In 2007, it was easy to recommend a variable annuity to clients. You could offer the best of both worlds: upside potential and guarantee against loss.
“Mrs. Client, this variable annuity offers you a diversified investment portfolio with brand-name funds (subaccounts), tax deferral (a benefit only if used outside an IRA), and if the market declines, you’ll have an income guarantee that will allow you to take an income for life regardless of the performance of the subaccounts.”
While that story still holds true in many cases, reality proves it to be a bit more nuanced than that, given the changes seen in the markets since 2007. Are you selling variable annuities in the same way as you were in 2007, and if so, are you really comfortable with the story you’re telling?
Perhaps it’s time to get a bit clearer on where VAs fit and where they may have been supplanted by more focused products and strategies.
Before Registered Reps and BDs start firing off nasty emails, please keep reading. While I happen to operate an RIA and will only use a variable annuity that is fee-based, that doesn’t mean I’m on an anti-VA campaign. In fact, I find that many advisors should be more product agnostic than they are, acting as true fiduciaries for their clients, rather than product salespeople.
If a VA is the best tool for the job, so be it: Let’s agree to get clearer on which problem(s) variable annuities are best-suited to solve. I am first going to address some shortcomings that need to be addressed, and then discuss some of their best attributes.
Yes, variable annuities have costs that place them in the crosshairs of those who are hungry to move the assets. While M&E fees, admin fees, rider fees, and many higher-cost subaccounts can add up total costs very quickly, the question to ask is: “Is the VA expensive as compared to…?”