By Cyril Tuohy
Great-West Financial, seeking to offer retirement investors guaranteed income, has launched a new “low cost” variable annuity (VA) that doesn’t charge clients until they start shifting funds to the income segment of the annuity.
The VA, branded as Smart Track II, offers investors more control over fees since they choose when and how much money to move into the income segment, said Chris Bergeon, vice president of financial institutions markets with Great-West.
“What’s more, the guarantee fee is assessed only on the assets they move to the income segment,” he said in a statement.
Smart Track II is a commission-based product available through banks and independent broker-dealers. It was introduced in response to requests from advisors for more products with guaranteed income, known as a Guaranteed Lifetime Withdrawal Benefit (GLWB), the company said.
Smart Track II is the younger cousin of Smart Track, which Great West Life & Annuity Insurance launched previously.
There are no administration or distribution fees associated with Smart Track II, “and total costs are lower than the average variable annuity with similar features,” the company also said.
The company has altered the fee structure of Smart Track II when compared with its older cousin Smart Track.
Smart Track II contains higher mortality and expense risk charges, as well as higher expenses associated with the annual GLWB rider, according to company filings. Great-West has also raised surrender charges on Smart Track II compared to Smart Track.
Many life insurance companies have been raising fees or restricting terms on their VA products as they seek to “de-risk” their VA portfolios. Carriers ran into trouble when interest rates plummeted after the Great Recession.
Insurers were earning a paltry 1 percent or 2 percent on their investments, yet had to pay on guarantees as high as 7 percent or 8 percent issue previously.
With so many retirees in search of income, demand for VAs, while slightly lower than last year, is still considered robust. Guarantees make VAs more attractive for advisors to sell.
“Demographics are still there for them,” Frank O’Connor, product manager for annuity data with Morningstar, said in an interview earlier this year. “That pig in the python is still moving along.”
Third quarter VA sales hit $35.1 billion, down 3.3 percent from $36.3 in the year-ago period, according to Morningstar. VA net assets of $1.79 trillion hit a record.
VAs allow advisors to invest in higher-yielding assets – albeit at higher risk – for clients, many on fixed incomes, who are looking for higher returns in a low interest rate environment. Smart Track II, for instance, offers investors the opportunity to invest in real estate funds and emerging markets funds.
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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