# Manulife "pension builder"



## wooly

Hello

I'm new to this forum. There looks like a lot of knowledgeable people here.

My financial adviser is trying to get me into this Manulife's pensioner builder. In a nut shell, the way it works is if you put in, for eg: $100,000.00 it would earn 5% simple interest per year so after 10 years you would have $150,000.00. Then it would pay you 4 1/2% of that $150,000.00 in a monthly cheque of about $675.00 for life. If I die it would continue on for my wife also. (I may not have my figures exact).


It sounds like a good deal other than the management fees are high. 2 3/4%. My problem being is I don't know how these high management fee would effect this policy. (I'm not real knowledgeable in these kind of matters).

Is anyone familiar with this "pension builder"? Is it a good thing? What are your thoughts?
Thanks


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## Saniokca

Your adviser (or should we call him salesman?) is probably getting a nice commission. The fact that he can't give you straight answer tells me that you should probably ditch him/her.

Simple interest for 10 years? That is never good (I shouldn't say never but almost never). It sounds like you need to shave off 2.75% so you would be getting 2.25%? A GIC pays better than that (and that's compound interest too). After 10 years just buy an annuity.

I didn't run the numbers but sounds like a crappy deal to me...


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## OptsyEagle

It doesn't grow at 5% simple interest. Only the guaranteed amount of income is growing at that rate. If you tried to cash out you would get what the plan is worth. I doubt it would make very much money due to the very high fees charged within.

Since you will be tied to this plan for the rest of your life or suffer the consequences of moving (consequences being the cost of everyone at Manulife and your advisor enjoying the rewards of your money, but you). 

In my opinion, in 98% of all future scenerios you would be better off investing in a traditional life annuity (immediate or deferred), but of course they sell you on the allure of the 2% of time, you will get your cake and eat it too (big income, big pile of money left, however as I said there really is a 98% chance that you will get OK income, and no money left).

Hmmm. Where did the money go?


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## Cal

The Manulife profit builder.


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## mind_business

At what age would it be paying out an income?

Is the income indexed, or does the $675 per month payout remain the same? 

I'm pretty sure of the answers, however I might be surprised. Makes a difference to those who'll answer your first question.


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## mind_business

If we set aside the required 5% rate of return to get you to the $150000 in 10 years time, and we only look at how long you could receive an income from that $150,000 if you did your own investing, 

it conservatively should last you approx 26 years, with the following assumptions:


Income is NOT indexed.
Rate of return on your investment is only 3% (conservative target)

However, if you want to allow for a rate of inflation indexing on your income (say 2%), it would last approx 20 years.
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The tricky part in this DIY scenario is getting to the $150,000 in 10 years. It can be done starting with $100,000 in 9 1/2 years as long as you can get 4 1/2% compounded interest. 

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Personally I'm ALWAYS skeptical of these investment vehicles offered from publically traded, Life Insurance Agencies which are driven by profit (answerable to the BOD's and shareholders). Also, I will always try to index my income in retirement ... not sure if this investment type does???

If however you very conservative, and can retire at 50, then perhaps this type of investment makes sense. The longer you're receiving the $675, the more attractive the investment.


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## wooly

mind_business said:


> At what age would it be paying out an income?
> 
> Is the income indexed, or does the $675 per month payout remain the same?


I'm 56 years old and plan to work until at least 65. Maybe longer. The longer I put off withdrawing from this plan, the higher percentage it would pay. So if I live off my other investments and don't touch this "pensioner builder" until later, say 67 or 68, the more I could withdraw from it. Again, it pays for life for either me or my spouse.

From what I understand, the per month payment would always remain the same. I'm pretty certain it's not indexed.

I'm skeptical also. I haven't signed anything and I'm going to hold off in doing so. The selling point is having the monthly payments for life.


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## OhGreatGuru

Without all the bells & whistles, this is some variation on a deferred annuity. I don't know why they are telling you what the %return is and their MER, unless your return is not in fact guaranteed, which then is a whole other kettle of fish. 

