In late September, as many insurance providers were scurrying to meet the Department of Labor's new requirements for variable annuities, Jackson National Life Insurance Co.—a big annuity provider—announced that it was releasing its first fee-based VA.
Called “Perspective Advisory,” it's specifically designed in reaction to the new fiduciary standard, which in the interest of full disclosure requires that all VAs sold on a commission basis, rather than a fee basis, secure a best-interest contract exemption (BICE) from every client to guarantee there is no bias and make plain all the costs and fees. (The standard applies to fixed-indexed annuities, too.)
The fee-based versions of these products, however, are exempt from the BICE requirement.
The new product offers many of the same options and benefits of its commission-based predecessor, Jackson's Perspective II VA. Specifically, it includes, "optional living and death benefits, as well as the investment lineup of more than 90 subaccounts, including fixed accounts," says Brian Sward, senior vice president of product and investment management for Jackson National Life Distributors.
Both products will continue to be sold and serviced. "Commissions and fees can coexist in this space," Sward maintains. Yet the new product is meant to address an expected rise in demand for fee-based products, without taking anything away from those who prefer the old commission-based VA. "Perspective II is Jackson’s flagship product, and we are absolutely not phasing out commission-based products," says Sward. "We’re confident in our ability to offer both types of products, just as we have offered fixed annuities, fixed index annuities, and variable annuities in our product lineup."
After all, he points out, despite a growing call for fee-based products, there are clients and advisors who prefer commission-based annuities. "We continue to view commission-based products as a client-friendly way to reap the benefits variable annuities provide," says Sward. "Our ability to offer both types of products gives advisors the flexibility to serve their clients in the way that is most suitable for them and their business."
He acknowledges that Jackson also hopes the new offering will help expand the firm's advisory distribution network. "Our initial focus is going to be solely on our existing broker-dealer relationships," he says. "The addition of a fee-based VA product could result in access to new advisors who haven't historically sold commission-based annuities." What's more, Jackson is "continuing to evaluate other new distribution channels," says Sward.
Besides being fee-based, not commission-based, Perspective Advisory has a few other key differences from Perspective II. For instance, it carries a 0.3% annual mortality, expense and administration-costs (ME&A) charge, compared to Perspective II's 1.3% charge (it’s more in New York). In both cases, the charges are less for contracts worth $1 million or more at their quarterly contract anniversaries. In addition, both come with a $35 annual fee ($30 in New York), which is waived for those valued at $50,000 or more.
The withdrawal schedules are different too. The commission-based product has a seven-year withdrawal schedule, starting at 8.5%, whereas Perspective Advisory has a three-year withdrawal schedule of just 2% in the first two years and 1% in the third.
Finally, the new product's minimum investment is $25,000, which is for both qualified and nonqualified accounts, whereas the minimum for Perspective II is $10,000 for nonqualified accounts and just $5,000 for qualified ones.