BISA Magazine - Quarter 4, 2017 - 17

ationwide has joined the
parade of insurers offering a fee-based annuity
option.

The Nationwide Summit
fixed-indexed annuity (FIA) is its first
FIA "designed to better fit the needs of
Registered Investment Advisors (RIAs)
and fee-based advisors," the company
said in a statement.
Ever since the Department of Labor
first proposed its fiduciary rule several
years back, insurance carriers have
been scrambling to develop more
fee-based investment solutions. Before
then, fee-based annuities weren't really
on the drawing board because they had
too many design problems - a surrender charge schedule, for one. With
the fiduciary rule in place, fee-based
annuities have become more attractive
because their structure qualifies them
for Best Interest Contract Exemption
(BICE), which allows them to collect
compensation as long as they still meet
certain rules and conditions.
"Nationwide recognizes the growing
market demand for alternatives to help
hedge the risk of traditional portfolios
managed by RIAs and fee-based advisors," says Mike Morrone, associate vice
president of fixed annuity product strategy at Nationwide.
Why a fee-based FIA and why now?
"Consumer need," Morrone says. There
is a demand for principal protection on
the part of consumers, "and whether
a product is fee-based or commissionbased, that need is not going away."
Nationwide is no stranger to fee-based
products: The company has been
involved with fee-based products for
some 10 years. However, with its recent
acquisition of Jefferson National ( JN), a
leading manufacturer of fee-based insurance products, that commitment intensified and expanded to the annuity sector.
Fee-based advisors represent the
fastest-growing sector of the investment sales universe, which suggests to
Morrone that consumers are looking for
more fee-based products.

Fee-Based Annuity

"Whether a product is fee-based or
commission-based, that need is not
going away."
- Mike Morrone, Nationwide
A commission-based version of the
"Summit" FIA was launched before the
JN acquisition. The recently announced
fee-based Summit version came after
the JN acquisition, but the product was
developed by Nationwide, not former
JN product designers.

The Surrender-Charge
Hurdle
The primary hurdle to overcome with a
fee-based FIA is the surrender charge,
Morrone says. Why? Fee-based advisors
are accustomed to actively managing
their clients' accounts. A product with
a seven-year surrender charge, like the
original Summit FIA, reduces flexibility.
An advisor's client is effectively locked
in for seven years with a typical FIA
surrender charge schedule - even if
the product has options like "free outs,"
which allow customers to withdraw
10 percent of their money per year
without a penalty.
That said, fee-based advisors have come
to accept surrender charges; they see
them in other products, like bank CDs
and even some mutual funds. If at first
blush there is some advisor resistance
to seven-year surrender charges, that

is offset by the product's advantages,
notably principal protection, Morrone says.
In the future, however, Morrone
expects some innovation on the part of
annuity manufacturers vis-à-vis surrender charges. He wouldn't specify
what kinds of changes to expect - this
might be proprietary information - except to say surrender periods will
probably shorten.
The commission version of the Summit
FIA was designed for the bank channel,
and the fee-based version will eventually be available through banks as well.
For now, however, the fee-based FIA is
available only in the insurance marketing organization (IMO) channel,
being distributed through the Annexus
network of independent distribution
companies. Morrone would not say
whether bank availability would be
imminent or longer term, but he added
that the commission version of Summit
is one of the fastest-growing products
in the bank channel.
The J.P. Morgan MOZAIC Index that is
attached to the Summit FIA has been
popular; it was up 11 percent in 2016
and up 4-5 percent as of mid-September this year. ▲

17
BISA Magazine

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