All the upside of the S&P with 10% downside protection "Free"?

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TooLegit2Quit
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by TooLegit2Quit »

neurosphere wrote: Thu Apr 23, 2020 8:00 am
TooLegit2Quit wrote: Thu Apr 23, 2020 7:49 am I just emailed their advisor and cc’d my relatives with what the email answer says vs what the prospectus says with regard to dividend treatment and asked them to explain. I will let you know his answer.
Note that dividends ARE reinvested for those options which INCLUDE dividends. So don't get fooled by a footnote which says anything about reinvesting dividends. One only gets the dividends if the underlying tracked index/fund includes dividends. Keep us posted!

I'll make a prediction, just for fun. The insurance salesman will make a "yes you are right, but..." kind of comment. Alternately, they'll answer the question like "all dividends are indeed reinvested" without specifying whether the specific index you might choose has any dividends to reinvest. E.g. "all dividends (if any) are indeed reinvested", while leaving out the "if any". :D

Hey guys, I got the following response:

I hope the below helps. Sounds like dividends are re-invested but baked into your overall valuation.

And he attached a screen shot that shows :

Reinvestment of Dividends and Capital Gain Distribution:
All dividends and capital gains distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to the Contractowners as additional units, but are reflected as changes in unit values.

I asked him to send me whatever document he is reading the above explanation off of.

So how do we interpret that? Despite them reinvesting dividends in some big account, the units they section off to you will only reflect what the actual s&p price index is?
dachshunddad
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by dachshunddad »

Sounds like a can't lose situation! :oops:
I would just hold more bonds if you want to limit downside.
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Stinky
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by Stinky »

TooLegit2Quit wrote: Thu Apr 23, 2020 1:21 am I had a conference call with these guys and read about 25 pages on the SEC site trying to sniff out any fees. I even recorded the call. They said under my scenario, no riders, s&p fund, no early surrender aka I buy and hold the S&P for 6 years, there are literally zero fees
No fees?

LIARS.
It's a GREAT day to be alive - Travis Tritt
KSActuary
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by KSActuary »

NYCPete wrote: Thu Apr 23, 2020 11:50 am
TooLegit2Quit wrote: Thu Apr 23, 2020 1:21 am
I had a conference call with these guys and read about 25 pages on the SEC site trying to sniff out any fees. I even recorded the call. They said under my scenario, no riders, s&p fund, no early surrender aka I buy and hold the S&P for 6 years, there are literally zero fees,
Not true.

From the prospectus (it's on page 11):

Total Annual Fund Operating Expenses (expenses that are deducted from fund assets, including management fees, distribution and/or service (12b-1) fees, and other expenses)
Minimum - 0.49%
Maximum - 1.22%

No ifs, ands, or buts about it. There are not "zero fees." This is EXPENSIVE.

It doesn't matter what the sales people say in their email to your questions. It matters what's in the contract. They'll say whatever they can to get you to buy the product. What are you going to do if later you find out they were lying? Sue them? Not likely. Report them to FINRA? FINRA will just say "hey, it's your responsibility to read the prospectus and contract. Your product has performed as the contract and prospectus promised it would."

Best,
Peter

P.S. Why bother with 25 pages of the SEC site when you've got a prospectus for the actual product???
That's for someone who uses the variable annuity separate accounts only.
KSActuary
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by KSActuary »

TooLegit2Quit wrote: Thu Apr 23, 2020 12:16 pm
neurosphere wrote: Thu Apr 23, 2020 8:00 am
TooLegit2Quit wrote: Thu Apr 23, 2020 7:49 am I just emailed their advisor and cc’d my relatives with what the email answer says vs what the prospectus says with regard to dividend treatment and asked them to explain. I will let you know his answer.
Note that dividends ARE reinvested for those options which INCLUDE dividends. So don't get fooled by a footnote which says anything about reinvesting dividends. One only gets the dividends if the underlying tracked index/fund includes dividends. Keep us posted!

I'll make a prediction, just for fun. The insurance salesman will make a "yes you are right, but..." kind of comment. Alternately, they'll answer the question like "all dividends are indeed reinvested" without specifying whether the specific index you might choose has any dividends to reinvest. E.g. "all dividends (if any) are indeed reinvested", while leaving out the "if any". :D

Hey guys, I got the following response:

I hope the below helps. Sounds like dividends are re-invested but baked into your overall valuation.

And he attached a screen shot that shows :

Reinvestment of Dividends and Capital Gain Distribution:
All dividends and capital gains distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to the Contractowners as additional units, but are reflected as changes in unit values.

I asked him to send me whatever document he is reading the above explanation off of.

So how do we interpret that? Despite them reinvesting dividends in some big account, the units they section off to you will only reflect what the actual s&p price index is?
That sounds like the dividends for the separate accounts if you use the VA part of the product. You are not investing in anything other than a promise by Lincoln in the indexed part. This guy is playing fast and lose with you now.
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Oicuryy
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by Oicuryy »

TooLegit2Quit wrote: Thu Apr 23, 2020 12:16 pm And he attached a screen shot that shows :

Reinvestment of Dividends and Capital Gain Distribution:
All dividends and capital gains distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to the Contractowners as additional units, but are reflected as changes in unit values.
That product has two types of annuities in one package. It has a fixed indexed annuity and a variable annuity. You are considering the fixed indexed annuity. A fixed indexed annuity pays interest at maturity. The amount of interest is computed using a formula that includes some values from a market index. In this case the S&P price index.

