Nationwide Mutual Life Insurance expects to launch a variable annuity with that will shift funds into some fixed income account when equity markets decline. The Investment News article does not provide many details, but those cited are illuminating.
The provision is expected to be included in contracts carrying a living benefit provision. The article notes that Nationwide provides a growing living benefit and that the company had increased the growth rate from 5% to 5.25% in 2010. Nationwide attributes its 32% growth in 2010 to the increase.
Now Nationwide will take discretion to move assets from an equity fund into a fixed account. This is being advanced as a benefit claiming that "dynamic allocation stabilizes your account balance (in times of volatility). A steep drop in account balances is unnerving to the client."
Well now! Isn't that the reason to invest in a variable annuity? The fees charged by VA contracts have been justified by the "death benefit" and the guaranteed income provisions. This discretionary power now limits Nationwide exposure, but it will also lock in client losses and may prevent the client from realizing any gains from subsequent market increases.
Unless the fee structure of the contract is reduced, the value of the contract is impaired. Advisors should be very careful in evaluating whether clients are still receiving value for their money in this variable annuity.
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