VA sales are up, but flows are down

May 1, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Variable annuities increasingly are being exchanged for other VAs with more and better guarantees, though less new money has been coming in.

A significant amount of client assets that used to go into variable annuities instead is going to other types of investments, mainly exchange traded funds and separately managed accounts, industry observers say.

VA sales last year were $133.4 billion, up 1.2% from the amount in 2004, according to the National Association for Variable Annuities in Reston, Va. But total net flows were $20.5 billion last year, compared with $40.2 billion in 2004, indicating that not as much new money is going into variable annuities.

One reason for the lower net flows is increased regulatory scrutiny of variable annuities and negative media coverage, according to Michael DeGeorge, NAVA's general counsel.

Another reason is that clients are more educated about variable annuities and know that the investment might not be right for everyone, said Patrick Ferrer, national sales director of Jefferson National Life Insurance Co. in New York. "It used to be that VAs had such a sales-driven culture, everyone was getting into them," he said.

Insurers that offer variable annuities are aggressively attempting to increase flows by targeting baby boomers and enticing them with income, withdrawal and death benefit guarantees. But those attempts often result in 1035 exchanges from one VA to another, rather than new sales.

"Advisers are consolidating client assets into the large and financially sound insurers because of the guarantees," said Clifford Jack, executive vice president and chief distribution officer of Lansing, Mich.-based Jackson National Life Insurance Co. "It's important that the insurer is financially strong enough to make good on the guarantees."

A major impetus for the 1035 exchanges is the regulatory prohibition against VA insurers' marketing to their current client base, according to John Kawauchi, vice president of business development for Nationwide Financial Services Inc. in Columbus, Ohio. "The exchange advice has to come from the broker, who wins by getting a new commission, and the client wins by getting a better contract that includes living-benefit guarantees," he said.

"A significant amount of VA assets will migrate to the lowest-cost platform," said Mr. Ferrer, whose company specializes in low-fee, no-frills variable annuities.

Part of the VA flow problem can be laid at insurers' doorsteps.

"In the recent bear market, many VAs went underwater, and clients who bought at the peak blamed the insurer, causing them to want to switch to a different company or investment," Mr. Kawauchi said.

"There's been a shift among advisers from commissions to fees, and many VA insurers haven't done a good job at penetrating the fee-based market," Mr. Jack said. "There's a lack of new advisers offering VAs - no new blood."

Mr. Jack blamed licensing and regulatory hurdles to the sale of variable annuities.

In addition, many broker-dealers have clamped down on variable annuities due to the recent regulatory scrutiny, Mr. Kawauchi said.

Variable annuities also haven't been a significant product for the "hybrid" advisers that accept both fees and commissions, Mr. Jack pointed out.

"Some of the money that used to go into VAs is going to the fund companies that have retirement platforms," Mr. Kawauchi said. These investments are becoming popular with boomers and others who are on the verge of retirement, he noted.

"Assets from many investment sectors - not just the VAs - are going into ETFs, which have become extremely popular," Mr. Jack said.

"Also, a portion of the money is going to SMAs," he said. "There may be some going to hedge funds, as well, although not as much as to the ETFs and SMAs."

Commodities and real estate investment trusts also are competing for VA dollars, Mr. Ferrer added.

Despite the recent publicity regarding some insurance agents who try to convince clients - mainly elderly ones - to sell their variable annuities to buy equity index annuities, the effort has had limited success.

"EIAs are not cannibalizing the VAs, because those two products have different producer bases," Mr. Kawauchi said. Variable annuities are sold by advisers with a securities license, while the vast majority of equity index annuities are sold by agents with an insurance license, he said.

"The money going into EIAs is coming mainly from other types of fixed annuities," Mr. Jack said.

0
Comments

What do you think?

View comments

Upcoming event

Sep 10

Conference

Denver Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Most watched

Events

Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.

Events

Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.

Latest news & opinion

Tony Robbins loses role with RIA amid charges of sexual misconduct

String of allegations costs the self-help guru his gig as chief of investor psychology at Creative Planning.

SEC sets June 5 date for vote on Regulation Best Interest

Commission adds new item to agenda: Interpretation of broker guidance that qualifies as advice

House passes SECURE retirement bill with massive bipartisan support

The measure allows small employers to band together to offer plans and raises the RMD age. Another provision eases use of annuities in 401(k)s, which critics say goes too far

10 IBDs with the most annuity revenue

Here are the independent broker-dealers that brought in the most annuity revenue last year.

DOL sets date to propose new fiduciary rule

The regulation, expected in December, likely will be contoured to the SEC's new advice standards.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print