An important aspect of going RIA is understanding exactly what the different business models and fee structures are, so you can be ready to best serve the interests of your clients, as well as fully maximizing your revenue streams.
One such fee structure relates to annuities. David Lau, founder and CEO of DPL Financial, says fee-based annuities offer benefits such as generating income and provide structural advantages, like risk pooling and tax deferral.
“You can’t organically manufacture that as a financial advisor,” he says.
Lau points to some of the largest asset managers in the world, like Blackrock and State Street who have been putting annuities into their target-date funds, simply because “annuities are really good at generating income.”
“When these asset managers are acknowledging that fact and bringing annuities in for income and in their own products, that has to speak to the individual advisors and firms who think they can do it themselves, when the largest asset management companies in the world can’t even do it by themselves,” Lau said.
The reason Lau thinks it’s valuable for an advisor to bring in annuities, particularly in retirement plans, is the efficiency of income that is generated by an annuity. At its core, he explains, $1 put into an annuity is going to generate more income than $1 put into a fixed income investment.