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Fee-based FIAs Gaining Momentum

The new Department of Labor’s fiduciary rule was designed to steer distributors away from commission-based sales, which has many insurers making changes to their line-ups. Included in these changes are new fee-based fixed indexed annuities for independent marketing organizations. But this sector, which has sold billions of dollars in fixed indexed annuities over the last decade, historically doesn’t show much enthusiasm for fee-based annuities. According to a recent article from InsuranceNewsNet, there’s no choice but to wait and see whether distributors take to this new model.

“It’s a little too early to tell if fee-based indexed annuities will experience successful sales levels,” said president and CEO of Moore Market Intelligence, Sheryl J. Moore. “I definitely think that the outcome of the DOL’s proposed fiduciary rule has the power to influence sales of these products going forward,” she added.

Changing the products from commission-based fixed indexed annuities into fee-based options hasn’t proven to be a difficult task, which is fortunate considering the uncertainty of their future. According to Ron Grensteiner, president of American Equity Investment Life Insurance, a top fixed indexed annuity seller, it’s been a simple process of stripping off the commissions and leaving the surrender charges and other features intact. Caps and participation rates also have to be increased, but that’s about it.

Still, there are other industry players who haven’t spent a lot of time making changes to their products in order to prepare for the rule, believing that there’s still a place for commission and fees.

“We believe in choice, and in allowing advisors and consumers to decide which model is best for their retirement income objectives,” said Brian Kroll, head of annuity solutions for Lincoln Financial Group in Radnor, Pa. “Commissions and fees can both be in the best interest of clients,” he added.

Fee-based FIAs have experienced record sales recently, and insurers don’t want to miss out on potential sales because they don’t have a product for distributors to sell. FIAs have become popular to retirement investors because they offer higher returns than bank products, due to low interest rates, with minimal risk. Big name insurers, like Transamerica, Nationwide, Athene and Great American have all made changes to the index options of their FIA products to take advantage of performing asset classes.

Just this month, Voya Financial launched a new index annuity, the Voya Journey, with a “two-stage” interest-crediting approach, offering advisors the flexibility to use more than one interest crediting strategy to match long-term financial goals. While Voya Journey is sold via commission, the company is working on an advisory version for release later this year.

Similarly, the biggest seller of FIAs in the U.S., Allianz Life Insurance, announced the launch of their first fee-based fixed indexed annuity earlier this month.

“There is a growing market demand for fee-based products and we believe Retirement Foundation ADV will be well received,” said Matt Gray, senior vice president of product innovation at Allianz.

And then there’s Great American Life Insurance, who in October of last year, released Index Protector 7, a fee-based FIA with an optional guaranteed income rider. The annuity was sold through financial advisors at Raymond James as a complement to the insurer’s commission-based indexed annuities already available.

“We invited Great American to provide an annuity option for those advisors and clients who prefer an advisory arrangement,” said Scott Stolz, senior vice president, PCG (Private Client Group) Investment Products at Raymond James. “We believe that, given the changing regulatory landscape, the need for fee-based annuities will only grow,” he added.

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