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Next-Gen Annuities

Russ Norwood, CEO and founding partner of Venturi Wealth Management in Austin, Texas, was recently in a meeting with a client and, reviewing his portfolios, discovered three variable annuities, paying a thick commission stream to the agent who sold them.

“Probably close to 20 percent of his assets are tied up in these annuity contracts,” says Norwood, a fee-only advisor.

Instead of shrugging his shoulders and moving on, Norwood will likely roll them over to one or more of a new breed of annuities, designed to do away with the commission structure or otherwise make the insurance contracts more appealing to registered investment advisors.

“There’s been a lot of product innovation in the last 10 to 15 years with annuities. For a client to go from a commission-based product to a no-load or low-load product, where you strip out the commission structure, results in substantial savings. In his case, it’d be $10,000 plus a year in savings and internal expenses that would go away.”

Many financial advisors have long shied away from annuities, complaining that the products are too opaque, too complicated and too expensive for clients. The variable indexed annuity has come under particular scrutiny by financial advisors, as it traditionally locks buyers into big, risky bets on the direction of the market

But there is a revolution quietly occurring in the annuity space, as carriers, consultants and distribution companies focus on making these products more attractive to retail financial advisors. Some are creating annuities that work with an advisor’s fee-based platform; others are creating more transparent and useful fixed indexed annuities designed to help give advisors a total view of their clients’ overall investment holdings.

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