Commission payout schedules

[Allen Trent]

I mean that’s a totally different license, but sure that’s an option.

Sorry to confuse--I was more interested in hearing why some on the thread that were suggesting taking lump sum all up front commission on annuity when the same people posting had moved from up front commission on mutual funds/investments & into AUM levelized compensation. I totally understand their reasoning now.

Based on the case you have explained taking so much income so quickly, I would definitely think you would want lump sum up front commission rather than trails based on account value as the income distributions will be draining down the account value

 

[ValeRosso]

You are mistaking Renewal Commissions with Trail Commissions.

Renewal Commissions are based on the Premium.

Trail Commissions are based on the Accumulation Value.

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In your case, the accumulation value is going to decrease very quickly. You will have decreasing trail comp starting year 3.

Im assuming that income is based on an Income Rider with a bonus up front and benefit base that is a good bit higher than the actual accumulation value.

That means the % coming out of the Accumulation Value is going to be around 7% or more.

$100k decreasing by 7% per year over 10 years gives you $48k in year 10.

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Take Opt1 or 2. Me, Id take 1.

ok, that changes everything then. I was assuming it was based off of the premium, so I’d definitely be getting less of a total after 10 years than my calculations suggest. Thank you for this information, I appreciate it!

 

[ValeRosso]

Sorry to confuse--I was more interested in hearing why some on the thread that were suggesting taking lump sum all up front commission on annuity when the same people posting had moved from up front commission on mutual funds/investments & into AUM levelized compensation. I totally understand their reasoning now.

Based on the case you have explained taking so much income so quickly, I would definitely think you would want lump sum up front commission rather than trails based on account value as the income distributions will be draining down the account value

No worries, that was my misunderstanding. This is anecdotal, but many people I speak with left the AUM model, and came to the up front commission model...from series 7 to insurance producer. Not sure why these people individually have done it, but It’s interesting to note.

 

[scagnt83]

Why not sell A share mutual funds instead of being RIA & getting AUM fees like so many are moving to? Several in this thread saying to take the lump sum have been going this route with investments

DHK mentioned the difference in risk models. But to me there is more to that.

Equities require monitoring on a regular basis throughout the year. Every year.
Or at least they should imo.

FIAs need a single annual review by both agent/client.

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I've never sold a Mutual Fund. Never entered that world of solely transactional security sales.

Ive done retirement plans for years though.

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From a service model aspect. So much more is there to unwind!

The reason so many peoples equity returns do not match up with the market in general or with the top managers, is lack of ongoing management... both management of the investments AND the investor.

Lets say they do bi-annual reviews.... which many S6 reps dont do.... how much has the market changed in 6 months?

And what happens when they need to re-allocate? Another huge sales load on an even higher amount?

They are STUCK in this "one size fits all" product that gives them very little flexibility to adapt or capitalize on market changes. Because they take a 4%-6% loss if they move it to a new A Share Fund.

Its an average solution that provides average results.

Perhaps the AUM model is a higher dollar amount of fees over time. But its also paying for the service you are receiving... which should be ongoing monitoring and advice. Which statistically speaking provides higher long term returns because investor behavior is not as large of a factor. Especially when the advisor is an actual planner providing a true plan that the client trusts and stands behind during market downturns.

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Even on the RIA model, I can provide Institutional Class Mutual Funds that cut the ongoing fund expense by 50% or more compared to A shares.

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But my model has full time managers, both in-house and 3rd party, who monitor clients portfolios 24/7.

They are often invested in individual equities, not ETFs & especially not Mutual Funds. So the managers can take advantage of all kinds of trading strategies, tax strategies, income strategies, etc. etc. and the client reaps the full benefit of it directly on their personal balance sheet.

Plus clients get an advisor who is managing the overall financial plan and investment plan, and updating everything in real time as needed.

Investor behavior is the #1 reason people underperform the market.

A "transactional advisor" cant afford to spend the time/effort on the client that a Fee Based Financial Planner can.

 

[scagnt83]

Those risks aren't in RIA investment portfolios... but they don't have the guarantees of annuities either.

Unless you place a RILA! lol

 

[Allen Trent]

Unless you place a RILA! lol

Even then, a lot of RILAs sold were buffers, not floors. So, client is still exposed to large losses , but not the small losses. Plus, many I have seen have a 3 to 6+ year begging & ending point which I think can miss out on the annual reset of an FIA or the full upside of ETFs or traditional VA.