A variable annuity invests in a mutual-fund-like subaccount. You get the performance of the subaccount less fees and expenses.

That bit about dividends being reinvested applies to the subaccounts of the variable annuity. It does not apply to the fixed indexed annuity. The salesman is deliberately mixing apples and oranges to confuse you.

Ron
Money is fungible | Abbreviations and Acronyms
KSActuary
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by KSActuary »

Oicuryy wrote: Thu Apr 23, 2020 12:34 pm
TooLegit2Quit wrote: Thu Apr 23, 2020 12:16 pm And he attached a screen shot that shows :

Reinvestment of Dividends and Capital Gain Distribution:
All dividends and capital gains distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to the Contractowners as additional units, but are reflected as changes in unit values.
That product has two types of annuities in one package. It has a fixed indexed annuity and a variable annuity. You are considering the fixed indexed annuity. A fixed indexed annuity pays interest at maturity. The amount of interest is computed using a formula that includes some values from a market index. In this case the S&P price index.

A variable annuity invests in a mutual-fund-like subaccount. You get the performance of the subaccount less fees and expenses.

That bit about dividends being reinvested applies to the subaccounts of the variable annuity. It does not apply to the fixed indexed annuity. The salesman is deliberately mixing apples and oranges to confuse you.

Ron
Winner!
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neurosphere
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by neurosphere »

TooLegit2Quit wrote: Thu Apr 23, 2020 12:16 pm
neurosphere wrote: Thu Apr 23, 2020 8:00 am I'll make a prediction, just for fun. The insurance salesman will make a "yes you are right, but..." kind of comment. Alternately, they'll answer the question like "all dividends are indeed reinvested" without specifying whether the specific index you might choose has any dividends to reinvest. E.g. "all dividends (if any) are indeed reinvested", while leaving out the "if any". :D
And he attached a screen shot that shows :

Reinvestment of Dividends and Capital Gain Distribution:
All dividends and capital gains distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to the Contractowners as additional units, but are reflected as changes in unit values.
Hey look, I won! [edit, there are multiple winners on this thread, lol]. See the part I bolded in my original quote. I predicted he would tell you that all dividends are reinvested. It's true. They are. Look at the part of the text he screenshot that I bolded and underlined. The SP price index is not in the "funds" this section is referring to. It's right there in the prospectus for you to read. You have read the prospectus, right? All of the "funds" are in the variable investment section section. The investment you are referring to is NOT A FUND all. They only refer to it as an "index". There ARE NO DIVIDENDS for the choice you are considering (the price index) and your investment is NOT A FUND so his quote does not apply to you.

I can't tell if he is a liar, or if he truly does not know what he is talking about. It's right there in the prospectus. All he has to do is READ IT TO YOU.
Last edited by neurosphere on Thu Apr 23, 2020 1:12 pm, edited 1 time in total.
Topic Author
TooLegit2Quit
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by TooLegit2Quit »

neurosphere wrote: Thu Apr 23, 2020 12:51 pm
TooLegit2Quit wrote: Thu Apr 23, 2020 12:16 pm
neurosphere wrote: Thu Apr 23, 2020 8:00 am I'll make a prediction, just for fun. The insurance salesman will make a "yes you are right, but..." kind of comment. Alternately, they'll answer the question like "all dividends are indeed reinvested" without specifying whether the specific index you might choose has any dividends to reinvest. E.g. "all dividends (if any) are indeed reinvested", while leaving out the "if any". :D
And he attached a screen shot that shows :

Reinvestment of Dividends and Capital Gain Distribution:
All dividends and capital gains distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to the Contractowners as additional units, but are reflected as changes in unit values.
Hey look, I won! See my the part I bolded in my original quote. I predicted he would tell you that all dividends are reinvested. It's true. They are. Look at the text he screenshooted that I bolded and underlined. The SP price index is not in the "funds" this section is referring to. It's right there in the prospectus for you to read. You have read the prospectus, right? All of the "funds" are in the variable investment section section. The investment you are referring to is NOT A FUND all. They only refer to it as an "index". There ARE NO DIVIDENDS for the choice you are considering (the price index) and your investment is NOT A FUND so his quote does not apply to you.

I can't tell if he is a liar, or if he truly does not know what he is talking about. It's right there in the prospectus. All he has to do is READ IT TO YOU.
Oicuryy and neurosphere, I think you both shined a lot of light on the issue. The confusion seems the advisor is interchanging “fund” and “index”. I wrote him back, I’ll keep you guys updated.
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neurosphere
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by neurosphere »

TooLegit2Quit wrote: Thu Apr 23, 2020 1:05 pm Oicuryy and neurosphere, I think you both shined a lot of light on the issue. The confusion seems the advisor is interchanging “fund” and “index”. I wrote him back, I’ll keep you guys updated.
Yes, please keep us updated.

But, an honest question. Is there any possible answer you could get which would keep your interest in this investment? It's pretty clear the advisor was either intentionally lying multiple times (why?), or he has no concept of what he is selling (and thus how can you trust his judgement). I guess I'm asking, why bother writing him back?

Just about every reply here has proven that we (collectively) understand more about this product than the advisor. What additional insights would the advisor give you? I'm not sure that there are any new "pros" or benefits to this product which are currently unknown, and which would tip the scales towards making this a prudent investment.
actuallyxy
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by actuallyxy »

neurosphere wrote: Thu Apr 23, 2020 1:11 pm
TooLegit2Quit wrote: Thu Apr 23, 2020 1:05 pm Oicuryy and neurosphere, I think you both shined a lot of light on the issue. The confusion seems the advisor is interchanging “fund” and “index”. I wrote him back, I’ll keep you guys updated.
Yes, please keep us updated.

