variable annuity for an 82 yr. old widow

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variable annuity for an 82 yr. old widow

Postby newstreetnj » Thu Oct 27, 2011 8:55 am

My sister is 82 yrs old and, unfortunately, cognitively impaired. She is widowed and has no kids. My older brother and I have power of attorney to make investments for her.

Brother recently put 147K into a variable annuity with Lincoln Natl Life, without input from me. The money was equally divided into: BlkRk Global Allocation and LVIP Moder Str, both of which are labeled as "Asset Allocation" funds. The latter is apparently a Lincoln fund.

She is "guaranteed" a 5% return. " Guaranteed Annual Income" is the phrase in her quarterly report

I've done some research on Lincoln, specifically The Lincoln National Life Insurance Co. and Lincoln Life+Annuity of N.Y. AM Best gives them A+, Fitch gives them A+( fifth highest rank), Moody A2 (6th highest).

I don't have any info yet on surrender charges or costs other than the one Lincoln sub account. There, it appears that the fee is 0.88% annually with some fees waived until 2012.Then, my guess is that the fee ratchets up. Not exactly, Vanguard fees!

Friends, My questions for you all include 1. Is it sensible to put an 82 yr old into this- specifically the life insurance part? 2.Are Asset Allocation funds appropriate for her? 3. Any thoughts on Lincoln? 4. I'll be chatting with the broker who put her into this. Any questions for her?

Thanks for your help.

Bob
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Re: variable annuity for an 82 yr. old widow

Postby Johm221122 » Thu Oct 27, 2011 9:25 am

It may not be to late to take it out,most have window to take out penalty free.Deffered anutties are not usually the best investment for people,they are good for the salesman.Hard to give advice without knowing more,if income needed a immediate annuity may be a good choice look at immediate annuities. Com
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Re: variable annuity for an 82 yr. old widow

Postby newstreetnj » Thu Oct 27, 2011 9:47 am

I did consider immediate annuities but bro nixed that idea despite the fact that the return would be ~8%.
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Re: variable annuity for an 82 yr. old widow

Postby hicabob » Thu Oct 27, 2011 10:19 am

Sounds like bro should spend some time reading bogleheads and become educated about annuities without a sales pitch.
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Re: variable annuity for an 82 yr. old widow

Postby fishndoc » Thu Oct 27, 2011 10:26 am

Not trying to be cruel, but could it be that your older brother is also becoming cognitively impaired?

And as already mentioned, I would move quickly to meet with the salesman/broker/scoundrel, and find out about getting her out of this, if possible.
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Re: variable annuity for an 82 yr. old widow

Postby bluemarlin08 » Thu Oct 27, 2011 11:18 am

The 5% guarantee is on a phantom account that is used to determine a lifetime income stream, and the policyholder usually pays a hefty fee for this"guarantee". These income riders with high "guarantees" are most always misunderstood, but many agents really focus in on this guarantee.
I recently met with a Met agent and they were explaining their VA and they didn't really understand the policy.
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Re: variable annuity for an 82 yr. old widow

Postby bluemarlin08 » Thu Oct 27, 2011 11:56 am

another observation, if you both have POA, what does the document say regarding business decisions don't you both have to agree? In addition, does your brother have the policy, if so what was the delivery date? I would bet you have some wiggle room to get a refund.
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Re: variable annuity for an 82 yr. old widow

Postby Mel Lindauer » Thu Oct 27, 2011 12:40 pm

Just one more example of why the Bogleheads don't like most annuities and the majority of insurance sales folks.

In many (most?) cases, this situation would be deemed totally inappropriate/unsuitable and many companies might refund the money, even if it's outside the "free look" period if you complain. And, in some states (Florida, for example), the insurance agent who sold this policy to/for an 82-year old could be in deep trouble.

It's very possible that if you make a stink about this to the company and to your state's insurance commissioner that you'll be able to get your money back. It will also put the shady insurance salesman on notice that he can't continue to line his pockets at the expense of trusting seniors. And he may even face disciplinary action by the state and/or the insurance company, and that would be just fine.
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Re: variable annuity for an 82 yr. old widow

Postby dhodson » Thu Oct 27, 2011 12:55 pm

its really hard to get the agent into too much trouble. Since you weren't there, you will have no evidence and since your bro made the decisions, not likely he will be much help. Id still complain but dont expect much.
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Re: variable annuity for an 82 yr. old widow

Postby Mel Lindauer » Thu Oct 27, 2011 1:01 pm

dhodson wrote:its really hard to get the agent into too much trouble. Since you weren't there, you will have no evidence and since your bro made the decisions, not likely he will be much help. Id still complain but dont expect much.


Chances are good that the brother is also an elderly senior. Either way, the suitability test could still apply.
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Re: variable annuity for an 82 yr. old widow

Postby bluemarlin08 » Thu Oct 27, 2011 1:04 pm

These companies are very sensitive to the suitability issue. If this just happened you can get a refund.
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Re: variable annuity for an 82 yr. old widow

Postby dhodson » Thu Oct 27, 2011 1:29 pm

can someone point me to a list of suitability requirements for insurance products. what is the standard that defines suitability instead of being subjective?
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Re: variable annuity for an 82 yr. old widow

Postby Mel Lindauer » Thu Oct 27, 2011 1:47 pm

bluemarlin08 wrote:These companies are very sensitive to the suitability issue. If this just happened you can get a refund.


