DOL fiduciary rule continues to take toll on annuity sales

Uncertainty over the rule, in addition to a potential SEC fiduciary regulation and others from states, was a primary contributor to the industry's slide

Feb 21, 2018 @ 2:30 pm

By Greg Iacurci

The Department of Labor fiduciary rule and the interest-rate environment delivered a one-two punch to annuity sales last year, pushing them down for the third consecutive year.

Compared with the previous year, overall annuity sales dipped 8% in 2017, to $203.5 billion, according to the LIMRA Secure Retirement Institute, which tracks insurance data. All major product lines were in the red.

"One of the biggest impacts we saw was from the regulatory side of the business, particularly with the DOL fiduciary rule," said Todd Giesing, director of annuity research at Limra.

The fiduciary rule, which was partially implemented in June, raises investment-advice standards in retirement accounts such as 401(k)s and IRAs. One of the goals of the Obama-era regulation was to curtail conflicts of interest that may exist when brokers sell financial products for a commission, as they predominantly do with annuities.

The fiduciary rule, major parts of which have been delayed until July 2019 and may be changed by the Trump administration pending a review, led to uncertainty among insurers and distributors such as broker-dealers, which contributed to a disruption in annuity sales, Mr. Giesing said.

Annuity sales into IRAs were down 13% in 2017, whereas those in non-qualified taxable accounts — which weren't directly affected by the fiduciary rule — were down only 1%.

Variable and indexed annuities were the hardest hit among annuity types, with annual IRA sales down 16% and 9%, respectively, said Mr. Giesing.

He expects sales to be flat or up marginally in 2018, amid persistent market uncertainty surrounding the DOL fiduciary rule, a potential fiduciary rule from the Securities and Exchange Commission this year, and a swelling number of states pushing for their own fiduciary regulations.

"Nobody knows at the end of the day what their new world is going to look like, and that's created some tentativeness out there in terms of use of annuities," Mr. Giesing said.

Interest-rate movements and forecasts also seem to have spooked investors out of handing their money over to insurance companies for some annuity products.

The U.S. yield curve — the spread between short- and long-term interest rates — flattened dramatically in 2017. With short-term interest rates drawing closer to those over longer time periods, such as 10 years or more, locking money up in a deferred annuity appeared less attractive to investors on a relative basis.

In addition, the Federal Reserve forecast three interest-rate hikes in 2018, and some economists believe four may be in store.

Investors likely stashed money in liquid or semi-liquid fixed-income products, such as money-market funds or shorter-term certificates of deposit, as a "parking lot" in anticipation of more attractive rates on longer-term annuity products in the future, Mr. Giesing said.

0
Comments

What do you think?

View comments

Most watched

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

INTV

Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

Latest news & opinion

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

4 strategies for Roth conversions

There's never been a better time to do a Roth conversion, and here are several ways to go about it.

Cetera latest to be hit with data breach of personal information

Company is offering clients complimentary, two-year membership to an identity theft protection and credit monitoring service.

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