Although some annuity experts receive a flat annual fee from insurance companies whose products they sell, this is not the norm.
Instead, annuity advisors are paid a commission by the insurer whose contract you have purchased. This commission is calculated as a percentage of the deposit amount.
Keep reading to learn more.
The Size of Annuity Commissions
Commissions are typically between 5 and 8 percent. More complex products, ones with a shorter contract length, and those offering greater guarantees against adverse market conditions attract greater commission rates.
Fixed index annuities typically have rates between 6 and 8 percent; in contrast, those for variable annuities are between 4 and 7 percent. Multi-year guaranteed annuities generally have lower commission rates, around 2.5 percent.
Single premium immediate annuities provide a guaranteed income stream in exchange for a once-off lump sum. These tend to have lower commission rates between 1 and 3 percent; the annuity’s complexity, death benefits, and other options can increase this.
Older annuitants generally attract higher commission rates.
Annuity Commissions and Surrender Charges
Commissions for annuities differ from management fees, which are paid by you as the investor to your financial advisor in their capacity as investment manager. Management fees typically range from 0.25 to 2 percent annually.
As annuity commissions and management fees eat into your return on investment considerably, do your research before you buy. See what products are available, and what particular annuity experts charge. Be prepared to negotiate fees, too.
Find out whether additional tariffs such as account maintenance or transaction fees apply to the product, and consider low-cost investments such as exchange-traded funds (ETFs) and index funds.
Include the surrender period and any surrender charges (penalties incurred for premature withdrawals from an annuity during the surrender period) when considering annuity commission costs.
Longer surrender periods in deferred annuities of any kind – whether fixed-rate, indexed, or variable – generally result in agents receiving higher commission rates.
The surrender charge depends on the length of the surrender period, the surrender charge rate, the value that has accumulated versus the withdrawal amount, and the timing of the surrender.
Surrender periods generally run from 6 to 10 years, allowing you as the annuitant to be paid regularly, if you are receiving interest-only payments. Careful planning with regards to the surrender period and surrender charges minimizes their impact.
A good financial advisor can help you navigate these concerns.
What to Ask an Annuity Specialist
Ask questions of every advisor regarding the annuity commissions they receive on each particular product. Financial fiduciaries are legally obliged to disclose their commission on request.
The National Association of Insurance Commissioners has set forth that an advisor disclose their terms and conditions, potential conflicts of interest, fees, surrender charges, and risks pertaining to the product.
Choose an Outstanding Annuity Expert
Choosing the best annuity product can be confusing. Understanding all the charges and clauses of each product can be beyond bewildering.
A good annuity specialist will show you the best products from multiple companies, regardless of how much commission they might receive from another product, thus affording you the opportunity to make the best investment.
The primary concern of a trustworthy advisor is a product that will grow your principal.