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Cogent’s Meredith Rice: VA brand awareness is down, but sales remain strong

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NUL Senior Editor Warren S. Hersch recently interviewed Meredith Rice, a senior project director of Cambridge, Mass.-based Cogent Research. The interview explored the results of the research firm’s latest “Investor Brandscape” study, which measures the impact of brand and customer loyalty on revenue in the affluent marketplace. The following are excerpts.

Hersch: What were Cogent Research’s objectives in conducting the Investor Brandscape survey of investors?

Rice: One objective was to determine how affluent and high net worth investors make investment decisions. We also wanted to learn about high net worth investors’ perceptions of, and loyalty to, the companies with which they entrust their assets, among them providers of mutual funds, ETFs and variable annuities.

The online survey, which we’ve conducted annually since 2006, polled more than 4,100 U.S. investors holding a minimum of $100,000 in investable assets.

Hersch: What results from the new survey stand out for you? Were there any surprises?

Rice: Average investor net worth and average investable assets were actually up this year, coinciding with a 1,600-point improvement in the Dow. As a result, investors have renewed confidence: We’re seeing increased allocations of mutual funds, the money coming from cash, CDs and fixed annuities, which many risk-averse investors turned to following the financial crisis beginning in 2008.  

Investors have also been consolidating the providers they work with, particularly in respect to distributors and mutual fund providers. Contributing to this trend is an aging population, as boomers shifting into their retirement years are looking to simplify their planning.

Hersch: How has the more risk-tolerant investment orientation impacted sales of variable annuities?

Rice: Investors’ purchases of variable annuities remains relatively strong, despite a dwindling supply of providers that remain committed to the product. Investors are still interested in protecting their assets from volatility. However, awareness and consideration of VA providers is low and declining—brand recognition of leading providers dropped sharply this past year. Meredith Rice

We typically see a very strong correlation between ad spending and aided awareness—consumers’ recognition of a brand or product from a list of names. So the dip in brand recognition, we believe, is due to providers setting aside more dollars to meet capital reserve requirements and fewer dollars to promote their VA products. VA providers also are capping the number of products they market.

That said, it will take time to see the full impact of these changes. While purchases of VAs are down a bit this year, sales remain roughly on a par with prior years. Just over 2 in 10 investors—22 percent—report owning a VA. That’s down slightly from the 25 percent we reported a year ago.

Ownership of fixed indexed annuities also declined somewhat, which isn’t surprising given currently low interest rates. As a proportion of all investor-owned assets, fixed annuities declined to 11 percent this year from 13 percent last year.

Hersch: Tell me about the exhibit in the Investor Brandscape study referencing VA brand equity scores.

Rice: Brand equity rolls three variables—unaided consideration, aided awareness and brand impression—into an indexed score. The first variable comprises VA providers that first come to mind for prospective buyers. Generally, unaided consideration is very low among investors and was low again this year. That’s probably because most of the products are sold through advisors.

Aided awareness levels, as I noted earlier, are also down. Interestingly, brand impressions held steady this year. We speculate this is because many investors may have purchased their products several years ago when the income benefits were richer.

Many investors aren’t yet aware of what’s going on in the current environment, and so we didn’t see that favorability was negatively impacted. This is at odds with our financial advisors survey, which showed a decline in provider favorability ratings among advisors, a dip that correlated with providers’ reduced exposure to the VA business.

Hersch: Which variable annuity providers received the top scores in the survey in respect to aided awareness?

Rice: MetLife was the most recognized provider of VAs among the 24 companies listed in the survey; and the carrier increased its lead over other providers this year. The high investor awareness level reflects the breadth of MetLife’s product offerings and strong advertising presence. Among financial advisors surveyed, Prudential Financial, MetLife and Jackson National are at the top in terms aided brand awareness.

Hersch: What did the survey find regarding household relationships by VA provider?

Rice: This refers to market penetration. Three providers—MetLife, TIAA-CREF and Transamerica—increased their household penetration during the year past. TIAA-CREF and Transamerica also earned strong customer loyalty ratings.

Though Prudential didn’t increase its market share significantly in 2012, the company remains number two in terms of market penetration, just behind MetLife. In third place is ING.

Hersch: What does the survey reveal about primary share of VA assets per household?

Rice: On average, the typical VA provider is capturing just under half of all household assets invested in variable annuities.

Hersch: What are the key take-aways for the two other VA exhibits in the study: the variable annuity client wealth profile; and the VA provider customer loyalty scores?

Rice: The VA client wealth profile looks at the average investable assets that each provider captures among its current client-base. The average investable assets level of VA customers is about $584,000, which is slightly higher than the $510,000 average for all investors polled in the study.

The higher VA total can be attributed to the fact that variable annuity customers are more likely to work with a financial advisor; and they tend to be more affluent than other investors.

VA provider customer loyalty scores declined this past year. This made sense given all that has been going on in the equities market.  Compared to other companies in the industry, VA providers also tend to have negative loyalty ratings: Five out of 16 VA providers registered negative loyalty scores, meaning that their brands have more detractors than promoters among the investors we polled. 

Just four companies enjoyed positive loyalty scores, the top two being TIAA-CREF and AEGON/Transamerica. Market performance is the most important driver of loyalty. Other key drivers of customer loyalty are product offerings and financial stability, including the capacity of the provider to make good on product guarantees.