Commission-free annuity sales trend remains strong, says DPL founder

Annuity sales enjoyed back-to-back record years in 2022 and 2023, as memories of 2022’s stock and bond market carnage lingered in investor’s minds. Whether those fears – and the sales streak – will end in 2024 in response to the rampaging bull market and step-up in bond yields remains to be seen.

That said, one trend that will remain intact, says David Lau, CEO of DPL Financial Partners, is the move toward commission-free annuities.

Individual annuity sales in the US reached a record $385 billion last year, up 23 percent from the prior record of $312.8 billion set in 2022, according to Limra. The new record can principally be attributed to a spike in sales for the biggest product category, fixed-deferred annuities, which at $164.9 billion climbed 46 percent last year.

Lau’s DPL Financial Partners is a privately held financial services firm that specializes in the development and distribution of low-cost, commission-free insurance and annuity products. Last year Lau's firm saw his commission-free product line reach its own record of more than $1 billion in sales, more than doubling its 2022 total.

“Annuities have forever been commission-driven, which is a problem in many different directions,” he said. “It means fiduciary advisors who bill on fees really can't use them. It means higher costs and complexity for consumers. So we're moving the commission, creating a far better-priced product and enabling fiduciary advisors to use them in their practice for the first time.”

Prior to founding DPL in 2014, Lau served as chief operating officer and architect of Jefferson National, a leading insurance carrier focused on RIAs and fee-based advisors. Earlier in his career, he helped build ETrade Bank and its predecessor Telebank, which was the nation’s first internet bank.

As for the notion that DPL is simply baking those fees into the product, as opposed to taking them off the top, Lau says that is entirely not the case. He likens his sales strategy to that used by mutual funds that go from A shares to I shares, or an institutional share class.

“You're taking out that distribution cost that's baked into the product, in other words, where the commission the consumer is paying is more year-in and year-out as long as they own the product,” he said. “You are removing those fees. And by doing that, then you're enabling an advisor to use them in their practice because they are now billable AUM like any other product.” 

Keeping those assets in-house and under management as opposed to shipping them off elsewhere is certainly enticing to advisors. Getting those advisors to trust the process, however, remains a challenge, but one that Lau says he is gradually overcoming.

“The big value proposition we drive for a financial advisor is we help grow the practice, we're bringing in held away assets,” he said. “We're enabling them to more holistically serve their client by bringing in insurance products and not just asset management products.”

Helping his crusade are advances in technology, which is a big part of the education that DPL provides its customers. Advisors want to make sure they can see those annuity assets on their desktops, and unless they can do that, many simply won’t bite.

“One of the really powerful things we do is bring product discovery technology to help you find the right product for your client. It's a technology that you don't need to know anything about annuities to use,” Lau said. “You tell us the client problem you're trying to solve and we'll give you the outcome for the best product.” 

Right now, clients are still demanding guaranteed steady payouts to get them to – and through – retirement. Of course, they may change their approaches going forward considering the S&P 500 was up 24% in 2023. Fund flows do tend to follow performance.

Still, Lau doesn’t see the switch happening that soon, given that memories remain long and vivid about the 2022 sell-off. Furthermore, because the commission has been eliminated, he can offer higher payout rates because the carrier has the ability to give those distribution fees back to the buyer.

“We can provide an income guarantee for life that can reach double digits,” Lau said. “That's a tough thing to compete with as a financial advisor. You want to bring that into your practice.”

Finally, he believes a potential update in the DOL fiduciary rule will provide an even greater stimulus for his burgeoning no-commission annuity business.

“A client shouldn't have to worry about whether a financial advisor they're speaking to is actually acting in their best interests,” Lau said. “Short of a rule like that, there will be some gray area around 'who's an advisor?' and 'who's a broker?' So we think that's going to be one of the catalysts that really helps vault the business.”