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A new round of annuity compensation tug-of-war started recently on LinkedIn.
David Lau, the chief executive officer of DPL Financial Partners, a firm that connects RIAs with fee-based annuities, talked about the appeal of fee-based annuities for RIAs at a recent AdvisorHub conference. He then put the annuity compensation debate rope in play by promoting an article about his appearance with a post on his LinkedIn feed.
"Fee-based annuities are the most disruptive product in financial services," Lau wrote. "Taking the commission out of annuities completely changes the product for the benefit of the consumer. Annuities are now a powerful tool for RIAs."
What for Lau and many RIAs may have seemed like pleasant conversation had a different effect on some of the commission-based annuity market veterans who follow him.
Lau asserted that the consumer clearly gets better performance from a fee-based annuity than the consumer gets from an otherwise identical commission-based annuity, because of the fee-based annuity's lower cost.
He praised a comment suggesting that a fee-based annuity with a zero surrender penalty gives clients more flexibility to change their strategy.
Tracy Lownsberry of Annuity Giants, Sherice Magnum of Fire Financial Partners and Tom Hegna of TomHegna.com are some of the agents who reacted by grabbing the other end of the rope.
Lownsberry, an agent trainer, posted that retirement savers are supposed to be using annuities to create retirement income over the long term, not buying an annuity with thoughts of surrendering it in mind.
"If you pick a no-surrender annuity and have a lifetime income rider, the only thing that would mean is that the client had the autonomy of liquidating," Lownsberry wrote. "If they did that, it would be one of the WORST things they could have put their money in, because you took a product designed for income and used it for short-duration accumulation and forfeit the thing you needed."
Magnum also emphasized that an annuity is supposed to be a long-term retirement savings arrangement. She asked Lau for an example of a fee-based annuity outperforming a commission-based annuity over a 20-year or 30-year period.
Hegna asked whether paying a fee every year an annuity is in place is really better for a retirement saver.
"I haven't seen where a forever fee based annuity provides more to a client than one-time commission paid by the insurance company," Hegna said. "I AM glad that you are using annuities, but implying that forever fees are better for the client vs. a commission product is a losing argument. But, again, I wish more RIAs were using income annuities. If the fee-based version does that, I'm for it. Just don't imply that it's better for the client.
Matt Gozdecki, president of annuity sales at BackNine Insurance and Financial Services, tried to bring both ends of the rope together by providing charts between 2009 and 2018 showing the years between when a fee-based annuity might have performed better and the years when a commission-based annuity might have been a better deal.
What it means: Financial professionals looking for ways to defend or attack either annuity commissions or annuity fees might find ideas in the compensation debate Lau sparked.
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