True. Even if the insurance agent is unscrupulous doesn't mean that his actions will be condoned by the insurance company. Most insurance companies are reputable and they won't allow rogue agents to sully their reputation.
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Re: variable annuity for an 82 yr. old widow

Postby Mel Lindauer » Thu Oct 27, 2011 1:53 pm

dhodson wrote:can someone point me to a list of suitability requirements for insurance products. what is the standard that defines suitability instead of being subjective?


Here's Florida's statute. http://www.leg.state.fl.us/statutes/ind ... .4554.html
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Thu Oct 27, 2011 3:14 pm

As posted, it sure gives the appearance of an unsuitable sale. However, I think that we must be missing some crucial information. How did this sale get through the compliance officer of the broker dealer?

It is possible for a VA to be a suitable sale to an 82 year old, but it would take an unusual fact pattern.

It is possible that the unscrupulous one here is the brother.

Who is the beneficiary?
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Re: variable annuity for an 82 yr. old widow

Postby dhodson » Thu Oct 27, 2011 3:22 pm

Mel Lindauer wrote:
dhodson wrote:can someone point me to a list of suitability requirements for insurance products. what is the standard that defines suitability instead of being subjective?


Here's Florida's statute. http://www.leg.state.fl.us/statutes/ind ... .4554.html



thanks so this only applies to seniors?
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Re: variable annuity for an 82 yr. old widow

Postby FabLab » Thu Oct 27, 2011 3:53 pm

newstreetnj wrote:My sister is 82 yrs old and, unfortunately, cognitively impaired. She is widowed and has no kids. My older brother and I have power of attorney to make investments for her.

Brother recently put 147K into a variable annuity with Lincoln Natl Life, without input from me. The money was equally divided into: BlkRk Global Allocation and LVIP Moder Str, both of which are labeled as "Asset Allocation" funds. The latter is apparently a Lincoln fund.

She is "guaranteed" a 5% return. " Guaranteed Annual Income" is the phrase in her quarterly report

I've done some research on Lincoln, specifically The Lincoln National Life Insurance Co. and Lincoln Life+Annuity of N.Y. AM Best gives them A+, Fitch gives them A+( fifth highest rank), Moody A2 (6th highest).

I don't have any info yet on surrender charges or costs other than the one Lincoln sub account. There, it appears that the fee is 0.88% annually with some fees waived until 2012.Then, my guess is that the fee ratchets up. Not exactly, Vanguard fees!

Friends, My questions for you all include 1. Is it sensible to put an 82 yr old into this- specifically the life insurance part? 2.Are Asset Allocation funds appropriate for her? 3. Any thoughts on Lincoln? 4. I'll be chatting with the broker who put her into this. Any questions for her?

Thanks for your help.

Bob


Hi newstreetnj,
I can't help it, but this type of story turns my stomach. Those who prey on our elderly are, in my view, well beyond redemption. What purpose would a deferred annuity serve for an 82-year old lady with cognitive issues? As far as I'm concerned, and having been the POA for my 87-year old mom who suffered from dementia, protection of principal is paramount at this stage.

I plainly don't understand how your brother could follow through with this as co-POA without your input. Don't know if you hail from NJ (given your "handle"), but if so please investigate what recourse you may have to revoke. Next, if I were you, would be a long talk with the brother about proper stewardship of your sister's assets. Maybe it's too much for him to consider co-managing. So, a change to the POA language may be in store.

Very best wishes and good luck to you,
Ron
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Re: variable annuity for an 82 yr. old widow

Postby Mel Lindauer » Thu Oct 27, 2011 8:33 pm

dhodson wrote:
Mel Lindauer wrote:
dhodson wrote:can someone point me to a list of suitability requirements for insurance products. what is the standard that defines suitability instead of being subjective?


Here's Florida's statute. http://www.leg.state.fl.us/statutes/ind ... .4554.html



thanks so this only applies to seniors?


Actually, I think that the suitability issue applies to everyone. However, that's Florida's attempt to add detailed and specific protection for seniors, of which there are many, against what's turned into an avalanche of downright disgusting practices by annuity sales folks preying on gullible and trusing seniors.
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Re: variable annuity for an 82 yr. old widow

Postby bluemarlin08 » Thu Oct 27, 2011 11:00 pm

VA and Index annuity sales have been hitting records. My take is it is all about the lifetime income riders. Buyer beware.
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Re: variable annuity for an 82 yr. old widow

Postby BigFoot48 » Thu Oct 27, 2011 11:34 pm

I think your brother made a very poor decision. I have my 85 year old MIL in 90% Vanguard Total Bond ETF and 10% Vanguard Total Stock ETF. It cost $20 to buy them (she's with Schwab), the annual expenses are very low, they provide a nice dividend flow, they can be sold at any time with no back-end fees, and she easily understands the investments. I don't see the value in buying a VA for a person at this stage of life.
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Fri Oct 28, 2011 6:04 am

I don't see the value in buying a VA for a person at this stage of life
.

This is an example of how one might make sense.

Ex. Jim is 82 years old and is in poor health. He has $200,000 that he will never need. He puts it into a VA and invests it aggressively. He dies 3 years later.

