ING plans to replace its traditional variable-annuity offering with a simplified product that comes with a scaled-back commission.
The company will stop marketing its traditional variable annuity in March. At that time, it will release a new product that will pay a level commission of 75 basis points, according to Bill Lowe, head of distribution at ING Financial Solutions.
That is below the typical 1% commission that a financial adviser would get with other traditional variable annuities with a trail commission, he said.
ING's simplified variable annuity, with its lower commission, could prove to be a mixed bag for advisers.
At first glance, a cheaper fee would seem to mean less money for advisers and agents. But the reduced fee might actually generate more sales.
Certainly, clients — and a fair share of advisers — have been turned off by the recent spike in VA fees. With fees for traditional variable annuities now as high as 3% to 4%, the traditional pricing model may disappear, Mr. Lowe said.
“High fees create pricing difficulties due to fee drag,” he said. “We think the model would be difficult for us to sustain based on the fee levels.”
Indeed, the financial crisis turned variable annuities into something of a millstone for many life insurance carriers. Since then, carriers have increasingly pulled back on the features bundled with variable annuities.
They have also reined in market risk by offering tamer investment options.
With fewer bells and whistles, these new, stripped-down annuities generally charge lower fees and reduced commissions.
“We think this is a new direction the market will take,” Mr. Lowe said.
ING's new product will have a five-year surrender period, but policyholders can begin receiving income immediately. The new annuity also boasts a feature that hikes income as policyholders age.
Still, the limited options in the new crop of simplified variable annuities may have some advisers seeking out other investment vehicles for clients.
E-mail Darla Mercado at [email protected].
