Surrender Charges’ Great Disappearing Act
June 14, 2017 by Cyril Tuohy
Surrender charges on fee-based variable annuities seem to be disappearing faster than the polar ice caps, new filings reveal.
The shorter surrender periods and no surrender charges are the result of annuity companies offering fee-based financial advisors new options that coincide with the dawn of the Department of Labor’s fiduciary rule. The rule began taking effect Friday.
Nearly two dozen of these contracts have been filed between Dec. 1 and May 30, Morningstar’s filings indicate.
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In the coming months, advisors can expect insurance companies to release more short-term surrender products, said annuity market expert Sheryl J. Moore. Moore is president and CEO of Moore Market Intelligence and Wink Inc.
Insurers perceive longer surrender charge products as harder to justify under the fiduciary rule’s best interest contract, she said.
First-quarter sales data appear to bear this out.
In the first quarter, 22.1 percent of fixed indexed annuity (FIA) sales were for FIAs with a seven-year surrender period. This is compared with 16.2 percent in the first quarter of last year, according to Moore.
Compared with the year-ago quarter, FIAs with shorter surrender periods racked up higher percentage sales gains than FIAs with longer surrender periods, Wink reported earlier this year.