In March 2011 the rates for an immediate, joint, non-registered, annuity for a 65 yr. old were about $500/month per $100K invested. http://www.lifeannuities.com/articles/2011/annuity-rates-canada.html

So your $150K ought to get you $750/mo/, not $675.

I don't have tables for deferred annuities, but if you want to go this route, I suggest you shop around and get competitive quotes.

PS. If the payout at age 65 is guaranteed, then this is essentially a deferred annuity. You are giving them a lump sum of cash to invest as they see fit, in return for a guaranteed monthly payment after age 65. The investment risk is entirely theirs. All you need to do is compare their rates with what other compnaies are offering.

If it is not a guaranteed payout, then they are trapping you into a non-refundable investment, with no guaranteed return, and a 2.75% management fee. All the investment risk is yours. In which case you ought to invest the money yourself.


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## wooly

OhGreatGuru said:


> PS. If the payout at age 65 is guaranteed, then this is essentially a deferred annuity. You are giving them a lump sum of cash to invest as they see fit, in return for a guaranteed monthly payment after age 65. The investment risk is entirely theirs. All you need to do is compare their rates with what other compnaies are offering.


The payout is guaranteed for as long as either me or my spouse lives. The investment risk is entirely theirs. That's why my adviser is telling that I then don't have to worry what the markets are doing.

Here is a Manulife video that explains it.
http://events.snwebcastcenter.com/m...PB/Manulife_ca/consumer/Understandingmpb.html

But if they are going to shave 2.75% in management fees off the principal, I don't see the advantage???


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## OptsyEagle

wooly said:


> The longer I put off withdrawing from this plan, the higher percentage it would pay.


Just so you know, there is no advantage here. For example, if you defer the receipt of $10,000 in withdrawals over 2 years and they add back that exact amount over the rest of your life, you are not receiving any extra benefit. Obviously if it is not needed then defer it, but if you don't need a certain amount at 65, will you need more at 67?

I doubt the fees are as low as 2.75% when you add the guaranteed withdrawal benefit fee to the base MER, but verify this yourself. I don't think I have ever seen the "all in" fees less then 3% and some are closer to 4%, although they have got a little more competitive since they were first launched.


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## andrewf

If you want to educate yourself on these issues, look for 'Pensionize your Nest Egg' at your local library or book store. 

This product sounds like a 'guaranteed minimum withdrawal benefit' plan. Definition:
http://www.investopedia.com/terms/g/gmwb.asp

They are a little complicated to understand, but the book above does a good job of explaining them.


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## Wealth Advisor

Treat it as an enhanced version of annuity will help everyone understands it better I guess. In the past, you or your parents may have experienced buying an annuity product from insurance company and having a guaranteed cash flow for life. However, annuities are usually locked in. Once you put in there, if you pass away, insurance company keeps all your money. 

Now Manulife Pension Builder is giving the guaranteed cash flow, but allowing your family to be beneficiary, and also allowing you to cash out your portfolio anytime in case of emergency. 

Don't just think of fee people, a company of course will charge you if they are giving you advantages, but if you are parking just a portion of your money to build up your pension nest egg, this serves as a great cushion to create a stream for all the retirement expense (e.g. elderly home / health care, easily add up to $5000+ a month if you live too long, unless if you have more than $1 million to put in a GIC) 

Don't forget, the market value of the portfolio can still grow (check the underlying 3 funds combination before they form the pension builder plan, historically they together has been growing around 5% per annum) , have your advisor done his/her due diligence and tell you about that?

It's right to be skeptical, but don't come to a conclusion too soon unless if you have done a complete due diligence.

Regular funds / stocks / real-estates doesn't give you a protection umbrella, and it doesn't give your advisor higher compensation by telling you this.


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## wooly

Wealth Advisor said:


> Now Manulife Pension Builder is giving the guaranteed cash flow, but allowing your family to be beneficiary, and also allowing you to cash out your portfolio anytime in case of emergency.
> 
> 
> 
> Don't forget, the market value of the portfolio can still grow (check the underlying 3 funds combination before they form the pension builder plan, historically they together has been growing around 5% per annum) , have your advisor done his/her due diligence and tell you about that?


My adviser did cover the points you have mentioned.