But, an honest question. Is there any possible answer you could get which would keep your interest in this investment? It's pretty clear the advisor was either intentionally lying multiple times (why?), or he has no concept of what he is selling (and thus how can you trust his judgement). I guess I'm asking, why bother writing him back?

Just about every reply here has proven that we (collectively) understand more about this product than the advisor. What additional insights would the advisor give you? I'm not sure that there are any new "pros" or benefits to this product which are currently unknown, and which would tip the scales towards making this a prudent investment.
+1

How can you still think that this product is better than 60-90% in a S&P500 fund and the rest in cash or bonds?
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HomerJ
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by HomerJ »

neurosphere wrote: Thu Apr 23, 2020 1:11 pm
TooLegit2Quit wrote: Thu Apr 23, 2020 1:05 pm Oicuryy and neurosphere, I think you both shined a lot of light on the issue. The confusion seems the advisor is interchanging “fund” and “index”. I wrote him back, I’ll keep you guys updated.
Yes, please keep us updated.

But, an honest question. Is there any possible answer you could get which would keep your interest in this investment? It's pretty clear the advisor was either intentionally lying multiple times (why?), or he has no concept of what he is selling (and thus how can you trust his judgement). I guess I'm asking, why bother writing him back?
This... Why are you writing him back?

To give him (a professional salesman) a chance to lie to you and confuse you AGAIN?

Because that's his job. He'll find a way to squirm out of this one too. He'll confuse you again. He's a professional confuser. That's how he makes sales.

He's never going to say "oh, you're right.. you shouldn't buy this..."

Every single response is going to be "oh, you don't understand, let me explain it in a more complex way until you give up and give me money. Because I need a new boat."
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
bugleheadd
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by bugleheadd »

I know life insurance companies are trying to get out of the variable annuity business. There must be a reason why even life insurance companies don't want to deal with them
pkcrafter
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by pkcrafter »

TooLegit2Quit,

You asked what the Bogleheads community thought of this product and you've received many informed answers, but instead of accepting the feedback, you keep going back to the salesman and asking more questions. Asking the salesman is like asking a wolf if it's safe to go into his den. Have you showed this discussion to your FIL?

If you are trying to convince Bogleheads that this product is actually really good, you aren't going to do it, and you don't need the Bogleheads permission to buy it.


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Stinky
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by Stinky »

neurosphere wrote: Thu Apr 23, 2020 1:11 pm
TooLegit2Quit wrote: Thu Apr 23, 2020 1:05 pm Oicuryy and neurosphere, I think you both shined a lot of light on the issue. The confusion seems the advisor is interchanging “fund” and “index”. I wrote him back, I’ll keep you guys updated.
Yes, please keep us updated.

But, an honest question. Is there any possible answer you could get which would keep your interest in this investment? It's pretty clear the advisor was either intentionally lying multiple times (why?), or he has no concept of what he is selling (and thus how can you trust his judgement). I guess I'm asking, why bother writing him back?

Just about every reply here has proven that we (collectively) understand more about this product than the advisor. What additional insights would the advisor give you? I'm not sure that there are any new "pros" or benefits to this product which are currently unknown, and which would tip the scales towards making this a prudent investment.
Excellent post! Well stated.
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Nate79
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by Nate79 »

TooLegit2Quit wrote: Thu Apr 23, 2020 1:05 pm
neurosphere wrote: Thu Apr 23, 2020 12:51 pm
TooLegit2Quit wrote: Thu Apr 23, 2020 12:16 pm
neurosphere wrote: Thu Apr 23, 2020 8:00 am I'll make a prediction, just for fun. The insurance salesman will make a "yes you are right, but..." kind of comment. Alternately, they'll answer the question like "all dividends are indeed reinvested" without specifying whether the specific index you might choose has any dividends to reinvest. E.g. "all dividends (if any) are indeed reinvested", while leaving out the "if any". :D
And he attached a screen shot that shows :

Reinvestment of Dividends and Capital Gain Distribution:
All dividends and capital gains distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to the Contractowners as additional units, but are reflected as changes in unit values.
Hey look, I won! See my the part I bolded in my original quote. I predicted he would tell you that all dividends are reinvested. It's true. They are. Look at the text he screenshooted that I bolded and underlined. The SP price index is not in the "funds" this section is referring to. It's right there in the prospectus for you to read. You have read the prospectus, right? All of the "funds" are in the variable investment section section. The investment you are referring to is NOT A FUND all. They only refer to it as an "index". There ARE NO DIVIDENDS for the choice you are considering (the price index) and your investment is NOT A FUND so his quote does not apply to you.

I can't tell if he is a liar, or if he truly does not know what he is talking about. It's right there in the prospectus. All he has to do is READ IT TO YOU.
Oicuryy and neurosphere, I think you both shined a lot of light on the issue. The confusion seems the advisor insurance salesman is interchanging “fund” and “index”. I wrote him back, I’ll keep you guys updated.
There. Fixed it for you. Your salesman is either lying, stupid, or both.
German Expat
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by German Expat »

You have enough answers now and none that tells you it's a great idea to buy it. Their own prospectus tells you where they make their profit. On the other hand you don't need our approval to buy it. Go ahead buy it,set a reminder and tell us in 6 years how it went.
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sergeant
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by sergeant »

Salesmen have got to Always Be Closing! OP, you have received appropriate information from this board. My MIL has spent way too much money on timeshares and continues to upgrade whenever the sales people get her alone. We stopped letting her be alone with them a handful of years ago. Stay away from predatory sales folks. Nothing good can come of it.

