7 Annuity Myths to Ditch

(Related: Most Americans Have $0 Saved for Retirement: NIRS) These days, the financial services industry is increasingly embracing a more holistic approach to wealth management and protection. And yet, advisors and insurance carriers still often exist at arm's length from one another. The truth is, advisors are being called upon not only to evaluate their clients' existing traditional annuity products but also what fee-based product and carrier makes the most sense for their clients' money — and for their own practice. To put the best foot forward, it's important to clear up a few common misconceptions that exist among registered investment advisors (RIAs) regarding finances and insurance.

Myth #1: As an RIA, I can't help clients with their life insurance or annuity needs.

There's actually plenty an RIA can do to help clients with wealth protection. There are carriers and insurance aggregation platforms that specialize in working with independent advisors to help them seamlessly implement these strategies as part of an overarching financial plan.

Myth #2: Annuity products aren't readily available, and not many companies sell them.

In fact, the opposite is true: These products are currently available in most states, and the number of carriers continues to expand. With the number of players rising, it's important to understand how to evaluate a product.

Myth #3: Insurance products are commission-based, inflexible and expensive.

Cost is actually more manageable than one would think. By eliminating much of the upfront expense, fee-based or no-load policies usually cost less. Plus, there aren't usually withdrawal charges, so they can help a client maintain liquidity.

Myth #4: If a product is fee-based, the funds are all low-expense.

RIAs have options when it comes to costs. Just like in the mutual fund world, variable annuity carriers have access to different share classes, which will vary in price and impact performance.

Myth #5: It's all about the M&E.

The mortality and expense charge, or M&E, is only one of several charges that impact how an annuity will perform. Advisors should therefore analyze ­all expenses, including M&E, administrative charges, fund expenses, fund platform or fund facilitation fees, and rider charges for death benefits and other guarantees.

Myth #6: If there are extra charges, I'll see them on the statement

Asset-based administrative charges such as distribution expenses, platform fees and fund facilitation fees are usually incorporated into the daily unit price calculation. The expenses will affect the performance but usually will not be itemized on the client statement. Therefore, it's important that an advisor asks about such fees and charges up front since they may not be represented on individual statements.

Myth #7: All insurance carriers understand the RIA business model.

Just as RIAs don't know all the ins and outs of insurance, insurance carriers won't necessarily know the nitty-gritty of how the RIA business model works. It's important for a carrier to understand that just stripping out commissions, lowering the M&E and calling a product fee-based doesn't do the job. A carrier needs to invest time and resources to truly understand the RIA market, needs and priorities. Annuity products can offer a lot of potential benefits to an independent advisor's clients; however, before diving in, it's important for an RIA to do their research and invest time in understanding annuities. There are plenty of resources online, such as LIMRA, and firms that specialize in insurance and financial products. Resources like these can help advisors ditch these myths and start finding ways to harness the power of annuities for their clients. — Read Social Security Myths and Misconceptions, on ThinkAdvisor.

Thomas Fink is vice president of institutional at Ameritas Life Insurance Corp. He started his career at Charles Schwab, where he worked on large RIA transitions. Fink then went to TD Ameritrade Institutional as senior vice president. He has also served in the United States Navy Reserve for 23 years.