shape.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

Once again, I must tip my hat to you Brent. I have never read a more concise
decriptive analasys of the Annuity Concept.

I have snipped out a single portion of your 10th explanation, to emphasis the
proble that we ourselves caused. There are a multitude of "persons" out there
for whom "the sale" is the only object. Service & future service are of absolutely
no concern. Most people fail to understand that a stockbroker (any formn thereof0
only gets paid a commission (dirty word) upon the completion of a sale. soooooooooo
if he/she sells you a product today, and you retain THAT product for the next 20
years, neither he/she nor the brokerage makes any more money (other than a
possible small trailer fee).

Cal Lester CLU




Failed bank reps and failed stock
brokers are the most liquid supply. They know the business, even though they
can't cut the mustard. Who is going to train them? Our agents are too busy.
So, give them a book, send them out, wish them luck. A failed stock broker,
having never sold life insurance and annuity, reads the book. Since they are
trained to sell over the phone, they need SIZZLE, because sizzle sells. Tax
deferral? That's SIZZLE! So, we unleased an army of failed brokers on the
world, as annuity wholesalers, and they talked about tax-deferral like it
was the greatest things since sliced bread. What about the primary benefit
of an annuity -- the income that cannot be outlived? Stock brokers aren't
going to sell that, nor are banks. Why? Because the money is lost to them
forever. Banks sell annuities, hoping they get the money back later in an
CD. Stock brokers do the same thing, except they want the money in a stock,
or bond, or LP. The VELOCITY of money was how they made their living, so
annuities were sold with the idea of moving the money again later, to make
another commission. Lifetime income was ignored, soon forgotten, except by a
few -- often the best -- financial advisors. During the heady 1990s, the lay







Brent D. Gardner, ChFC wrote:
- quote -

"Brent D. Gardner, ChFC" <bgardner20[at]cox.net> wrote in message news:<QBnKb.4753$zf.436[at]okepread05> ...
- quote -

Thanks for the explainations of annuities. I was wondering if anyone
sells a do-it-yourself pension-like annuity.

The way I envision it working would be that you pay X-dollars/year for
a long period (say 30 years), with the amount you pay increased each
year for inflation. Then you annuitize and are payed Y-dollars where
Y is an amount guaranteed at the start of the annuity adjusted for
inflation. (I.e. you pay $1000/year for 30 years and are guaranteed
$2000/year for the rest of your life with all payments, in and out,
adjusted for inflation each year). In other words, a single product
that insures an individual's retirement against longevity risk,
inflation risk, and investment risk, sort of like a defined benefit
pension with a cost of living adjustment.

Does such a thing exist?

"Paul E" <elliott.paul[at]att.net> wrote in message
news:sw6Kb.599227$0v4.23575833[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

9. Ignorance -- I've had fun with these guys for several years now -- "Death
benefits? Nobody ever collects, so that's a rip-off!" I've faxed copies of
claim lists to authors. They hate me, because I have exposed them for the
charlatans they are. Several have given up writing their moronic diatribes,
because I've continually used the truth as a sword to cut their lies to
shreds. Then there are the simpletons who argue "Don't put an annuity in an
IRA, because you're PAYING for tax-deferral that you don't get." The IRC
says tax-deferral is required by law -- there is NO COST. Never has been.
This is a straw man. I carry a butane lighter for arguments like this. Tax
deferral is NOT the primary benefit of an annuity -- a common misconception.
More on this in a moment. The battle between truth and lies is, in my view,
a fundamental battle between good and evil. Just because we've stomped out
some evil today doesn't mean we won't have to stomp out some more tomorrow,
because evil is like a virus -- it spreads, and grows, if not fought at
every step. The worst offenders are the willfully ignorant. They choose,
willingly, to ignore the truth. My peers and I, we know who they are, and
keep tabs on them. When they open up their mouths, we make sure their foots
finds its home again.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Paul E" <elliott.paul[at]att.net> wrote in message
news:sw6Kb.599227$0v4.23575833[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

profession. "Jealousy is the tribute mediocrity pays to success." -- Joe
Gandolfo, CLU, Ph.D. "He only sold you the annuity because of the
commission!" I've heard this a thousand times. Upon examination, those who
say this are mostly broke, living from paycheck to paycheck. The concept of
an insurance agent getting 7% on a $1,000,000 VA makes those who suffer from
envy have diarhea of the mouth, yet constipation of ideas. Yes, $70,000 is a
nice pay day, and sure, it might even be in the many thousands of dollars
per hour, but this is the deal: People who write big tickets on a regular
basis have earned their place in the world. The pundits haven't. So, they
attack at every point, knowing that when the paint the agent as a greedy
capitalist, the socialist tendencies of the ignorant will agree with them,
and they end up with an unwitting army that doens't think, but agrees. They
are sheep, and we know what happens to sheep lead by sheep.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Paul E" <elliott.paul[at]att.net> wrote in message
news:sw6Kb.599227$0v4.23575833[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

