While the restrictions of the Department of Labor’s fiduciary rule will likely constrain the variable annuity business, one annuity company stands to gain from the regulations.

After building Monument Advisor, a no-load, low-cost, investment-only variable annuity, Louisville-based Jefferson National’s business will go largely untouched when the DOL rule is fully implemented in 2018.

Rules requiring advisors to disclose investment costs and any potential conflicts of interest could cause many annuity providers to change their distribution and revenue models or leave the business altogether, which creates an opportunity for Jefferson National, says CEO Mitch Caplan.

“At the end of the day, given that Jefferson National was built from the ground up to serve fee-only or fee-based advisors because we don’t pay commissions, in some ways  Monument Advisor was born to be utilized in a post-DOL world,” says Caplan. “The rule doesn’t change your ability to continue to engage and connect and grow in the pure fee-only RIA marketplace.”

Jefferson National isn’t the only player in the fee-only, low-cost annuity world. Ameritas Life Insurance, a Lincoln, Neb.-based annuity manufacturer, has offered a fee-based variable annuity for 20 years through fiduciary advisors. Other firms, like TD Ameritrade and Vanguard, have attempted to bring fee-based variable annuities directly to the consumer.

Jefferson National is currently a small trout in a big pond — the company’s variable annuity assets grew by a little over $1 billion in 2015 to $3.2 billion, a small drop in the $133 billion of total annual variable annuity sales reported by industry analyst LIMRA. By comparison, industry leader Jackson National Life accounted for more than $4.2 billion in variable annuity sales in the first quarter of 2016 alone.

Despite the efforts, fee-based products still only account for around 4 percent of total variable annuity sales, but Jefferson National believes a disruptor like the DOL’s rulemaking could turn the tide.

Caplan is no stranger to industry disruptions — in the 1990s, he was an executive with one of the first online banks, TeleBank, then moved on to become CEO of E*TRADE, one of the first online brokerages and investment platforms. He moved to Jefferson National because he saw the potential for similar disruption in the annuity business.

“I’d have to say that some of the learning that we had in the direct-to-consumer world at TeleBank and E*TRADE and seeing the migration towards more fee-based services has caused us to believe that over the longer term, the trends in annuities were around more consumer empowerment,” Caplan says. “When we started Monument Advisor as a platform, we did it with the belief that these would be the long-term trends.”

Monument Advisor strips a variable annuity to its core, leaving behind the living benefits and riders that often accompany other company’s products to focus on the tax advantages an annuity wrapper can provide to investors. Caplan says the product was built to appeal to RIAs, who often balked at annuities’ complicated revenue schemes and opaque design.

Jefferson National charges a flat $20 monthly fee for Monument Advisor and pays no commissions to the RIAs that offer its product to investors.

“We were trying to elevate it from a held away product to a tax deferred money management platform,” Caplan says. “What we provide advisors with fits perfectly into their practice as fiduciaries. We’re more on point with the way the industry’s headed, we’ve been built well for that.”

Over the past 12 months, Caplan says Jefferson National has seen more interest and adoption from broker-dealers who recognize that the regulatory environment might require them to move away from a commission-based business model.

For advisors who were already fiduciaries, like RIAs, products like Monument Advisor were the only ways to offer the benefits of an annuity’s tax deferrals. At the Fidato Group, a Strongsville, OH-based RIA, Tony D’Amico says that some clients have been offered Jefferson National’s investment-only variable annuity when they’ve outgrown traditional tax-deferred retirement accounts.

“We like using Monument Advisor when there’s a clear benefit for tax deferral,” D’Amico says. “If they own an existing variable annuity, we often consider moving to Monument Advisor depending on the tax consequences. If someone is a high earner through salary or investment income, Monument Advisor’s tax deferral provides a tangible benefit.”

D’Amico says that the Fidato Group also considers a variable annuity for clients with a long time horizon for accumulation, like a young person in a higher tax bracket.

Since Monument Advisor is simply a tax-advantaged investment wrapper, it isn’t appropriate for retirement accounts, Caplan says.

Caplan says that other annuity manufacturers may follow Jefferson National’s lead in offering low-cost, commission-free products for fiduciary advisors to use with their clients.

“To some degree, I think there will be more competition for us,” Caplan says. “There already has been some more competition, over the past five years we’ve seen more low-cost products come to market. Five or ten years ago, when we were building this out, there was not a category of investment-only variable annuities.”

Cases in point: LPL and Voya. Both broker-dealers have made moves to boost the sales of fee-based variable annuities amid the DOL’s rulemaking and declining commission revenues.

As other annuity providers analyze and address the DOL’s rulemaking, Jefferson National continues to evolve Monument Advisor’s fund offerings and features. Earlier in May, the company added six new investment options to the product platform, including three new alternatives, bringing its lineup to 380 investment options including more than 70 alternative strategies.

Jefferson National has also recently added to Monument Advisor’s selection of payout options, now offering investors and advisors a ‘restricted stretch’ distribution. The new option will allow clients to stretch income out over an heir’s lifetime by requiring beneficiaries to take only their required minimum distributions from the annuity, creating a steady income stream while helping to protect the underlying assets.

Furthermore, since the release of the DOL rule’s final language, Jefferson National also created a directory of third-party investment advisors for RIAs to use in conjunction with the annuity product. The directory includes 21 managers offering 112 proprietary strategies that can be adopted within Monument Advisor.