Fidelity cuts VA fee by 10 basis points

Fidelity Investments’ insurance unit has dropped the cost of its variable annuity by 10 basis points and has created a new fee level for larger accounts. The move lowers the fee on the Personal Retirement Annuity to 25 basis points. The discounted fee, which is applicable to new and existing business, excludes the cost of the subaccounts, which can run a few basis points higher than 10, explained Jeffrey K. Cimini, president of Fidelity Investments Life Insurance Co. In January 2009, the firm had increased the cost of the variable annuity from 25 basis points to 35 basis points to cover service costs and add a range of features, including allowing clients to trade online. The company also announced today that it will charge 10 basis points on accounts with more than $1 million in initial premiums, which brings it below many competing products, including a TIAA-CREF variable annuity that costs about 12 basis points, noted Frank O’Connor of Morningstar Inc. Whether the fee reduction will attract more assets remains to be seen, Mr. O’Connor said. Fidelity’s Personal Retirement Annuity brought in about $735 million for the first half of 2010, up from $250 million in the same period a year ago. “There are some tailwinds: An uncertain tax environment can make a low-fee annuity more attractive than it was 10 years ago,” said Mr. O’Connor. Still, he added that even when the annuity carried a cost of 25 basis points, it still wasn’t a major seller relative to its competition. “Contracts are sold largely on the structure of the benefits,” Mr. O’Connor said. “The sale of the Personal Retirement Annuity is a fraction of the top-selling feature-laden products.” Mr. Cimini countered that those features come with a cost, and many clients are looking for basic amenities at a low fee. “Not a lot of our customers have million-dollar accounts — the average account is about $100,000 — but it’s an area where we can offer a better price,” he said.