An annuity comes in many forms, but a simple definition is that an annuity is a contract that converts a sum of money into a series of periodic payments for an agreed upon period of time. An annuity can be thought of as a financial vehicle that converts a pool of money into a stream of income. Annuities are most useful in addressing the financial planning needs of people in or approaching retirement. Annuities are unique in the financial world because they can provide protection against the risk or outliving one’s assets (longevity risk) by guaranteeing income payments in perpetuity or any other selected amount of time. Annuities can be viewed as a type of personal pension plan. Social Security is similar to an annuity in that money contributed over the course of one’s working years is converted into a series of periodic payments that provide income during retirement.
A fiduciary is someone who is legally required to act in the best interests of their customer. This means that your financial well-being is the number one priority for a financial advisor who is a fiduciary.
Some—but certainly not all or even most—financial advisors are fiduciaries.
Retail financial advisors are generally compensated through fees, commissions, or a combination of fees and commissions.
Any financial advisor who sells an annuity and receives compensation for that sale is going to be acting as a licensed agent on behalf of the company whose product they are selling.
This financial advisor may be involved in activities that range beyond annuity sales such as fee-based investment advising, but they will be acting as an agent when they sell the annuity.
All annuity sales require an insurance license, and some require both insurance and securities licenses. Licensing is not a huge challenge, but there is time, effort and cost involved in the process.
