Vanguard is preparing to end its variable annuity offering for retail investors.
Over the next 12 to 18 months it will transfer client servicing and account administration for the Vanguard Variable Annuity to Transamerica.
“While insurance-based options can be an appropriate choice for some investors, annuity administration is not central to our long-term product and service plans,” said Karin Risi, managing director of Vanguard’s Retail Investor Group, in a statement. “We’re deepening our focus on our core priorities: delivering industry-leading funds and ETFs, enhancing the client experience and expanding our advice capabilities.”
Vanguard will, however, continue to manage the Vanguard Variable Insurance Funds, which are the underlying investments in its variable annuity product and other insurance products. As of May 31, those insurance funds had $32.6 billion in assets, almost double the $17 billion in the Vanguard Variable Annuity, according to stats provided by a spokesman.
Both figures are a tiny fraction of Vanguard’s $5.6 trillion in assets under management as of April 30, According to Vanguard.
Also, defined contribution plan participants served by Vanguard will continue to have access to the Income Solutions annuity marketplace for the purchase of an immediate or deferred income annuity or longevity insurance. The marketplace is run by Hueler Investment Services, with which Vanguard has an ongoing relationship.
As part of its plans to stop offering retail variable annuities Vanguard will also discontinue Vanguard Annuity Access, an online platform that enabled retail investors to compare income annuities offered by various insurance companies. Clients who had previously purchased annuities through the platform, however, will continue to be served by their existing contract provider, according to Vanguard.
“Annuities have never been a big piece of Vanguard’s overall business or AUM and after a decade of growth, relative to their overall business it’s been slowing,” says Daniel Wiener, editor of The Independent Adviser for Vanguard Investors. “Vanguard’s Intermediate Term Tax Exempt bond fund has more than twice the level of assets.” As of May 31, those assets totaled $67.7 billion.
David Blanchett, the head of retirement research for Morningstar Investment Management, said he was somewhat surprised by Vanguard’s latest move “because they are a leader in the online retail space” and “by doing this they are pairing back the suite of services they’ll able to offer to their clients. They want to focus on the things they are good at.”
That focus has traditionally been low-cost mutual funds and ETFs that meet investor’s needs along with financial advice.
With that in mind, Vanguard expanded its commission-free ETF platform to 1,800 ETFs last summer and lowered the minimum for 38 index mutual funds last fall. More recently, it banned new purchases of leveraged and inverse mutual funds, ETFs and exchanged-traded notes from its brokerage platform because they “were incompatible with the firm’s long-standing buy-and-hold approach,” according to the Vanguard statement.
“We are always evaluating products and services,” said the spokesman.
— Check out Vanguard Launches Actively Managed ESG Fund on ThinkAdvisor.