Trail commissions: How much money are you losing on FIA sales by not using them?

By Roccy Defrancesco

The Wealth Preservation Institute


It’s tough doing articles during the dog days of summer. It seems that half the industry is on vacation as they mentally recharge for the fall and year end stretch runs. Keeping that in mind, I decided to create one that would be a bit eye-catching and deals with increasing commissions (not at the expense of your clients).

Most advisors who sell fixed indexed annuities know they could take a trail-fee commission instead of an all 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:
    1) More money (over time), and
    2) security (building a book of ongoing commissions for years to come).
Let’s just look at the numbers of one particular product that has a trail commission option. There are several in the market, but this one is my favorite (for information on this product, send me a message).

Four payment options:
    1) up-front, one-time commission of 6.5 percent;
    2) 3-year option: 5 percent, 2 percent, 1 percent;
    3) up-front 4.75 percent, .5 percent in year one paid for life of contract;
    4) 1.25 percent every year.
Let’s put some numbers to the various options. Assume you poured in $1 million this year into this particular annuity. How do you do over the next 10 years (assuming a 5 percent annual rate of return in the product each year)?

Options
Year 1
Year 2
Year 3
Years 1-3 Totals
10-Year Total
Years 11-20
1)
$65,000
0
0
$65,000
$65,000
0
2)
$50,000
$20,000
10,000
$80,000
$80,000
0
3)
$47,500
$5,513
$5,788
$58,801
$108,284
$107,562
4)
$12,500
$13,781
$14,470
$40,751
$164,460
$268,906


Interesting isn’t it? You’d think at the very least with this product you’d take a 3-year payout (option two). You probably wouldn’t choose option three. 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 two).

The point to this article? Just to give you 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.