Flat-fee variable annuity makes its debut

Jun 6, 2005 @ 12:01 am

By Gary S. Mogel

NEW YORK - Jefferson National Life Insurance Co. has introduced a modestly priced, flat-fee variable annuity targeting financial advisers, and some have expressed interest. The Dallas-based company charges a flat fee of $20 a month, regardless of the amount a client invests in the annuity, Monument Advisor.

The new annuity should be a "magnet" for advisers wanting to attract larger accounts, because it offers a tax-deferred investment with a low, flat fee, said Patrick Ferrer, national sales director for Jefferson National, a subsidiary of New York-based Inviva Inc.

The product is especially useful to fee-based advisers and advisers making the transition from a commission-based practice to a fee-based advice model, said Inviva spokeswoman Deborah Newman.

"This annuity does sound pretty good," said John Gay, owner of Frisco (Texas) Financial Planning, a fee-based advisory firm.

"But I would want to do more research to make sure the company is strong and reliable, and get a copy of the contract to be certain that there are no hidden fees," he added. "I'm somewhat leery of variable annuities to begin with."

Oldwick, N.J.-based A.M. Best Co. gives Jefferson National a rating of B++ ("very good"). In 2002, Inviva purchased the company, then known as Conseco Variable Insurance Co., from Carmel, Ind.-based Conseco Services LLC.

"The product sounds quite enticing," said Greg Zandlo, president of North East Asset Management in Coon Rapids, Minn., which has $35 million under management. The more money in the annuity, the more appealing the flat-fee concept, he added.

Mr. Zandlo said that he had an unpleasant experience placing a client's annuity with the company when it was part of Conseco Inc., but would be willing to try again, now that it is under new ownership.

Big savings

The average asset-based annual fee for a variable annuity is 1.35%, according to Chicago-based Morningstar Inc. On a $100,000 investment, the Jefferson National annuity would have $240 in annual fees, compared with average yearly fees of $1,350.

"There have been other attempts in the market to provide low-fee annuities, but they were always asset based rather than flat fee," Mr. Ferrer said.

Fees can be kept low because no commissions will be paid, client retention rates are expected to be high due to the cost structure, and portfolio performance won't be dragged down by fee stacking, Ms. Newman said. Savings also are expected from lower administration costs and automating the account management process.

"We have an all-electronic platform, a web interface that any adviser with a log-in number can use," Mr. Ferrer said.

Clients would still be responsible for the fees charged by the underlying funds, which range from 0.26% to 2.54% a year. The annuities are invested in funds offered by Rydex Distributors Inc. of Rockville, Md., and several other fund companies.

Actively and passively managed funds are available, including sector, real estate, hard-asset and alternative-investment funds. There are 114 fund options, Mr. Ferrer noted.

"With all of those funds, it should be easy to allocate within that platform," Mr. Zandlo said.

The minimum investment is $25,000, and the stated maximum is $2 million, which can be raised to several times that amount for individual accounts with management approval, according to Mr. Ferrer.

He also said that the product has been approved in 42 states and will probably eventually be available in all states except New York. Jefferson National isn't licensed to write annuities in that state, but Mr. Ferrer didn't entirely rule out the product's being available in New York in the future.

While cautiously optimistic, advisers such as Mr. Gay wonder about insurers' offering such low fees. "Maybe the risks are covered from a hidden source, or they're so small that all other VA providers, including the low-cost variety, are grossly overcharging their policyholders," he said.


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