10. The REAL problem is US -- the industry. Remember the famous saying "We
have met the enemy, and we are the enemy?" Annuities have been around since
before the birth of Christ. Roman legionaires received a lifetime "annuitas"
from the treasury of Rome for serving (and surviving) 20 years in the Roman
Legions. Life insurance companies have been selling annuities for over 100
years. The first pensions were annuities. Social Security survivor and
retirement benefits are based on the annuity concept. All of the original
defined benefit pensions are annuities. The first 401(k) was funded with a
group variable annuity. More than HALF of current 401(k) plans are funded
with group variable annuities (many lay authors own one and don't know it).
Along the way, we've made some boo boos. As the life insurance industry has
matured, some mistakes have been made. Actually, there are quite a few. I'll
try to list some.

First, we tried to compete with banks and the investment community.
Annuities from 30-40+ years ago were more like contractual plans, than
mutual funds. Starting in 1968-1969, when a law changed allowing insurance
companies to own broker/dealers, annuities started being influenced in their
design to be more like mutual funds. This was a mistake. In the old days,
annuities paid much higher commissions than they do today -- just like life
insurance still does. For example, 50% of the first years premiums, and 10%
of years 2-10, with a smaller renewal in years 11+. As one old agent told
me, "It was like selling life insurance, except it didn't have a death
benefit, just higher income at retirement." Today, pundits argue that 7% is
too high. They don't know how much they don't know. With the advent of
mutual funds being distributed by life insurance agents, annuity production
went South. To increase production, insurance companies started comparing
the two, and trying to make an annuity look like a mutual fund, with similar
commissions, and first year surrender values (original contracts had NO
surrender values in the early years -- some never had any).

Then Congress created the IRA (Individual Retirement Arrangement), which
competes with the annuity, even though you can have either an Account, or an
Annuity, as your Arrangement. To make matters worse, Congress saw fit to
make annuity rules similar in many respects to IRA rules, such as -- no
loans, 10% penalty taxes, taxed as ordinary income, etc. Did you know that
in the old days, an annuity payment was taxed with preferential rates like
capital gains are now? We're trying to bring this back, via the LAP tax, or
Lifetime Annuity Payout tax, which would encorage people to annuitize parts
of their retirement plans (a MUST for many people, so they won't outlive
their money).

Over the years, insurance companies have added other things to their
offerings, de-emphasizing their core business. This creates a demand for
management talent that exceeded the pool of experienced insurance talent.
So, they brought in MBAs from everywhere else (something that didn't happen
for over a century). Now, actuarial science and the stewardship concept was
taking a back seat to "what have you done for me lately" corporate profit
mentality that focuses on quarterly earnings reports rather than doing what
is in the best interest of the company AND the clients it takes care of. My
first company had 2,200 agents in 1981, with 1,100 people in the home
office. 95% of their business was life and annuity. They were one of the
best life insurance and annuity companies in history. Then they got into the
401(k) and group health business. Today, they have less than 1,000 agents,
and over 30,000 home office employees. Today, 95% of their business is
something OTHER than life and annuity. You don't want to have your
participating whole life or fixed annuity with a company like this -- they
do NOT care about you anymore.

