Here Come New No-Load Insurance Policies

David Lau, founder and CEO of DPL Financial Partners in Louisville, Ky., describes his mission as a “kind of personal crusade.” He’s talking about no-load insurance products—annuities and insurance policies that are commission-free and, as such, well suited to fee-only advisors and other fiduciaries. If only they were better understood, he laments.

Before launching DPL earlier this year, Lau was the chief operating officer at Jefferson National, where he spearheaded its introduction of no-load variable annuities (VAs). His new firm works with two types of clients—the insurance carriers he aids in bringing these products to market and fee-only advisors. He helps the latter group better understand the opportunities inherent in these products. Why? “They’re really a game changer in the industry,” he avows.

Lau’s enthusiasm is based on several facts.

First, the introduction of fiduciary regulations has put pressure on products with commissions—or, to put it another way, it has sparked interest in fee-only products and practices, in which clients know up front exactly how much they’re paying and what they’re paying for.

Second, since other types of financial products are sold without commissions, Lau asks why insurance products shouldn’t follow suit. “Insurance is the last bastion of commission-driven distribution in financial services,” he says. But he thinks that’s about to change.

The problem, he acknowledges, is that RIAs and other fee-based planners can be skittish about recommending insurance. Historically, insurance meant commissions. “Legally, they can’t take them if they don’t have a broker-dealer through which to do that,” explains Lau.

Commissions add to a product’s costs. “Building a commission into the pricing of a product causes the product to become more expensive and complex,” Lau says. “That goes against the fiduciary obligation. [Fee-based advisors] can’t recommend a product that’s expensive and really doesn’t provide good consumer value.”

Lower Expenses

Commission-free products, the argument goes, have fewer built-in expenses, which means that a higher percentage of a client’s premium goes to work for the client right away. The difference can be dramatic. For instance, Lau says, a typical VA as measured by Morningstar costs 135 basis points, whereas the no-load equivalent goes for just 20 to 30 basis points. “That reduces the price of the product by about 85%,” he says.