Even as insurers recalibrate product and compensationdesign to accommodate fiduciaries, and more clients becomeinterested in such products, barriers remain. (Photo:Shutterstock)

Ten years ago, when Craig Hawley, general counsel of JeffersonNational at the time, picked up the phone to discuss what was thenthe insurance industry's seminal insurance product pipeline tofee-based advisors, he often met a tepid response fromfiduciaries.

“The question was how fast they could hang up on us,” saidHawley, who now heads Nationwide Advisory Solutions afterNationwide finalized its acquisition of Jefferson national in2017.

Selling annuities to fiduciaries has traditionally been a circlehard to square for insurance companies.

When Nationwide bought Jefferson National, it did so with an eyeto grow its business with fiduciaries. The latter's MonumentAdvisor program was launched over a decade ago. It offered thefirst investment-only variable annuity that extended tax-deferraloptions for savers that were maxing out 401(k)s and IRAinvestments, while giving advisers a fee-based option and recurringincome stream.

Monument Advisor evolved to an integrated wealth managementplatform, says Hawley, with more than $1 billion in assets cominginto the channel annually.

Nonetheless, fee-based annuities remained a lonely space.Product manufactures struggled to structure products that couldchannel asset-based annual fees. And advisors were leery ofproducts that were perceived as expensive and unnecessary, givenmany advisors' claimed value add of managing money, anddistributions, themselves.

In 2017, sales of fee-based variable annuities hit $2.2 billion,and while the fee-structured products have seen considerable growthof late, they still only account for about 2.7 percent of allvariable annuity sales, according to LIMRA.

That was poised to change under the Labor Department's fiduciaryrule, which favored asset-based management fees over thecommissions typically charged on sales of variable andfixed-indexed annuities. Nationwide cited the rule as one impetusbehind the acquisition of Jefferson National.

But even after the rule was vacated last year, Hawley says themigration to the fee-based advisory model continues.

And as more Americans head to retirement, predictable incomestreams and asset preservation are concepts seeing increaseddemand.

“Income guarantees are resonating with more Americans,” saidHawley. “And a lot of investors are just not interested in takingon unlimited market risk in retirement.”

The secular trend to fee-based models has motivated theNationwide Advisory Solutions launch of Nationwide AdvisoryRetirement Income Annuity, or NARIA, a variable annuity with anoptional income guarantee that's targeted specifically forfiduciary advisors wanting to integrate income products within aholistic investment plan.

“NARIA allows advisors to bridge the gap for their clients,”said Hawley. “Advisors can say, 'we're still looking to grow yournest egg, but if things don't go right, there is a guaranteed levelof future income.”

Fiduciaries fall across a continuum and are hard to put in abox, says Hawley. Some market themselves as money managers, andsome outsource those responsibilities; some are buy-and-holdmanagers, and some more actively manage savings.

NARIA includes 130 different mutual funds from which advisorscan build a strategy. Annual advisory fees can be up to 1.5percent, but Hawley expects they will fall closer to 100 basispoints. Investment principal is protected, and a death benefit canbe purchased at the time of application for a charge of 15 basispoints on its value, according to annuity's prospectus.

Adviser fees are withdrawn from the contract, which do reducethe gross value of the annuity, but do not reduce the benefit basethat determines income streams, the prospectus also says.

That feature distinguishes NARIA, said Hawley. “The fee an RIAwould pull doesn't take away from the benefit base guarantee. Inthe past, products haven't done that.”

As registered advisers, many RIAs have strayed from annuityoptions because they're not licensed to sell insurance. To settlethat obstacle, Nationwide Advisory Services offers an in-houseagency desk that can transact the sales. Advisers who worry theirclients would be cherry-picked shouldn't—Hawley says that wouldamount to Nationwide shooting itself in the foot. Nationwide doesnot charge a fee for brokering the sale.

“We have an established track record of trust,” he said, notingNationwide's existing relationships with more than 5,500 RIAs.“We're empowering a portion of advisers' businesses, not trying tobuild relationships with their clients.”

Other insurers are looking to grow distribution through the RIAchannel, which manages $2.5 trillion in assets. Jackson National,the largest annuity provider, recently rolled out its firstfee-based products through DPL Financial Partners, a third-partyplatform for fee-based annuities launched last year.

Even as insurers re-calibrate product and compensation design toaccommodate fiduciaries, barriers remain. Hawley cites researchshowing two-thirds of advisory clients are interested in retirementincome products, while only one-third of advisers say they will usevariable annuities in the future.

Some of that dissonance falls at the feet of carriers, saysHawley.

“In the past, the insurance industry has missed the target onretirement income,” he said. “We have home owners insurance we hopewe never have to use, but if a tornado comes around, we're glad wehave it. Running out of money in retirement is even scarier.Industry hasn't done a good job of painting the annuity picture inthat way.”