Typically, with an L-Share annuity, you will pay a higher mortality, expense and administration (MEA) fee and likely get a lower return.
Let’s look at a hypothetical scenario:
– $100,000 investment;
– Assumed growth rate of 10% over 10 years, after sub-account fees (but not including MEA fees); and
– You have the choice of:
A Standard Variable Annuity — a 7-year surrender product with a 1.15% MEA fee. This is the MEA fee for the typical 7-year surrender variable annuity recommended through Annuity FYI (without a bonus). Typical surrender schedule: 7%,7,6,5,4,3,2,0%
A Variable Annuity L-Share — the exact same product with a 3-year surrender and a 1.65% MEA (this is the average industry MEA fee on an L-Share). You are paying a premium in terms of MEA fees for the privilege of having a surrender period that is 3-4 years less than the less expensive, standard product. Typical surrender schedule: 8%,7,6,5,0%.
With the 7-year product, after 10 years your account value will be $233,499 (10% growth less 1.15% MEA fees). With the 3-year product, after 10 years your account value will be $222,992 (10% growth less 1.65% MEA fees). Because of the higher MEA fees on the L-Share, your account value would be $10,507 less (4.50% less) than the 7-year surrender product, which is otherwise exactly the same.
Now your financial advisor may have sold you on the idea that the right to withdraw after 3-4 years without a surrender charge makes the L-Share annuity more attractive, but considering that annuities are intended as long term investments, how much value does that right to withdraw after 3-4 years really have? Also, if you intend to hold onto your annuity long term, and your financial advisor was aware of this at the time of purchase, it is likely that the L-Share annuity (versus a standard annuity) was inappropriate for your investment objectives.
So why would a financial advisor recommend an L-Share annuity? Possibly because an L-Share annuity typically pays your financial advisor a higher commission than a standard annuity. If it can be proved that a financial advisor recommended a product for the sole purpose of generating a higher commission, he or she may be in violation of securities regulations.
If you have questions about an L Share annuity or other annuity that you were sold and would like to speak to a securities attorney, please call The White Law Group at 312/238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at www.whitesecuritieslaw.