Most advisors who sell FIAs know they could take a trail-fee commission instead of an up-front commission. Ironically, most securities licensed advisors do not know this, even though a trail commission fits securities licensed advisors more so than those who are not.
Why take trail commissions instead of up-front commissions? Two reasons: You'll make more money over time, and you will see added security by building a book of ongoing commissions for years to come.
Let's just look at the numbers of the first product I discussed my previous article, "The No-Surrender Charge FIA."
This product offers four payment options: An up-front, one-time commission of 6.5 percent; a three-year option of 5 percent, 2 percent, 1 percent; An up-front 4.75 percent, .5 percent in year one paid for life of contract; or 1.25 percent every year.
Let's put some numbers to the various options. Assume you poured $1 million this year into this particular annuity. How did you do over the next 10 years?
|Options||Year 1||Year 2||Year 3||Years1-3 Totals||Each year Year 4-10||10-Year Total||Years |
|1)||$65,000|| || ||$65,000|| ||$65,000||$0|
Interesting, isn't it? You'd think at the very least with this product you'd take a three-year payout (option two). You probably wouldn't choose option three, and option four is interesting, but with this product (no surrender charge), it's likely you'll roll it to another within the first 10 years (no commission charge back after year 2).
Let's look at another example, using my favorite 7 percent guaranteed return (accumulation value) with GIB rider product.
This product has a 7 percent first-year commission, and there is also an 8 percent commission version available. With the trail option, the first-year commission is 2.5 percent and a 1 percent per year commission every year thereafter.
|Options||Year 1||Renewal |
|5-Year Total||10-Year Total||15-Year Total|
|First year only||$70,000 ||$70,000 ||$70,000 ||$70,000 |
|First year w/trail||$25,000 ||$10,000 ||$75,000 ||$115,000 ||$215,000 |
Again, very interesting. This product has a seven-year surrender charge to it. It's likely that you sold it to someone who will hold it for 10 years before drawing from it. And remember, when they start drawing from it, you are still paid a 1 percent fee on whatever the balance is, even if it takes the client 20+ years to draw it down to zero. However, if the client dies, your trail dies with him/her.
The point of this article is simply to provide you with good information so you can make a decision about how to get paid in a manner that is best for you. Without the information, you don't have the option.
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