Result: His beneficiary gets the greater of the account value or $200,000. It's worth something to be able to invest aggressively with no chance of loss.
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Fri Oct 28, 2011 6:06 am

bluemarlin08 wrote:VA and Index annuity sales have been hitting records. My take is it is all about the lifetime income riders. Buyer beware.


I think that what you are saying is certainly true for the VAs. For the index annuity sales, I think that it is all about being able to keep the money out of the market.

Yes, absolutely buyer beware.
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Re: variable annuity for an 82 yr. old widow

Postby bluemarlin08 » Fri Oct 28, 2011 10:12 am

His beneficiary gets the greater of the account value or $200,000. It's worth something to be able to invest aggressively with no chance of loss.


So with a VA at death you get AV or the initial deposit whatever is greater, is that a rider one pays for? Do all VA offer this "protection"?
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Fri Oct 28, 2011 12:00 pm

bluemarlin08 wrote:
His beneficiary gets the greater of the account value or $200,000. It's worth something to be able to invest aggressively with no chance of loss.


So with a VA at death you get AV or the initial deposit whatever is greater, is that a rider one pays for? Do all VA offer this "protection"?


This is pretty standard with most contracts and doesn't cost anything extra. If one wants to pay extra, many VAs have enhanced death benefits.

For instance, I have sold* VAs in which the death benefit equalled the highest of the anniversary contract value, the current contract value, or the contributions.

Ex. Mrs. Smith had $400,000 that she was never going to need. The money was ultimately for her kids. She was in very poor health. The money was invested very aggressively. The $400,000 grew to $500,000. The market then took a serious nose dive and her account value dropped to $300,000. She died. Her beneficiaries received $500,000.

I need to be super clear that I am not pushing these products. They are usually inappropriate. I'm only pointing out that it is possible for a fact pattern to exist that helps to make the product make sense.



*I am no longer securities licensed and the pricing of these products make them usually not appropriate.
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Re: variable annuity for an 82 yr. old widow

Postby Don Robins » Fri Oct 28, 2011 3:24 pm

I cannot think of any situation, including any presented here, where buying a typical commercial variable annuity makes sense.

For example, Mary was wise enough to lock in a 5% rate (available 10 months ago) at Pentagon Federal Credit Union. She dies three years later and her money has grown to approximately 231,000 on a guaranteed basis and that is the amount available to her beneficiaries. So, the 31k can be lookat as an opportunity (time value of money) cost when compared with an annuity scenario presented earlier. Even at an interest rate of 2% the opportunity cost, when compared to that annuity, is 12k.
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Fri Oct 28, 2011 3:50 pm

Don Robins wrote:I cannot think of any situation, including any presented here, where buying a typical commercial variable annuity makes sense.

For example, Mary was wise enough to lock in a 5% rate (available 10 months ago) at Pentagon Federal Credit Union. She dies three years later and her money has grown to approximately 231,000 on a guaranteed basis and that is the amount available to her beneficiaries. So, the 31k can be lookat as an opportunity (time value of money) cost when compared with an annuity scenario presented earlier. Even at an interest rate of 2% the opportunity cost, when compared to that annuity, is 12k.
Mr. Don


Mr. Don, it may not make sense for you, but for plenty of other people, they would come to a very different conclusion.
Assume that Mary knew for a fact that she was going to die in 3 years and her goal was to leave behind as much money as possible.

She could certainly do what you said and leave behind $231,000. The problem is that you are comparing the best case scenario for the CD with the worst case scenario of the annuity. At most, in your scenario, the annuity loses by $231,000. If the market less annuity expenses increases by greater than 5%, the annuity wins. The annuity can possibly win by a very large amount.

If an enhanced death benefit is available, the odds can greatly skew in favor of the annuity.

However, we are not talking about a typical fact pattern. Let's keep in mind that annuities are insurance products and these insurance features sometimes have significant value.
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Re: variable annuity for an 82 yr. old widow

Postby Don Robins » Fri Oct 28, 2011 6:15 pm

Brody wrote:
Don Robins wrote:I cannot think of any situation, including any presented here, where buying a typical commercial variable annuity makes sense.

For example, Mary was wise enough to lock in a 5% rate (available 10 months ago) at Pentagon Federal Credit Union. She dies three years later and her money has grown to approximately 231,000 on a guaranteed basis and that is the amount available to her beneficiaries. So, the 31k can be lookat as an opportunity (time value of money) cost when compared with an annuity scenario presented earlier. Even at an interest rate of 2% the opportunity cost, when compared to that annuity, is 12k.
Mr. Don


Mr. Don, it may not make sense for you, but for plenty of other people, they would come to a very different conclusion.
Assume that Mary knew for a fact that she was going to die in 3 years and her goal was to leave behind as much money as possible.

She could certainly do what you said and leave behind $231,000. The problem is that you are comparing the best case scenario for the CD with the worst case scenario of the annuity. At most, in your scenario, the annuity loses by $231,000. If the market less annuity expenses increases by greater than 5%, the annuity wins. The annuity can possibly win by a very large amount.

If an enhanced death benefit is available, the odds can greatly skew in favor of the annuity.

However, we are not talking about a typical fact pattern. Let's keep in mind that annuities are insurance products and these insurance features sometimes have significant value.



