Commission-Free Annuities Are on the March. When They Make Sense.
Annuities with zero commissions are on the rise, and they often have higher payouts and lower fees than traditional commission-sold products.
These up-and-comers deflate one of the major criticisms of these insurance-investment products: that unscrupulous brokers and insurance agents might sell annuities to pocket the sales charge, even if it isn’t the best choice for the investor.
Stripped of a commission, annuities can be recommended by fiduciary advisors who are required to avoid conflicts of interest, and charge fees for advice rather than for selling an investment product.
“What’s happening in the annuity world is what has already happened in the mutual fund world with the growth of no-load mutual funds,” says David Lau, founder and CEO of DPL Financial Partners, a platform for fee-based annuities. “We’re seeing a disaggregating the cost of advice from the cost of the product.”
One big caveat: The commission-free annuities are mostly available only through advisors charging their own fees to customers. Investors still must do their due diligence to determine if a commission-free or a commission-based annuity is the better choice. A commission-sold product may be more competitive after factoring in your fiduciary advisor’s annual fee or if a company is trying to attract business through a particular sales channel dealing in commission-based products.
Annuities are a type of insurance that have two compelling features for people near or in retirement. They can provide a floor or a buffer to protect against losses as you invest to accumulate your nest egg, and they can turn your assets into a guaranteed lifelong income stream like a pension.
