A recent LIMRA reporton annuity sales confirms what insiders have known for years: Registered representatives who work with independent broker-dealers (IBDs) continue to focus on variable annuities (VA), largely passing on selling fixed indexed annuities (FIAs).
These advisors clearly are the channel sales leaders for variable annuities, with 2012 continuing the momentum; they accounted for 33 percent of the market share for the first quarter of 2012, bringing in $12 billion in VA annuity sales. Complete data on total sales of fixed indexed annuities by IBD advisors is harder to come by due to the fact that many FIAs are marketed through third-party distribution rather than directly though carriers. While 86 percent of FIA sales in the first quarter were generated by independent agents (many of whom are affiliated with IBDs), it’s clear that VA sales still outnumber FIA sales by a substantial amount.
It is important to note that that variable annuity year-over-year sales declined in Q1 to $36.8 billion, down 7 percent, compared to the first quarter of 20111. Given the persistent market volatility and low interest rates, this environment has led many annuity carriers to scale back benefits. At the same time, the demand for guaranteed income has never been greater.
Time to pick a new fruit in the orchard
Retirees and the soon-to-be-retiring baby boomer generation are more aggressively planning for retirement, and continue to consider more conservative options to help improve portfolio stability. This creates a tremendous opportunity for financial advisors within IBDs to add FIAs to provide their clients with another form of accumulation potential and the creation of future guaranteed income.
Fixed indexed annuity sales of $8.1 billion were the highest first quarter ever. I believe they will continue to grow for these specific reasons:
- Many clients’ perspectives on risk and principal protection are shifting toward a more conservative tone.
- Variable annuity capacity has contracted due to market volatility and the extended low-interest rate environment.
- This makes the principal stability, reasonable growth potential and guaranteed income options offered by FIAs extremely attractive to advisors within IBDs.
Let’s look more closely at safe accumulation. With interest rates historically low and record levels of money on the sidelines, many advisors are concerned about how to put money to work (safely), without the principal risk associated with bond funds if interest rates begin to rise. I recommend that advisors explore FIAs as an option to help client assets grow without market risk to their principal. With returns typically linked to an equity market index, growth potential can be very good relative to other conservative options, and principal is always protected from downside market risk. To gain more insight and training I recommend you work with your firm’s recommended FIA distribution experts, request a few illustrations, and see how these products can perform in up markets and down.
And how about guaranteed income? While most IBD advisors are aware of the income offered by variable annuities with lifetime withdrawal benefit riders, it appears fewer have fully investigated how many FIAs’ optional income riders can generate guaranteed income compared to their variable cousins. Learning the nuances of these customized riders can add great value for your clients and increase sales. Indeed, due to the lack of principal volatility within indexed annuities, many FIA income riders can generate more guaranteed income, allowing advisors to allocate a smaller percentage of a client’s total portfolio to create a greater guaranteed income cushion.
Don’t view FIAs as strange fruit. With more investigation and a greater appreciation, you will likely find that they are quite appealing to you and your clients. In the current environment, FIAs can be a terrific addition to your portfolio of guaranteed income solutions, and provide an outstanding opportunity to offer your clients new options for both retirement income and principal protection.
1 LIMRA U.S. Annuities First Quarter 2012 Glimpse, May 2012
Note: All guarantees are based on the claims-paying ability of the insurance company. Although the contract value may be affected by the performance of an index, the contract does not directly or indirectly participate in any stock or equity investment including but not limited to, any dividend payment attributable to any such stock or equity investment.