Yes, Fixed-Rate Annuities Should be in a Managed Portfolio
April 18, 2023 by David Blanchett
Editor’s Note: Recently, Retirement Daily published an article by annuities expert Ken Nuss, in which he argued that fixed-rate annuities are simple products that do not belong in a fee-based managed portfolio. He claimed that investment managers charging fees for managing these products are misleading clients. We heard from two other experts who see this differently. This is the second of the responses we received. The first is here.
Fixed rate annuities, also called multi-year guaranteed annuities (“MYGAs”), can be a powerful addition to a fee-based portfolio, despite suggestions to the contrary.
MYGAs currently offer yields that are attractive on both a relative and absolute basis when compared to other lower risk investment strategies, and fee-based MYGAs typically offer yields that are higher than the more traditional MYGAs. While a financial advisor may charge additional fees for managing assets that include MYGAs, reducing the net realized return by the investor, this fee typically includes additional services beyond simply managing the portfolio (e.g., financial planning) and research suggests that financial advice can more than pay for itself.
Click HERE to read the full story
Wink’s Moore on the Market: Ha!
No sooner had I read a David Lau response to Ken Nuss‘ article with “The Street,” than David Blanchett tag-teams in!
Blanchett and I don’t always see eye-to-eye. Yet, he has become a valued friend over the past couple of years.
You know what we do agree on?
Straight out of his mouth, “…not only do I think fixed rate annuities should be considered for fee-based accounts, but I think all fee-based financial advisors should more actively consider annuities for their clients!”
YASSS!
I know this is splitting hairs…I DO want to note that multi-year guaranteed annuities (MYGAs) are not synonymous with “fixed annuities” though. There are one-year guaranteed rate annuities, which would not be considered a MYGA, as their rates can change annually. Perhaps “declared rate annuities” would be a better moniker?
He is on the money with his communication of MYGA commissions; they average 2.53% today.
And it is interesting to hear his perspective that “[he doesn’t] think value should be defined as activity,” when it comes to advising on finances. I think this is important in the argument that RIAs “should/shouldn’t charge AUM on fixed insurance products.”
While David “think[s] the rise of fee-based annuities is an exciting innovation,” it isn’t necessarily translating to sales. Fee-based annuities account for less than 1% of all deferred annuity sales, and that figure hasn’t changed much. That said, today there ARE 142 different fee-based annuities for sale, from 36 different insurance companies. So, there is activity there.
And choices!!
In closing, this academic suggests, “more financial advisors should be actively considering annuities for clients.”
I think we can ALL agree on that! -sjm