How that influences the decision-making of cost-conscious financial advisors remains to be seen. As it stands now, however, some advisors view guaranteed minimum benefit features as a useful tool for risk-averse clients.

Herb Daroff of Baystate Financial Planning in Boston says variable annuities were never a part of his practice until about 1999, with the introduction of several riders that he felt represented a major shift in the industry. The most important new feature, he says, was the guaranteed minimum-income rider. These riders typically allow annuity customers to choose one of three values when they retire: a 6% annual return on principal, current market value or the highest anniversary value of the account.

The cost? Daroff says expenses are currently running from 25 to 110 basis points, with the price largely depending on the funds used in the variable annuity's subaccounts. "So much of the literature for so long has basically said these things are carcinogens," Daroff says. "They're more like an aspirin. Not a miracle drug, but a tool that, when properly used and tuned in a client's situation, we're finding to be very, very effective."

Among the clients he's used them for is one he describes as a "recovering seven"-a man who, before the market collapse, ranked his risk tolerance as a seven on a scale of one to ten. After suffering double-digit losses managing his investments on his own, he now rates himself a three. This client, Daroff says, viewed variable annuities, and their associated expenses, as a tradeoff for downside protection and a 6% minimum guaranteed benefit.

In another case, a woman wanted to diversify her portfolio with the inclusion of international and small-cap growth funds. "But she was petrified of losing it," Daroff says. He addressed her concern by putting her into a variable annuity just for the small-cap growth and international portions of her portfolio.

Another new feature that has had a major impact is the estate protection rider, Daroff says. Designed to address variable annuities' lack of step-up in basis upon death, these riders essentially pay the income tax on a death benefit by increasing the underlying annuity 40% to 50% upon death.

Jim Barnash, vice president of Lincoln Financial Advisors in Chicago, says other types of clients who might benefit from variable annuities are those who have maxed out their qualified plan options and are looking for additional tax-deferred savings. Also benefiting might be someone who is getting money from a pension or minimum required distribution and wants a tax-deferral vehicle.

"Like Kodak film or any other type of product out there, they all have their uses in certain situations," Barnash says. "It's whether they are used appropriately or not that makes the difference."

Barnash does expect, however, that advisors are going to have to get used to more plain-vanilla annuities-largely as a result of issuers who were overly aggressive with their guaranteed minimum riders without figuring in the possibility of a prolonged market downturn. "I'm pretty much seeing that they're stepping back and pulling some of these aggressive features," he says. President Bush's proposal to eliminate the dividend tax also could lessen the need for variable annuities in some cases, he notes.

Todd Bauerle of Bauerle Financial Inc. in Deland, Fla., says variable annuities can be a good way to save clients-or their families-from excessive spending. Variable annuities often have surrender charges that can be as high as 10%, and they can be a good fit for clients who have problems controlling spending, he says. "If I have a client who I think is a spendthrift, it could make sense to put them in something that would be difficult for them to come out of," he says.