Unfamiliar With Quirks In Variable Annuity Contracts, Fee-Only Advisors Can Easily Miss Out On A Windfall Hot

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Mark Cortazzo, founder of Annuity Review, a service that helps fee-only advisors evaluate VAs, says some of these “legacy” contracts still have hundreds of millions or even billions of dollars of outstanding and are based on actuarial flubs that sometimes hold enormous benefit for clients. Cortazzo says fee-only advisors can easily overlook a chance to take advantage of an insurance company’s mistake because fee-only are usually unfamiliar with VAs.

Fee-only advisors routinely, almost reflexively, recommend their clients surrender VAs when their penalty period is over because they hold these products in such low regard. High surrender charges and big commissions have given VAs such a bad name that a fiduciary will often recommend cashing out without evaluating a contract. Cortazzo says that’s sometimes a very big mistake because some legacy annuities  offer extremely desirable benefits.

In the video below, Cortazzo talks about a VA manufactured in the late 1990s, when insurers were desperately trying lure cash. The contract allows a policyholder to lock in a death benefit or annuity today that is based on the peak asset value achieved in the account during the calendar year. The contract was issued at a time when no one was willing to bet against the stock market and little value was placed on the guaranteed income stream an annuity would provide. Cortazzo says the VA cited in this case still has more than $1.3 billion outstanding.

This contract is one of more than a half dozen that Cortazzo plans to discuss at Friday’s webinar about how fee-only advisors can help clients evaluate existing annuities.

A4A members ($60 a year) can register for the live session at 4 p.m. on Friday, March 22, for free. The session will qualify for CFP and IMCA CE credit.


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