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Lincoln Starts to Clear Another Barrier to Annuity Advisory Fee Payments

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Lincoln Financial is making an annuity payment feature change that could boost the power of the  new Internal Revenue Service affection for fee-based annuities.

The Radnor, Pennsylvania-based company says it plans to let the holders of many of its annuities use to assets to pay annual advisory fees equal to up to 1.25% of the contract assets, without the payments reducing the value of living benefit riders or death benefit riders.

(Related: Lincoln Financial Adds 2 Commission-Free Annuities)

Lincoln is adding the fee payment feature to variable annuity contracts that are not classified as indexed variable annuity contracts.

The company has to get approvals from broker-dealer firms and state insurance regulators before it can offer the new advisory fee withdrawal treatment.

The shift may help clients use fee-based variable annuities in arrangements that depend heavily on annuity holder access to a predictable flow of living benefit rider benefits.

In the past, the IRS held that annuity holders who used annuity assets to pay advisory fees should pay taxes on the withdrawals. In August, the IRS began sending out a series of private letter rulings concerning fee-based annuities. The IRS told the recipients that they could let annuity holders use contract assets to pay advisory fees equal to up to 1.5% of the contract assets without paying taxes on the cash flowing to the advisors.

The new annuity advisory fee payment approach is separate from the IRS private letter rulings, Lincoln says.


Lincoln began offering the new advisory fee payment treatment to users of some death benefit riders and living benefit riders Dec. 16.

The death benefit riders affected are the Death Benefits: Guarantee of Principal (GOP), Highest Anniversary Death Benefit, and Earnings Optimizer Death Benefit riders.

The living benefit riders affected are the Lifetime Income Advantage 2.0, Lincoln Market Select Advantage, Lincoln Max 6 Select Advantage, Lincoln IRA Income Plus, and Lincoln Wealth Pass riders.

In early 2020, Lincoln says, the company will add similar treatment for one-time advisory fee withdrawals, even if the annuity holder does not enroll in the automated advisory fee service.

The company says it will also add the new fee payment treatment to the 4LATER Select Advantage and i4LIFE Advantage riders.

— Read Lincoln Financial Adds Indexed Annuityon ThinkAdvisor.

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