And I just want to echo that you are NOT getting the dividends!
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
ballons
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by ballons »

My uncle was sold this type of garbage inside IRA's. He could of invested in a target fund and did better. Annuities outside of SPIA are to be avoided at all costs.
Slowtraveler
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by Slowtraveler »

S/He is a salesman who has explicitly lied to you. Trust the prospectus. It literally describes the product.

Bring the prospectus with the many sections contradicting what they told you highlighted. Have them write out and sign their statements. Something tells me they'll freeze around this step.

Price index does not reflect dividends.

Always ponder how these products make money. The salesmen are either less educated about their own prospectus or overtly lying. Either way is a red flag.

If your father is so scared, I highly recommend the Wellesley fund by Vanguard. Low fee. He will literally become an owner in Vanguard by buying in due to the unique client as owner model at Vanguard. It is extremely conservative and has made decent money but it is not tax efficient.
Last edited by Slowtraveler on Thu Apr 23, 2020 2:14 pm, edited 1 time in total.
csmath
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by csmath »

pkcrafter wrote: Thu Apr 23, 2020 1:37 pm TooLegit2Quit,

You asked what the Bogleheads community thought of this product and you've received many informed answers, but instead of accepting the feedback, you keep going back to the salesman and asking more questions. Asking the salesman is like asking a wolf if it's safe to go into his den. Have you showed this discussion to your FIL?

If you are trying to convince Bogleheads that this product is actually really good, you aren't going to do it, and you don't need the Bogleheads permission to buy it.


Paul
+1

To the OP. I have nothing to add that hasn't already been said but I want to make one additional point. Based on your post count it may be true that you haven't spent much time here on this forum or that you have mostly been a lurker for years like myself. But just in case you really are new... Some of the people posting in this thread are from people that have demonstrated time and time again that their advice and knowledge should be taken very seriously. To the point that sometimes I will check out a topic I'm not interested in just because I see that they have commented. You aren't getting your typical "free internet advice" here in this thread, it is the real deal.

Personally, if the same people posted in a thread started by myself about a product, I'd bail immediately with the suspicion that I was in a situation where I didn't know what I didn't know. I'd continue to try to understand it more fully, but in my world it is safer to act like salesmen are for trying to sell things where the product can't sell itself.
b42
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by b42 »

Everything that's important has already been said, so I'll just add: This seems like an awfully complicated product just to get "downside protection".

Remember these products are sold, not bought. Why not just buy back into the market with a large percentage in bonds or TIPS (Treasury Inflation-Protected Securities)?
Slowtraveler
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by Slowtraveler »

I must say, I'm impressed by how many good hearted people here are responding and highlighting the issues within the prospectus. At this point, the op either trusts too much in the salesman (not fiduciary by any means) or is trying to sell us on not trusting a prospectus.
the way
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by the way »

Chase PC tried to sell me the same thing. I was instantly intrigued. After talking about 10 mins I asked "what about dividends?" The guy then kind of sighed and said, "right, you don't get the divs." I said if divs are 2% for 6 years that more than covers the 10% protection doesn't it? He said yes, and we moved on.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by cheese_breath »

NYCPete wrote: Thu Apr 23, 2020 11:50 am From the prospectus (it's on page 11):

Total Annual Fund Operating Expenses (expenses that are deducted from fund assets, including management fees, distribution and/or service (12b-1) fees, and other expenses)
Minimum - 0.49%
Maximum - 1.22%
OP,

Seems to me the salesman is playing word games with you, as if fees were the only kind of expense. Since you seem to be determined to prove all the people here wrong ask him straight out if there are any expenses of any kind. I'd be interested to know his answer.
The surest way to know the future is when it becomes the past.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by Elric »

One other point that has not yet been raised. I agree with the other posters that this is a very bad investment, and that, in general, not just variable annuities but structured notes (which is what this behaves as) are not good. But even if you thought the latter wasn't true, you can do a lot better on structured notes! So this isn't just a bad investment type, it's a bad investment for this type. I have one structured note of a similar type from when I had an advisor. It's not the type of thing I'd buy again, but I fully knew what I was buying at the time. So I checked for what similar offerings are made today. You can currently get, for example, a 7 year JP Morgan structured note offering 1.1% upside leverage and a 40% contingent buffer downside protection (albeit on the lesser performing of the S&P or the Russell 2000, so since the Russell 2000 is more volatile, less than 40% protection equivalent for the S&P). No dividends, but at least you get 1.1% leverage. MUCH better deal. Or you can get a dual directional note that has no leverage (and again, no dividends), but it pays you the absolute value of the difference in the lesser performing index fro the start to the end date, up to -30% (so you win if the market rises OR if it drops less than <30%). Of course, with either, you are assuming the catastrophic risk if the market drops more than the contingent buffer. This information is not presented to encourage anyone to invest in either of these (JP Morgan isn't offering them as loss leaders :happy ), but to point out just how bad a deal you're being offered.
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TooLegit2Quit
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by TooLegit2Quit »

Hey guys, I am moving on from this product and imploring my FIL to do the same.

Just a couple things

By going back to the advisor with questions based off the concerns brought about by trusted members and receiving unsatisfactory responses from the advisor, This thread will hopefully allow future posters to search “Lincoln level advantage” and come out with a clear understanding that this is not the great product that it was originally represented as and dividends are not reinvested on behalf of the buyer. Perhaps by showing the misrepresentation of the advisor/sales guy With regard to the dividend, We are all getting an education.

