The indie B-D is bucking the trend with the launch of its expanded fee-based VA platform. A single fiduciary standard will likely improve the odds of success
While the fee-based variable annuity historically has fallen flat for broker-dealers, LPL Financial believes its take on the concept might work — thanks to increased interest from fee-based advisers and regulatory initiatives triggered by the Dodd-Frank Act.
The publicly traded B-D today announced the launch of its expanded fee-based variable annuity platform, which allows advisers to place VA products among their other fee-based investments and charge clients a wrap fee.
Though the concept wasn't brought on by the Securities and Exchange Commission's recommendation that advisers and broker-dealers adhere to the same standard of care, LPL's advisers using the platform seem to be well-positioned if harmonization becomes a reality, said John Moninger, executive vice president and head of advisory and brokerage consulting at LPL Financial.
“The important thing to consider is Dodd-Frank and the harmonization concept,” he said. “This lays out a nice avenue to be able to address the ultimate need of investors in a harmonized world using a fee-based model.”
The expanded fee-based VA platform at LPL, which was originally reported by InvestmentNews on Jan. 9, adds Allianz Life Insurance Company of North America, AXA Equitable Life Insurance Co., The Lincoln National Life Insurance Co. and Sun Life Financial.
Prudential Annuities' Prudential Premier Advisor has been on the fee-based platform and will still be featured.
LPL advisers won't be receiving commissions on these VAs. Instead, they're counting the product among their fee-based investments in a client's account and charging an advisory or consulting fee, Mr. Moninger said. LPL also has placed a 65-basis-point cap on mortality and expense fees, close to half of the 130-basis-point fee on the average variable annuity product.
Further, fees for any riders are deducted from the annuity itself, as it is on a traditional variable annuity, Mr. Moninger said.
News of LPL's expanded fee-based platform initially raised some questions as to whether the firm could make a successful go at selling fee-based VAs. Commonwealth Financial Network sold $7 million in such VAs last year, accounting for less than 1% of the firm's $800 million in total VA sales. At Raymond James Financial Inc., 2010 premiums on no-load VAs accounted for just $20 million of $1.8 billion in overall VA sales.
Previous attempts at cracking the fee-based VA adviser market failed due to lack of support on the broker-dealer or carrier level, Mr. Moninger said. “These products were put on but never embraced,” he said.
But LPL's approach has been to integrate the fee-based VA so that it's integrated into the firm's tools and training, and so that LPL's consulting team is supporting it, Mr. Moninger said. The VA's holdings will be viewable through BranchNet, and advisers can manage their subaccounts on a discretionary basis.
“You're talking to new advisers in a different way,” Mr. Moninger added. “It's a commitment on how you think about marketing, a commitment to the integration of data and a commitment to product development in making sure that you're keeping pace with the needs and demands of this adviser.”
For the participating insurers, making the new arrangement work at LPL also means a new tack for wholesaling. At Sun Life, for example, the 30 wholesalers who already promote the traditional VA also will be selling the fee-based version, said Terry Mullen, president of Sun Life Financial Distributors Inc.
Though Sun Life built the fee-based VA at LPL's request, the carrier is talking with other broker-dealers about adding it, Mr. Mullen said. Whether other firms elect to add Sun Life's fee-based product depends on how developed their platforms are.
“More of the work is from a systems perspective,” Mr. Mullen said. “The firms need to make sure they can charge the fees and hold the product on their advisory platform.”