Where on earth did you come up with the $231,000 lost number? On another note, I seriously doubt there are "plenty" of people anywhere (other thn insurance agents) who would come to a very different conclusion than the one I stated in my post. Also, following your logic in your twisting of my case on Mary, if she really wanted to leave behind as much money as possible, she might do better going to a casino and gamble the whole amount. If she got lucky, who knows what amount her heirs might get.

Again, I simply cannot imagine any "fact pattern" that would justify selling an expensive variable annuity to an 82 year old women,unless the fact pattern was to provide a big fat commission to the agent.
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Fri Oct 28, 2011 7:35 pm

Obviously what I wrote made no sense. What I meant to say is that the $231,000 is the best case scenario for the CD.

Look at this way. Mary is given two choices:

1)Leave behind exactly $231,000
2)Leave behind an unknown amount that is guaranteed to not be less than $200,000.

Nothing is wrong with choice 1, but is it so hard to imagine that some people would choose choice 2? If the purpose of the money is to leave the money behind at death, a VA truly does allow a person to invest aggressively with no chance of loss. Depending upon the fees of the VA, if the market averages about 6-7% she breaks even. If the market does great, she can end up way ahead.

You are so convinced that something must be bad, that you are unwilling to consider alternative thought processes.

M&E tends to be a huge ripoff and is part of the problem with annuities. However, the fees are not a ripoff for old unhealthy people. It works out to be very cheap insurance for them.
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Re: variable annuity for an 82 yr. old widow

Postby brick-house » Fri Oct 28, 2011 7:49 pm

Mr. Don wrote:

Also, following your logic in your twisting of my case on Mary, if she really wanted to leave behind as much money as possible, she might do better going to a casino and gamble the whole amount. If she got lucky, who knows what amount her heirs might get.


Does a casino guarantee your beneficiaries the amount of chips purchased or offer a rider to guarantee your beneficiaries your highest chip count of the night?

SEC website quote:

http://www.sec.gov/investor/pubs/varannty.htm#dben

The Death Benefit and Other Features

A common feature of variable annuities is the death benefit. If you die, a person you select as a beneficiary (such as your spouse or child) will receive the greater of: (i) all the money in your account, or (ii) some guaranteed minimum (such as all purchase payments minus prior withdrawals).

Example: You own a variable annuity that offers a death benefit equal to the greater of account value or total purchase payments minus withdrawals. You have made purchase payments totaling $50,000. In addition, you have withdrawn $5,000 from your account. Because of these withdrawals and investment losses, your account value is currently $40,000. If you die, your designated beneficiary will receive $45,000 (the $50,000 in purchase payments you put in minus $5,000 in withdrawals).

Some variable annuities allow you to choose a "stepped-up" death benefit. Under this feature, your guaranteed minimum death benefit may be based on a greater amount than purchase payments minus withdrawals. For example, the guaranteed minimum might be your account value as of a specified date, which may be greater than purchase payments minus withdrawals if the underlying investment options have performed well. The purpose of a stepped-up death benefit is to "lock in" your investment performance and prevent a later decline in the value of your account from eroding the amount that you expect to leave to your heirs. This feature carries a charge, however, which will reduce your account value.


IMHO, Brody presented a scenario where someone may consider the total costs of the annuity worthwhile. Just looking at the volatility of the stock market the last ten years, someone with less than five years to live might plausibly take this option. However, the death benefit at some point seems too good to be true - just quickly looking at Vanguard's Variable Annuity - the return of premium rider (costs .395%) is only available to those under age 75. Thus, me thinks that the death benefit is too good of a deal after a certain age and insurance companies would restrict it, just like Vanguard has.

As an aside, Vanguard's Variable Annuity rocks - stripped down low cost version... Unfortunately, most VA's are sold by insurance agents not purchased by informed consumers.

Vanguard Variable Annuity Literature:

Two death benefit options
If the owner dies before conversion of the annuity
assets into a regular payment stream, the owner’s
beneficiary is entitled to those assets. If the
annuitant dies before conversion, the annuitant’s
beneficiary is entitled to the death benefit.
Unlike many other variable annuities, the Vanguard
Variable Annuity gives you the flexibility to choose
from two death benefit options, which are described
in the next column. Each option carries a slightly
different cost for you and a different benefit for
your beneficiary.
• Accumulated Value death benefit. This
option is the least expensive (0.195%, or
$1.95 per $1,000) and gives your beneficiaries
the annuity’s accumulated value at the
annuitant’s date of death. If financial markets
fall, however, your beneficiaries could receive
less than you contributed to the annuity.
• Return of Premium death benefit. This
option is available at a higher cost (0.395%,
or $3.95 per $1,000) than the Accumulated
Value death benefit, but your beneficiary
will receive whichever is greater: the sum
of your contributions, less any adjusted
partial withdrawals and premium taxes, if
applicable, or the annuity’s accumulated value
at the annuitant’s date of death. This option
is available only if the annuitant (and joint
annuitant, if applicable) is age 75 or younger.
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Re: variable annuity for an 82 yr. old widow

Postby Don Robins » Fri Oct 28, 2011 7:56 pm

Brody wrote:Obviously what I wrote made no sense. What I meant to say is that the $231,000 is the best case scenario for the CD.

