Annuity Compensation for Independent Advisors
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As more advisors break away from broker-dealers and drop their series 6 or 7 registrations, the annuity industry has evolved to support and compensate them through registered investment advisor- (RIA-) friendly solutions.
Annuities come in many shapes and sizes, and advisors are not required to be registered to recommend every type of annuity. Variable annuities require a S6 or S7, but fixed and indexed annuities do not. In addition, the industry now offers various solutions for S65 investment advisors (IAs) to be paid to service annuities for fees rather than to transact annuities for commissions.
Commission payments to S6 or S7 registered representatives (RRs) can take the form of a higher up-front payment or smaller annual payments (trails). Trails-paying annuities (C share or L share) tend to have higher internal expenses to afford the ongoing commission payments to the advisor. Clients are often willing to pay a higher internal expense because advisors and their clients both (wrongly) view the continuing commission payments to be a form of built-in advisory fee. Unfortunately, the higher internal expenses on trails-paying annuities are not an advisory fee, and similarly, no advisory services are due to the client in return for those expenses. Consequently, when advisors drop their S6 or S7, they can no longer be paid trails, even though the client continues to pay the higher internal expense. The advisor may end up providing advice without being paid. AnnuityFix, referenced later in this article, solves for this problem.