While many advisors steer their clients away from variable annuities, with the recent addition of a guaranteed lifetime withdrawal benefit rider to its no-load variable annuity, Lincoln, Nebraska-based Ameritas Advisor Services has not only enhanced the flexibility of its annuities, but also taken another step toward making variable annuities more appealing instruments for retirement income.
“All the large variable annuities players are looking to revise their products,” says Russ Wiltgen, VP of individual annuity product management for Ameritas. “We feel we have a good design here and a client will be better off with this solution because it offers a guaranteed lifetime protection and payments.”
Combined with the new rider–which offers benefits that are rarely available on a no-load platform–the Ameritas no-load variable annuity enables fee advisors to help their clients continue to build on their existing assets while providing a flexible guaranteed source of income during post-retirement years, Wiltgen says. The combined product and rider are attractive because they offer, low cost tax-deferral; flexibility for the client to decide when and if they want to activate the rider at all, at no extra cost; guaranteed withdrawals up to the lifetime withdrawal benefit amount (regardless of the policy’s value) until the owner’s death; and the latest in living benefit design features at a low cost.
Indeed, the cost of the product and its no-load character are critical, says Mitch Politzer, senior VP of Ameritas Advisor Services.
“When you have products that don’t have commissions in them, you are able to make them extremely competitive and the value you can deliver this way to a consumer is far greater,” Politzer says. “In both the insurance and the annuities business, commissions are usually high, so when you don’t have these costs to factor in, you have a much better platform.”
Politzer says that Amertias’s no-load variable annuity sells for about 60% cheaper than other products on the market because it carries no fees. The product is invested in a wide variety of different funds, which also helps to keeps costs low, he says.
There is little doubt that flexibility and cost are key issues to making annuities–a class of products that had been tainted by many negative headlines through the years–more lucid and comprehensible to a wider base of advisors and their clients. But even if there is increased education today that allows for a better understanding of the benefits annuities can offer, as well as more transparent products in the market, many advisors and clients still maintain their distance from these products.
“I don’t use annuities for many clients because they usually don’t have as good returns as mutual funds,” says Matthew Chope, an advisor at the Southfield, Michigan-based RIA Center for Financial Planning. “Our strategy places investment results ahead of tax preferences and guarantees. Guarantees are very expensive, so clients need to demand a preference towards tax deferral and be very risk adverse, also demanding guarantees, before I introduce the idea of annuities.”
Annuities experts, though, believe that there is no replacement for a product that provides a guaranteed floor of income no matter what market conditions might be, and certainly, one that is attractively priced is likely to gain more interest going forward.
“In our model, the benefit offered by the rider in addition to what annuities typically offer by way of upside potential without any downside, takes care of market risk along the way and provides the ability to leverage along the way in case of any market upside,” Wiltgen says.
For advisors, Ameritas offers both insurance products and annuities to advisors’ clients. Licensed consultants at the company’s performance center in Houston will work with advisors and clients to analyze their goals and come up with a personalized case design and model, Politzer says, to which a portfolio of no-load annuity and insurance products can then be fitted.
“Our products or products like ours can create a guaranteed floor of income no matter what, and this then allows advisors to go seek alpha elsewhere,” Politzer says. “Advisors are telling us that they need to do financial planning to make assets last 30 years–how are they supposed to do that? You can’t get there through bonds, and though you could through equities . . . you’d have to handle the turbulence of the equity markets, and what happens if someone retires in the wrong year? For this reason, more and more advisors are now putting in annuities for their clients.”