Why do annuities get sold — and almost never bought?
Nobody wakes up wanting an annuity. Yet billions of dollars flow into them every year. The explanation isn’t on the brochure. It’s on the commission schedule.
Consumer education, not investment advice. Paul Powell is not currently a licensed financial advisor.
The insurance company pays the person who sold you the annuity an upfront commission — averaging around 6% of everything you put in, and running as high as 16% on some products. It’s paid the day you sign. That one check explains more about why annuities get recommended than anything in the sales presentation.
The check arrives before your first statement does
Here’s the mechanic, stripped of the marketing.
When you buy an annuity, you don’t write a commission check. The insurance company writes it — to the person who sold you the product, the day the contract is issued. Researchers Mark Egan and Shan Ge, in work published through the National Bureau of Economic Research, found upfront commissions on variable annuities averaging around 6% of the amount invested, and reaching as high as 16% on some products. On a $200,000 annuity, an average commission is roughly $12,000. Paid up front. Before your first statement exists.
Now, the insurance company isn’t a charity. It doesn’t eat that $12,000 — it recovers it from you, over years, through the product’s internal costs and through a surrender schedule that penalizes you for leaving early. The commission is invisible on your paperwork precisely because you pay it back on an installment plan you never see itemized.
And here’s the finding I want you to sit with. The same research measured what actually drives annuity sales — and found sales were roughly four times more sensitive to how much the product paid the broker than to how good the product was for the investor. Read that again. When an insurer raised the commission, sales moved. When the product got better for the buyer, sales barely moved.
That’s not a story about crooked salespeople. It’s a story about incentives doing exactly what incentives do — quietly, legally, at scale.
Completely. That’s the point.
Commissions on annuities are legal and disclosed — in the prospectus and regulatory filings almost nobody reads. Regulation Best Interest, the 2020 standard that governs brokers, sounds like a fiduciary rule but isn’t one: it explicitly permits commission-based sales. Nothing here is fraud. This site doesn’t cover crooks; the justice system handles those. It covers the ordinary, structural, perfectly legal mechanics that quietly work against you — because those are the ones you’ll actually encounter.
An annuity isn’t automatically a bad product. But a product that pays the seller 6% up front is never a neutral recommendation. Every conversation about your retirement happens with a five-figure thumb on the scale — and the research says sales move about four times more with the seller's pay than with your interests. The question isn’t whether annuities are good or bad. The question is whether this one was recommended because it fits you, or because of what it pays.
Make the invisible check visible — before you sign
You can’t negotiate a number you can’t see. So your first move, any time an annuity comes up, is to get the commission on paper. Not “how are you compensated” in the abstract — the dollar figure, on this product, on your money. A seller acting in your interest can produce it in minutes. A seller who stalls, generalizes, or gets offended has answered a different question.
Then widen the lens. Pull the seller’s public record on BrokerCheck and Form ADV — annuity-heavy books leave fingerprints. Put the written due-diligence questions in front of anyone recommending the product. And if the pitch came with pressure, a deadline, or a free dinner, run it against the Red-Flag Checklist before you go any further.
“Exactly how much will you and your firm be paid, in dollars, if I buy this annuity — upfront commission and any ongoing trail? Please put the figures in writing before I sign anything.”
If the recommendation survives that question in writing, you’ve learned something. If it doesn’t — haven’t you learned more?
You may also be interested in
The Red-Flag Checklist
Every sales tactic and fee trick on one page. Check the ones that sound familiar — then count.
Take the checklist →Why you can’t get your own money out for seven years
The surrender schedule isn’t protecting you. It’s protecting the commission the insurer already paid.
Read →The “no-fee” annuity: where the cost actually hides
No line items, no invoice — and a very real cost, collected through caps, spreads, and participation rates.
Read →Done being the one who doesn’t know what the product pays?
The Method replaces sales pressure with written evidence — six steps, in order, free.