During the last few years, the concept of annual reset to zero, or indexing, has been a popular approach to retirement and income planning. The ability to bypass market volatility within a global recession has proved to be a viable alternative. Many listed products such as fixed listed annuities and listed general life have significantly outperformed the S&P 500 during the last decade. Now to be fair, these results are not typical over a 40 or 50 year look back. Honestly, the average investor does not have 19 years, not to mention 50 years, to await the market out for a favorable return; especially since the last decade has been a lost decade.
Almost every planner or financial professional will tell you that the key to reaching your financial goals is to maximize the market upside and how to get into investment banking canada try to bypass the market downturns. So if this is the case, why haven’t investment banks been focusing on implementing these listed products in their collection?
The answer is straightforward — it is a conflict of interest. Today, a strong investment bank will have about 6 percent of capital reserve requirements with respect to leveraged assets. In other words, for every $100 million of financial services offered by a strong investment bank, it has financial supplies reserve in cash of $6 million, or 6 percent capital supplies.
In order for an investment bank to offer listed annuities or general life products, reserve costly must be executed as an alternative to the leveraged assets. To clarify, if an insurance company offers $100 million in FIAs that use annual reset to zero, they are mandated by the state to hold cash reserve costly quietly of at least $100 million in order to back, or guarantee, the products (this is one of the significant reasons why insurance companies are not required to purchase FDIC insurance).
This is why why most FIA or IUL advertisements will say “backed by the financial good faith and credit of the giving insurance company” as a complying disclosure. To sum it all up, money supplies relation would be more achieable (minimum 1 to 1 ratio) for the investment bank to offer lending options that eliminate market volatility.
To help understand, let’s take a nearer look.
According to the SEC, the average fees a consumer will pay in mutual funds is about 1. 5 percent annually (an average of all fees and costs associated with different types of mutual funds). Respectively, over a decade these fees come to 15 percent, assuming no interest earned (1. 5 percent in fees x 10 years).
On the other hand, commissions of a FIA over 10 year period are right at 7 percent up front (assuming no cyclists are added that incur a cost). So not only will the investment bank lose approximately an 8 percent spread over a 10 year period, it will be forced to stop profiting their assets (which will cause an additional loss of income).
Think of it this way: if an investment bank offered 20 million dollars of FIAs, the minimum amount of capital requirements would be $20 million. With respect to profiting assets, money reserve requirements for $20 million of lending options would be $1. 2 million assuming a 6 percent capital reserve requirement (instead of $20 million needed to offer FIAs).