Variable Annuities vs. Mutual Funds

In a nutshell, a variable annuity is a tax deferred mutual fund. Income taxes are deferred on earnings until withdrawals are made. Allowing an investor to realize the "power of tax deferral".

Annuities are more important when investment managers trade frequently, lowering trading costs a eliminating the negative tax effects of buying and selling mutual funds.

Until recently, mutual fund wrap programs have been the vehicle of choice for most wrap managers. Unfortunately, high trading costs and negative tax effects (capital gains and losses when trading between funds) have lessened their appeal.

A new and promising investment vehicle has been introduced recently, called a "variable annuity wrap", in which your money is allocated to various brand-name mutual funds within a tax-deferred wrapper. Eliminating the negative tax effects and high trading costs associated with mutual fund wrap programs. At first, these programs were far from ideal; most forcing you to invest your clients' money in the provider's proprietary funds with limited downside protection and high expenses.

Within the last few years, though, variable annuity wrap programs have been expanded to include well known outside fund managers, multiple income and withdrawal options and expanded downside protection options. Security Benefit Group, for example, provides access to more than 45 funds in 8 different fund families with 17 different rider features. "The most flexible contract in the industry".