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Fee-Only Annuities:  Will they be game-changer for clients, advisors, and an industry?

By: Matt Meyer

May 2021

Matt Meyer, co-founder at The BluePrint Insurance services is a contributor for Nasdaq.com. The below article can also be viewed at Nasdaq.com. Please click here.

 

Financial advisors have long had a love-hate relationship with annuities. Some advisors love them and use them regularly with clients, while others hate them and cringe when they are suggested.

The irony of these extremes is that one side fuels the other. Some advisors sell annuities to anyone. This approach paired with high commissions has left a bad taste in the mouth of other advisors, giving them the reassurance that annuities are no good.

The reality is annuities, in general, can be an excellent tool for clients looking for tax deferral, principal protection or lifetime income. They can provide unique benefits that can’t be replicated by other financial products.

However, some annuities pay high commissions with long surrender charges and they may be sold by people that don’t put clients’ best interests first.

Luckily, the industry has continued to evolve and we have seen the emergence of fee-only annuities.  Fee-only annuities might be what an industry of advisors who have avoided these products have been waiting for, as they provide positives for clients, advisors, and an industry in need of a makeover.

Fee-only Annuity Benefits for the Client

I’ve yet to meet a client that isn’t concerned about taxes, losing money, or retirement income. Annuities can provide benefits that address each of those concerns, however, they may never be recommended because of an advisor’s personal feelings toward them. In some cases, clients may share the same negative views of annuities.

Fee-only annuities may help break down these negative perspectives so that more clients can enjoy the benefits, including:

  • Fee-only annuities do not pay a commission 
  • They typically have shorter to no surrender charge schedules
  • The internal costs are typically lower

With a fee-only annuity, the client can still grow their money tax-deferred, have access to great money managers (in fee-only variable annuities), and have access to death benefit and lifetime income riders.

This combination of removing negative aspects while keeping the positives will definitely grab the attention of the consumer.

Fee-only Annuity Benefits for the Advisor

The introduction of fee-only annuities can have a significant impact on financial advisors as well.

If you follow our company, you are aware of The Comprehensive Advisor. This is our belief that the days of providing clients fragmented advice from a planner, broker, insurance representative, etc. are over. People want comprehensive financial life advice, and we believe the financial advisor is uniquely positioned to be the person to provide it.

Fee-only annuities help advisors who were opposed to commission products add these unique solutions to their client experience and become more comprehensive in the process. They can also serve advisors as a great asset gathering tool.

For example, one of our current clients manages $2 billion in assets under management. We helped them understand their existing client base might own a cumulative $50 million+ of existing annuities. That is new AUM that was never sought after. Now they have a viable and thoughtful solution to provide their clients.

Fee-only Annuity Benefits for the Industry

I started this article by describing the “love-hate” with the annuity industry. Will fee-only annuities help change that narrative? There are several significant, converging events that may help.

For clients, the retirement boom is going strong as more and more boomers retire every year. Throw in the gift of longevity, as more people are living longer. You also have historically low interest rates that will either stay low and reduce income options or rise and hurt bond yields.

For advisors, there has been a growing migration of advisors from the traditional brokerage houses to RIA firms. Plus, the fiduciary mindset is becoming a differentiator for advisors, and advisors are embracing the comprehensive approach we outline in The Comprehensive Advisor.

We believe all these events make the perfect situation for fee-only annuities. There is a growing need from clients in several areas of their portfolio and life, paired with a growing number of advisors open to offering fee-only annuities as a possible solution.

What Next?

It’s time to think differently. Like anything, those who change and evolve will thrive. Challenging yourself and how you think will help you take advantage of the market opportunity for people seeking good financial advice. We suggest financial advisors be comprehensive, thoughtful and embrace the change hitting the industry.  

 

—Matt Meyer, Director of Life Insurance Planning and Distribution at Lockton Affinity and Co-Founder of The Blueprint Insurance Services.