A new no-load annuity hits the marketArticle added by Roccy DeFrancesco on July 20, 2012
Roccy Defrancesco

Roccy DeFrancesco


Joined: May 24, 2006

I just found out about a new no-load variable annuity that was released, and it has two very unique qualities to it that the average VA doesn’t.

I have to say, I got a real kick out of the comments from my recent article titled Are Fee-Only Planners Bad for Our Industry?

I got a lot disgruntled comments from fee-only advisors and a lot of supportive comments from non-fee-only advisors.

Sometimes I think because I often talk about the beneficial nature of using equity indexed life insurance and fixed indexed annuities as powerful but safe wealth building tools, everyone thinks that I only write on fixed products. Not true. Whenever I see something interesting in the variable world, I am more than happy to talk about it.

I’m not a fan of “loaded” products, and I’m really not a fan of broker-dealers (BDs).

Loads and fees in variable annuities

The following are the typical loads (fees) charged in a VA (not including guaranteed income rider or other rider fees):
  • Annual money management fee — This fee is charged by a security licensed advisor to help clients manage the assets in the VA. An average money management fee is approximately 0.9 percent per year.

  • Mutual fund expenses — Most VAs use mutual funds. Mutual fund fees range from 0.3 percent with index funds to 2.5 percent+ with international or other exotic funds. The average mutual fund fee is approximately 1.5 percent.

  • Mortality and expense risk charge — This charge is typically 1.25 percent a year and is charged every year against the account value. This charge pays for commissions that are paid to agents as well as for mortality costs and to generate profits for the insurance company.

  • Administrative Fees — These are just what they sound like and can be $25 or $30 per year or as a percentage of the account value life of 0.15 percent per year.

  • Surrender charges — A typical surrender charge period would be between five and 16 years. The average is around seven years, and the charge in year one is usually 7 percent and then decreases 1 percent a year until it’s zero in year eight.
If you add up all typical fees in a VA, they will typically be in excess of 3.65 percent a year.

New no-load VA

I just found out about a new no-load VA that was just released, and it has two very unique qualities to it that the average VA doesn’t.

1) No mortality and expense risk charge
2) No surrender charges

How cool is that? Right out of the gate, if you use this no-load VA, you can save your clients 1.25 percent in M&E costs every year and put them in a VA they can leave at any time with no penalty.

Example: Let’s assume a client has $250,000 to fund a VA. I’ll assume the same rate of return in the VA (7.5 percent), and I’ll let the money grow for only 10 years. What’s the difference in account values at the end of the term?

Loaded VA - $364,758
No-load VA - $411,119
Difference = $46,361

Choice: if your clients had the choice of a VA with M&E charges and surrender charges and one without, which one would they choose? To ask the question is to answer it.
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