Advisors Urged to Pass Along Savings

PALM BEACH, Fla. - Financial advisors should “return” the commission they would otherwise earn on an annuity in the form of higher cap rates as the advisory world moves to fee-based models, an annuity industry expert said Monday.

Passing those savings along to investors would generate more interest in annuities, said Jamie Cox, managing director of Harris Financial Group.

Such moves would also answer annuity critics like Ken Fisher who say annuities cost too much, he said.

Cox spoke at a breakout session titled “Retirement Reality Check: Why Realism Breeds Optimism,” at the annual meeting of the Insured Retirement Institute, held this year at The Breakers hotel.

Fee-based annuity sales still represent a fraction of overall annuity sales. But they are gradually finding their way into the marketplace, and analysts say fee-based annuity sales will only grow.

Initially an exercise of simply stripping away the commission, fee-based annuities are beginning to offer more value to investors as insurers become more adept at streamlining products, said Mike McCarthy, senior vice president, national sales, Great-West Financial.

In addition to fee-based products, new variable annuities known as structured, or buffered, variable annuities are proving themselves to be a “legitimate product set,” McCarthy said.

Structured variable annuities have seen double-digit growth this year even as the overall variable annuity market shrinks.

Cap rates, floors, buffers and participation rates provide an insurer and an advisor with levers to structure a variable annuity to help guarantee income for a middle-market retiree, McCarthy said.

For too long, advisors have stuck to selling one or two annuities to secure the guaranteed income piece of a retirement investment portfolio when in fact the advisor can use an entire set of annuities.

Income annuities, deferred annuities, indexed annuities and variable annuities can be used to guarantee the income needs of investors and protect them from longevity risk.

Annuities can be approached during the decumulation phase just as a family of mutual funds are typically used to build assets during the accumulation phase.

 

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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