Annuities: Some advisors swear by them while others steer clear of them. Recent statistics reveal that while variable annuity sales have slowed, advisors still use them, and other annuity products—including new iterations of them—are gaining steam. What’s more, on the horizon is legislation that, if passed, could boost advisors’ and broker-dealers’ willingness to sell annuities.
The Financial Planning Association recently polled 288 advisors of various backgrounds on their investment products use and found that while more than 79% of advisors are using and recommending ETFs today versus 40% in 2006, and that 39% of advisors plan to increase their use of ETFs over the next 12 months, only 41% of advisors currently use or recommend variable annuities, compared with a high of 58% in both 2006 and 2008.
The FPA study also found that 29% of planners surveyed say they are currently using or recommending fixed annuities for clients, down from a high of 49% in 2010.
But then we see these recent spectacular sales projections by Cerulli Associates: Variable annuity net new sales will reach $22 billion by 2018, a 57% increase from 2012 levels.
The Insured Retirement Institute also announced in mid-June the final first-quarter 2014 sales results for the U.S. annuity industry, based on data reported by Beacon Research and Morningstar, and found that industry-wide annuity sales during the first quarter reached $56.1 billion, up 13.1% compared with the first quarter of 2013 when sales totaled $49.6 billion.
Where was the biggest growth? Year-over-year sales growth was supported by continued high levels of fixed annuity sales, which totaled $22.6 billion during the first quarter, Beacon Research found. This was a 50.7% increase from nearly $15 billion in first-quarter 2013 and down just 4.1% from $23.5 billion in the previous quarter.
Meanwhile, according to Morningstar, variable annuity total sales came in at $33.5 billion in the first quarter, down 3.2% compared with first-quarter 2013 total sales of $34.6 billion and down 6.4% from $35.8 billion during the fourth quarter of 2013.
On a recent webcast to discuss VA market trends, Kevin Loffredi, a vice president at Morningstar, said that VAs “are getting more and more complex,” including insurance carriers putting in more details on how VA holders “actually get to exercise the [products’] living benefits.” Insurers have made VAs “complex, and that scares reps and advisors away,” Loffredi said.
But while VA sales may be down, IRI’s 2013 survey of advisors found that nine out of 10 (87%) financial professionals sold a variable annuity in the past year, and that three-quarters of advisors report that their clients are receptive to annuities.
Clients’ attraction to annuities is accounted for by product features including guaranteed income in retirement (90%) and principle protection (84%), IRI said.
Indeed, a report released by the LIMRA Secure Retirement Institute found that retirees who own annuities had more confidence about living comfortably in retirement than non-owners.
When asked about their confidence in living a “desired retirement lifestyle,” 47% of retirees and pre-retirees who own annuities said annuity ownership contributed to their feeling of confidence.
Morningstar’s Loffredi noted on the webcast that interest rates play a “huge” role in what “goes on inside a variable annuity.”
IRI noted in its state of the industry report, released at the end of 2013, that rising interest rates during most of 2013 had a positive impact on the insured retirement income industry.