Nationwide To RIAs: We’re On Your Side With New Fee-Based SPIA

Nationwide’s new single premium immediate annuity (SPIA) broadens the appeal of the product line to registered investment advisors (RIA) and fee-based advisors. Marketed as Nationwide Advisory Income, the SPIA is the latest entry into the fast-growing distribution channel, which is also experimenting with different fee models. “We know that guaranteed income is on peoples’ minds, but often the registered advisor and the fee-based advisors don’t have the products to sell them,” said Craig Hawley, head of Nationwide Advisory Solutions. Advisory Income can be sold to buyers as old as 95 years old and the initial investment ranges from $10,000 to $3 million. The SPIA includes a cost-of-living adjustment that increases the payout by 1 to 5 percent compounded annually. Rising interest rates, a shift toward risk aversion among clients and indications that advisors are more likely to seek out guaranteed retirement income in the future make this a good time to launch a new SPIA, Hawley said. By integrating SPIAs and securing a client’s basic income needs, advisors can then concentrate on the rest of the portfolio without having to worry as much about how assets generate current income, he explained. Broadening product options for RIAs and fee-based advisors is part of Nationwide’s larger plans, said Tamiko Toland, director of annuity research for Cannex USA, an annuity quoting platform. “They are doing a great job of integrating a SPIA – that’s the bigger challenge,” she said. In 2016, Nationwide bought Jefferson National, which was a pioneer in the fee-based variable annuity business with the Monument Advisor product line.

The Real Draw

The draw of Nationwide Advisory Income is that the 6,000 fee-based advisors the company serves have an alternative to a commission-based SPIA at a time when advisors are busy experimenting with the types of fees they charge. The traditional assets-under-management, or AUM, model dominates the way advisors make a living. But alternative models include hourly rates, tiered fee schedules, subscription services and retainers for high-net-worth clients. Even advisors who follow the traditional and widespread AUM model may charge less for fixed income investments – like a SPIA – than they do for stocks, bonds and ETFs, so it’s important for an advisor to have access to fee-based designs. “Some will charge on the amount of the SPIA, others will charge on the SPIA’s liquidity value so we’re making it such that it’s easy as possible,” Hawley said. Under a commission-based transaction, an advisor earning a 3 percent commission on a $100,000 SPIA walks away with a one-time payment of $3,000. The sale leaves $97,000 to be invested as principal, but the client doesn’t need to cut a check to the advisor. In some cases, the commission-based transaction is a better deal for the client, according to insurance company executives.

Ideal For Younger Investors

Under an hourly-based model at $100 an hour, the fee comes out of the client’s pocket as cash or check, but the entire $100,000 investment goes toward the principal. Hourly models are ideal for younger investors with fewer assets and “one-time” needs to guide them until they’ve built up enough wealth to guide them to another stage of advice. Under a financial planning model of, say $5,000 a year, the SPIA – along with other financial transactions – would be bought as part of that overall planning fee. Again, the $100,000 principal is invested into the SPIA. That $5,000 might come out of a money market account or a “separately managed account” run by the advisor for ongoing planning services. This payment model is better suited to clients who have built up retirement portfolios and need other services like estate planning and tax advice. In the end, a client pays roughly the same amount whether that comes out of the commission or a fee, Toland said. But it makes a difference to the advisor who has more choices about the most appropriate way to make a living based on the needs of a client. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]. © Entire contents copyright 2018 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.