How do Annuity Salesfolks get paid their commission?

How do Annuity Salesfolks get paid their commission?

As a general rule, annuity commissions are paid by the insurance companies that manufacture annuity products. A product sale usually must take place in order for the commission to be paid.

Commissions are not paid directly by the consumer. That said, commission payments are an expense to the insurance company so they will ultimately be reflected in the final or "retail" cost of the product to the consumer.

This is the case with almost all insurance products. Commissions are considered part of selling, general and administrative expenses and the cost is ultimately embedded into total product costs and passed along to the consumer.

All of the above said, there are some types of financial advisors who work purely on a fee basis and will not accept any form of compensation--such as commissions--associated with product transactions. To learn more about these types of fee-based or fee-only advisors, take a look at both of the following article:

Costs are an absolutely critical part of any financial decision, and the selling costs associated with annuities can be very high. You should ask your advisor or company to disclose the commission levels associated with any product you might be considering.

Keep in mind, though, that annuities are insurance products. As a result, their expense structure is going to be completely different than a mutual fund or index fund.

Actually, how is this payment process that different from how a stockbroker or other types of "financial advisors" make a living?

It's a great point.

There is often so much focus on the costs associated with annuity sales.

The reality is that there is really no free lunch--there are costs associated with the manufacture and sale of any financial services product.

Even fee-based financial advisors have costs that are hourly or based on assets under management.

The key differences are:

a) the level of those costs.

b) whether compensation is tied to the product transaction as it is in the case of a commission. This type of arrangement has the potential to affect advisor objectivity.

Stockbrokers and insurance agents who sell annuities are similar in that they are both paid when they sell products to consumers. On the other hand, fee-only advisors are paid to provide unbiased advice.