For entertainment sake here’s a copy of my last email the advisor wrote me.

“I’m working on getting a Lincoln product expert lined up for a conference call. I know that sounds odd considering the Lincoln sales manager and his assistant (the two guys I had a conference call with) should be experts, but they want to make sure they nail all your questions.
Just hold tight and I’ll have some available times shortly.“


I will not be taking the above call. I’m convinced there is nothing they can show me that warrants another chance to sell me on giving it the endorsement for my father in law.

For context, this would have represented less than 5% of his retirement Portfolio With currently about 40% being in a 2025 fidelity target date fund, 40% in cash (obviously not ideal, but most was pulled from the market near the top, but some was held and then panic sold around Dow 23,500 on the way down), and 15% in another annuity that was sold to him by his adviser (I have never looked at any details of this other annuity). So basically he’s got to get back into the market with that 40% cash but very risk averse.

Thank you everyone, I appreciate it- even if some people thought/think I am masquerading my intentions and/or affiliation with this product due to my status as a new poster (I have no affiliation whatsoever!) and am Simply doing due diligence.

I look forward to continuing my financial education and contributing through the Bogleheads forum. Although most of my investments are simple low cost index funds, I do have 10+ years of experience with selling cash-secured puts and selling covered calls in my Roth accounts that have been a net positive to provide a little extra return but have never been asked to look at an annuity so I needed some more eyes on it...
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by 1210sda »

Toolegit...

1)It appears as if the salesman feels that as long as you keep coming back to him for "clarification" and you don't "hang up", he still has a chance to get the sale!!

2) What a wonderful display of the combined wisdom and knowledge of Bogleheads.

3) Also, what a wonderful willingness by Bogleheads to share!! Jack would be proud!
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by Stinky »

TooLegit2Quit wrote: Thu Apr 23, 2020 3:54 pm Hey guys, I am moving on from this product and imploring my FIL to do the same.
Good decision!

As we wind this thread down, I’m wondering if there is a generic name for this type of product. I believe that it is an increasingly popular product, and can sound attractive because of the “smoke and mirrors” sales pitch that OP got.

BHs know what a “variable annuity” is. Also an “indexed annuity”, “universal life”, etc.

But what is this? A “structured annuity”? Something else?
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by FiveK »

Stinky wrote: Thu Apr 23, 2020 4:10 pm As we wind this thread down, I’m wondering if there is a generic name for this type of product. I believe that it is an increasingly popular product, and can sound attractive because of the “smoke and mirrors” sales pitch that OP got.

BHs know what a “variable annuity” is. Also an “indexed annuity”, “universal life”, etc.

But what is this? A “structured annuity”? Something else?
Perhaps "any annuity that is not an SPIA (or SPDA)" would suffice?
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by neurosphere »

FiveK wrote: Thu Apr 23, 2020 4:19 pm
Stinky wrote: Thu Apr 23, 2020 4:10 pm As we wind this thread down, I’m wondering if there is a generic name for this type of product. I believe that it is an increasingly popular product, and can sound attractive because of the “smoke and mirrors” sales pitch that OP got.

BHs know what a “variable annuity” is. Also an “indexed annuity”, “universal life”, etc.

But what is this? A “structured annuity”? Something else?
Perhaps "any annuity that is not an SPIA (or SPDA)" would suffice?
I got into trouble once. I gave a financial lecture where I warned people in the accumulation phase to, in general, avoid any product that has the work "annuity" in it. But then got asked "but our employer account is a Tax Deferred Annuity"?!?! Um, yes, but, that's really a historical term, it's really just a 403b, um...hmmm... :oops:

Currently, our HR materials refer to our 403b as the "TDA" (tax deferred annuity) plan.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by 17outs »

Pretty sure at ML these are called market linked securities.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by ikowik »

This is an excellent thread, very educational. I have not bought one of these, but was curious about how these companies and salespeople could confuse people so much and sell these lousy products.

Neurosphere, good to see you are active and posting. The COVID situation in NYC appears to have turned the corner judging by the numbers.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by Alan S. »

Believe it or not, many annuities were winners in the 2008-09 crisis, but that doesn't mean that the investors profited because they died and the death benefit paid the amount invested to the beneficiaries. The death benefit was often reinsured with other insurers, and because the markets tanked 66% by March 2009, the death benefit paid off big for beneficiaries. The reinsurers had grossly underpriced the premiums because they had not factored in a market drop of that magnitude. Afterwards, the cost of reinsurance skyrocketed.

Maybe that is one of the reasons that the max downside is now 10% instead of 0 like it was for years.
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"Zero Fees"

Post by Taylor Larimore »

"There are literally zero fees."
I wonder who pays the salesperson's commissions? Who pays the company profits? :twisted:

Bill Bernstein, author and respected advisor to millionaires, wrote:

"Act as if every broker, insurance salesman, mutual fund salesperson and financial advisor you encounter is a hardened criminal, and stick to low-cost index funds, and you'll do just fine."

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "I'm personally not particularly smitten with most index-linked annuities."
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by JMacDonald »

TooLegit2Quit wrote: Thu Apr 23, 2020 1:21 am
Initially, based on the blanket advice from white coat investor's teachings, I told him to "run" when his advisor mentioned annuity.
Here is your answer.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by FiveK »

neurosphere wrote: Thu Apr 23, 2020 4:29 pm I got into trouble once. I gave a financial lecture where I warned people in the accumulation phase to, in general, avoid any product that has the work "annuity" in it. But then got asked "but our employer account is a Tax Deferred Annuity"?!?! Um, yes, but, that's really a historical term, it's really just a 403b, um...hmmm... :oops:

Currently, our HR materials refer to our 403b as the "TDA" (tax deferred annuity) plan.
Good point!

