Brokers Stay Away From New VAs Because the Money's Not There

Companies are offering new "slimmed-down" versions of variable annuities, but don't expect your broker to offer them to you. They don't make as much money with these versions.

These new products offer simple investment choices (such as low-cost index funds) and fewer investment choices inside the annuity. They also offer plain-vanilla benefits. However, Investment News noted that, "It seems that the products' lower price tags and lower commission rates -- coupled with fewer investment choices -- are the chief reasons for the lack of broker enthusiasm."

One advisor even admitted it: "We can deny it all we want, but sales are commission-driven. When you slash commissions, you feel the impact."

In my book The Only Guide to Alternative Investments You'll Ever Need, I discuss why variable annuities belong in the "bad" section. Among the problems are:

• The conversion of low-taxed capital gains into more highly taxed ordinary income
• The lack of liquidity, the early surrender charges and the tax penalty for withdrawal before age 59 ½
• The loss of the potential for a step-up in basis for the estate of the investor
• The inability to harvest losses for tax purposes
• The inability to donate appreciated shares to charity
• The loss of the foreign tax credit