Trending
Fee-based buffered annuities have emerged as an innovative financial product, blending market participation with downside protection. These annuities, also known as registered index-linked annuities (RILAs), are designed to appeal to investors seeking growth potential while mitigating some of the risks associated with market volatility.
Unlike traditional commission-based annuities, fee-based buffered annuities are sold through registered investment advisers (RIAs) who charge a flat, ongoing annual advisory fee. This fee is typically calculated as a percentage of the underlying value of the annuity contract.
The defining feature of these annuities is the "buffer" they provide against market losses. The insurance company absorbs a certain percentage of losses, often 10% to 30%, while the investor bears any losses beyond that point. In exchange for this downside protection, these annuities cap the potential gains an investor can receive, with caps ranging from 10% to 35%. If you desire more downside protection, then the trade off is a lower cap.
Buffered annuities offer several potential benefits, including downside protection, market participation, and increased transparency due to their fee-based structure. However, they also come with important considerations. These products can be complex and difficult for investors to fully understand, particularly the interplay between buffers, caps, and market performance. As with any financial product, it's crucial for investors to thoroughly understand the terms, potential risks, and how these annuities fit into their overall financial strategy before making a decision.
Disclosure: Annuities are intended to be a long term investment. Withdrawals may be subject to income taxes and prior to age 59 1/2 may be subject to a 10% federal penalty tax. Contingent deferred sales charges may apply depending on the annuity contract. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company.
Related: Tax Planning Isn’t Tax Preparation