Security Benefit, a firm that provides annuities and other retirement products, has received permission from the IRS to treat fee payments in a way that benefits annuity holders, the firm announced.
The permission, which was included in what is known as a private letter ruling from the IRS, allows advisors using Security Benefit annuities to deduct their fees from annuities without the account holder having to pay taxes on the fees. Under most circumstances, the account holder has to pay income tax on any deduction from an annuity. The IRS letter eliminates that requirement when the deduction is made to pay an advisor’s fee, Security Benefit said.
The ruling also streamlines the management process for the advisor, the firm said. It applies to any advisor handling Security Benefit annuities. Security Benefit, which is based in Topeka, Kan., has $46.4 billion in assets under management.
“We are pleased to receive this favorable treatment from the IRS for our already fast-growing annuity business,” Mike Reidy, director of RIA distribution for Security Benefit, said in a statement. “It represents the removal of a barrier to greater annuity adoption by registered investment advisors and their clients.”
Mike Kiley, CEO of Security Benefit, added in an email, "Our recent private letter ruling removed another barrier for RIAs to adopt annuities that can contribute to their clients’ financial security in retirement. This allows financial professionals to deduct fees without tax consequences for clients, providing them with greater flexibility to incorporate annuities in their portfolios. In turn, we were able to better serve this very important and growing segment of the advisor space.”
The advisory fees must only be for ongoing investment advice and cannot exceed an annual rate of 1.5% of the advisor contract’s cash value, according to the ruling.
Security Benefit offers a fixed index annuity, ClearLine, and the Elite Designs variable product for fee-only and fee-based advisors.