Look at this way. Mary is given two choices:

1)Leave behind exactly $231,000
2)Leave behind an unknown amount that is guaranteed to not be less than $200,000.

Nothing is wrong with choice 1, but is it so hard to imagine that some people would choose choice 2? If the purpose of the money is to leave the money behind at death, a VA truly does allow a person to invest aggressively with no chance of loss. Depending upon the fees of the VA, if the market averages about 6-7% she breaks even. If the market does great, she can end up way ahead.

You are so convinced that something must be bad, that you are unwilling to consider alternative thought processes.

M&E tends to be a huge ripoff and is part of the problem with annuities. However, the fees are not a ripoff for old unhealthy people. It works out to be very cheap insurance for them.


I agree 100% with your first statement. You are also 100% correct that I am unwilling to consider alternative thought proceesses
when those thought processes relate to a product that is almost always sold at the expense of the unaware consumer. Same thought
process applies if someone tries to sell me the Brooklyn Bridge or a watch on a street corner in New York.
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Re: variable annuity for an 82 yr. old widow

Postby Mel Lindauer » Fri Oct 28, 2011 8:01 pm

You can put lipstick on a pig, but it's till a pig. Sorry, but IMO, those who try to justify selling an annuity to an 82-year old widow probably aren't going to earn much (if any) credibility around here.
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Re: variable annuity for an 82 yr. old widow

Postby brick-house » Fri Oct 28, 2011 8:25 pm

Mel Lindauer wrote:

You can put lipstick on a pig, but it's till a pig. Sorry, but IMO, those who try to justify selling an annuity to an 82-year old widow probably aren't going to earn much (if any) credibility around here.


Nobody has justified selling an annuity to an 82 year old widow. As I stated, it looks like the death benefit scenario offered by Brody would not be available through Vanguard because of the age 75 restriction. This sale certainly appears to be unsuitable.

You can also take a pig and have pork chops, bacon, ham, etc. When Vanguard offers the pig (variable annuity), then I would feel comfortable reviewing features of the product (including the death benefit) to see if they provided a match to the client's stated goals. When an insurance agent earning a commission on the product offers it, then yes it is most likely a bad deal for the client and a good one for the agent.

If this sale to an 82 year old widow was unsuitable, then holy heck should be raised.

SEC quote:
Variable annuities are insurance products that allow investors to enjoy tax-deferred growth in mutual funds, while retaining the security of an insurance policy. While these products are legitimate investments, commissions for those who sell variable annuities are very high, and create incentives for sellers to promote products that are inappropriate for older investors. Variable annuities are generally not appropriate for most seniors or individuals near retirement because of their steep penalties incurred for early withdrawals. Investors should be skeptical of any broker who suggests purchasing a variable annuity to hold in a 401(k) or IRA because these accounts already provide tax-deferred growth, and the variable annuity simply adds a layer of cost with no additional tax benefits. The following are examples of actions that have triggered investigations in recent months.
• The Missouri State Commissioner of Securities sanctioned an investment adviser for recommending inappropriate variable annuity products to seniors. Eight Missouri residents between the ages of 72 and 87 invested approximately $1.2 million with the adviser, resulting in commissions of approximately $98,000. These investment products were not suitable for the clients. In fact, one annuity's producers had a policy against the sale of the product to individuals over the age of 75. The adviser’s registration was suspended for four months, she was fined $25,000, and she was prohibited from selling variable annuities or handling accounts for individuals over the age of 65 for five years.
[See http://www.sos.mo.gov/securities/orders/AP-06-47.asp].
• FINRA suspended an investment adviser for six months and levied a fine of $28,000 against the adviser when the adviser sold unsuitable variable annuities to seniors. [See http://www.nasd.com/PressRoom/NewsReleases/2004News
Releases/NASDW_002828].
10
• FINRA barred an investment adviser from association with any FINRA-regulated securities firm and ordered the adviser to pay more than $1.5 million in restitution to seniors and other customers for unsuitable sales of variable annuities and mutual funds totaling over $6 million. [See http://www.nasd.com/PressRoom/
NewsReleases/2004NewsReleases/NASDW_002860].
• FINRA fined a financial services firm, $2.75 million for failing to maintain an adequate supervisory system to oversee the variable annuity sales activities of over 1,000 branch managers. working in offices throughout the United States. In a related action, FINRA permanently barred one of those branch managers because the manager recommended unsuitable variable annuity products to seniors and made misleading statements to customers in correspondence. [See http://www.nasd.com/PressRoom/NewsRelea ... SDW_018681].
• FINRA fined an investment services firm, $850,000 for supervisory, recordkeeping, telemarketing, and other violations. The firm had failed to implement proper procedures for selling variable annuities to seniors. [See http://www.nasd.com/PressRoom/NewsRelea ... SDW_017657].
• NYSE fined a firm $550,000 for making unsuitable sales of variable annuities. The $550,000 penalty included a $175,000 fine and $375,000 to be used to compensate injured customers. [See David A. Noyes & Co., Inc., Decision 05-98 (NYSE Hearing Panel November 9, 2005)].
• NYSE disciplined a registered representative for sales practice violations involving the sale of unsuitable variable annuities to seniors. [See Steven Allen Koch, Decision 05-104 (NYSE April 12. 2007)].
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Re: variable annuity for an 82 yr. old widow

Postby Mel Lindauer » Fri Oct 28, 2011 8:41 pm

brick-house wrote:Mel Lindauer wrote:

You can put lipstick on a pig, but it's till a pig. Sorry, but IMO, those who try to justify selling an annuity to an 82-year old widow probably aren't going to earn much (if any) credibility around here.


