Some insurers also have tried the same strategy as Lau. “Of course, all insurance policies have charges. But by eliminating much of the up-front expense, fee-based or no-load insurance policies can cost less,” says Thomas Fink Jr., a vice president at Lincoln, Neb.-based Ameritas Life Insurance Corp., a leading provider of no-load policies. “This allows more of each dollar to go to work right from the start. Plus, if there are no surrender or withdrawal charges, it helps the client maintain liquidity.”
Fink is bullish about the market for these products. “Given the trending growth in the RIA market, the accessibility of no-load or fee-based products is likely to expand, in my opinion, as the demand grows,” he says.
Hurdles Ahead
Others are more circumspect. “At this point, the products are mostly going nowhere,” says Michael Kitces, partner and director of research at Pinnacle Advisory Group, a private wealth management firm in Columbia, Md., and publisher of the financial-planning blog Nerd’s Eye View. “Until the products actually fit into RIA technology systems for managing client assets, the adoption will continue to be slow. Current annuity company systems simply aren’t built to be scalable within an RIA with a large number of clients.”
Such perceptions are a considerable challenge. Part of Lau’s mission is to help insurance carriers better understand the no-load market and, he says, “build product and systems to support the fee-only business.”
But it’s a two-way street. Fee-only advisors also need to “understand the best products for their clients,” says Lau, adding that the biggest problem is simply getting advisors to re-evaluate these products. “Many are convinced that [insurance vehicles are] commission-driven and expensive, just because they have been for so long,” he says. Yet he remains optimistic. “As the fiduciary world awakens to the opportunities of no-load products, they’re going to gain traction quickly. … These products open up a world of possibilities for fiduciaries to expand their practices and keep clients under their roofs, without having to refer them to an insurance broker.”
No-Load Annuities Vs. No-Load Life Insurance
The excitement about annuities being sold for a fee hasn’t spread to regular life insurance yet, Lau acknowledges. “Only a handful of carriers have launched no-load life insurance so far,” he says.
But that may change. Nationwide Advisory Solutions, the Louisville company created when the insurer acquired Lau’s old firm Jefferson National, now sees “a large market opportunity for no-load life insurance products,” says Craig Hawley, head of Nationwide Advisory Solutions.
Hawley asserts that no-load life insurance will gain popularity as more fee-based advisors become comfortable with fee-based annuities, which was already a strong suit for Jefferson. Nationwide’s Monument Advisor variable annuity, a flat-fee investment-only product, accounts for more than $5 billion in assets under management and is represented by more than 5,000 advisors who otherwise don’t deal in VAs. “Our growth really took off last year, topping more than $1 billion in sales in 2017,” says Hawley. “Even with very ambitious goals for 2018, we are already 20% ahead of schedule.”