Annuity IQ

With all of the recent press on variable annuities lately, the issue many people have is over commissions paid to brokers. What is more important, the fact that the variable annuity is delivering what it promises and is doing what you want it to do, or your broker/agent earning a commission?

In a nut shell, who cares that the broker is earning a commission? We do not care, we focus on the product’s performance and if it delivers. We have a general idea of what these variable annuities pay in the form of commissions, but that is not a factor in our rating process. What commission your broker earns on a variable annuity sale should be of no concern to you either.

Frankly, does it matter if a product pays your broker a 1% commission or a 7% commission? As long as the fees are inline and the variable annuity is not over priced, it should have no bearing on your decision to buy or not buy the annuity. We do not believe a broker should intentionally sell the highest paying product, but we, as a firm, see the commission as being irrelevant to the over all performance of the variable Annuity.

The commission paid on a variable annuity is designed to compensate the broker, either with an up-front commission or a mixture of an up-front commission and a trailing commission for servicing your account and your investment needs. This is no different than a fee based planner who has you pay a wrap fee for mutual funds, or this is no different than an “A” or “B” share mutual fund. The fees and commissions paid on those products compensate the broker for servicing your account.

Managed money will pay the broker anywhere from 1%, or more, a year and mutual funds can pay a broker as much as a 5.75% up-front commission with a .25% trailing commission. At the end of the day, the broker can actually make less from the up-front commission of a variable annuity compared to these other options over the long term.

Did you know that some REIT’s pay as much as 10% commissions? The fees can be higher than a variable annuity, and you typically have to hold on to the REIT for as long as 10 years. We never hear anything negative about this, and we find that odd. For some reason, people have a bone to pick with insurance companies or they just plain do not understand how variable annuities actually work. Therefore they concentrate on how much commission they pay.

When people start talking about how much compensation the broker gets for selling annuity products, keep in mind that annuities, for all intents and purposes, pay the broker less over the long term than other investment products. Use ‘The Annuity Report’ to find the best product for your needs and forget about commissions…..We did. Get an honest third party evaluation of variable annuities.