Not that many 403b plans are all that great, but yeah....
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by BSBHead »

I didn’t read closely, but the “no fee” thing is a technical issue I believe as their are derivatives used whose cost does not need to be disclosed per the current regulations. The derivative is on a net basis rather than gross, so the “fee” is the cost of executing the derivative trade, which is 100’s of basis points. That is not a fee, but certainly a cost.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by justsomeguy2018 »

TooLegit2Quit wrote: Thu Apr 23, 2020 3:54 pm Hey guys, I am moving on from this product and imploring my FIL to do the same.

Just a couple things

By going back to the advisor with questions based off the concerns brought about by trusted members and receiving unsatisfactory responses from the advisor, This thread will hopefully allow future posters to search “Lincoln level advantage” and come out with a clear understanding that this is not the great product that it was originally represented as and dividends are not reinvested on behalf of the buyer. Perhaps by showing the misrepresentation of the advisor/sales guy With regard to the dividend, We are all getting an education.

For entertainment sake here’s a copy of my last email the advisor wrote me.

“I’m working on getting a Lincoln product expert lined up for a conference call. I know that sounds odd considering the Lincoln sales manager and his assistant (the two guys I had a conference call with) should be experts, but they want to make sure they nail all your questions.
Just hold tight and I’ll have some available times shortly.“


I will not be taking the above call. I’m convinced there is nothing they can show me that warrants another chance to sell me on giving it the endorsement for my father in law.

For context, this would have represented less than 5% of his retirement Portfolio With currently about 40% being in a 2025 fidelity target date fund, 40% in cash (obviously not ideal, but most was pulled from the market near the top, but some was held and then panic sold around Dow 23,500 on the way down), and 15% in another annuity that was sold to him by his adviser (I have never looked at any details of this other annuity). So basically he’s got to get back into the market with that 40% cash but very risk averse.

Thank you everyone, I appreciate it- even if some people thought/think I am masquerading my intentions and/or affiliation with this product due to my status as a new poster (I have no affiliation whatsoever!) and am Simply doing due diligence.

I look forward to continuing my financial education and contributing through the Bogleheads forum. Although most of my investments are simple low cost index funds, I do have 10+ years of experience with selling cash-secured puts and selling covered calls in my Roth accounts that have been a net positive to provide a little extra return but have never been asked to look at an annuity so I needed some more eyes on it...
Thanks for the final update - so when the advisor told you that dividends were reinvested, do you think they just didn't understand their own product, or that they were lying to you?
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by bottlecap »

This was an interesting thread and confirms what I learned after getting my education here:

There is no free lunch. There is always a catch. They just come up with new ways to hide the catch.

I appreciate that the OP followed up with the sales person's responses. It made things interesting. It reminded me on my younger days when I researched these types of offers.

But I was taught here, a long time ago, you don't even need to have these discussions with salespeople. It is always slight-of-hand. Every offer I've ever evaluated always had some hidden catch. No one is going to agree to potentially absorb your loss and not get paid to do it. No one can promise to get you more returns without more risk.

But it's fun to find the catch sometimes.

JT
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by cheese_breath »

TooLegit2Quit wrote: Thu Apr 23, 2020 3:54 pm “I’m working on getting a Lincoln product expert lined up for a conference call. I know that sounds odd considering the Lincoln sales manager and his assistant (the two guys I had a conference call with) should be experts, but they want to make sure they nail all your questions.
Just hold tight and I’ll have some available times shortly.“
Good for you. You stumped them and now they need to bring the big gun in.
The surest way to know the future is when it becomes the past.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by cp73 »

I have a good friend who invests in these similar type products and I always try to convince him they aren't good. Two things I haven't seen any one mention. The growth in this fund over the 6 year period is not compounded. In other words if the SP climbed 60% over the 60 years you would get that increase in your annuity. However, if you owned the SP500 and it went up 10% per year for the six years based on the first year amount and ended at the same SP 500 number you would have more money due to the compounding each year on the growth...So you miss out on the compounding.

Also if this annuity company goes out of business your out of money. You now are assuming another risk.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by cp73 »

In looking at the perfomance of the SP 500 I think there were only a few six year periods all around 1929 when the market was down after six years. Be sure to check that out. That 10% downside sounds great but after six years most downturns have recovered or averaged out by 6 years.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by retired@50 »

HomerJ wrote: Thu Apr 23, 2020 1:28 pm
neurosphere wrote: Thu Apr 23, 2020 1:11 pm
TooLegit2Quit wrote: Thu Apr 23, 2020 1:05 pm Oicuryy and neurosphere, I think you both shined a lot of light on the issue. The confusion seems the advisor is interchanging “fund” and “index”. I wrote him back, I’ll keep you guys updated.
Yes, please keep us updated.

But, an honest question. Is there any possible answer you could get which would keep your interest in this investment? It's pretty clear the advisor was either intentionally lying multiple times (why?), or he has no concept of what he is selling (and thus how can you trust his judgement). I guess I'm asking, why bother writing him back?
This... Why are you writing him back?

To give him (a professional salesman) a chance to lie to you and confuse you AGAIN?

Because that's his job. He'll find a way to squirm out of this one too. He'll confuse you again. He's a professional confuser. That's how he makes sales.

