By Cyril Tuohy
Registered investment advisors (RIAs) and fee-based advisors and investors have saved more than $60 million in insurance and transaction fees since the launching of the industry’s first flat-fee variable annuity (VA) in 2005, according to Jefferson National Life.
The $20 monthly fee – or $240 per year – for annuities branded as Monument Advisor, was designed to replace the patchwork of “upfront loads,” mortality expenses, death benefits and surrender charges traditionally associated with VAs.
The $60 million-plus in savings was calculated by multiplying the average contract value of $224,335 by the average mortality and expense fee of 1.35 percent minus the $240 flat fee, Jefferson said. The values, calculated by Morningstar, were multiplied by the number of policies in force from May 31, 2005, to Oct. 31, 2013, Jefferson said.
Flat-fee VAs were introduced to address complaints that VA’s high asset-based fees negated the value of any tax deferral. The fewer the number of dollars going to pay for advisors and underwriters, the more money is available to investors for tax-free growth.
Nearly 400 funds are available to RIAs and fee-based advisors through Jefferson’s flat-fee VAs.
VAs are often bought by investors who have maxed out their other retirement savings vehicles such as 401(k)s, 403(b)s and individual retirement accounts (IRAs), so a $20 per month flat fee is cheaper than paying 1.3 percent of asset values for investors looking to sock away as much as $100,000 a year extra.
More than 90 percent of advisors surveyed recently said that clients are concerned about the rise in capital gains taxes, and more than 70 percent of advisors are considering using a low-cost tax-deferred account to soften the impact of higher taxes, Jefferson also said.
"We help investors build their wealth through the power of low-cost tax-deferred investing — maximizing the fee savings and letting it compound to help address Americans' need to accumulate more for retirement,” said David Lau, chief operating officer of Jefferson National, in a news release. “And with tax hikes in place, advisors understand that tax-deferral is more important than ever to help clients reach their long-term financial goals."
Several top insurance executives are bullish on annuities as they pay retirees a fixed income stream. In the latest announcement, Gary Bhojwani, a member of the board of Allianz SE, owner of fixed-income giant Pacific Investment Management Co., called the U.S. “a monster market,” and vowed to increase the company’s presence here, according to news reports.
In a separate announcement, Allianz Life Insurance Co. of North America introduced its Allianz Signature 7 Annuity, a fixed indexed annuity available only to advisors associated with the company’s Allianz Preferred platform.
Last month, Allianz launched its Allianz Core Income 7 annuity featuring an income benefit rider.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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