Nobody has justified selling an annuity to an 82 year old widow. As I stated, it looks like the death benefit scenario offered by Brody would not be available through Vanguard because of the age 75 restriction. This sale certainly appears to be unsuitable.

You can also take a pig and have pork chops, bacon, ham, etc. When Vanguard offers the pig (variable annuity), then I would feel comfortable reviewing features of the product (including the death benefit) to see if they provided a match to the client's stated goals. When an insurance agent earning a commission on the product offers it, then yes it is most likely a bad deal for the client and a good one for the agent.

If this sale to an 82 year old widow was unsuitable, then holy heck should be raised.

SEC quote:
Variable annuities are insurance products that allow investors to enjoy tax-deferred growth in mutual funds, while retaining the security of an insurance policy. While these products are legitimate investments, commissions for those who sell variable annuities are very high, and create incentives for sellers to promote products that are inappropriate for older investors. Variable annuities are generally not appropriate for most seniors or individuals near retirement because of their steep penalties incurred for early withdrawals. Investors should be skeptical of any broker who suggests purchasing a variable annuity to hold in a 401(k) or IRA because these accounts already provide tax-deferred growth, and the variable annuity simply adds a layer of cost with no additional tax benefits. The following are examples of actions that have triggered investigations in recent months.
• The Missouri State Commissioner of Securities sanctioned an investment adviser for recommending inappropriate variable annuity products to seniors. Eight Missouri residents between the ages of 72 and 87 invested approximately $1.2 million with the adviser, resulting in commissions of approximately $98,000. These investment products were not suitable for the clients. In fact, one annuity's producers had a policy against the sale of the product to individuals over the age of 75. The adviser’s registration was suspended for four months, she was fined $25,000, and she was prohibited from selling variable annuities or handling accounts for individuals over the age of 65 for five years.
[See http://www.sos.mo.gov/securities/orders/AP-06-47.asp].
• FINRA suspended an investment adviser for six months and levied a fine of $28,000 against the adviser when the adviser sold unsuitable variable annuities to seniors. [See http://www.nasd.com/PressRoom/NewsReleases/2004News
Releases/NASDW_002828].
10
• FINRA barred an investment adviser from association with any FINRA-regulated securities firm and ordered the adviser to pay more than $1.5 million in restitution to seniors and other customers for unsuitable sales of variable annuities and mutual funds totaling over $6 million. [See http://www.nasd.com/PressRoom/
NewsReleases/2004NewsReleases/NASDW_002860].
• FINRA fined a financial services firm, $2.75 million for failing to maintain an adequate supervisory system to oversee the variable annuity sales activities of over 1,000 branch managers. working in offices throughout the United States. In a related action, FINRA permanently barred one of those branch managers because the manager recommended unsuitable variable annuity products to seniors and made misleading statements to customers in correspondence. [See http://www.nasd.com/PressRoom/NewsRelea ... SDW_018681].
• FINRA fined an investment services firm, $850,000 for supervisory, recordkeeping, telemarketing, and other violations. The firm had failed to implement proper procedures for selling variable annuities to seniors. [See http://www.nasd.com/PressRoom/NewsRelea ... SDW_017657].
• NYSE fined a firm $550,000 for making unsuitable sales of variable annuities. The $550,000 penalty included a $175,000 fine and $375,000 to be used to compensate injured customers. [See David A. Noyes & Co., Inc., Decision 05-98 (NYSE Hearing Panel November 9, 2005)].
• NYSE disciplined a registered representative for sales practice violations involving the sale of unsuitable variable annuities to seniors. [See Steven Allen Koch, Decision 05-104 (NYSE April 12. 2007)].


Actually, my post wasn't directed at you, since I thought you simply provided additional information, not justification for the action. And it was good to see that Vanguard's annuity folks wouldn't have even been allowed to let this transaction happen.
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Sat Oct 29, 2011 6:42 am

Mel, I am also not offering justification for the OP's scenario. I was just pointing out that there are situations where a VA may make sense for an older person based upon a death benefit.

As the OP presented the scenario, it smells absolutely rotten. However, it smells so badly and scrutiny is so sky high with these products that I can't see how a registered rep got this past his compliance officer as the situation is described. Therefore, I would be extremely surprised if there are not critical facts that the OP is leaving out of her presentation of the situation. This is understandable since she was not involved.
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Re: variable annuity for an 82 yr. old widow

Postby dhodson » Sat Oct 29, 2011 9:00 am

i think you know how they get this by compliance. they tell that person and the applicant is aware of the reasons not to do this (which they never understand) and have them sign tons of forms they dont understand telling them its just a legal requirement . The applicant is overwhelmed and just signs bc this person says they are doing right by them. compliance depts are not about doing what is right, they are about trying to make sure they can defend this. that is a big difference. I know from personal experience. an applicant like this never comes asking for this type of product. They need to be pushed into it. Its hard sale push and you know it. stop trying to pretend there is a reason this "might be" appropriate and we just dont have all the facts. it takes away from your credibility when you pseudo defend garbage.
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Re: variable annuity for an 82 yr. old widow