He's never going to say "oh, you're right.. you shouldn't buy this..."

Every single response is going to be "oh, you don't understand, let me explain it in a more complex way until you give up and give me money. Because I need a new boat."
HomerJ
Thanks for my best laugh of the day...!!! I love the bit about the new boat.

Regards,
This is one person's opinion. Nothing more.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by Elric »

cp73 wrote: Thu Apr 23, 2020 11:19 pm The growth in this fund over the 6 year period is not compounded. In other words if the SP climbed 60% over the 60 years you would get that increase in your annuity. However, if you owned the SP500 and it went up 10% per year for the six years based on the first year amount and ended at the same SP 500 number you would have more money due to the compounding each year on the growth...So you miss out on the compounding.
Leaving out dividends (which were discussed). I don't believe this is correct. Compounding doesn't factor in that way for the index value.
  • If the fund ends up 60% higher after 6 years, you get 160% of your investment. But the compound annual growth rate for this is not 10%, it's 8.15%.
  • If the index goes up at a CAGR of 10% for 6 years, the S&P would end up 78% higher, it doesn't end up just 60% higher. And you would get back 178% of your original investment.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by megabad »

Thanks for posting OP. Glad you avoided this expensive product. A good warning for others in the future. I must admire the cleverness of of repeatedly starting the “dividends of the fund” are reinvested when the fund specific excludes all the dividends of the underlying index. All zero of the dividends are reinvested.....However, I would argue a salesman is on rocky legal ground saying there are “no fees” at all. Of course, many of these salesmen don’t strike me as particularly law abiding citizens anyway...but we all know that coffee is for closers and they need to always be closing.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by TooLegit2Quit »

Thanks for the final update - so when the advisor told you that dividends were reinvested, do you think they just didn't understand their own product, or that they were lying to you?
[/quote]

I don't believe the FA had ill intent, honestly. After writing him a very detailed email explaining the difference between the price index and s&p total return index and including a couple charts showing a 19% "performance" gap over 5 years, he wrote back and conceded that the prospectus was indeed confusing in that it should be separated, one addressing "subaccounts" and one addressing these "indexes" and was humble enough to admit that he learned from this (obviously I cherry picked bogleheads responses in forming my explanation- thanks).

FA set up a conference call with me and Lincoln which I wrote back that I would not be taking and would like to move on from the product.

He then passed along my dividend diatribe to Lincoln to explain.
Here was Lincoln's response:
(Start of email)
"I can see where they’re coming from, especially given they’re used to total return index funds.
They’re definitely correct on comparing their historical upside and concluding the total return index has a high probability of returning more than the price return.

However, I would definitely say it comes down to the insurance side.

They could have definitely earned more, historically, in the index fund, but their Level Advantage index account would have lost a lot less during severe downturns like recently and in 2008. Taking this a step further, one could argue their account value could have been even higher if the downturns in their graphs were more limited by having some of their assets in Level Advantage. And even if the client is correct and the market rallies for the next 6 years, they can still capture a large portion of the S&P’s return while knowing they still have protection.

To (Lincoln's other sales rep)’s earlier point, if you were to use this product as a fixed income replacement, it would still allow you to have significant downside protection during downturns for equities and, despite not returning as much as the total return S&P, they can still get S&P-like returns instead of the returns bonds have been realizing over the past 10 years. As an example, the S&P 500 Price Return realized an 8.25% annualized return over the past 10 years whereas the Barclays US Agg Bond Index returned only 3.88% over the same timeframe. Even assuming the Price Return S&P, the returns were over double what intermediate bonds did."
(end of email response)

My Take:

So, I've got to say, while we've been fixated on busting the product based on the (lack of) dividends as a price index vs total return index, the Lincoln guy does make a decent point. FIL would be getting s&p returns (sans dividends) with 20% downside protection and 150% upside. (10% downside/uncapped upside is also an option and I presented the 10%/uncapped originally, but FIL is more interested in 20%/150%) which would very likely exceed the return of most bond funds and help my FIL sleep easy and stay the course. It would allow him to capture a fair amount of the market upside, while protecting the downside at the expense of his dividends. While the likelihood of loss after 6 years is slim, black swan events can and do occur...

Truthfully, the FA is in a tough spot. My FIL lost his ass in 00 and 08 (being invested recklessly, using a different advisor) and can't stomach another bear market where he gets wiped out. He panicked on the way down (around the level where we are at right now) and went to cash. We all know part of the FA's job is to talk a client out of selling low- but at this point, he could re-enter the market at about a net zero (not counting dividends). One way or another, FIL needs to get back into the market but is a perma-bear and isn't convinced we wont re-test the lows, but obviously no one really knows what will actually happen in the coming months - with another wave, reinfections, companies going under, things not getting back to normal, yada yada all being possibilities. or the market could go straight up from here! If he gets talked into buying anything and the market turns south it's going to be a "I told you so" situation. If he buys this annuity now, and the market drops 20%, he will still sleep easy, knowing he hasn't lost a penny (vs being in cash) since he has the 20% downside buffer (and 150% upside cap).

My FIL is just a few years away from retirement and needs to protect his nestegg but would still like to grow his returns above what cash or straight bonds would yield. It may not be optimal, but for someone that is petrified of the market, he'd be looking at a 20% downside protection, 150% upside cap for a 6 year term, if it continued it's historical 8.25% annualized return over the 6 year period and offered a 20% downside protection (rather than doing 10% downside, uncapped upside) it seems like it could actually still be a viable option based on his behavioral proclivity toward getting out of the kitchen when the heat gets turned up knowing he is locked into this come hell or high water for 6 years due to expensive surrender fees. As an alternative, I've looked into the cost of buying protective puts 2 years out and it'll cost nearly 13%....imagine what 6 years of buying puts looks like..

