RETIREMENT
Registered index-linked annuities offer a broad variety of underlying investments and loss-protection levels . “ That flexibility , combined with a volatile capital markets environment and growing need to protect retirement outcomes , are what have led to record sales ,” says Scott Gaul at Prudential Financial in Shelton , Conn .
The appeal of these products is undeniable . “ By allowing individuals to choose the amount of downside protection they are comfortable with , [ annuities make clients ] more likely to stay invested ,” says Elle Switzer , director of annuity product management at TruStage in Madison , Wis . Because when clients don ’ t stay invested , she says , they start making emotional investing decisions , which can hurt their portfolio ’ s performance them from fiduciary , fee-only advisors , as opposed to insurance company sales reps , who take a cut of every sale and don ’ t have to service the client afterward . Though these products still represent a very small percentage of the overall market , zero-commission annuities have been gaining ground . Last year , DPL sold more than $ 2 billion of them , double its sales record in 2022 .
Yet other financial experts aren ’ t convinced about the impact of these products .
Commissions Vs . AUM Fees
Jack Elder at CBS Brokerage , headquartered in Shakopee , Minn ., contends that zero-commission annuities have no inherent advantages over commission products . The way annuities are sold , he commission annuity would cost more than its commission-based counterpart , assuming the advisor charges an annual fee .
“ Annuities are buy-and-hold assets ,” he notes , “ so it is safe to assume that most nocommission products will provide higher advisor compensation than onetime , commissionable products .”
Lau disputes this . “ The consumer does not pay only once for the commission ,” he says . “ The broker gets paid once , up front , but the consumer pays through elevated fees [ on the annuity itself ] for as long as they own the product .”
Kameron McRay , a DPL vice president , adds that annuities without commissions “ eliminate conflicts of interest .” Advisors aren ’ t motivated to sell them just to earn a commission , he says , but “ to improve a client ’ s overall financial plan .”
“ Annuities are buy-and-hold assets , so it is safe to assume that most no-commission products will provide higher advisor compensation than onetime , commissionable products .”
— Jack Elder , CBS Brokerage
These loss-protection annuities are designed for “ clients who need downside protection from the market — those near or in retirement , or those with little risk appetite ,” says David Lau of DPL Financial Partners in Louisville , Ky .
But these products are not the only innovations changing annuity markets , he says .
No-Commission Products
Another significant arrival is the commission-free annuity . Lau , who has made a career of specializing in these products , calls them “ vastly superior ” because they “ significantly reduce product costs , often by as much as 80 %.”
What ’ s more , he says , clients can get says , doesn ’ t in the end affect their suitability for any particular client . What matters , he says , is what the product offers and what the client needs .
Moreover , he asserts that no-commission annuities aren ’ t necessarily cheaper in the long run . “ Fee-only , no-commission products may cost the client more than a onetime commission ,” he says .
If a client pays a 7 % commission on a $ 100,000 annuity , he explains , the advisor or sales rep collects a onetime payment of $ 7,000 . But if an annuity of the same value is sold on a commission-free basis by a fee-only advisor , the advisor may charge an annual fee of , say , 1 % of assets under management — or $ 1,000 per year on that annuity alone . After eight years , the no-
The SECURE Act
Whatever the ultimate impact of commission-free annuities , there ’ s little doubt that 2019 ’ s Setting Every Community Up for Retirement Enhancement ( SE- CURE ) Act altered the playing field . The law allowed annuities into 401 ( k ) retirement accounts , which “ makes them more popular [ and provides ] easier access to them ,” says Christopher Van Buren at LVW Advisors in Pittsford , N . Y .
That change could also introduce “ the benefits of annuities to new segments of the population , many of whom may not otherwise consider them ,” says Paula Nelson at Global Atlantic Financial Group in New York City .
Nevertheless , 401 ( k ) s haven ’ t yet proved to be big sales drivers . But Kim Plyler at Jackson National in Franklin , Tenn ., says this market should continue to grow “ given the continued interest from plan sponsors , asset managers , and , most importantly , plan participants .”
All of these developments are certainly contributing to greater annuity awareness . “ We ’ re seeing growing recognition across the board that the lifetime-income features offered by annuities are a great way to prepare for a more secure retirement ,” says Rona Guymon of Nationwide Annuities in Scottsdale , Ariz .
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