TIAA-CREF reports it has on the drawing board, targeted for a 2012 debut, a fixed cashable immediate annuity with a feature designed to rival guaranteed lifetime withdrawal benefits. A patent on the product has been filed with the U.S. Patent and Trademark Office, says John Wesley, TIAA-CREF's product manager of non-qualified plans; he says it slightly resembles the Hartford's "Personal Pension Account."
"The cool part is we generate more cash for less amount of assets than a guaranteed lifetime withdrawal benefit," Wesley says. With this product, if the client dies, remaining assets can pass to a beneficiary rather than going to the insurance company. If the client withdraws cash value, income from the annuity drops proportionately, and there is a market value adjustment if a client withdraws more than just the income. There is also a surrender fee equal to six months' simple interest. If the client withdraws all the money but lives to around age 90, full payments resume at that time for life.
A guaranteed lifetime withdrawal benefit remains something "we're looking at very closely," Vanguard spokesperson Amy Chain says. A filing for a Vanguard product that included a guaranteed lifetime withdrawal benefit was withdrawn from the Securities and Exchange Commission in the 2008 market turmoil. Vanguard recently rolled out a variable annuity cost calculator as well as a platform with Hueler Income Solutions, Minneapolis, that lets advisors and clients compare real-time quotes on less-costly, institutionally priced income or immediate annuities as well as rates on fixed deferred annuities from many insurance companies.
Jefferson National in New York, with its unique $240 annual flat-fee variable annuity pricing, says it is "hands down" less expensive than every variable annuity on the market for clients who invest more than $100,000. The low-overhead insurer touts a special platform, targeted to fee-based advisors. Among some 330 variable annuity fund offerings is what it says is the only gold bullion tracking fund within a variable annuity. Once again, there is a patent pending on its structure.
Despite claims that low interest rates make it tough to innovate on fixed annuities, Jefferson National President Laurence Greenberg says he is looking at introducing one or more fixed annuities by year-end. He actually is evaluating three products: a term product as an alternative to Treasury securities, a government bond or CD; an index annuity; and a short-term product of about six months that might rival money market funds as a place for cash.
Financial advisor Gaito says he is solicited daily on fixed annuities by companies like wholesaler Crump Group in Roseland, N.J., and Standard Insurance in Portland, Ore. Generally, the promotions show fixed annuity rates of 0.25 to 0.75 percentage points higher than bank rates.
Observers say the move to attract fee advisors to variable annuities has largely fallen flat. "I don't know anybody who has had widespread success," says Bing Waldert, director at Cerulli Associates.
Variable annuities historically have been commission-based and sold, which is not necessarily how the best fee advisors like to operate, he says. Insurers have "gotten into a self-defeating arms race of trying to one-up each other. It collapsed on itself in a bear market. It's difficult to make good on guarantees and stay solvent."
The two chief problems, as Waldert sees them: Annuities largely are not priced the way fee advisors like. Also, they have grown so complex that advisors don't want to take time to wade through a 200-page prospectus to track down the "gotchas." Now, he says, insurers are waking up and starting to reprice their products away from commissions to serve the fee-based advisor.
Kevin Loffredi, vice president of the annuity solutions group of Morningstar Inc. in Chicago, cites a move toward "I" shares, which he says cost about one-half of the 130 basis point industry average. Fees on variable annuity "I" shares typically run 65 basis points-including a 35 basis point mortality and expense fee, a 20 basis point administrative fee and a 10 basis point distribution fee. The latest "I" share offerings have no surrender fees.