The Future of RIA Annuity Distribution Has Arrived: David Lau

Like any big trend, there are pros and cons to it. So in some ways, it’s helping to professionalize the industry a little more in creating larger companies that are built on scale, and I think that’s very helpful.

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But, we also have to be realistic about private equity. They’re coming into this space and bringing in new resources and opportunities because they see an opportunity for profit. In general, though, I think it’s a positive new development for the RIA industry.

Can you describe how advisors are engaging with your platform to distribute annuities more effectively?

The big picture is that we serve the traditional RIA who has always been fee-only and has never accepted commissions. By virtue of that, they’ve really not been insurance users, historically.

They might recommend a term life policy to somebody or, very rarely, a basic SPIA annuity — meaning an income annuity. But overall, our clients have historically been very, very light on insurance. What we do for them is basically open up share of wallet. We make is so that annuities and insurance are billable assets in a fee-based or a fee-only practice.

Before, if you wanted to recommend an annuity as a fee-based advisor, you were essentially going to lose assets under management and potentially lose revenue. As you can imagine, that’s a pretty major financial conflict, and I think it’s a big reason why many fee-based advisors haven’t embraced annuities. It’s always been about compensation.

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We also work with hybrid advisors who have moved a lot of their business to a fee-based approach, but they’re still using annuities primarily on the commission side. So they maintain some sort of broker-dealer affiliation. We can help them move beyond that structure. We give them the ability to migrate that part of their practice to fee-only, as well, and everybody wins in that circumstance.

The clients get a far lower-cost product. The advisors [are] getting recurring fee revenue rather than one-time commissions. It should also be mentioned that, for those who’ve never looked into commission-free insurance products, you’re generally lowering the cost of an annuity product by 80% or so. It’s a massive cost reduction.

It also opens up new markets for the insurance carriers, right?

Yes. As you know, for the insurance carrier, one of the things that’s a challenge for them in the traditional commissioned world is the turnover and churning within the products.

So, let’s say a traditional commission product has a seven-year surrender period. We all know that, seven years and a day later, the commission salesperson needs to get paid again, so they’re taking action and recommending new products. That’s not great for the carrier and the duration of assets in their products.

In this fee-based world, as a carrier, you can also expect longer duration assets. Advisors are going to keep the money with you in the product longer — as long as it’s competitive — because there’s no financial reason for them to move it.

What types of annuities or insurance products seem to be most popular on the platform heading into 2025?

Honestly, it’s kind of all across the board.

When I first started DPL, the product type that we saw most used, which makes sense, was the investment-only variable annuity. That’s basically what I had built at Jefferson National. It’s a low-cost variable annuity with no bells and whistles, and it resonates with planning professionals for that reason.

Fast-forward to today, and investment-only variable annuities represents a small part of sales today — maybe 5% to 8% in a given year. Now, it’s more about products designed for income, designed for tax-deferred accumulation or designed for principal protection. Overall, fixed-indexed annuities are the product that represents about half of the volume we do across the platform.

I want to highlight that we are product agnostic. We are not promoting a particular product or a particular carrier. Instead, our software does the analysis and is just reflexively asking advisors: “What is the specific problem are you looking to solve? Do you want lifetime income? Principal protection? Tax-deferred growth?”

Behind the scenes, we have digitized thousands of annuities, tens of thousands of riders and hundreds of thousands of price points. So, we can then find the most efficient product to meet the expressed need. The truth is that the product type and the carrier are essentially secondary to the way we think about doing business.

Something else I want to spotlight is that everybody in the RIA space tends to think about annuities as that longevity insurance hedge — and that’s an important capability. If I’ve got a client who might run out of money, you’ll think about buying an annuity.

But actually, I would argue that the primary reason you should think about an annuity is because it will generate, basically, more income per dollar than your traditional fixed income investments. The academic research is clear that, generally, you can derive more income for fewer assets and have more assets for discretion and growth within a financial plan when an annuity is included. So, they’re generally going to improve outcomes within a financial plan. I think that point is often undersold.