Should Fixed-Rate Annuities be Part of Your Managed Portfolio?
April 18, 2023 by David Lau
Editor’s Note: Recently, Retirement Daily published an article by annuities expert Ken Nuss, in which he argued that fixed-rate annuities are simple products that do not belong in a fee-based managed portfolio. He claimed that investment managers charging fees for managing these products are misleading clients. We heard from two other experts who see this differently. This is the first of the responses we received.
As a long-time consumer advocate and innovator who has been leading the drive to remove commissions from annuity products to create better value for consumers, I was disappointed, but not surprised, by Retirement Daily guest contributor Ken Nuss’s “Fixed-Rate Annuities Don’t Belong in a Fee-Based Managed Portfolio.” Then again, I often hear commission-compensated advisers trying to protect their dying business model.
Click HERE to read the full story via The Street.
Wink’s Moore on the Market: I have been resisting making this post for several years.
David Lau is a man I respect. I also happen to like him.
He runs DPL Financial Partners, a platform for fee-based annuities.
That said, there are a some things that have been festering within me. Today’s article was the straw that broke the camel’s back.
In this article from “The Street,” Lau suggest that “I often hear commission-compensated advisors trying to protect their dying business model.”
I just want to clarify that “commission-compensated” sales of deferred annuities account for more than 99% of the $284.1 billion sold in 2022.
I’m not sure that is “dying.”
I am also not sure that “…the rise in popularity of commission-free annuities presents a threat to brokers…” because the aforementioned statistic hasn’t changed much over the past few years.
How does it make sense to suggest that “[the] more they sell the more they make,” when it comes to commissioned agents? The more fee-based advisors manage, the more they make? AND- the more money the client earns, the more fee-based advisors make too- right? #DifferentNotBetter.
As far as, “The products get meaningfully better [when fee-based, rather than commissioned,” I did a study on that precise issue in 2020.
I analyzed 16 annuities: both commissioned and nearly-identical fee-based products. The study showed an average difference in caps of 0.77% annually, in favor of the fee-based products.
However, an analysis of the compensation collected by the person selling these annuities varied significantly. Four years into these annuities, the commissioned salesperson was paid more. Yet, at the end of an eight-year annuity term, the fee-based advisor received nearly 200% more compensation than the commissioned salesperson.
Our study also showed that beyond year two, the commissioned annuity had greater cash value than the fee-based version, due to the application of AUM fees.
I get that David is trying to tell “The DPL Story,” but I think there are more constructive ways to do it.
SO many Americans need the safety of a guaranteed paycheck for life, which only annuities provide. Yet, so few of these people even know WHAT AN ANNUITY IS.
I would argue that we need to stop stealing slices of pie from one another, and work on growing the entire pie. There is certainly plenty of opportunity for both fee-based and commissioned advisors, when it comes to annuities.
The argument on compensation is stale. Let’s stop trying to tear one faction down, at the expense of the other. Instead, let’s work on EDUCATING and solving the retirement income gap. – sjm
