There is way too much dogma surrounding annuity commissions. The commission argument against annuities is most often posed by registered reps, or investment advisor reps who stand to gain by keeping money out of annuities. In the spirit of fairness, I compared the commissions for annuities in general against the fees that would be earned by an advisor charging an AUM fee and came to a simple conclusion: the "annuities are bad because they pay high commission" argument simply needs to be retired.
In theory, it seems like such a great idea. The greatest fear of a retiree is living longer than expected and/or outliving his/her money. Only slightly less worrisome is the similar risk that the retiree lives so long that inflation erodes wealth and income to the point that the retiree can't maintain his/her standard of living. Yet there is a single financial services product that tackles these two fears head-on, with rock-solid guarantees (at least as long as you buy from a strong company): the inflation-adjusted immediate annuity. Or for those who are a little older with a shorter time horizon (where inflation is less of an issue), the even-more-widely-available traditional immediate annuity. But despite the apparent "perfection" of the solution to address the problem, immediate annuities are just a tiny fraction of overall annuity sales, and most clients are completely unwilling to put any money into them. So what's the deal? If immediate annuities are such a great solution, why doesn't anyone want to buy one?
Annuity owners sometimes wish to make a change to a portion of their annuity holdings without facing adverse tax consequences - and under current law, this can be accomplished by exchanging part of the existing annuity for a new contract on a tax-free basis.
However, the recent private letter ruling 201038012 from the IRS may have unintentionally expanded the flexibility of partial annuity exchanges to the point that they might not just be used, but could be abused as well.
