Big insurers launching fee-based annuities

Sensing demand, they ready products that are lower-cost, simpler

May 9, 2010 @ 12:01 am

By Darla Mercado

In an attempt to appeal to dually registered advisers, major life insurers are launching fee-based annuities.

Allianz Life Insurance Company of North America said May 1 that it had filed a registration statement with the Securities and Exchange Commission for a fee-based variable annuity. Allianz also is considering the introduction of a similar product next year for registered investment advisers. The product would involve having a custodian hold the annuity.

New York Life Insurance Co. expects to roll out a fee-based version of its single-premium immediate annuity later this year. MetLife Inc., the top seller of variable annuities, also is considering a fee-based product, but it is in the development stage and it is too early to discuss it, said spokeswoman Jessica Ong.

Life insurance executives think that fee-based advisers, who traditionally have been cool to annuities, are becoming more receptive to products that provide a guaranteed income stream — especially after the financial crisis.

“We are seeing a lot more focus on managing consumption, not just managing accumulation,” said Robert DeChellis, president and chief executive of Allianz Life Financial Services. Mr. DeChellis, who touched on this subject at the Retirement Income Summit, estimates that eight to 10 other insurers are looking at fee-based annuities.

Industry experts and advisers alike question whether the efforts by big insurers will be more successful than those of the smaller carriers that pioneered fee-based annuities.

Past efforts by major carriers, such as Pacific Life Insurance Co., have met a lukewarm reception from annuity-averse advisers. A handful of smaller fee-based annuity providers, such as Jefferson National Life Insurance Co., have attracted a following among fee-based and fee-only advisers, but their products come without living benefits and account for a very small share of the market.

Still, larger insurers and many advisers are optimistic about the new products' chances.

“I want those [income] products for us,” said John D. Haynes, an adviser with Haynes Financial Inc., an RIA firm that manages $24 million. “There are products that are appropriately priced for firms like ours, and they don't have the bells and whistles.”

Insurers hope that by adjusting the compensation structure of their products, the new annuities will appeal to a wider circle of advisers.

New York Life's fee-based single-premium immediate annuity, for example, has two compensation tracks.

One track allows broker-dealers to take a trailing 25- to 50-basis-point commission on the annuity instead of a one-time upfront commission, which the insurer pays.

The other track allows the annuity to sit in a managed-account program as a no-load immediate annuity. If held this way, the broker-dealer puts a value on the single-premium immediate annuity in order to assess a fee, said Chris Blunt, executive vice president of retirement income security.

“In a managed-account context, the immediate annuity could replace traditional fixed-income assets,” he said. “With the combination of immediate annuities and equities, you get the best of all worlds: risk pooling and the efficiency of generating income.”

The New York Life product will be rolled out to the firm's career agent force first, then to broker-dealers by the end of the year.

Its trailing-commission structure could catch a fee-based adviser's eye, said Garth A. Bernard, president and chief executive of Sharper Financial Group LLC, a consulting firm that specializes in marketing and developing retirement products.

“The trailing commission looks and feels like what these advisers would be dealing with if they wanted to manage a conservative allocation to generate income,” he said.

Commission trails also become a winning proposition for the adviser, particularly with single-premium immediate annuities, which have a low upfront commission.

“This group [of advisers] may not be demanding a benefit-rich type of product; they might want something that gives them lifetime income,” Mr. DeChellis said.

The cost of Allianz' fee-based annuity could be as high as 2.05%, according to the prospectus. That includes the cost of a base account and income options, but doesn't account for the cost of the investments and wrap fees, which can vary.

Allianz's Vision variable annuity can cost as much as 3.85%.

The new product will have a dual-account structure in which one account will have higher equity exposure, while the other will feature income and death benefit guarantees.

E-mail Darla Mercado at dmercado@investmentnews.com.

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