To attract more financial fee-based advisers, Fidelity Investments’ life insurance arm has cut fees on its Fidelity Personal Retirement Annuity. Fees on the variable annuity will be cut to 0.25 percent from 0.35 percent of assets for both existing and new customers, Fidelity announced on Tuesday. New customers who invest $1 million or more in the annuity will pay 0.1 percent of assets.
The fee cut will make Fidelity’s product cheaper than Vanguard’s similar offering, which charges 0.30 percent. However, investors will still have to pay fees on the underlying funds that the annuity is invested in. By that measure, Vanguard, on average, is cheaper because that annuity is invested in exchange-traded funds rather than higher-cost actively managed funds, according to Frank O’Connor, director of insurance solutions at Morningstar Inc.
Fidelity is hoping to attract more fee-based advisers, who charge a fee on a client’s overall assets rather than earning commissions for selling particular investment products.
Traditionally, fee-based advisers have been reluctant to buy annuities because of the large commissions involved, but the Fidelity annuity is commission free said Jeffrey Cimini, president of Fidelity Investments Life Insurance Company, in an interview.
“It’s not immediately evident to fee-based advisers that there is a no commission way to do insurance business,” said Cimini. Still, fee-based advisers as a whole only make up a small percentage of annuity buyers and many are put off by the product’s reputation for being expensive and complicated, said O’Connor.
“A lot of fee-based advisers don’t care about the cost structure. They just don’t want to talk about variable annuities with their clients,” said O’Connor.
The Fidelity annuity, which does not have any guaranteed benefits, is targeted at investors who want to increase their investments in tax-deferred accounts, but may not have access to traditional 401(k) plans or have contributed the maximum amounts permitted to 401(k) or IRA accounts, said Cimini.
