Company says O shares won't have front-end load, making them cheaper than other contracts; will likely discourage exchanges
Edward Jones is developing a new share class for the variable annuities it distributes. Called O shares, they will be cheaper than traditional VA contracts over the long run, according to a company executive.
Unlike the current A share offering available at Edward Jones, the new O share won't have upfront charges.
Instead, the mortality and expense fees on the VAs will kick in over the surrender period and eventually dissipate until they are similar to fees on an A share VA, which is a front-loaded contract, according to Tim Burke, principal of insurance solutions at Edward Jones.
He spoke about the topic at the Insured Retirement Institute's conference in Washington last week.
Investors will get the advantage of having all of their initial VA deposit go into the product instead of starting out with less after upfront charges are levied.
“It's better for the client,” Mr. Burke said. “They get the full credit upfront so they're not at a disadvantage when you're looking at roll-ups or step-ups on account value, and they're not paying a higher fee on B shares over the longer term.”
At the conference, Mr. Burke said that the firm would offer only one share class.
The move would likely discourage exchanges and keep clients in their products, said Joan E. Boros, who is of counsel at Jorden Burt LLP.
“The point is that [with other type shares], at the end of the surrender period, the owner is free to move,” she said. “Now there's a disincentive: The product is cheaper because of the reduction in costs.”
Indeed, clients transferring out of an O share VA, especially once the mortality and expense fees have fallen, could end up in a share class with higher costs. What's more, following a transfer, the surrender period on the second product would begin anew.
Other distributors might consider using a share class similar to that of Edward Jones, but it would depend on whether the insurers offering VAs in that share class are selling a pared-down product or one with richer benefits, Ms. Boros said.
Prudential Financial Inc. and SunAmerica Financial Group are likely to offer VAs in the new share class through Edward Jones.
Prudential signed a selling agreement with Edward Jones in October and posted a Nov. 8 filing for a new VA. Prudential spokeswoman Lisa Bennett confirmed that the insurer issued a filing, but she declined to comment on the specifics beyond its contents.
Meanwhile, Edward Jones last month said that it will start selling SunAmerica products again, The Wall Street Journal reported.
SunAmerica filed documents to start a new VA with the Securities and Exchange Commission last Friday. The insurer's spokeswoman, Linda Malamut, didn't return a phone call seeking comment.