VAs have been around since the 1950s, building slowly, until the 1990s, when
they took off. How did they take off? Alternative distribution channels!
Instead of life agents, who understood the annuity concept in their soul,
but were shrinking in number, we want banks and stock brokers to peddle
annuities, to make up for the lost premium that are own agents are now
putting in mutual funds. To do this, we need wholesalers to train the bank
reps and stockbrokers. Where do we get wholesalers? We need salespeople who
understand salespeople! Who are they? Failed bank reps and failed stock
brokers are the most liquid supply. They know the business, even though they
can't cut the mustard. Who is going to train them? Our agents are too busy.
So, give them a book, send them out, wish them luck. A failed stock broker,
having never sold life insurance and annuity, reads the book. Since they are
trained to sell over the phone, they need SIZZLE, because sizzle sells. Tax
deferral? That's SIZZLE! So, we unleased an army of failed brokers on the
world, as annuity wholesalers, and they talked about tax-deferral like it
was the greatest things since sliced bread. What about the primary benefit
of an annuity -- the income that cannot be outlived? Stock brokers aren't
going to sell that, nor are banks. Why? Because the money is lost to them
forever. Banks sell annuities, hoping they get the money back later in an
CD. Stock brokers do the same thing, except they want the money in a stock,
or bond, or LP. The VELOCITY of money was how they made their living, so
annuities were sold with the idea of moving the money again later, to make
another commission. Lifetime income was ignored, soon forgotten, except by a
few -- often the best -- financial advisors. During the heady 1990s, the lay
press was attacking load funds, and active management "Buy an index fund!"
they said. During that time, they attacked annuities at EVERY TURN, for the
same reasons, and then some -- fees, fees, fees. Why pay a fee to an
insurnce company? Pay it to a planner instead! Planners aren't going to sell
the concept of lifetime payouts for the SAME REASON that stock brokers and
bank reps aren't going to. It seems that only life insurance agents were
ever any good at selling lifetime income, and the talent pool there has been
cut to a bone over the last 3 decades, as we all tried to become each other.
The fee-only planners, and lay authors, and armchair pundits -- They'd run
their deterministic analysis showing how bad an annuity was, and the NEVER,
EVER, EVER told the whole story.

Well, you're hearing it now! =)

My attorney often says "What was old, is new again." Now we're making
annuities with no surrender values, because of creditor/predator protection,
and medicaid planning. People are outliving their assets they invested in
those mutual funds, so we're taking about lifetime payouts via
annuitization, and we're going to give them a tax advantage to do it (LAP
tax). We're talking about medically underwritten immediate annuities as a
stop gap measure in the fight to preserve assets when people go into nursing
homes.

A lifetime payout is a good thing. One has to believe that in their core, if
they are going to be an effective marketer of this tool, where it is most
suitable. The paralysis of analysis has all but destroyed so many of my
competition, because they always try to reinvent the wheel. Pundits talk
about inflation, assuming that the only two choices are annuitize the whole
portfolio ~or~ do something else. They ignore diversification, when it
supports their weakest of arguments, and only bring it up when it serves
their purposes. I've competed against people who use statistics to pick
investments. I've learned how to thoroughly destroy their arguments, one by
one, so that I never lose. My competition comes in recommending a portfolio
of no load index funds, because that's what the press has been touting for
two decades. I come in and recommend part in an annuity they can't outlive
and pays for most, if not all, of their current living expenses, part in
single premium life with accelerated benefits for long term care and
critical illness, that replaces most, if not all, of the capital we've put
in the annuity, and the rest in growth assets that we're going to ignore in
the short term (there'll be some deferred annuities, some mutual funds, some
stocks, bonds and direct participation programs in this basket, to varying
degrees). Why am I winning? I'm not focusing on costs, or fees, or
statistics, or theories. I'm solving problems. While there's more than one
way to skin a cat, there are better solutions to every problem, and once you
know what those solutions are, putting together a package of solutions that
solves the clients biggest problems is relatively easy.

Now, all this said, you want to know what I think? I think bad press is the
best thing that could ever happen to the annuity business. If Forbes and
Kiplingers talked up annuities like they did No Help index funds, then one
of my profit centers would dry up. Frankly, I like getting paid to solve
problems, and I enjoy what I do. Good press would cut agent compensation,
eventually approaching zero. If people understood annuities, they'd buy them
on their own. Right now, over 99% of annuity premium is from agents and
brokers. If average people had a grasp of living benefit riders, like you
do, they'd fly off the shelf. The status quo is fine with me. =)

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Paul E" <elliott.paul[at]att.net> wrote in message
news:sw6Kb.599227$0v4.23575833[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

5. Confirmation Bias -- Lay people and dumb planners use long term
performance on one fund, but then fail to consider long term tax
implications. For example, they use deterministic projections of a fixed
rate of return (i.e., the 20 year average of the unmanaged S&P 500 with no
fees -- something NOBODY can actually buy) and then they use THIS YEAR's tax
law, AS IF it will never change. Think about it -- they use an investment
that does not exist and cannot exist, and then compound their error by
making the most faulty assumption one can make, and then use this as the
basis for making a recommendation. If they were a doctor, they'd be called
quacks.
Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

Paul E" <elliott.paul[at]att.net> wrote in message
news:sw6Kb.599227$0v4.23575833[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

