Perhaps in response to (“8 variable annuity myths,” SMA Feb. 2007) Mr. Huggard’s eight VA myths answered with half-truths, I should write my own that will fare better with the NASD.
Myth #1: You don’t pay a commission for a VA.
If you tell a client this lie, you should lose your license. Of course they pay the commissions out of pocket. That’s like saying clients don’t pay commissions on B-shares. If you are truly concerned about a client paying commissions, put them in a wrap account.
Myth #2: VAs are cheap.
Compared to what? Mutual Funds? SMAs? VULs? VAs are not cheap and are one of the more expensive forms of investing. This is not wrong, as long as the benefits match the costs. I would
challenge Mr. Huggard to publish records of his VA outperforming his mutual funds.
Myth #3: Zero trading costs to the VA owner.
Instead, these costs come from the CEO’s paycheck. As for commissions, wrap the investments. As for taxes, the numbers are very close. Otherwise Congress would end the program.