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.

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