7. Judgemental Heuristics -- This is so common, there should be warning labels on people's foreheads. An example -- "He's a stock broker on
commission, and since anyone on commission is bad, his advice must be bad."
Why is this that dumb? Because EVERYONE is on commission. Doctors, lawyers,
accountants, engineers, clergy, teachers, longshoremen, farmers, postal
carriers -- wage, salary, incentive based compensation -- ALL a commission
for some kind of result, even if the result is just to show up and occupy
space. The difference is that some people can choose how much they make,
while most others have to accept what someone else thinks they are worth.
Otherwise, pay is pay.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Paul E" <elliott.paul[at]att.net> wrote in message
news:sw6Kb.599227$0v4.23575833[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

4. Faulty comparisons -- People who don't know how much they don't know
compare annuities to other investments, in a vain effort to show that they
are bad investments. For example, comparing your Hartford Director to a No
Help S&P 500 fund. That's dumb, for a book full of reasons.
Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Paul E" <elliott.paul[at]att.net> wrote in message
news:sw6Kb.599227$0v4.23575833[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

I'm going to try this again. My first post was rejected. Too long. Imagine
that. =)

Okay, 10 reasons, one post at a time...

Why VAs are maligned by the lay press and other advisors:

1. They pay a commission -- Just like load funds, anything that pays the
seller must be bad. If this sounds silly, consider who I'm paraphrasing.
I've read 1,000 word articles where this was the basis of their arguement.
"Somebody has to pay something to someone, someday!" - Burt Meisel, CLU

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Paul E" <elliott.paul[at]att.net> wrote in message
news:sw6Kb.599227$0v4.23575833[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

2. They have surrender charges -- Yeah, those insurance companies don't
deserve to make a profit if the client leaves in one year.
Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

Paul E" <elliott.paul[at]att.net> wrote in message
news:sw6Kb.599227$0v4.23575833[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

6. Mental Accounting -- This is where you count your winnings, and forget
your losings, in its most simple and common form. Other forms are where one
assumes that all fees subtract from returns. This isn't necessariily true --
not even close. The opposite is more often true, but fantastic margins
(i.e., 10 fold, anyone?). If a fee for a guarantee costs 25 basis points,
and the client enjoyes a 2.5% additional return as a result of employing the
guarantees, what did the guarantee cost? In reality, nothing. This is
counter-intuitive, and leaves lots of empty shirts saying "Humana, humana,
humana, humana, uhhhhh, ummmmm, uhhhhh." I guess thinking is painful for
some people. =)

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Paul E" <elliott.paul[at]att.net> wrote in message
news:sw6Kb.599227$0v4.23575833[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

3. They are only available from insurance companies -- "Insurance
companies? Why, those guys are all crooks! You can't trust them, so an
annuity must be a rip-off." If you think this sounds absurd, I've heard this
over the phone, verbatim, from LEADING, and WELL KNOWN, even RESPECTED
journalists when we called to correct blatant errors.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"Tad Borek" <borekfm[at]pacbell.net> wrote
snip
- quote -

Tad: Bottom line, I agree with your sentiments above.

I recognize this is a tangent to what you and I were discussing here. But now I
believe I understand why you pulled this into the discussion, tangent that it
is. If I understand you correctly, you are trying to emphasize again the, well,
dubious logic of buying a Principal Protection rider along the lines of the one
Hartford VA (and others?) offers. I apologize; I wasn't paying terribly close
attention to this side discussion Paul and you were having on the PP rider. I
examined more closely what Paul and you were saying. What Hartford seems to be
selling for its 0.35% PP insurance fee a year leaves me a bit unsettled.

Hartford is saying, very roughly,"Take a yield reduction of 0.35%, and, worst
case, we'll ensure your annuity behaves just like money stuffed in your
mattress, from which you draw to pay your expenses."

But what's the worst case if the money stays in stocks and bonds? Paul spoke of
a disaster like a -25% *annual* dive in the market each year over several years.

I cannot see any evidence, historical or based on the vitality of the U.S.
economy today, to support such a trend. On the contrary, historically what have
we seen? One dive of around 30% followed by years of a flat market, followed by
the usual rise in the market? It's not magic or whim that causes this. Market
recoveries are pretty darned deterministic; I would say almost as guaranteed as
there being a tomorrow. (Only a global nuclear holocaust would stop tomorrow. It
could happen, but it seems highly unlikely.)

I sense you are trying to be helpful to people re this Principal Protection
rider in the Hartford VA, and perhaps similar riders offered elsewhere. And you
are.

I agree people are more vulnerable by virtue of possible short-sightedness with
regard to recent events. I agree with your sense that such VA features are
preying upon people's insecurity after seeing a few bad years. I also agree with
your implication that probably most accountants, financial planners, economists,
housewives with math skills, et al. would call purchase of this PP rider
something of a "sub-optimal" choice.

