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Annuities Without The ‘ C ’ Word
Insurers have been busy creating commission-free annuities that work for the fee-only advisor . When will investors notice ?
By Jennifer Lea Reed
RESEARCHERS WARN THE AVERAGE American will live many more years in retirement than expected , won ’ t have saved enough and will face a financial shortfall long after they can ’ t do anything about it . It ’ s a bleak future , certainly , and one that many financial advisors spend their careers working diligently to change .
If only there were a financial product that could replace the pension ’ s gift of lifetime income , at a reasonable cost given the benefit and sit in a client ’ s portfolio alongside stocks and bonds . A product that a fee-only advisor , driven by fiduciary duty , could recommend as a neutral party and stand behind without bias .
“ If annuities had always been commission-free , everybody would own one ,” says David Lau , founder and CEO at DPL Financial Partners , a financial services firm specializing in the distribution of low-cost , commission-free insurance and annuity products . “ But demand is crushed because of the commission and the controversy around commissions .”
One possible antidote to people ’ s suspicions is the no-commission , fee-based annuity — of which there are now some 120 to 150 options in the retirement income marketplace , Lau says . There ’ s been a lot of growth in the supply of these products as forward-thinking insurers try to earn a place in the fee-only advisor ’ s toolbox .
Supply aside , the problem is that the demand is still lagging . “ Working with annuities , if I ’ m an RIA , represents a huge pain , and it ’ s all about the platform . I just can ’ t build portfolios the same way ,” says David Blanchett , managing director , portfolio manag- er and head of retirement research at PGIM . “ So there ’ s friction there . And that friction creates reasons why advisors are less likely to use these products . They could be great products , but if they create friction , [ advisors are ] going to say it ’ s just not worth it .”
Integrating these products into an advisor platform is one challenge . But there ’ s another reason for advisor reluctance to recommend these products — they sometimes don ’ t get paid for it . In the first generation of commission-free annuities , the insurers simply cut out the commission but did nothing to ensure a fiduciary advisor could get paid some other way .
In fact , one carrier still offers a fee-based product where the advisor is unable to bill fees through it , Lau says . “ Would they have ever launched a product in the commission world that couldn ’ t pay a commission ? No , of course not .”
And it ’ s too bad , he continues , because a fee-based annuity is typically a much better deal financially for clients than a commission-based one . “ Removing the commission takes the cost so far down for the client that you ’ re going to get a product that performs so much better than a commission product ,” he says . “ And to me , that ’ s one of the biggest innovations in financial services , period , that people don ’ t talk enough about . This
MARCH 2025 | FINANCIAL ADVISOR MAGAZINE | 49