In the scramble for new business, too many advisors and broker/dealers are ignoring a giant asset right in their backyard: their portfolio of variable annuity (VA) contracts.
A successful advisor who made 20 to 30 VA sales over the past decade will have a portfolio of 150 to 300 contracts and could generate $20,000+ a year in additional income. Multiply that by 10x to 30x for a broker/dealer. Yet few advisors or broker/dealers are interested.
Here are three reasons.
- Mind Set
First and foremost, advisors’ (and their broker/dealers) have traditionally taken a “sell, set & forget” approach to variable annuities; they simply don’t view their VA portfolios as assets. Our research shows that 80%-plus of advisors take the entire commission ‘upfront’, with very few opting to take a trail. As a result, they have no incentive to manage their clients’ annuity portfolios. (As one advisor said to me, “Why should I? I’m not getting paid for it.”)
- Skill Set
Second, many advisors pride themselves on their sales abilities vs. their portfolio management/fund picking talents. To manage VA portfolios, they have to define their investment strategies, create model portfolios and assign their clients to these portfolios based on the client’s risk profile. Then every month or every quarter, they must analyze the performance of the various entities in the insurer’s mix of funds, select the best performing funds and re-balance their model portfolios! Phew! Most advisors would rather be out selling.
- Tool Set
Last but not least, until recently advisors lacked good tools to identify legitimate opportunities or manage clients’ VA portfolios efficiently. Jackson Perspective II, for example, has 124 sub-accounts split between seven groups — U.S. Equity, Sector Equity, Allocation, International Equity, Alternative, Taxable Bond and Money Market.
And that’s just one program from one insurer. A successful advisor will typically have placed clients in four to six different programs from three or four different insurers. Managing 70 to 80 client portfolios across this spectrum would require a week’s work every month/quarter. Without suitable tools to make the process more efficient, advisors simply can’t justify the time commitment.
Today, “sell, set and forget” is less and less viable. Regulators and compliance departments are zeroing in on variable annuities and requiring more oversight, more management.
At the same time advisors’ commissions are under pressure: VA sales are down almost 40% from their peak in 2011, while the current bull market is making passively managed funds more attractive, further pressuring fees and commissions.
The good news is that, first, new tools are making it much easier to manage clients’ VA portfolios on a regular basis, and that, second, managing these portfolios helps generate additional revenues at very little additional cost.
For example, beginning early 2017 my firm began working with a new tool we have developed called Tangram WealthBook. WealthBook has reduced the time required for managing variable annuity portfolios from more than days to five minutes.
Why Do It?
You get generate a better return on your time.