As far as whether it is economically rational, it is only with some assumptions
that go counter to historical evidence and the usual measures of a market's
vitality. But it is security of some kind. Clients are getting *something* for
their money.

To each his/her own, but I hope people contemplating such riders ask a lot of
questions. So far, I'm not seeing the wisdom of it.

On the third hand, while maybe not the best choice, nor is this choice a
disaster. Far worse decisions are made by people today. I read today that
consumer debt on credit cards and automobiles is way up. People going bankrupt
after a few years because they spent too much on their weddings. Good lord. For
them putting $25k towards a VA/PP rider as described would be eminently wiser
than spending $25k on a wedding.

- quote -

:-)

"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:g2jKb.5836$N97.1461[at]newssvr27.news.prodigy.com...
- quote -

I agree. For Fixed Index Annuities, the S&P 500 is the most common index
used, with the DJIA a distant second. Some contracts track the S&P 400
Midcap, the Russell 2000, even the EAFE and one follows Treasuries. A lot of
creativity going into new product design, which keeps these staid products
from seeming TOO boring. =)

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

ROFL!

Paul E

"Brent D. Gardner, ChFC" <bgardner20[at]cox.net> wrote in message
news:8phKb.4706$zf.3448[at]okepread05...
- quote -

Caroline wrote:
- quote -

Then to reinforce your basic point - yes, with a high comfort level
w/stats you should be able to do better-than-average analysis of the
likelihood of receiving a benefit, for any insurance or annuity product.
A lot of people rely on illustrations without understanding how they're
derived.

- quote -

I think this part of the discussion is getting a bit esoteric. No, I
don't want to imply that there's ever only one solution, and I certainly
don't want to criticize anyone's decisions. My point is that it seems
odd (make the sub-optimal) to devote resources to protecting against an
event that you believe to be only 20% likely, especially one that
doesn't involve a devastating type of outcome. Or maybe a better way to
put it is that it seems sub-optimal to devote resources to a 20%-likely
scenario while ignoring the many other scenarios with comparable (or
even higher) probabilities. And that's without even asking whether a PP
rider is 20% likely to kick in, or less than that.

People do this all the time though. "I lost so much in the market I put
my money in something conservative: CDs." There's an inherent bias
towards overweighting the likelihood of recent events. That's why I
think PP riders are being bought now, why they weren't being bought five
years ago, and why they'll go away before long.

You're right though this is a total tangent. I think it's relevant
though, because with the possible exception of applications among
higher-wealth individuals, I think most people buy VAs for tenous reasons.


- quote -

Just keep away from the pejorative Latin!

-Tad

"Tad Borek" <borekfm[at]pacbell.net> wrote
- quote -

Ha ha... :-)

I appreciate your re-grounding this discussion. More below.

- quote -

Sure. But look at my original statement that sparked your comment: "My
background is very mathematical so I am pretty sure I think about actuarials a
lot compared to the average person."

Poor wording on my part, I guess. As I posted earlier, all I meant was that I
don't find actuarials hard to understand at all, and the reason is my
proficiency in mathematics. (I happen to have a fair amount of experience in
statistical analysis of data, too, but I lumped this all into "proficiency in
mathematics.")

- quote -

Of course.

Mathematics does not in every problem point one to the solution that would be
best with 20/20 hindsight. That's just silly, as you know. But mathematics does
enable pinpointing the optimal solution(s) for a given situation.

- quote -

I think the above is an aside, which is fine by me (though the moderators eyes
are burning). (Have I said how I value the moderator workhorses of Usenet
lately? Unpaid volunteers who maintain truth, justice, and as free a marketplace
of ideas as possible on Usenet?)

Why would such a decision be economically irrational? You seem to be saying, and
correct me if I'm wrong, that there's exactly one optimal allocation for one's
money, and every economist (financial planner, CPA, etc.) would agree on this
one plan.

Maybe I'm missing something on the PP rider...

- quote -

FWIW, I absolutely am getting a lot from this thread. There's a lot of chaff but
plenty of good wheat as a whole... Despite Brent and I not agreeing too much his
citation of the Norris case, for one, is a gem.

Sorry about the ruckus but I think asking hard questions is very important.

TTRoberts wrote:
- quote -



Let me put in a nickel too:

I for one, shied away from ALL variable products due to
my PERSONAL faer of that dreaded phone call from a
client "Hey Cal, what the hell happened to that shitty policy
that you sold me. I just got my statement, and all though I
put in $1000 this year, I got less than I had last year"
Cal Lester CLU