Financial Pathways Joins Annuity DPL Marketplace
This move expands firm’s advisory capabilities in the area of commission free annuity products.
Low cost, commission-free annuity options have exploded in recent years. Products have dramatically improved, with low or in some cases no surrender charges, low fees, and better income arrangements and terms for investors. Fee based financial advisors including yours truly have taken notice. As a group fee-based advisors had long spurned annuity products as expensive, complicated, and rigid. But these newer products are different. I have been recommending them to clients for a few years now (getting my feet wet so to speak) and have been extremely pleased with the results, especially in this difficult market year.
A few years ago, there were only one or two providers (Nationwide, Lincoln) who issued these low cost, commission free products. Now many of the major annuity providers are joining the bandwagon. Jackson National, Pacific Life, Prudential, Allianz, and many other providers are now in the game. That is good for investors – because competition drives rates up and fees down. But it makes it very difficult for advisors to keep track of. Annuities can be complicated after all, and as fiduciary advisors we need to be sure we are recommending the very best available solutions for our clients. Enter our new relationship with DPL.
DPL is a sort of annuity marketplace for advisors and their clients. They help educate us, help us find the best solution for a particular client need, and will write and place the insurance contracts for our clients. We pay a fee to belong to the marketplace and access the services provided by the firm. There is no cost or charge to our clients. Expanding our access to fee only annuities adds an important new tool to our retirement planning and financial planning toolkit.
What is an annuity anyway?
Unlike a traditional investment where you own a stock, mutual fund, or the like – an annuity is a contract between an investor and an insurance company. The contracts come in several forms.
Immediate income annuities. You pay the insurance company a one time payment. The company promises you an income stream, typically lasting for the rest of your life. This is exactly like “buying a pension”.
Fixed Deferred annuities. You give the insurance company money and earn either a fixed or variable rate of return. Returns may be at a fixed interest rate or may be tied to the performance of an “index” such as the S&P 500. These are “interest paying” annuities, so returns tend to be modest (compared to stock investments) but there is little risk of loss. We find these products to be interesting as an alternative to bond funds in a diversified portfolio.
Variable Deferred Annuity. Variable annuities are more like investing in mutual funds, although new wrinkles provide “downside buffers” and other innovations which provide investors some protection in down markets. I have not used them extensively, but some of the latest innovations are interesting.
Most annuities can be turned into income when necessary, making the products potentially useful for retirement income planning. For instance, income annuities can be combined with Social Security or an employer pension to provide a sound income base to cover essential needs. That can provide an investor some peace of mind that there is a guaranteed income stream in place to cover essential living expenses, while riskier investments can be used for discretionary expenses. (it should be noted that annuity income streams are guaranteed by the insurance company, not the federal government as in the case of Social Security)
Wondering whether or how low-cost commission free annuities could be part of your retirement / financial plan? You can schedule an appointment with me to discuss using the following links:
Bridgewater office: www.calendly.com/financialpathways/bridgewater
Flanders office: www.calendly.com/financialpathways/flanders