The Department of Labor’s fiduciary rule has given pause to some financial advisors considering the use of variable annuities with their clients. Will the costs and commissions traditionally associated with VAs put advisors who use them at risk of being seen as not serving their clients’ best interests?
Advisors who worry about the possible liabilities of using VAs might consider seeking out alternative retirement income options that they feel fit better in the new fiduciary landscape.
One such alternative is Real Spend, Horizon’s retirement income and growth solution. Similar to VA sub-accounts, Real Spend offers a series of investment portfolios with different asset allocations. These portfolios are designed to target specific retirement spending rates, with asset allocation targets that range from moderate/balanced (55% equities/45% fixed income) to more growth-oriented (79% equities/21% fixed income). Unlike most variable annuities, however, these Real Spend portfolios come with a management fee comparable to a traditional separately managed account.
In addition, Real Spend portfolios have greater freedom to pursue the long-term growth of clients’ capital than do many annuity sub-accounts. (Because of annuities’ guarantee features, the sub-accounts tend to be invested conservatively in order to protect the insurance companies who sponsor annuities.)