I like the peace of mind of steady cash flow for life and not having to care about what the markets are doing. Of course, I would not put all my eggs in this basket. Only a good portion.

He did also admit the management fees are high. If I understood more how these fees are collected and what I in reality would end up with after 10 years, maybe I would feel more comfortable with this plan. Right now I'm sitting on the fence.


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## andrewf

Hey wealth advisor, when you say "the rising value of the funds", how does that affect the Pension Builder product? Do you mean that the benefit level resets periodically? Or just that the your beneficiaries might receive more than what you contributed when you die?


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## andrewf

BTW, the fees with these products are always quite high. I assume that the fee is paying for the annuity-like elements indirectly.


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## CanadianCapitalist

MoneyGal has co-authored a book called "Pensionize Your Nest Egg" that covers GMWB products. IMO, GMWB might be worth considering but the fees on existing products are too high that is highly unlikely that these products will be better than the alternatives such as plain vanilla annuities and well constructed portfolios. 

http://www.canadiancapitalist.com/manulife-income-plus-the-high-cost-of-peace-of-mind/

http://www.canadiancapitalist.com/manulife-incomeplus-versus-a-bond-portfolio/

http://www.canadiancapitalist.com/manulife-incomeplus-dont-ignore-dividends/


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## CanadianCapitalist

Wealth Advisor said:


> Don't forget, the market value of the portfolio can still grow (check the underlying 3 funds combination before they form the pension builder plan, historically they together has been growing around 5% per annum) , have your advisor done his/her due diligence and tell you about that?


The Pension builder fund holds a bunch of bond funds. History isn't much of a guide when looking at these funds. I'm willing to wager that you won't see 5% returns over the next 10 years with this fund. Especially considering an investor is paying 2.75% in MER. Perhaps, you should do a better DD before selling your clients this product.


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## Wealth Advisor

andrewf said:


> Hey wealth advisor, when you say "the rising value of the funds", how does that affect the Pension Builder product? Do you mean that the benefit level resets periodically? Or just that the your beneficiaries might receive more than what you contributed when you die?


Think of it as a regular mutual funds/ ETF / stocks that you are buying, they all have market value. Instead of buying an annuity that you cannot cash it out for your whole life, Manulife Pension Builder allow you to sell at market value just like regular investments. 

Therefore, if the market value increases, not only will that be good for your beneficiaries, you can also receive more proceeds treating like liquidating regular investments. Annuities do not allow you that option.

Since it is segregated funds, it will also provide benefits for creditor protection (if you want to leave your legacy to beloved one, RRSP is not completely creditor proof), and smooth out probationary period if you pass away.

Hope that helps.


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## Wealth Advisor

wooly said:


> My adviser did cover the points you have mentioned.
> 
> I like the peace of mind of steady cash flow for life and not having to care about what the markets are doing. Of course, I would not put all my eggs in this basket. Only a good portion.
> 
> He did also admit the management fees are high. If I understood more how these fees are collected and what I in reality would end up with after 10 years, maybe I would feel more comfortable with this plan. Right now I'm sitting on the fence.


If you feel uncomfortable about this, that's understandable. However, if you are regularly investing in funds / stocks, then I will ask, what are the reasons that you base your decision on? (marketing tools that shows you numbers? or your understanding of the sectors?)

The fees are mainly collected as MER and insurance premium, usually at January of each year. They are collected as built-in fee except the insurance premium you will see on statement. 

If you feel that management fee is high, and want to have something that gives you a higher return and higher guarantee cash flow, you can choose Manulife Income Plus - which allows you to choose funds from 13 different fund companies, fees are relatively similar, but you can choose more moderately growth fund in the portfolio. 

Net result could be like this, (e.g. if the fund is rising 7% net of MER, after insurance premium, you portfolio will rise approximately 6%. If market drops dramatically, at least your guarantee cash flow for life 4-6% depends on age, are still there) Use it to build your retirement nest egg is great. 

If you do not feel very comfortable, start within RRSP, as you cannot cash out RRSP because of tax consequence. I recommended my clients to do with RRSP, when RRSP turns into RIF, after RIF depleted to zero, Manulife is still paying the guarantee cash flow for life.