Postby FabLab » Sat Oct 29, 2011 9:42 am

dhodson wrote:i think you know how they get this by compliance. they tell that person and the applicant is aware of the reasons not to do this (which they never understand) and have them sign tons of forms they dont understand telling them its just a legal requirement . The applicant is overwhelmed and just signs bc this person says they are doing right by them. compliance depts are not about doing what is right, they are about trying to make sure they can defend this. that is a big difference. I know from personal experience. an applicant like this never comes asking for this type of product. They need to be pushed into it. Its hard sale push and you know it. stop trying to pretend there is a reason this "might be" appropriate and we just dont have all the facts. it takes away from your credibility when you pseudo defend garbage.


Hi dhodson,
Nice post. Pretty well sums it up for me, too. One thing, I hope we don't alarm or scare away the OP. It would be great to see him return and share his success in rescinding this deal.

Cheers,
Ron
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Re: variable annuity for an 82 yr. old widow

Postby dhodson » Sat Oct 29, 2011 9:58 am

While I agree, any delay will decrease their chances.
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Re: variable annuity for an 82 yr. old widow

Postby bluemarlin08 » Sat Oct 29, 2011 10:02 am

I was with a business owner yesterday that told me he had just put 500,000 from his IRA in an Index Annuity and that it guaranteed him 8% return. He said many of his other friends had done the same. I tried to explain that he misunderstood the policy that the guarantee was on a phantom account that determined a future payout. He wouldn't believe me, I bet him a dinner at Ruth Chris I was right and would show if he would provide me the policy. The point is that it isn't just seniors buying this product and that I have NEVER met anyone that bought a VA or an index annuity that understood what they bought.
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Re: variable annuity for an 82 yr. old widow

Postby newstreetnj » Sat Oct 29, 2011 10:10 am

I'm the original poster and thank all of you for your replies.

I did speak with the agent who sold bro the VA for my sister. Where to start??

1. The 5% return is "guaranteed" by an annual 0.95% charge. When I challenged the rep on how such a guarantee was possible, I had to help by suggesting "hedging".

2. The chat was surreal in that when I began calling it a life insurance product, she quickly corrected me c "death benefit" She also lectured me on Suzie Orman, who apparently was originally an opponent of VAs but now has seen the light.

3. One of the 2 sub-accounts on Sis's quarterly report was < LVIP Moder Str>. I searched hard for this fund, but it turns out that it does not have a ticker symbol!!!, unlike the Blackrock fund which is also in her VA.So, the agent send me a 15 page list of these subaccounts and I still can't find her fund.!!!!!

4. Surrender charges are 7% in the 1st 2 yrs, dropping to 0 by year 5. Total expenses per yr are ~2.5%( at least that's what the broker told me)

My greatest worry is the continuing solvency of Lincoln; it did receive a TARP injection a few years ago and its ranking by the various agencies is perhaps mediocre.

Again, I thank you for the many good comments and yes, I am originally from Jersey where this VA was purchased.
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Re: variable annuity for an 82 yr. old widow

Postby letsgobobby » Sat Oct 29, 2011 10:12 am

if we can put money in a VA and be guaranteed never to lose money while shooting for the stars with aggressive investments, why wouldn't I do that immediately, regardless of my age?
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Re: variable annuity for an 82 yr. old widow

Postby dhodson » Sat Oct 29, 2011 10:20 am

That is a delay tactic. What the agent has now done is documented that he/she explained the product fully and now the client and all family members wanted this. You need to file a complaint next week or accept your fate.
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Sat Oct 29, 2011 10:25 am

dhodson wrote:i think you know how they get this by compliance. they tell that person and the applicant is aware of the reasons not to do this (which they never understand) and have them sign tons of forms they dont understand telling them its just a legal requirement . The applicant is overwhelmed and just signs bc this person says they are doing right by them. compliance depts are not about doing what is right, they are about trying to make sure they can defend this. that is a big difference. I know from personal experience. an applicant like this never comes asking for this type of product. They need to be pushed into it. Its hard sale push and you know it. stop trying to pretend there is a reason this "might be" appropriate and we just dont have all the facts. it takes away from your credibility when you pseudo defend garbage.



Let's not confuse two different things. 1) Can a VA sale to an older person be appropriate? 2)Is this specific sale appropriate and if not, what happened?

The first answer is "yes". The second answer is "probably no, but more info is needed".

While I think that some sales of VAs to older people. I do not see any indication in what has been posted that what the OP is describing is an appropriate VA sale. I am not defending the sale. I'm looking for more information. I am questioning what happened here. It is certainly possible that this was nothing more than a hard sale unethical push to buy the product from an unscrupulous salesman.

Here's another possibility. The brother did this because it was in his best interest. A VA could allow him to be the sole beneficiary whereas with mutual funds it would have been part of her probatable estate.
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Sat Oct 29, 2011 10:32 am

newstreetnj wrote:I'm the original poster and thank all of you for your replies.

I did speak with the agent who sold bro the VA for my sister. Where to start??

