(Dow Jones) Insurance companies are aiming to make annuities more attractive to financial advisors who are compensated by fees rather than commissions.

Annuities are insurance contracts meant to convert a lump-sum payment into a lifelong stream of payments. Payouts of variable annuities are tied to the performance of a portfolio of investments. These products traditionally have charged commissions, a portion of which goes to pay an advisor. As more advisors move away from this pay model, however, insurers have been creating annuities that don't include a commission charge.

Commission-free annuities aren't a new idea, but have had trouble in the past catching on with advisors and consumers alike. Part of the problem: Insurance companies have long tried to convince fee-based advisors that they should view annuities on the provider's terms, says Bruce Ferris, senior vice president of sales and distributions for Prudential Annuities, the U.S. annuity business for Prudential Financial. "That's not the right approach," he says. "We should work with [advisors] on their terms."

In 2006, Jefferson National Life Insurance Co. launched the Monument Advisor Variable Annuity, which charges flat insurance fee of $20 a month and carries no initial fee or load. Since then, other insurers, including Allianz Life Insurance Company of North America and Prudential Financial Inc., have launched or filed to launch variable annuities geared to fee-based or fee-only advisors. TIAA-CREF offers a low-cost annuity, which it says has been popular with advisors.

Prudential this year began offering the Premier Advisor annuity, a variable annuity with no upfront fee, a 0.55% insurance charge and an additional fee for flexible investment options. The annuity allows advisors "the flexibility and choice of working with clients to establish service relationships and how [clients] want to pay for that advice," Ferris says.

The annuity is a fraction of Prudential's overall sales so far, he says. Jefferson National's sales of its flat-fee Monument Advisor annuity are relatively small at about $750 million.

The next step is for insurers to offer an annuity that permits an advisor to pick investments from his firm's own platform rather than from the lineup provided by the seller of the annuity. This would make annuities more attractive to advisors, Ferris says, because "a significant part of a fee-based advisor's value proposition is...the acumen they bring in choosing investments."

Prudential says it plans to offer such a product within a year.

Allianz Life Insurance Company of North America filed with regulators in April to launch a fee-based annuity, and aims to launch it this fall. Advisors historically have rebuffed annuities but "are starting to recognize the benefits of having a portion of client assets guaranteed because of what they were subject to in 2008," says Robert DeChellis, president of Allianz Life Financial Services LLC.

Allianz's fee-based annuity will charge roughly 1.30% of assets annually for asset-management fees and insurance costs on its base account. The Income Advantage Account option, which provides guaranteed life income and a death benefit, has a slightly higher fee structure.

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