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 Â½
- 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