Among market watchers, speculation is rife that product manufacturers will restructure their compensation arrangements on insurance and annuity products to align with the U.S. Department of Labor’s conflict-of-interest rule.
That would entail a phase-out of heaped and recurring commissions in favor of flat fee.
It turns out that most consumers like it that way.
A new LIMRA report on payment preferences finds that 6 in 10 Americans would prefer to pay a flat fee for life insurance in lieu of a heaped commission. About one quarter of the LIMRA respondents express no preference as to the compensation method, while an additional 1 in 7 (14 percent) favor a commission.
“When it comes to advice, Americans are more likely to want to pay a flat fee up front rather than pay an hourly rate, an annual percentage of assets under management, or through commissions,” the report states.
Insurers haven’t been waiting for the LIMRA report to get on the fee bandwagon: A growing number of carriers, most notably annuity manufacturers, have disclosed plans in recent months to roll out fee-based products.
Among them: annuity sales leader Jackson National. Last month, the company unveiled a fee-based product, Perspective Advisory, that lets clients build a diversified portfolio within a tax-deferred variable annuity wrapper offering investment options from 90 mutual fund companies. The product also comes with optional living benefits.
Jackson National will have some catching up to do to gain market share in this area. The long-standing leader of fee-based variable annuities, Jefferson National, offers a similar, tax-favored money management platform, Monument Advisor, which boasts more than 350 investment options for a flat, $20 per month fee.
Jefferson National President Larry Greenberg, interviewed by LifeHealthPro in July, noted that the Labor Department fiduciary rule is not the only driver fueling product manufacturers’ interest in fee-based platforms. Also a key consideration is the cost to the consumer.
“This low cost lets consumers derive the maximum benefit from tax-deferral,” Greenberg told LifeHealthPro. “A typical VA might save you 100 basis points based on tax-deferral. But if you add in riders” — such as a guaranteed minimum income, accumulation or withdrawal benefit available on a conventional, commission-based VA — you’re “adding an average 135 basis points annually to the product’s cost. So you’re not getting a tax-deferral benefit.”
How much of a fee are people willing to pay?
The growing appeal of flat-fee variable annuities for advisors that do business on a fee-based — most notably registered investment advisors, or RIAs — was one factor that spurred Nationwide Financial to ink a merger agreement with Jefferson National on Sept. 28. The acquisition will avail Nationwide of Jefferson National’s 4,000-person field force of RIAs and other fee-based advisors.
Still other annuity sellers have announced plans to roll out similar fee-based products, albeit on a fixed-index chassis that can capture a percentage of stock market gains while also protecting again market slides. Among the carriers: Allianz Life, Lincoln Financial Group, Voya Financial and Symetra Financial. Already out the gate is MNL Prosper 5, a fixed indexed annuity from Midland National Life, a unit of Sammons Financial Group.
How much will consumers be prepared to pay for the investment and insurance advice connected with such fee-based products? LIMRA’s survey pegs the median, one-time fee at $75; 7 in 10 would only spend $100 or less.
The LIMRA respondents would pay a bit more for a comprehensive analysis of their financial situation: a median one-time fee of $100. But more than 6 in 10 (62 percent) say they wouldn’t pay more than $100.
No doubt, most advisors would view this sum as a pittance for high-quality (and time-consuming) investment advice. A LIMRA executive expressed concern on the finding.
“In today’s world, most Americans are solely responsible for their financial security,” says LIMRA Research Director of Developmental and Strategic Research Jennifer Douglas in a press statement. “Having a solid understanding about their finances, including their risks and needs, seems critical.”
The LIMRA study also finds that 8 in 10 Americans would want to know in advance how their advisor is being compensated. The survey notes also that 84 percent of respondents who work with an insurance and financial professional believe the advisor “provides excellent value for the costs associated with his or her services and believe their advisor puts their interests first.”