Commission payout schedules

[ValeRosso]

When selecting a commission payout, how do you typically request the option between all up front, or with monthly trails?

For instance, an annuity I’m about to sell has three options:

O1 - Flat 5%
O2 - First year 3%, monthly trail of .0417, annual trail of .5
O3 - First year .7%, monthly trail of .0833, annual trail of .999

If I did my calculations correctly, O1 would give me a flat 13,000 total immediately, O2 would give me $17,500 total after 10 years, 3 would give me $21,700 total after 10 years.

What do you typically do (I’m assuming this is typical across annuity sales and not specific per company).

Thanks!

 

[DHK]

All up front, 100% each time.

Why?
[EXTERNAL LINK] - Ohio National, Broker-Dealer Drop Federal Court Suit | ThinkAdvisor

The federal case in Massachusetts is part of the litigation that resulted in 2018, when Ohio National decided to stop selling variable annuities and said it would stop paying trail commissions to the agents and brokers who sold the variable annuities.

[...]

In June 2020, the 6th U.S. Circuit Court of Appeals upheld an Ohio state court judge’s dismissal of a state suit over Ohio National’s decision to stop paying variable annuity trail commissions.

The state judge and the appeals court ruled that Ohio National’s agreement was between Ohio National and a broker-dealer, not between Ohio National and agents, and that agents had no standing to sue.

Granted, this is a very unique situation, particularly for those with broker/dealer licensing... but it still would make me leery of EVER taking a trail commission option.

 

[scagnt83]

When selecting a commission payout, how do you typically request the option between all up front, or with monthly trails?

For instance, an annuity I’m about to sell has three options:

O1 - Flat 5%
O2 - First year 3%, monthly trail of .0417, annual trail of .5
O3 - First year .7%, monthly trail of .0833, annual trail of .999

If I did my calculations correctly, O1 would give me a flat 13,000 total immediately, O2 would give me $17,500 total after 10 years, 3 would give me $21,700 total after 10 years.

What do you typically do (I’m assuming this is typical across annuity sales and not specific per company).

Thanks!

Think about the time value of that money.
$13k today vs. $1,820 today.

That is $11k you could invest over the next 10 years.
At a 6% interest rate, that is $20k. Plus the original $2k. For a 10y total of $22k.

The big difference is that you have $11k+ in emergency funds for your family vs. the insurer keeping it.

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Or you can use that extra $11k for marketing to bring in more business.

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x1000 to what DHK said. Im pretty sure your FIA contract lets them stop trails as well if they choose to.

There is also the issue that the carrier could go into receivership. Unlikely, but its a possibility.

Take the money and run is my advice.

 

[Baseball7]

Ask yourself those giving the advice are they actually selling the product?

 

[ValeRosso]

All up front, 100% each time.


Granted, this is a very unique situation, particularly for those with broker/dealer licensing... but it still would make me leery of EVER taking a trail commission option.

Yikes, that would royally suck for those agents...especially after losing in court. Even if that’s a unique scenario, its still good to know. All up front it is! Thank you

 

[ValeRosso]

Think about the time value of that money.
$13k today vs. $1,820 today.

That is $11k you could invest over the next 10 years.
At a 6% interest rate, that is $20k. Plus the original $2k. For a 10y total of $22k.

The big difference is that you have $11k+ in emergency funds for your family vs. the insurer keeping it.

---

Or you can use that extra $11k for marketing to bring in more business.

---

x1000 to what DHK said. Im pretty sure your FIA contract lets them stop trails as well if they choose to.

There is also the issue that the carrier could go into receivership. Unlikely, but its a possibility.

Take the money and run is my advice.

Great points, thank you! I could easily put that cash into a high yield savings or even invest it like you said. Looks like its much better to have the cash in your hand vs waiting for it over 10 years.

 

[ValeRosso]

Ask yourself those giving the advice are they actually selling the product?

Do you disagree with the other responses?

 

[Tahoe Ray]

When selecting a commission payout, how do you typically request the option between all up front, or with monthly trails?

For instance, an annuity I’m about to sell has three options:

O1 - Flat 5%
O2 - First year 3%, monthly trail of .0417, annual trail of .5
O3 - First year .7%, monthly trail of .0833, annual trail of .999

If I did my calculations correctly, O1 would give me a flat 13,000 total immediately, O2 would give me $17,500 total after 10 years, 3 would give me $21,700 total after 10 years.

What do you typically do (I’m assuming this is typical across annuity sales and not specific per company).

Thanks!

Is the client taking income immediately or much later?

Just remember that you don't want to have your compensation based on a depreciating asset.

That said, what you posted looks like an Athene schedule. I would have no issue taking a trail from them. Most of the reps I work with use option 2.

 

[scagnt83]

Do you disagree with the other responses?

His expertise is final expense, not annuities. So his opinion would fall under his comment.

 

[scagnt83]

Is the client taking income immediately or much later?

Just remember that you don't want to have your compensation based on a depreciating asset.

That said, what you posted looks like an Athene schedule. I would have no issue taking a trail from them. Most of the reps I work with use option 2.

The income aspect is important as well. Is the client planning to keep it for life? Or is this just for accumulation and going to get moved to a new annuity after the surrender period?

If its income based, then when will they start taking income? If its before y10 then your original math does not add up due to a depreciating asset. Even more reason to take 1 or 2.

If its purely for accumulation, they might not even have it in 10 years unless thats just the surrender schedule. And that is a whole other issue if you are selling 10y products for accumulation in the current inverted rate environment.