Retirement planners and insurance professionals are finding that the needs of very high-net-worth clients simply cannot be satisfied through traditional retirement planning vehicles. Traditional tax-preferred planning vehicles create undesirable limits for these so-called “ultra-wealthy” clients, who have plentiful funds and, therefore, seek high-performing investment vehicles. Private placement variable annuity investments may be the right choice for these extremely wealthy clients, as tax benefits and investment control are attractive aspects of those products. Distributors of the products, however, must exercise caution—particularly where a variety of services are needed to manage the products. A clear understanding of the product is necessary to fully comprehend the underlying issues.

What Is a Private Placement Variable Annuity?

A Private Placement Variable Annuity (PPVA) is an annuity that is available only to high-net-worth clients who qualify as “accredited investors” (and, practically speaking, “qualified purchasers”), meaning that they meet certain requirements as to net worth and investment sophistication. It is an annuity in that it is treated as such for tax purposes but is very different from the traditional retail annuities familiar to consumers. PPVA investments do not offer the types of income guarantee riders and protection against market risks that more traditional retail annuities make available. However, the PPVA is an attractive tool because it is flexible and allows tax-deferred growth, allowing the purchaser the discretion to make additional deposits into the annuity contract and change investment allocations based on investment options, including hedge funds and private equity investments which provide the potential for significant financial returns.

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