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Another reason advisors turn to annuities


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  • A survey by DPL Financial Partners found that advisers use annuities in part because they make little money on bonds.
  • They don’t charge their usual fees on fixed income assets because those assets earn less than 1%.
  • Some advisers use dividend paying stocks instead of bonds, which increases portfolio risk.

Beyond the usual reasons given to explain the growing use of annuities among financial advisers, including an aging population, the expansion of commission-free products and low bond yields is a little-known development that DPL Financial Partners discovered in a recent survey of advisers: they earn little or no money on fixed income assets.

According to the survey, “well over a third of respondents said they charge reduced fees on fixed income assets or no fees at all,” leading some to invest their clients’ capital more in riskier assets such as dividend-paying stocks and bonds rated with higher yields.

“Asset allocation or product choices may be guided by factors other than the best interest of the customer,” the survey says.

David Lau, CEO of DPL, explained that some advisers have excluded bonds from total assets subject to their usual charge of 1% on assets under management because many of those assets do not even earn 1%, which at better, clients would earn nothing on that allowance or at worst, actually cost them.

What is most important to clients, according to Lau, is “predictable income, and bonds can no longer provide that.” This creates billing issues for advisors and revenue issues for clients.

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