If your advisor didn't tell you this, then he / she has not done the due diligence completely. Contact me if need any help.


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## Wealth Advisor

wooly said:


> My adviser did cover the points you have mentioned.
> 
> I like the peace of mind of steady cash flow for life and not having to care about what the markets are doing. Of course, I would not put all my eggs in this basket. Only a good portion.
> 
> He did also admit the management fees are high. If I understood more how these fees are collected and what I in reality would end up with after 10 years, maybe I would feel more comfortable with this plan. Right now I'm sitting on the fence.


I can be contacted through email. leave me notes here, i will provided you contact details.


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## fraser

I would not sign up for a 2.75MER. It basically means that your money is working harder for them than it is for you, and if subsequent year returns are lower than expected they get paid, you don't. Yet you have taken the risk. It is like being second in line on a bankrupcy..the secured creditor gets his money before anyone else.

I have no doubt that the salesperson will earn a very good commission on this...for a reason. It is very lucrative for Manulife and they encourage their salespeople to sell it by making the commission very attractive.


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## Wealth Advisor

wooly said:


> My adviser did cover the points you have mentioned.
> 
> I like the peace of mind of steady cash flow for life and not having to care about what the markets are doing. Of course, I would not put all my eggs in this basket. Only a good portion.
> 
> He did also admit the management fees are high. If I understood more how these fees are collected and what I in reality would end up with after 10 years, maybe I would feel more comfortable with this plan. Right now I'm sitting on the fence.





CanadianCapitalist said:


> The Pension builder fund holds a bunch of bond funds. History isn't much of a guide when looking at these funds. I'm willing to wager that you won't see 5% returns over the next 10 years with this fund. Especially considering an investor is paying 2.75% in MER. Perhaps, you should do a better DD before selling your clients this product.


I agree with you, that is the reason why people should not look at this as a return oriented type of investment. This is mainly income stream guarantee for life, while at the same time giving you the flexibility to cash out in case of emergency / leaving it to your beneficiary, while comparing to annuities that do not allow you any flexibility and beneficiary choice.

Income stream guarantee is still the same feature as annuity, just it is an enhanced version of annuity that gives you extra choices.

Therefore, return of portfolio is not the main focus there. However, it is good for people to know there will still be a great chance of net positive return (while you enjoy the guarantee cash flow for your whole life for sure already) if you need to cash out prior to the end of your life.

Keep in mind, your spouse could be less sophisticated in investment decisions, if you have passed away, wouldn't you want him/her to be less worry about what to do with the money to generate enough to cover all the daily retirement expense? or at least not to take another big hit while the market goes down like 2008? (Your income is permanent loss already since you passed away)


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## Wealth Advisor

fraser said:


> I would not sign up for a 2.75MER. It basically means that your money is working harder for them than it is for you, and if subsequent year returns are lower than expected they get paid, you don't. Yet you have taken the risk. It is like being second in line on a bankrupcy..the secured creditor gets his money before anyone else.
> 
> I have no doubt that the salesperson will earn a very good commission on this...for a reason. It is very lucrative for Manulife and they encourage their salespeople to sell it by making the commission very attractive.


Just to let you know, if you are in this field, you will find out the commission that they are paying to brokers are actually lower than regular mutual funds in all different levels. 

Note: I am not a Manulife advisor, I am a private client broker (that I am licensed to buy/sell almost everything) from one of the biggest five Canadian banks.

And approximately 1 / 4 of retirees are looking into these type of products already. 

e.g. if you buy in fixed income portfolio in Manulife Income Plus under DSC term, regular fund company will pay you 5%, this one only pay 2.5%. 

Skeptical is great, but I suggest contacting Manulife itself for details. You would have missed out something great potentially.


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## wooly

Wealth Advisor.

I sent you a private message.


