Loffredi says that advisors, concerned with meeting suitability standards, want simpler variable annuities. But simplified products have not necessarily sold. On the other hand, the top variable annuity seller, Jackson National Life in Lansing, Mich., has a huge selection of investments and benefits.
Loffredi credits that company's success to its large selection. Also, he says, it has looser limits than most on how much of the contract holder's money can be invested in, for example, stocks.
Fee-only advisor Gaito often sees little advantage to no-fee products because the expenses of a regular mutual fund or exchange-traded fund are still cheaper.
"If you're not getting extra benefits other than the opportunity to annuitize at a later date, it's not always the best investment," he says.
Greenberg, of Jefferson National, counters that traditional annuities can improve returns for clients. The problem over the last 15 years has been that the annuity's basic advantage of tax-deferred savings has been erased by the average mortality and expense charge.
And Beacon Research's Alexander argues that annuity commissions need not be a barrier for fee-based advisors. Advisors who collect a commission can simply give clients a corresponding break on their own fee for those specific assets under management.
Sidebar: Pros And Cons Of Guaranteed Lifetime Withdrawal Benefits
Guaranteed lifetime withdrawal benefits were the primary innovations launched by insurers on variable annuities in the first quarter of 2011. But should you consider them for clients?
A guaranteed lifetime withdrawal benefit is a rider that lets the contract holder withdraw a specific percentage-typically 5%-of a "benefit base" annually for life, regardless of the performance of underlying investments. The benefit base frequently equals the contract holder's paid-up premiums. This rider, though, comes in exchange for a fee, which Morningstar Inc., Chicago, and the Insured Retirement Institute, Washington, D.C., say averages 1.032% annually per each $25,000 investment.
The fee, IRI indicates, is on top of contract and mutual fund expenses, which averaged 2.49% in the fourth quarter of 2010.
Insurers have been adding numerous innovations to this benefit on variable annuities (see main story). Guaranteed lifetime withdrawal benefits are also being added with equal fervor on indexed annuities, and less commonly on other fixed annuities, notes Judith Alexander, director of sales and marketing for Beacon Research, Evanston, Ill.
Fixed annuities, including index annuities, have lower hedging costs to insurers because they generally risk no decline in account value, Alexander says. So these riders are often cheaper on fixed annuities and may have better payouts than those on variable annuities. But expect the best payouts overall, Alexander says, to be on income or immediate annuities, which typically are purchased with a single premium and have payments that start right away.