Advisors who have been in the business for a while will recall when variable annuities (VA) were pretty simple to explain and sell. The products essentially were mutual fund-type subaccounts inside an insurance wrapper. Tax-deferred growth was the primary benefit and the mortality charge provided beneficiaries with downside protection on the policy value.
Product features and benefits have evolved considerably since then. That’s generally a good thing because the benefits became richer but the additions also made the products more costly and complex. (Seriously, when was the last time you actually tried to read a VA prospectus cover-to-cover? Ugh.)
The advisory industry was changing at the same time as the contracts. Fee-based and fee-only business models became more prominent and many of these advisors shun high commission products. David Lau, chief operating officer of Jefferson National in Louisville, Kentucky, believes these changes necessitate a new generation of VAs.
He points to a Jefferson National survey as evidence of the industry’s desire for a new approach. Fifty-one percent of the advisor-respondents used VAs with income guarantees to generate retirement income. But more than half of that group said they’re not satisfied with those income guarantees and 70 percent said they’re unsatisfied because of VAs’ increase in costs and decrease in benefits, says Lau.