As Jefferson National works on building its reputation as the variable annuity company that registered investment advisors can trust, the firm is reminding RIAs that annuities, if the cost of buying is cheap enough, can offer a nearly unlimited tax deferral beyond maxing out clients’ 401(k) and IRA contributions.
It’s true that the variable annuity has always offered a tax deferral of up to $10 million, but the base fees and riders for most VAs have negated those tax advantages, said Jefferson National President Larry Greenberg and Chief Operating Officer David Lau during an interview last week in New York.
“Our challenge is to convince fee-only advisors to get over their inherent bias against variable annuities,” Greenberg said, adding that JeffNat charges a flat $240 annual fee for its Jefferson National Monument Advisor variable annuity and earns additional revenue from the 400 underlying funds it has on offer. “It’s a super-low-cost product, so you get the benefit of tax deferment.”
A VA for Bargain-Conscious Bogleheads
Greenberg and Lau said their variable annuity was catching on with advisors, with their current “loyal base” of 2,000 fee-only advisors and RIAs expected to grow to 2,400 by year end on sales of $700 million.
Strikingly, members of Vanguard founder John Bogle’s online fan club, the uncompromisingly bargain-conscious Bogleheads.org, have discovered the JeffNat VA and are excitedly talking about it in a long message thread.
For example, one commenter named EnlightenMe wrote: “I’ve been there for a while now. I love the annuity and the fee structure. It’s about the same cost as owning an IRA. Lots of funds to choose from, even hedge funds, etc. Website works great. Highly recommended. I am just a contract owner and am not tied in any way to the company.”
Advisor Partners President Dan Kern, a CFA who doesn’t have a financial position in Jefferson National, said the enthusiasm around the JeffNat VA is due not only to its low cost but its transparency.
“What I like about what they do is transparent, reasonably priced and flexible in an industry that has traditionally been anything but transparent and reasonably priced,” Kern said in an interview last week.
Further, as Shareholders Service Group Executive Vice President Dan Skiles noted a year ago, the Monument Advisor VA is wooing traditionally skeptical fee-only advisors into the annuity space because it allows them to do a 1035 exchange into the product.