Annuity IQ

You may have read about this on different news web sites. We felt that we needed to comment on this new development. We should mention that we hold Raymond James in the highest esteem. Their commitment to quality and fair play is legendary in the financial services world.

We also commend them on their decision to reduce base fees on variable annuities, it makes our job easier. However, this does not change the fact that different optional benefits still incur additional fees to the consumer. It also does not change the fact that all living benefits are different and unique in the industry. Therefore, what we do at Annuity IQ is still very important.

What we really like is Raymond James not only reduced the fees to the consumer, but they put their money where their mouth is and reduced their commissions to the brokers. I know the brokers do not like this, but it now allows for a more level playing field. Raymond James has mandated that no variable annuity product can pay more than 7% over a 7 year time period (this means the up-front and trailing commission can not equal more than 7% total) and the maximum surrender schedule can only be 7 years. They also mandated that the M&E fees to be 1.15%.

Capping commissions is nothing new to the industry some firms always capped variable annuity commissions, usually wirehouses and major banks. The cap is, generally, at 4% to their sales force and some even forbid you from taking trail commissions. The firm will then keep the difference between what the product actually pays and the cap of 4%.

For example:

If a product pays 6% commission the broker only receives 4% and the firm will then keep the extra 2%.

The idea was to create a level playing field, but the reality is that it is a huge money maker for the brokerage firms. If they had initiated what Raymond James has done, then the consumer would have been the real beneficiary, but I digress.

Will the rest of the broker dealers follow suit?

This is the question at hand and we really hope that they all do, but it remains to be seen. If the industry lowers fees all around this will be a true win for the consumer, even though it will pay the broker less money. This also deals a decisive blow to the anti-variable annuity crowd.

This move by Raymond James eliminates 2 of the biggest complaints variable annuity pundits have; high commissions and high fees (which several studies already debunk by the way). The rest of their arguments are usually irrelevant and will naturally disappear over time. Even though we disagree with these arguments of the variable annuity pundits, we do agree that lower overall fees are a great thing. Now, the consumer can get an even better deal than before by using Raymond James.

We applaud this move and are hoping that the industry takes notice and adjusts to what Raymond James has started.