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Industry Spotlight > Broker Dealers

Broker-Dealers to Jump on Annuity Bandwagon

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Almost every economic indicator out there points to doom and gloom. Not to mention, we have the Occupy Wall Street folks swelling in number and in geography. But somebody forgot to tell the annuity industry.

According to a recent article on, transactional productivity for fixed and variable annuities as well as mutual funds hit its highest level since April of 2010. In a separate article, we found out that “bank holding company sales of annuities rose 25 percent in the first half of 2011 over the first half the previous year, hitting a record $1.53 billion in income earned.”

Just to make sure I wasn’t dreaming all this favorable news, I checked in with Jeremy Alexander, president and CEO of Evanston, Ill.-based Beacon Research, to see if he could shed a little light on the matter. It’s true, he says, that “even in light of the low-rate environment, carriers are pushing their annuity products out the door.”

So, what’s the deal? How’s it taking place? Frankly, it’s a good environment for fixed and indexed products, according to Alexander, compared to CDs and Treasuries. If the carriers can make 3 percent and offer 2 percent on a product, well, in this environment, they’ve got the banks beat. The carrier’s secret: “When pricing a fixed annuity, the carrier can go out longer than the rate guarantee,” Alexander says, “while the bank must buy three-year paper for three years.”

And even though those rates for annuities are incredibly low historically speaking, in many circles, they’re the best game in town. So, what happens if the rates rise? While Alexander doesn’t expect rates to go up anytime soon, meaning 2012, it could get a little bumpy for carriers as “retention” is the name of the game. “If rates explode to the upside, and I’m not saying they will, then you could have people saying, ‘Why am I staying with my 3 percent annuity, when the rates are at 6 percent?’ ” says Alexander. Again, he emphasized to me, he doesn’t think the Fed will let the rates rise unreasonably.

Before we ended our phone conversation, he added another tidbit to look for in the coming quarters: broker-dealers making an even bigger splash in the fixed and indexed worlds, a move he says could be good for the industry as a whole. “It’s good for the carriers to diversify their portfolios because they need that diversity to get a strong rating.”

As we trickle down the vine, what does that mean to the advisor? “With all the suitability involved from the broker-dealer side, it really legitimizes the products and broadens their appeal,” says Alexander. “There may be short-term pain points, but there will be long term comfort to the consumer. To broaden the market is a good thing.”


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