With the economy weakening and the stock market faltering, investors are moving out of the stock market and seeking refuge inside annuities. Morningstar reports that investors withdrew $50 billion from stock mutual funds in the 12 months through April of this year. LIMRA reported that sales of variable annuities in the United States increased to $39.8 billion in the first quarter compared to $32.2 billion in the same period in 2010.
The problem is that investors generally have no idea how much they are paying for these insurance products. According to Morningstar the average fees for variable annuities are 2.51%. Many buy a rider that offers guaranteed minimum payments. These riders cost 1.03% on average. So, investors who buy these products can end up paying more than 3.5% in expenses.
These expenses are a significant drag on the performance of variable annuities. If the sub accounts inside the annuity earned an average of 8%, the return after fees would be 5.5%. In addition, income received from an annuity is taxed as ordinary income.
Some investors would benefit from including a variable annuity in their portfolios. But the fees make them unattractive investments for most investors.
For those who wish to sell variable annuities, insurance products and mutual funds, you must hold a Series 6 license. This requires you to take a Series 6 course to get licensed in this field. This course covers topics like mutual funds, variable annuities, retirement plans, insurance products, investment policies, securities markets, securities regulations, and customer orders.
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