Ask Your VA Wholesaler About How The VAs Funds Are Performing
By Harvey D. Hirsch
Every variable annuity wholesaler tells a great story about his or her VAs funds. Each one has a fistful of glossy Fund Fact Sheets, too.
But the stories and sheets dont tell you the whole story.
To separate the leaders from the laggards, you need to ask your wholesalers some key questions about fund performance. Here are some of the most critical ones to pose, and why:
How do your funds stack up to the competition’s?
You should know if the funds give the VA a competitive advantage.
One simple approach: Have the wholesaler compare the Morningstar ratings for the funds to the ratings of several relevant competitor products. The chart shows how such a comparison might look.
The profile shown in the chart points to some interesting findings. As you review it, keep in mind that Morningstar rates 10.0% of VA sub-accounts as 5 Star, 22.5% are 4 Star, 35.0% are 3 Star, 22.5% are 2 Star, and 10.0% are 1 Star.
As shown, the product for our sample wholesaler has the strongest fund line-up, with over half the funds rated 5 Star or 4 Star and none rated 1 Star or 2 Star.
By comparison, Product 1 is relatively weak, with no 5 Star funds and almost half the other funds rated as 1 Star and 2 Star. Product 2 does have a 5 Star fund, but almost half of the rest are rated only 1 Star or 2 Star. As for Product 3, with its balanced distribution of funds, it is in a somewhat stronger competitive position than Products 1 and 2.
What are the total returns of the funds in this VA?
Ask the wholesaler for a report showing total returns of each portfolio in his product. The report should present returns for various time periods. Most wholesalers have this. What they dont have is a comparison of fund returns to appropriate benchmarks including one or more indexes and other portfolios in the same investment category. Without benchmarks, the data loses a lot of meaning.