1. The 5% return is "guaranteed" by an annual 0.95% charge. When I challenged the rep on how such a guarantee was possible, I had to help by suggesting "hedging".

2. The chat was surreal in that when I began calling it a life insurance product, she quickly corrected me c "death benefit" She also lectured me on Suzie Orman, who apparently was originally an opponent of VAs but now has seen the light.

3. One of the 2 sub-accounts on Sis's quarterly report was < LVIP Moder Str>. I searched hard for this fund, but it turns out that it does not have a ticker symbol!!!, unlike the Blackrock fund which is also in her VA.So, the agent send me a 15 page list of these subaccounts and I still can't find her fund.!!!!!

4. Surrender charges are 7% in the 1st 2 yrs, dropping to 0 by year 5. Total expenses per yr are ~2.5%( at least that's what the broker told me)

My greatest worry is the continuing solvency of Lincoln; it did receive a TARP injection a few years ago and its ranking by the various agencies is perhaps mediocre.

Again, I thank you for the many good comments and yes, I am originally from Jersey where this VA was purchased.


It isn't guaranteed by hedging. There is no heding with a VA. The guarantee doesn't cost them anything unless the account actually hits $0. I would not be concerned about Lincoln. The money is in sub-accounts. If Linclon went bust tomorrow, the money would be safe. It is only the guarantee that wouldn't be safe.

You probably can't find a ticker symbol because it isn't a fund. It is a portfolio that is made up of a bunch of funds.

Have you spoken to your brother? Why did he go this route? It certainly doesn't sound like it makes sense. What is your sister's primary and secondary financial goals? Is leaving money behind important to her?
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Re: variable annuity for an 82 yr. old widow

Postby dhodson » Sat Oct 29, 2011 10:37 am

Get real.

Even if this older brother was scum, the agent is twice as bad for suggesting the product and allowing the sale. Come back to earth and reality.
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Re: variable annuity for an 82 yr. old widow

Postby bluemarlin08 » Sat Oct 29, 2011 10:37 am

So how do they guarantee a 5% return?
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Sat Oct 29, 2011 10:45 am

letsgobobby wrote:if we can put money in a VA and be guaranteed never to lose money while shooting for the stars with aggressive investments, why wouldn't I do that immediately, regardless of my age?


You probably would do that if the cost of the guarantee wasn't too expensive. In the past, I had plenty of clients do just that. Over time, though, things change. The cost of the guarantees became more expensive and the insurance companies stopped letting people be as aggressive with their investments.

What you are describing is a GMAB (Guaranteed Minimum Accumulation Benefit).
Ex. Jim puts $100,000 into a VA. The insurance company guarantees that on the 10th anniversary of the contract, the account value will be at least $100,000. If it isn't, they will make up the difference.

So, the answer to your question is that you would if you could, but you no longer can do that.

What the living benefits of a VA accomplish as compared to mutual funds is to greatly improve the worst case scenario, but they come with a significant cost of possible large underperformance with good case scenarios.

Ex. $100,000 invested in VA (10 year return of premium GMAB) vs. $100,000 in mutual funds.
A) Market loses 10% total over a 10 year period.
Mutual Fund = $90,000
Variable Annuity = $100,000

B) Market averages 10% over 10 year period
Mutual Fund (assume ER of 0)= $259,000
Variable Annuity (Assume ER of 2.5%) = $206,000

The guarantee is not a free lunch and comes at great risk to the upside.
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Sat Oct 29, 2011 10:48 am

dhodson wrote:Get real.

Even if this older brother was scum, the agent is twice as bad for suggesting the product and allowing the sale. Come back to earth and reality.


You are arguing with the wrong guy. I'm not defending anybody. I'm questioning what happened. I think that you are probably correct. I'm just not willing to state that as the case without knowing what was told to the agent.
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Re: variable annuity for an 82 yr. old widow

Postby Brody » Sat Oct 29, 2011 10:58 am

bluemarlin08 wrote:So how do they guarantee a 5% return?


They aren't guaranteeing a 5% return. They are guaranteeing that the client can take 5% out of their investment.

There is no need to hedge, nor is their money available to hedge. Assume that the client invests $100,000. The insurance company skims their 2% (give or take) fees off of the top. They now have $2,000 that goes into their general account.

The $5,000 (5%) comes from the separate accounts. The insurance company keeps getting their $2,000 in fees every year. They only have to pay money out of their coffers if the account value drops to $0. Until/unless that happens, it doesn't cost them a penny.

This is very different than with products such as EIAs. With EIAs, the money is all in the general account of the insurance company. They must hedge the risk.
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Re: variable annuity for an 82 yr. old widow

Postby dhodson » Sat Oct 29, 2011 11:38 am

Brody wrote:
dhodson wrote:Get real.

Even if this older brother was scum, the agent is twice as bad for suggesting the product and allowing the sale. Come back to earth and reality.


You are arguing with the wrong guy. I'm not defending anybody. I'm questioning what happened. I think that you are probably correct. I'm just not willing to state that as the case without knowing what was told to the agent.



i dont buy your im not defending anybody line here and frankly i think a lot of people feel similar. i imagine at times its hard working in an industry with this number of bad apples in it. your much more likeable when you just provide good advice/info.
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