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## blin10

bet you'd be better off just loading up $100k in ipl.un at 5.53% divi... sure there is a risk, but like you said you got 10+ years to wait... it could easily double or do a split in that time too


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## OhGreatGuru

wooly said:


> The payout is guaranteed for as long as either me or my spouse lives. The investment risk is entirely theirs. That's why my adviser is telling that I then don't have to worry what the markets are doing.
> 
> Here is a Manulife video that explains it.
> http://events.snwebcastcenter.com/m...PB/Manulife_ca/consumer/Understandingmpb.html
> 
> But if they are going to shave 2.75% in management fees off the principal, I don't see the advantage???


Then I go back to my original alternative interpretation. If it is a guaranteed return, I don't understand why they are even telling you what the notional annual return and MER are. Something doesn't add up here. Is there a possibility they will pay more than the guaranteed amount, depending on how the fund(s) perform?


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## fraser

There is an old saying in the IT business that I was in prior to my retirement.

'Where there is mystery, there is margin' I think this holds true in many businesses-especially financial planning, financial instruments, and investments.

I lead a simple life. If I am investing in the market, I understand the risks. If I am investing in some other vehicle other than fixed rate etc. I get very nervous when the explanation becomes long and complicated. Call me a simpleton, but I suspect that some of the schemes, including some of the whole life pitiches, are really designed to move my focus off the hidden MER's and the lower returns. At least, this has been my experience to date when I have actually sat down to understand the scheme, understand the implicit rate of return, and understand the risk.


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## David_A

*alternate thoughts*

I'm also looking at the PensionBuilder product, but for a client. I advise clients from a conservative perspective, where my interest in maintaining the client's capital, and take growth as we can get it. 
fwiw I started in this business, on the insurance side, back in the early 90s in England. I do a lot more investments now, probably 80% of my business, but still do some insurance for those clients who need it. btw I have only ever sold 1 whole life policy, but own 3 myself. 
My take on markets is far more pessimistic than you will find from most advisors. Recently I did a pension transfer for a client, who saw 5 other advisors before picking me. All the bank advisors showed him projections of 10% returns going forward (for the rest of his life), so did the couple other independents he saw. I told him that we all have the same software and can plug in whatever numbers we want, but I felt that 10% return over the next 20+ years was insanely optimistic. I said that my projections would show a 5% return, and I would structure his portfolio to include some guaranteed products, some cash, some Value funds, some dividend, some global income, a few ETF funds, etc. Of paramount importance to him is knowing that his money will not be drained by markets or fees. 
fwiw those people saying that annuities are a bad choice, may not be aware of the serious tax benefits of an annuity over a GIC. GICs and other interest products, like bonds, are taxed at 100% of your tax rate. Dividends and capital gains are taxed are (roughly) half that (in the 23%). Well, annuities created from non registered money are paid back as interest AND return of capital. For most people that makes the overall rate similar to dividends/capital gains, which can be hugely beneficial over a 30 year payout.
Back to the PensionBuilder (and other seg fund GMWB type products). It is not for everyone. Ask your advisor to do a few scenarios for you. Markets grow 5% annually for 20 years. Markets stay range bound (no growth) for 20 years. Markets lose 5% a year for 20 years.
Ask him to show you the comparison figures, and include the remaining cash if you died in 10 or 20 years. 
Yes, your advisor will be paid commission OR if he is a CFP, you can often arrange to pay an upfront fee instead. 
One thing not mentioned so far is the tax treatment of the notional 5% 'gain' for each year of deferred payments. Even though the pensionbuilder is an income product, the notional value is not and has a different tax treatment. When last I checked, CRA was still looking at it, but the insurance lobby was working hard to get it treated as non-taxable ROC, or treated as dividends...either of which is better than GIC/govt. bonds tax treatment.
I don't personally believe that you should put all your eggs in a single basket.
Diversify your investments traditionally and across companies as well. If Europe turns into a real disaster the trouble will hit everywhere, that is, all financial companies.
I'm not sure how helpful this is, but I hope it fills in a few answers.
---
Note I am here as a curious observer, and hope to learn from others if I can. If I feel I have anything to add, I will add, with the caveat, that my information is general, and does not apply to anyone's specific situation. Check with your advisor. I am not giving advice.


