If you’re shopping for an annuity, it’s smart to ask one question upfront: “How does the advisor or agent get paid?”
Because the way someone gets compensated can influence what they recommend, even when they mean well.
In this article, I’m going to break down the most common ways financial advisors and insurance agents get paid when you buy an annuity, what those costs really mean for you, and how you can protect yourself from being steered into the wrong product.
Need help choosing the best annuity for your unique situation? Have questions about getting an annuity? If so, it’s best to speak with an annuity specialist. Watch this short video to see how I can help you do this (at no cost to you!)
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The Two Main Ways Advisors Get Paid on Annuities
When it comes to annuities, compensation typically falls into two categories:
- Fee-based compensation (ongoing annual fees)
- Commission-based compensation (paid by the insurance company)
Some advisors only use one model. Some use a mix of both. And sometimes (and this is important) you can be paying fees and the advisor still earns a commission.
Let’s walk through each.
1) Fee-Based Annuities: You May Pay an Ongoing Annual Fee
If you’re working with a securities-licensed advisor (often someone who manages investments and charges an annual advisory fee), they may recommend annuity products that carry ongoing fees.
This is more common with certain annuity types, especially variable annuities, where multiple layers of fees can stack up, such as:
- Advisory fee (what the advisor charges for managing the account)
- Underlying fund/sub-account fees (like mutual fund expenses)
- Optional rider fees (like an income rider)
In some cases, those total fees can be substantial. I’ve seen examples where the combined cost can get extremely high… even up to 6% per year in certain structures.
That doesn’t automatically mean the product is “bad,” but it does mean you should understand exactly what you’re paying and what you’re getting in return.
👉 Want help comparing annuity options with and without fees? Schedule a call with me here.
2) Commission-Based Annuities: The Insurance Company Pays the Agent
The other common model is commission-based compensation, which is how insurance agents (like me) are typically paid.
Here’s the key point many people misunderstand:
The commission is paid by the insurance company, not deducted from your deposit as a separate line item.
So if you put $100,000 into a fixed annuity or MYGA, you don’t see a “commission charge” taken out of your account.
Now, does that mean compensation doesn’t matter? Of course it matters — because commissions can create incentives. But the payment source is different from an ongoing advisory fee model.
For simpler fixed products like MYGAs (Multi-Year Guaranteed Annuities), commissions often range around 1% to 3%, depending on the carrier and the term length.
Why Compensation Matters: It Can Change What You’re Offered
This is where consumers can get burned.
If two annuities both “sound good,” but one pays the advisor a lot more, it can be tempting (for the wrong advisor) to steer you into the higher-paying option, even if it delivers less value to you.
That’s why I tell people:
Do your research first. Then talk to an advisor.
Because when you already know what’s competitive, you’re harder to manipulate.
Real Example: Same $1,000,000 = Very Different Income Outcomes
Let me give you a real-world style example I often show clients.
Say a married couple wants to take $1,000,000 and delay income for five years because they want the highest lifetime payout possible.
On the top end, you might see a product that pays around:
$100,000 to $105,000 per year for life
That’s serious income.
But if I scroll down and look at other products, I might find an option paying: $89,500 per year.
Here’s the problem.
Some of the lower-income options can pay higher commissions… like 9% to nearly 10% !! The advisor gets paid more even though the client gets about $15,000 less per year in lifetime income.
Think about what that means.
You could give up roughly $15,000 per year for life just so the advisor makes more upfront.
That’s exactly the kind of situation that causes people to call me later and say, “I don’t think my advisor put me in the best annuity.”
And unfortunately, it’s common.
👉 If you want someone to help you compare the highest-income annuity options objectively, schedule a call here.
“Immediate” Annuity Example: Even Small Differences Can Matter
Let’s say instead of delaying, you want immediate income.
You might see something like:
About $67,000 per year on $1,000,000 (depending on age, options, and carrier)
And you might notice two products that look similar, but one pays the agent 6.5% and another pays 7%.
A bad advisor might nudge you toward the one that pays more.
A good advisor shows you the payout differences and lets your goals drive the decision.
Because the best annuity is the one that delivers the best result for you, not the one that pays the best for the advisor.
MYGAs: “CD-Style” Annuities and How MYGA Commissions Work
MYGAs are the insurance-world version of a CD: fixed rate, fixed term, predictable outcome.
Most MYGAs range from 2 to 10 years (occasionally longer terms show up in certain states, but often with lower yields).
In many cases, the most competitive MYGA terms tend to be:
- 5-year
- 7-year
- 10-year
Now here’s something most people don’t realize:
MYGA commissions can vary a lot.
Some pay around 1%, others closer to 3%, depending on:
- The carrier
- The term length
- The state
- Sometimes the client’s age band
Yes, I’d rather sell a product that pays 3% than 1%. Anyone would!
But what matters is what’s best for your plan, your timeline, and your risk comfort. That’s why I encourage people to look at what’s actually available first.
The Best Protection: “Trust But Verify”
Ronald Reagan said it best: “Trust, but verify.”
That mindset is perfect for annuities.
You want to trust your advisor, but you should also be able to verify:
- What other options exist
- What the payout differences are
- Whether fees are involved
- Whether the recommendation truly matches your goal (income, safety, liquidity, legacy, etc.)
This is also why I like when people come to me after they’ve researched.
If you already know what the top annuities look like for your situation, then our call becomes simple:
- Confirm your objectives
- Compare the best options side-by-side
- Pick the one that makes the most sense
No pressure. No hiding the ball.
A Note on Fiduciary Standards
I’m a Certified Financial Fiduciary, which means I’m held to a higher standard than “trust me, I’m doing what’s best.”
I believe in showing people the actual comparisons so they can see, in plain English, why one option fits better than another.
Because you worked hard for your money. Your retirement income plan should work just as hard for you.
Conclusion
Here’s the simple takeaway:
- Some advisors get paid through ongoing fees
- Some agents get paid through insurance company commissions
- Compensation can influence recommendations, so you should always compare payouts, terms, and total costs
If you do one thing before buying an annuity, do this:
Look at multiple options and verify what “best” really means for you.
Need help with finding the best annuity for your retirement?
Click here to schedule a call with me.
On the call, I can help you:
- Determine what type of annuity is best for you
- Find the highest paying annuities for your unique situation
- Answer any other questions you may have