{"id":18072,"date":"2017-08-31T15:54:09","date_gmt":"2017-08-31T15:54:09","guid":{"rendered":"http:\/\/staging.annuityfyi.com\/?p=18072"},"modified":"2023-02-14T18:59:16","modified_gmt":"2023-02-14T18:59:16","slug":"fee-based-vs-commissionable-annuities","status":"publish","type":"post","link":"https:\/\/staging.annuityfyi.com\/blog\/2017\/08\/fee-based-vs-commissionable-annuities\/","title":{"rendered":"Fee-Based vs. Commissionable Annuities"},"content":{"rendered":"
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With the new DOL fiduciary rule in place, more and more insurance firms are launching fee-based annuities to help distributors comply with the regulations. In fact, nearly two dozen fee-based variable and indexed products have been announced in the last 12 months, according to a recent article from <\/a><\/span>Market Watch<\/a>.<\/span><\/i> Big names like Symetra, Pacific Life, Nationwide, Allianz, and Brighthouse Financial (the annuity provider that recently broke away from MetLife) have all jumped on the bandwagon. So should advisors climb on board too?<\/span><\/p>\n\n\n\n

The Labor Department\u2019s new fiduciary rule requires advisors to put clients\u2019 interest ahead of their own, in regards to personal financial interest, and experts claim these products are designed to help with that. Previously, advisers earned significant commissions on the sale of annuities, but with these new products, they would simply charge a flat rate.  But some industry experts agree, a commissionable annuity could be cheaper than a flat fee for some clients, especially if the advisor anticipates working with that client for more than six years. <\/span><\/p>\n\n\n\n

John Olsen, author of \u201cJohn Olsen\u2019s Guide to Annuities for the Consumer,\u201d said \u201cit depends on the specific provisions of the annuity and the nature of the advisory relationship.\u201d <\/span><\/p>\n\n\n\n

The details are in the fine print, and as always, it\u2019s imperative advisors make sure clients understand what they are getting into. For example, some of the earlier fee-based products do not include options for living and guaranteed death benefits<\/a>, however many of the newer ones do. It is the responsibility of the advisor to become familiar with and discuss with clients the pros and cons of fee-based annuities. According to financial advisor and author Stan Haithcock, some pros include the elimination of the perceived high commissions, while cons might include the fees for a fixed annuity as opposed to an actively managed variable one. <\/span><\/p>\n\n\n\n

\u201cIt\u2019s hard for me to see the justification for charging an annual and ongoing fee for managing a fixed index annuity,\u201d Haithcock stated. \u201cThey are comparable to certificates of deposit, not ways to get market growth, and because the index option can usually be changed just once a year, there\u2019s little reason for a fee. The industry disagrees with me on this, but this is a perfect example of trying to put a square peg in a round hole.\u201d <\/span><\/p>\n\n\n\n

Variable annuities<\/a> are a different story, in Haithcock\u2019s opinion.<\/span><\/p>\n\n\n\n

\u201cThat\u2019s a tough job, and charging a fee for that work makes sense,\u201d he added. \u201cAnd if you do that then manage the \u2018heck\u2019 out of it. Don\u2019t just \u2018set it and forget it.\u2019\u201d<\/span><\/p>\n\n\n\n

In an effort to help clients decide which product is better for them, either commissionable or fee-based, Scott Stolz, president of Raymond James Insurance Group offered the following four questions to be answered:<\/span><\/p>\n\n\n\n