Jackson Eyes Fee-Only Variable Annuity

By Cyril Tuohy

Jackson National Life Insurance, the top seller of variable annuities, is readying a fee-only VA to be distributed through broker-dealers affiliated with a registered investment advisor, according to a government filing.

Complexities around the legal and compliance costs of managing commission-based VAs are expected to put pressure on life and annuity companies to develop more fee-based products in the wake of new Department of Labor regulations.

“Based on Jackson’s ongoing conversations with our broker-dealer partners, we think the legal/compliance costs of managing a commission-based platform under the DOL proposal will result in more demand for fee-based variable annuity products,” said a Jackson National spokeswoman in an email to InsuranceNewsNet.

Offered only to RIAs with a broker-dealer affiliation, at least initially, the variable annuity will be sold as Perspective Advisory.

Three-Year Surrender Charge

Perspective Advisor is a deferred variable annuity with a relatively short surrender charge period and Jackson National will pay no commission to financial institutions selling the contract, according to the filing.

“The unique part of this contract is that it’s a fee-based contract and has a three-year surrender charge,” said Kevin Loffredi, senior product manager with Annuity Solutions for Morningstar in Chicago.

Perspective Advisory is targeted at the lifetime income market and offers guaranteed income through income riders, the filing shows. Withdrawal charges are equal to 2 percent in the first and second years and 1 percent in the third year.

Early withdrawal charges end after the third year and are only applied to amounts surrendered that are greater than the earnings or 10 percent of purchase payments, documents indicate.

“Jackson is trying to reduce the fee as much as they can with a 0.30 percent contract expense,” Loffredi said in a phone interview.

The minimum initial premium comes to $25,000 and Perspective Advisory is being offered either on an individual or on a group contract, the company also said.

Jackson is likely to release the product sometime in the fall, Loffredi also said.

Jackson No. 1 Variable Annuity Seller by Far

Jackson National, based in Lansing, Mich., was the No. 1 seller of VAs in the U.S. in the first quarter with $4.2 billion in sales, according to the LIMRA Secure Retirement Institute.

Last year, the company sold $23.1 billion worth of VAs, nearly double the next biggest seller of variable annuities, LIMRA SRI reported.

Industry executives have hinted for months that the new DOL fiduciary rule would push manufacturers of annuities to develop more fee-based products. Published in April, the rules cover advice provided regarding qualified retirement employer-sponsored plans and individual retirement accounts.

DOL officials, public interest groups and labor unions say the rules, which impose a fiduciary standard of care on financial advisors dealing with retirement accounts, are necessary to protect retirement investors from high commissions.

Agents and advisors have a financial incentive to steer clients toward products based on the commission they might potentially earn even if that product is not on the best interest of clients, regulators say.

Critics say the DOL is trying to force the industry to move from a commission- to a fee-based model, a move which will make it more expensive for retirement investors, restrict choice and potentially drive thousands of advisors out of the industry.

The rule allows for commissions via a prohibited transaction exemption, but industry officials said it isn’t realistic due to the burdensome regulations.

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

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].