Broker-dealers remain a small part of the fixed annuity market, but they are a distribution channel that bears watching.
In the 2nd quarter of 2006, B-D fixed annuity sales accounted for just 8.2% of total fixed sales, according to a study of 50 companies representing an estimated 88% of the U.S. fixed annuity market. Results like this have been the trend for some time. Since 2003, B-Ds have never claimed a share greater than 9.5%.
However, B-D fixed sales have been climbing steadily since November 2005. The study, conducted by Beacon Research, Evanston, Ill., shows this channel produced $1.25 billion in fixed annuity sales in the 2nd quarter of 2006.
In fact, fixed annuity sales in this channel rose faster than they did in the total market. Specifically, B-D fixed annuity sales rose 18% from the prior quarter and 8% from the 2nd quarter of 2005. (By comparison, total fixed annuity sales rose 8% and dropped 14% in the same periods.)
In terms of sales by product type, market value adjusted annuities were among the top sellers in the B-D channel; they represented 40.6% of the 2nd quarter’s B-D market share. By comparison, from 2003 through the 2nd quarter of 2006, MVA share of the total fixed annuity sales tracked by the study ranged from 6.2% to 12.3% This is as expected, since MVA annuities have long been more popular in the B-D channel than in the annuity market as a whole. For instance, of the 89 B-D channel products tracked by the study, 4 of the top 10 were MVA annuities. (Only 1 of the top 10 products overall was an MVA.)
It may be that registered representatives are more comfortable with MVAs than are other fixed annuity salespeople because the interest rate risk in MVAs operates in a way akin to bonds.
Registered reps also understand that MVA credited rates are usually higher than those offered by book value annuities, because the annuity owner assumes some of the interest rate risk.
Fixed immediate annuities also had a larger market share in the B-D channel -13.5% – than they did in total sales (7.1%) in 2nd quarter of 2006. This is somewhat surprising, since there is said to be distaste for these products in the registered world. Reps sometimes call annuitization “annuicide,” because annuitization is perceived to result in a loss of flexibility for the investor and commissions for the rep.
Where fixed immediate annuity sales are concerned, in the B-D channel, these grew by 17.7% compared to the 2nd quarter of 2005. This may be a partial reflection of concerted efforts by carriers including Genworth, MetLife and New York Life to educate reps on immediate annuity benefits.
However, B-D channel fixed immediate sales were down 3.7% from the prior quarter. If this trend continues, it may be due to increasing competition from guaranteed minimum withdrawal benefits now prevalent in variable annuities.