Case Design #2

The following is an actual email sent by Daniel McDonald to an agent who submitted a case he needed help with (name of client changed).


Roccy forwarded me an email yesterday of a case you and your partner are working on for Mr. Smith.  I really can’t believe what I saw.  It looks great and I don’t mean that in a good way.  I haven’t seen a carrier be that bold with illustrations since the 222 rolled out.

In general we like to recommend simple, easy to understand, client friendly FIA’s. When I think of those two things neither Midland nor Security Benefit are front of mind.

Based on the new obsession with 2-year point-to-point with a fee for “more upside” (something Annexus started with their BPA and then BCA product) FIA’s are entering a scary path.  They have to compete with that and I’ve seen nothing but failure over time from that model.  Are you familiar with the Athene BCA and Nationwide New Heights, Mark.  If you are you probably don’t sell much of it anymore. The 12 year product is their most sold and the Shiller index was the Golden Child for some time. Now you get an 80% par, 2-year point-to-point, with 1.75% annual fee! New Heights 12 is a 3-year point-to-point, 80% par, when it used to offer 180% at one time.

The issue with charging a fee for more upside is a way to shift risk to the client and that goes against what FIAs are all about. In general we’re looking for 4%-6% rate of return (on the high end) in an FIA and anything advertised above that is stretching.  I’m familiar with the Marc 5 and Fidelity Indexes and I believe you could achieve a 4%-6% rate of return but an 8%-13% is comical (and dangerous). Add in a 1% annual fee and the ability to only credit once every 2-years and you have the perfect recipe for an unhappy client.  Just like with Nationwide New Heights.

The saving grace with some of the Shiller BCA products is the index offered a 10% vol control target so more upside was actually available.  Like with Nationwide offering 200% of 0% is still 0% and when you add a fee to it your client’s $1M could be $980k after 2 years instead of the $1.6M that’s being illustrated (I’m still just floored by that).  Roccy knows I’m a pretty even-keeled guy but this has got me going.

In any event, if this client is looking for protection and growth I would put him in the 7-year product we like. I’ve attached three hypos showing no withdrawals, 5% withdrawals, and 10% withdrawals at age 60.  I’ve also attached the spec sheet for Florida.  Notice the surrender schedule, min guarantee at 100% @ 1%, flex premium, bailout cap, waivers, etc.  Very client friendly.  With this you get a 1-year point-to-point on the a good and not insanely illustrated VCI index (no cap, no spread, or (most importantly) no fee).

A good way to think about the performance is would you rather have gains credited daily or annually considering the pricing is the same?  Daily right? Locking in gains as often as possible is always the best.  So would you rather credit your client 100% of an index’s performance every year or 200% of it every 2 years for a 1% fee?

In general I would avoid Midland and Security Benefit Life (SBL). Midland is known for dumping rates and SBL seems to roll something new out every 3-5 years that ends up doing terrible.

Let me know if you have any questions Mark.  This 7-year product we like is a very well-priced product. Compare the S&P cap, fixed rate, fee, commission, and override. The product provides more value to the client and less comp to the IMO.

It all comes down to pricing, transparency, and follow through. In my career I have seen anyone create as simple and effective of a product as the 7-year product we like.

Let me know if you have questions or need anything else.

Daniel W. McDonald