Jefferson National passes the $1 billion mark selling annuities to the advisors who 'hate' them most
The insurer's pared down, flat-fee product garners praise through gritted RIA teeth
6 min read- Jefferson National surpasses $1B in VA sales by targeting fee-based RIAs.
- RIAs favor Jefferson National's low-cost, commission-free variable annuity.
- Flat-fee structure and stripped-down features drive appeal for cost-conscious advisors.
Brooke’s Note: Lisa did some interesting interviews with advisors who use annuities in spite of themselves. Maybe this is one of the first-ever interesting annuity articles.
Jefferson National recently passed a billion dollars in variable annuity sales by catering to RIAs who usually dislike — if not loathe — VAs but are attracted to the insurer’s low-cost, stripped-down version of the product.
RIAs say Jefferson National’s Monument Advisor VA is appealing because it is not stuffed with commissions and doesn’t have the bells and whistles — such as living benefit guarantees — that often bloat the costs of a typical VA.
The Louisville, Ky.-based firm charges a flat $20 monthly fee, regardless of the annuity’s size. The average policyholder has a $200,000 account and pays 12 basis points in insurance charges. Mutual funds and management fees can vary but average about 50 basis points.
Jefferson National was formerly a unit of Conseco (now CNO Financial Group, Inc.) It was acquired in 2002 by a group of investors and began offering flat-fee VA in 2005.
Larry Greenberg: Everyone told us we
were crazy.
“For us, getting more than a billion in sales is a milestone confirming that when you change the dynamics of the VA in terms of how it is offered you can get a distribution force of fee-based advisors who can understand the value and adopt it,” says Laurence Greenberg, president of Jefferson National. “When we started it, everyone told us we were crazy.”
RIA sweet spot
In the world of variable annuity sales, Jefferson National is unquestionably a small but growing player. VA sales nationwide hit $8.8 billion in the third quarter, according to fund-tracker Morningstar, Inc. of Chicago, up from $6.4 billion a year ago.
Currently, Jefferson National has 1,500 RIAs and financial advisors using the product. Greenberg says that company expects to hit a record of more than $250 million in sales this year — more than double the $100 million in sales it got in 2006, the first full year it offered the product. See: Study: Variable annuity providers show some gains in tackling RIA market
Although hybrid advisors make up a portion of Jefferson’s VA base, Greenberg believes the product growth has come from marketing efforts to fee-based advisors whose new clients are already carrying expensive variable annuities.
Study: Variable annuity providers show some gains in tackling RIA market
Patrick Gingras, a financial advisor with Essex Financial Services Inc., a $3.5 billion RIA with 1,200 clients, recently began using Jefferson National’s VA.
“In most cases we’d prefer not to be in an annuity, period. But you’ve got to work with the hand you’ve been dealt,” he says. “We have been able to reduce clients costs dramatically.” See: The ABCs of doing due diligence on fixed income annuities
Greg Aloia: It’s really cheap.
Gingras doesn’t use this product for existing clients but says he’ll likely transfer about half a dozen VAs in any given year.
“Even though this one still has a long list of funds, you’re still restricted to the investments,” he says.
Jefferson National’s variable annuity has more than 350 funds, including popular Dimension Fund Advisors. The company just added 23 new investment options including BlackRock, PIMCO, and OppenhimerFunds. See: With tax deferral at a rising premium, DFA forms a deal with an annuity company focused on RIAs.
A nice price
Story Timeline
Affordability is another key to the success of Jefferson’s variable annuity.
Greg Aloia of Abacus Wealth Partners looked at competitors’ VAs but likes Jefferson National’s low-cost product because clients are charged a flat fee regardless of assets.
“We periodically look at the low-load products in the marketplace. We like Jefferson national because it’s so inexpensive. It’s really cheap,” he says.
Abacus is based in Philadelphia and its RIA manages about $600 million in assets. to him.
What ex-E*TRADE CEO Mitchell Caplan says emboldened him to lead an $83 million management coup of Jefferson National
Learning to love — or at least like — VAs
There’s no question that variable annuities have a bad reputation among RIAs, but one saving grace is their tax-deferred status.
It’s important to advisor Todd Brand, CEO of Brand Asset Management Group, which manages more than $315 million in assets in Chesterfield, Mo.
Brand has a few physician clients who earn $1 million annually in revenue and have tapped out all of their tax-deferred savings through workplace retirement accounts and Individual retirement accounts. VAs give them another opportunity to save in a tax-deferred manner.
“I tell every prospective client that I hate annuities and they’re my least favorite structure out there, but if you don’t have any other place to hold something in a tax-deferred category, then we don’t have a choice,” he says.
But Brand points out that many of the attributes he hates about variable annuities aren’t in Jefferson National’s product.
“That’s the sex appeal of their offering is that they don’t have all of these other options that the others have,” he says.
Todd Brand: I hate annuities but
if you don’t have any other
place to hold something in a
tax-deferred category, then we don’t have
a choice.
“If you talk to an RIA and mention a variable annuity they’ll run in the other direction,” Greenberg says. “We tell them that there’s a different form of a variable annuity and when they listen they often like what they hear.”
'A real taint’
But no matter how you package a VA, many clients simply despise them, says Glenn Frank, partner and director of Investment Tax Strategy of Lexington [Mass.] Wealth Management, an RIA with about $500 million in assets, who began using Jefferson National’s VA about eight months ago.
Frank, who teaches a course on personal portfolio management at Bentley University in Waltham, Mass., utilizes a variable annuity calculator before he makes the decision to use a VA.
“I figure out what situation and at what prices it is worth to buy the tax deferral,” he says. “I take a really hard look at each client.”
Because of the negative perception of annuities, Frank spends a great deal of time talking about the costs of this product to clients.
“There’s a real taint to annuities,” he says. “Even though it can be a great thing for your clients, it has a negative impact. The red flags go off and deservedly so because it’s a national atrocity what some people are doing with variable annuities.”
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