Like I said, behavioral finance is in play here more so than just the numbers. Looking at a fund that was suggested, specifically Vanguard Wellesley, VWINX, the last 5 years its total return was 5.41%, 10 year 7.21%. The S&P price index has a greater historical return (8.25%) and this thing has that downside buffer which carries a lot of weight with him. While it's not for me, as the cost of that downside protection is the foregoing of total return due to lack of dividends- as i'm still in the accumulation phase and focused on maximum growth, I think my FIL could do a lot worse than this and if it fits the bill for him to help him stay the course for his remaining 6 working years instead of losing sleep over what the market is doing to do a day, a week, a month, a year down the road to his retirement...it's better than sitting on cash.

This would only represent about 5-7% of his total portfolio.
Last edited by TooLegit2Quit on Sat Apr 25, 2020 1:04 am, edited 1 time in total.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by unclescrooge »

KSActuary wrote: Thu Apr 23, 2020 12:35 pm
Oicuryy wrote: Thu Apr 23, 2020 12:34 pm
TooLegit2Quit wrote: Thu Apr 23, 2020 12:16 pm And he attached a screen shot that shows :

Reinvestment of Dividends and Capital Gain Distribution:
All dividends and capital gains distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to the Contractowners as additional units, but are reflected as changes in unit values.
That product has two types of annuities in one package. It has a fixed indexed annuity and a variable annuity. You are considering the fixed indexed annuity. A fixed indexed annuity pays interest at maturity. The amount of interest is computed using a formula that includes some values from a market index. In this case the S&P price index.

A variable annuity invests in a mutual-fund-like subaccount. You get the performance of the subaccount less fees and expenses.

That bit about dividends being reinvested applies to the subaccounts of the variable annuity. It does not apply to the fixed indexed annuity. The salesman is deliberately mixing apples and oranges to confuse you.

Ron
Winner!
Or maybe he's just unable to understand what he's selling. I think it's more likely he's incompetent than malicious.
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by unclescrooge »

TooLegit2Quit wrote: Thu Apr 23, 2020 1:05 pm
neurosphere wrote: Thu Apr 23, 2020 12:51 pm
TooLegit2Quit wrote: Thu Apr 23, 2020 12:16 pm
neurosphere wrote: Thu Apr 23, 2020 8:00 am I'll make a prediction, just for fun. The insurance salesman will make a "yes you are right, but..." kind of comment. Alternately, they'll answer the question like "all dividends are indeed reinvested" without specifying whether the specific index you might choose has any dividends to reinvest. E.g. "all dividends (if any) are indeed reinvested", while leaving out the "if any". :D
And he attached a screen shot that shows :

Reinvestment of Dividends and Capital Gain Distribution:
All dividends and capital gains distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to the Contractowners as additional units, but are reflected as changes in unit values.
Hey look, I won! See my the part I bolded in my original quote. I predicted he would tell you that all dividends are reinvested. It's true. They are. Look at the text he screenshooted that I bolded and underlined. The SP price index is not in the "funds" this section is referring to. It's right there in the prospectus for you to read. You have read the prospectus, right? All of the "funds" are in the variable investment section section. The investment you are referring to is NOT A FUND all. They only refer to it as an "index". There ARE NO DIVIDENDS for the choice you are considering (the price index) and your investment is NOT A FUND so his quote does not apply to you.

I can't tell if he is a liar, or if he truly does not know what he is talking about. It's right there in the prospectus. All he has to do is READ IT TO YOU.
Oicuryy and neurosphere, I think you both shined a lot of light on the issue. The confusion seems the advisor is interchanging “fund” and “index”. I wrote him back, I’ll keep you guys updated.
You need to disengage. There is no winning. The product you seek does not exist and the advisor you're using doesn't understand how his product works. :oops:
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Re: All the upside of the S&P with 10% downside protection "Free"?

Post by actuallyxy »

A lot of words, a lot of [expletive deleted by moderator oldcomputerguy].

Now they have admitted that the 10% product is an outright scam, because the dividends will always be higher than the downside protection.

Let's look at the 20% product it from the point of view of the insurance company, knowing that dividends will return approximately 15% over 6 years:

* If the stock market drops >20% over 6 years, the company loses 5% (they already got 15% in dividends), the investor shoulders the rest of the loss.

* If the market drops 15-20%, the company loses 0-5%.

* If the market drops 0-15%, the company makes 0-15% (the dividend minus the loss).

* If the market makes 0-50%, the company makes 15% in dividends.

* If the market makes >50%, the company makes 15% in dividends plus any excess over 50%.

This is a great deal for them, isn't it? Maximum loss of 5%. Guaranteed profit as long as the market doesn't drop more than 15%, which will be the vast majority of time periods.

They call the downside protection 20% but it's actually 5% when you take into account the dividends (for the 10% product, it's a negative 5% "protection").

If it's not a scam, I don't know what else to call it.

Do yourself a favour and stop talking to these scammers, because every time they find a way to entice you back in.

Your FIL needs to start looking at his portfolio as a whole and hold an appropriate allocation in cash or bonds. That's the only real downside protection.

In terms of managing his cognition and his behaviour, it may be best to put it all in a target date fund or an appropiately conservative Lifestrategy fund.
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