BISA Magazine - Quarter 1, 2017 - 19

ee-based annuities have
been slow to catch on. Sales
have hovered at around 4
percent of variable annuity
(VA) sales for the last couple
of years, according to Morningstar.
But with the Department of Labor's
(DOL) fiduciary duty rule issued in
April 2016, fee-based VAs and fixed
indexed annuities (FIAs) got a shot in
the arm.

Jackson National Life (Denver), the
nation's largest manufacturer of variable annuities, introduced its first-ever
fee-based variable annuity product, Perspective Advisory, in September 2016.
In early January 2017, Pacific Life
Insurance Company announced that
it had launched Pacific Odyssey, the
company's fee-based VA, at LPL Financial within LPL's Strategic Asset Management (SAM) and Strategic Wealth
Management platforms.
"Interest is accelerating [in fee-based
annuities since DOL's fiduciary duty
rule]," Symetra Executive Vice President
Richard LaVoice, told BISA Magazine
in September. Distributors are working
hard to figure out how to comply with
the new rule, which favors levelized
compensation for sales representatives
(i.e., fee-based solutions), and many
manufacturers are looking to beef up
their offerings. For certain firms, VAs
will be the first fee-based priority, but
eventually manufacturing could encompass both fixed and variable annuities,
LaVoice said.

Impact of the election
But then came the 2016 presidential
election and the ascent of an apparently regulation-averse Trump administration. (At the time of this writing,
Andrew Puzder, a critic of tighter
regulation, had been nominated as

There remains some uncertainty
after the election, and it is unclear
whether or not our partners will
modify their strategies if the
fiduciary rule is impacted.
- Richard LaVoice, Symetra
Labor Secretary by President-elect
Donald Trump and was awaiting Senate
confirmation; he has since withdrawn
his nomination.) If the DOL's new rule
is postponed, or repealed, will the wind
be shaken out of the sails of the feebased annuity?
BISA Magazine checked in again with
LaVoice in early January. "I would say
interest [in fee-based annuities] is slowly accelerating, with at least a couple of
major firms looking to go advisory-only
for qualified business," he said.
Symetra, for its part, will have a feebased indexed (i.e., fixed) annuity on
the market by early second quarter
2017, LaVoice told us. That said, "There
remains some uncertainty after the
election, and it is unclear whether or not
our partners will modify their strategies
if the fiduciary rule is impacted."
Why has it taken so long (i.e., until
DOL) for the insurance industry to
develop a fee-based annuity? "The old
ways were entrenched, and nothing was broken," LaVoice explained,
thus, there was no need to change the
model. Meanwhile, a few firms tried
fee-based VAs, and they didn't really
catch on, so that discouraged other
manufacturers from trying. (Appar-

ently, advisors did not really embrace
fee-based annuities with a 1 percent
annual fee when products with 5 percent commissions-albeit one-time-
were still viable.)
Then there were technical challenges,
like getting the fee out (without it being considered a distribution, which
would be taxable), but many of these
were "manageable" in LaVoice's view.
(For example, the client could just
write a check instead of paying the
fee via a distribution, avoiding the
taxable event.)

A surrender charge
The carriers still need some kind of
surrender charge, says LaVoice. Indexed annuities are not like bond funds
where the customer assumes all the
risk. "With our [i.e., Symetra's new feebased] product, there is no risk to the
client." Their gains are "trapped." Their
principal is safe, and so on. The insurance company takes the risk, investing
seven or eight years out, which is a big
commitment. "We need some protection" for that, comments LaVoice. That
is why he anticipates that some kind of
surrender charge will be "baked in" to
fee-based annuities looking ahead.

19
BISA Magazine

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