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John Nowicki. Credit LCM Capital

Life Health > Annuities > Fixed Annuities

Advisor: DOL Rollover Fee Disclosure Plan Would Hurt Annuities

By Allison Bell

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An investment advisor who is skeptical about annuities predicts that the Labor Department’s rollover fee disclosure proposal will hurt annuity sales.

John Nowicki, president of LCM Capital Management, a Chicago-based registered investment advisor, welcomed DOL efforts to have financial professionals create comprehensive rollover assessments when helping clients who are thinking of moving assets out of 401(k) plans or individual retirement accounts.

“I’ve been in this business for 36 years,” Nowicki said. “I have never sold an annuity to a client, even though I am licensed to. The reason: I could not find someone foolish enough to say, ‘Hey, John, this is a great investment’ after I explain all of the fees, surrender charges, tax implications and nuances of an annuity.”

What it means: Some advisors have warmed up to annuities, but others continue to be unimpressed. Those advisors will be part of the annuity sales standards conversation.

The background: The DOL’s fiduciary rule update proposal would set new disclosure requirements for retirement professionals helping clients with 401(k) plan asset rollovers.

If a life insurance agent wanted to recommend an annuity, the agent would have to show the annuity alongside alternatives, including the option of leaving the assets in the 401(k) plan.

The comparison would have to give the costs associated with each option.

Advisor’s perspective: At LCM Capital, Nowicki has focused on cutting clients’ fees and taxes.

Annuity supporters say issuers charge extra fees to cover the cost of providing guarantees and persuading people to save for retirement.

Nowicki rejects arguments that the guarantees or marketing efforts justify extra charges.

“We have gotten a lot of people out of their annuities by simply explaining to them what exactly they were sold, its costs and what exactly they own, and every single one of them has said, ‘This was never explained to me,’” Nowicki said.

Annuity sellers might shy away from showing the cost of leaving a client’s assets in the employer’s plan, because annuity fees will almost always be higher than the 401(k) plan fees, Nowicki said.

The 2020 comments: Nowicki’s comments reflect the arguments that some financial services groups made when the Labor Department was considering Prohibited Transaction Exemption 2020-02, a 2020 regulation that affects how insurers and RIAs advise rollover clients.

The CFA Institute, for example, said DOL officials should get tougher on advisors and ban the use of sales commissions altogether.

John Nowicki. Credit LCM Capital

Allison Bell

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