2014 big for indexed annuities: Broker-dealer execs

Sales of the products may be cannibalizing those of variable annuities

Dec 23, 2014 @ 1:19 pm

By Darla Mercado

The year isn't over yet, but executives at broker-dealers say they've had a major rise in the indexed-annuity business — to the point that it may be cannibalizing sales of variable annuities.

At Raymond James Financial Inc., the annualized run rate for variable annuities is about $1.8 billion, a figure that's been steady for the last two years. In comparison, the company has an annualized run rate of about $650 million for indexed annuities, according to Scott Stolz, senior vice president of Private Client Group investment products at Raymond James Insurance Group.

Industrywide, variable-annuity sales continue to outnumber those of indexed annuities, but the trend over the last four years suggests the former are stagnating while the latter are growing.

Though variable-annuity sales at Raymond James dwarf those of indexed annuities, indexed annuities have received plenty of interest in 2014. Sales of the products were up about 30% in December and about 75% year over year, Mr. Stolz said.

To some extent, dollars that would have gone into variable annuities may instead be going to indexed annuity contracts.

“The math would say that the cannibalization is about 10%, but it's definitely having an impact,” Mr. Stolz said.

The cannibalizing idea makes sense to Kraig Lange, first vice president and manager at the insurance department at Stifel Nicolaus & Co. Its tally for year-end annuity sales won't be ready until mid-January, so he can't confirm it yet.

Nevertheless, indexed annuities account for close to 12% of Stifel's annuity sales, versus 1% three years ago.

It probably helps that more insurers, including top-indexed annuity seller Allianz Life of North America, are manufacturing products specifically for broker-dealers and wirehouses, offering short surrender periods of five to seven years.

“It might be dipping into the VA space, particularly with indexed annuities that have living benefits, but I think on the other hand, indexed annuities without a living benefit are opening new sales opportunities where we didn't have them before,” Mr. Lange said.

Indeed, the products may be the answer for clients seeking modest, CD-like returns when few fixed-income investments are providing attractive rates. With indexed annuities, client accounts are eligible to receive a minimum guaranteed interest rate and an interest rate tied to the performance of an index.

“It's going after some of the people who are absolutely concerned about volatility in the marketplace, and it's providing an opportunity to protect the principal,” Mr. Lange said.

Access to living benefits matter, too, especially as variable-annuity manufacturers continue to be conservative toward offering attractive lifetime income features.

At Raymond James, while the message of the indexed annuity as a CD-like product is still loud and clear, about 60% of those sales include a living benefit.

“We sell it as an accumulation vehicle, but when clients ask which one will give the most income, you have to look at the indexed annuity if income is the goal,” Mr. Stolz said.

Indexed annuities are a big enough part of the retirement income picture that Raymond James covers them in its training meetings on using annuities for income.

“It's no longer an immediate annuity story or a variable annuity with a living benefit story. Now it's all of the above, including indexed annuities,” Mr. Stolz said.

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