It is interesting to occasionally pause and look back at our industry and see whats changed over the past few years. This clearly is not one of those times when we would say “not much.” In fact, it is fair to say that there have been many changes, some subtle, some not.

The most obvious change has been the powerful resurgence of fixed annuities. Suddenly it seems as though safety and security have come back in vogue and fixed annuities are the primary beneficiary.

It is interesting to note that the surge in fixed annuities started well before 9/11. The return to safe products started after technology stocks began to fall and then accelerated through the early part of 2001. It seems as though 20% and 30% returns that were “expected” as ordinary are now a thing of the past. This portends well for fixed annuities, now, and into the future.

One very interesting phenomenon that developed in the post-9/11 world that is worth watching is the surge in life insurance sales. Now that the public is demanding more life insurance, they are meeting more often with insurance agents. Will this translate to more annuity sales? It should. But it only will if the agents actually talk to these buyers about annuities.

Fixed annuity sales have been so driven by the banks and registered reps, I am not sure insurance agents are accustomed to talking about annuities any more. To be sure, some are, but I am afraid many have abdicated this product to other distributors. The perfect time to bring up fixed annuities is now.

What else has changed? Well, variable annuity sales have fallen. This has been somewhat predictable, given the flight to stable-value products. Maybe, they are too far out of favor. Unlike mutual funds, VAs have the death benefit protection that is specifically designed to provide peace of mind in this type of environment. VAs should never become as undesirable as mutual funds in falling markets.

The death benefit feature of VAs is what truly distinguishes their value. Remember that this is the benefit that many in the financial press said had no value due to the fact that markets were always so strong and stable. Indeed times have changed. Suddenly the press is not bashing VAs very much any more. In fact, I have seen more accurate and objective articles about VAs in the last 12 months than I have seen in 15 years. This also portends well for the future of VAs. Maybe the financial press finally gets it. We will see.

The last change I will mention is one that is a little disturbing. The amount of 1035 exchange activity continues to grow. This is especially troubling in the VA world, as the ratio of 1035 exchanges to new money deposits has reached a new high. This is the result of what I view as two problems. The first is falling VA sales, which I have already addressed. The second is an absolute increase in 1035 exchange activity.

Some of this activity is clearly appropriate. New and better products can dramatically improve an annuity owners situation. However, I also suspect that there is still a fair amount of 1035 exchange activity that does not benefit the client, or does so in a very limited way. Instead the exchange benefits the broker.

Compliance officers and regulators are watching this carefully. My hope is that two years from now this will no longer be an issue. When we look back two years from now, I would like to see low 1035 exchange activity and high new money activity. If your clients truly understand risk, return, and the value of annuities, that exactly is what we will have.

One more thing, in the past two years we have seen only modest increases in the number of buyers taking advantage of annuitization (fixed or variable). Take advantage of the positive trends occurring in annuities to learn about annuitization and educate your clients. Two years from now things could be totally different. If they are, and annuitization is taking off, your clients will have a better retirement and so will you.

Thomas F. Streiff, CFP, CLU, ChFC, CFS, is a partner of NxtStar Ventures, LLC in Chicago, Ill. He can be reached at: [email protected]


Reproduced from National Underwriter Life & Health/Financial Services Edition, April 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.