UBS exploring fee-based annuities for advisers
The wirehouse would be jumping on a trend toward advisory business that analysts expect to accelerate because of the Labor Department's fiduciary rule.
UBS Wealth Management Americas is mulling the potential offer of fee-based annuities to its adviser force for use with clients, according to a company executive.
The evaluation comes as such annuities, and fee-based business generally, are poised to grow in prominence due to market forces and industry regulation.
“We have been working with several leading insurance/annuity providers on the development of fee-based annuity solutions,” Philip Pellegrino, executive director and head of annuities at UBS, said in an e-mail statement.
While Mr. Pellegrino said he is “encouraged by what we’re seeing thus far,” he said the firm is in the “early stages of this work” and “no decision has been made as to whether we will add these products to our platform or the time frame for doing so.”
Also known as advisory or I-share annuities, fee-based products differ from traditional commission products; they exist in a wrap account, in which an adviser charges a level fee on a client’s assets under management.
If the wirehouse moves forward, it would offer fee-based annuities in both qualified and non-qualified accounts, as a complement to commission-based business, according to Mr. Pellegrino.
UBS has an adviser force of roughly 7,000.
Although some fee-based annuity products have been on the market for several years, sales have, to date, only represented a sliver of overall annuity sales.
However, analysts expect such annuities will become more popular as the industry-wide trend away from brokerage and toward more advisory relationships continues. Analysts believe the Department of Labor’s fiduciary rule, which makes advisory accounts more palatable from a compliance perspective, will accelerate the trend.
LPL Financial Inc.’s former chief executive, Mark Casady, said last year the firm was looking to “dust off” its fee-based variable annuity platform, which hadn’t previously received much attention from advisers, in response to a likely increase in demand.
Mr. Pellegrino said the decision wasn’t based solely on the DOL fiduciary rule.
“We were already thinking about annuities in advisory prior to the proposed rule,” he said. “It’s an emerging trend that makes sense considering many of our financial advisers employ an advisory model today within their businesses. Having the ability to add annuities to the mix seems like a natural extension/progression of the platform.”
Insurers have begun debuting new annuity products in response to this increased demand. For example, Jackson National Life Insurance Co., the leader in variable annuity sales, launched its first-ever fee-based variable annuity last year. It comes with optional income riders, a feature traditionally only available in commission products.
“What is really new is the availability of benefits on true wrap contracts,” said Tamiko Toland, managing director of retirement income consulting at Strategic Insight. “The older generation of wrap contracts did not offer benefits.”
Other firms, such as Allianz Life Insurance Co. of North America and Great American Insurance Group, have launched fee-based indexed annuities, the first of which hit the market only within the past year and a half.
And, in another telling sign of the shifting dynamics, Nationwide last year agreed to buy Jefferson National, which distributes fee-based variable annuity products, in order to have access to the company’s network of 4,000 fee-based advisers.
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