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## kcowan

David_A said:


> If Europe turns into a real disaster the trouble will hit everywhere, that is, all financial companies.


I am interested in the use of the word "if". What do you think a real disaster would be compared to the financial meltdown we are seeing at present?

You seem to be an expert on annuities. Can you tell us how much company profit puts a drag on potential returns? I assume your 5% is net growth after the company profit has been taken out. What about the selling commission to the rep that books the business? These are not rhetorical questions. I would really appreciate your estimates.


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## steve41

> client, who saw 5 other advisors before picking me. All the bank advisors showed him projections of 10% returns going forward (for the rest of his life),


 10%? Come on! I simply can't believe that. This is not my experience at all.


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## MoneyGal

David_A said:


> Yes, your advisor will be paid commission OR if he is a CFP, you can often arrange to pay an upfront fee instead.


Insurance products in Canada cannot be sold on a fee-only basis no matter the licensing, designation or certifications of the seller. Insurance products are ONLY sold by the manufacturers as commissioned products.


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## MoneyGal

kcowan said:


> You seem to be an expert on annuities. Can you tell us how much company profit puts a drag on potential returns? I assume your 5% is net growth after the company profit has been taken out. What about the selling commission to the rep that books the business? These are not rhetorical questions. I would really appreciate your estimates.


The PensionBuilder product provides a guaranteed payment (with no stock market exposure - i.e., no possibility of "step-ups" if the base account value rises). This is different from the more common GMWB products which provide a potential "step-up" benefit. The entire GMWB market is shifting very rapidly in Canada and the products are VERY different in Canada and the U.S.


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## brocko

MoneyGal said:


> Insurance products in Canada cannot be sold on a fee-only basis no matter the licensing, designation or certifications of the seller. Insurance products are ONLY sold by the manufacturers as commissioned products.


I guess you are referencing individual insurance however group life insurance as an example can be sold net of commissions and often is.


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## David_A

kcowan said:


> I am interested in the use of the word "if". What do you think a real disaster would be compared to the financial meltdown we are seeing at present?
> 
> You seem to be an expert on annuities. Can you tell us how much company profit puts a drag on potential returns? I assume your 5% is net growth after the company profit has been taken out. What about the selling commission to the rep that books the business? These are not rhetorical questions. I would really appreciate your estimates.


What I meant is that IF Spain, Portugal, and Italy end up in the same boat as Greece, there will be a lot of banks on this side of the ocean who would also be in big trouble. It can get worse than it is now, and I think it will. How much worse is hard to say.


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## David_A

MoneyGal said:


> Insurance products in Canada cannot be sold on a fee-only basis no matter the licensing, designation or certifications of the seller. Insurance products are ONLY sold by the manufacturers as commissioned products.


I was talking about seg funds, which, as far as I know, can be sold to HNW clients on a No Load (Fee) basis. The vast majority of clients are charged commission, as you stated.


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## MoneyGal

Whoops. My bad. I was thinking exclusively of the products sold to individuals which are being discussed in this thread.


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## kcowan

David_A said:


> What I meant is that IF Spain, Portugal, and Italy end up in the same boat as Greece, there will be a lot of banks on this side of the ocean who would also be in big trouble. It can get worse than it is now, and I think it will. How much worse is hard to say.


Agreed but in your original post, you seemed to imply that the trouble has not been already priced in. Have you watched the big banks shares lately (and their debt ratings)? How abaout the interest rates being offered on the debt of banks in Spain and Italy. This is already known, not some event in the future to be feared.


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## MoneyGal

David_A said:


> I was talking about seg funds, which, as far as I know, can be sold to HNW clients on a No Load (Fee) basis. The vast majority of clients are charged commission, as you stated.


"No-load" seg funds in the insurance business are funds sold with no front-end load, and no DSC. Instead, the sales commission is paid directly by the issuer to the financial advisor -- not by the purchaser to the advisor.

Also, even if a fee or commission is not charged directly to the client, the commission is still paid to the advisor and commissions on insurance products are some of the most lucrative in the business. In fact, a sales commission is rarely, if ever, paid directly by the client upon the purchase of a financial services product with a life insurance component.


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