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.”