How do rider fees affect net returns?

How do rider fees affect net returns?

• A. Rider fees reduce net returns
• B. Rider fees increase net returns
• C. Rider fees have no effect
• D. Rider fees guarantee higher returns

Answer: (A)

Rider fees are ongoing charges tied to a variable annuity rider that come out of the contract’s value, so they directly reduce the amount that can grow over time. This "drag" lowers the net returns you actually receive, because the fees subtract from earnings or are taken away from the account balance regardless of market performance. Even though a rider might offer features like guarantees or enhanced withdrawals, those benefits are paid for with the rider fee, which reduces the overall return after fees. For example, if the underlying investments earn 6% in a year and the rider fee is 1%, the net return is about 5%. Rider fees do not increase returns and do not guarantee higher results.

Rider fees are ongoing charges tied to a variable annuity rider that come out of the contract’s value, so they directly reduce the amount that can grow over time. This "drag" lowers the net returns you actually receive, because the fees subtract from earnings or are taken away from the account balance regardless of market performance. Even though a rider might offer features like guarantees or enhanced withdrawals, those benefits are paid for with the rider fee, which reduces the overall return after fees. For example, if the underlying investments earn 6% in a year and the rider fee is 1%, the net return is about 5%. Rider fees do not increase returns and do not guarantee higher results.