What is the difference between a fee and fee spread?
Great question that few understand. We are addressing terms thrown around the annuity or insurance world.
Fee is fixed percentage rate like 1% regardless. Example $100,000 at 1% fee is $1,000 and if you earn nothing or lose money then still a fee based on the rate. So zero return with the fee yields $99,000 net.
Fee Spread is dependent on making or earning money. If no earnings, then no fee it's that simple. $100,000 with a fee spread of 1% and zero return then no fee as it can only apply to gains (still $100,000). Most fee spreads are reset annually and most are clearly spelled out and disclosed. There are very few that carry a warning. The Warning is some have carryover fee so the spread is based over multiple years not reset and forgiven. Or in other words zero return above example if the next year earns at least 2% then it could be the contract would double down on your fees. This is not normally the case for fee spread.
Fee or Fee Spread is not the way to evaluate one choice over the other in financial products. Back tested illustration on the actual fees or run the testing forward can be helpful. Look at the other features and riders and benefits as an overall decision rather than focus on fee vs. fee spread.
Recap: a fee is going to be assessed regardless of whether you make money or not. A fee spread comes off if and only if you make money.