Indexed annuity sales grow among wirehouses, independent broker-dealers

A product design that's more palatable to brokers and a bigger roster of familiar carriers have raised the product profile for brokers

Sep 20, 2018 @ 4:09 pm

By Greg Iacurci

Wirehouses and independent broker-dealers have upped their sales of indexed annuities over the past few years, with a greater share of product sales coming through registered representatives at brokerage firms.

There are a number of reasons for the growth, experts said, including an evolution in product design and a bigger roster of insurers in the market.

Independent insurance agents historically have accounted for the vast majority of product sales — around 56% in the most recent quarter — but broker-dealers have eaten into that share.

Independent broker-dealers sold $2.6 billion of indexed annuities in the second quarter this year, accounting for 15.25% of total product sales, according to Wink Inc., a market research firm. That's up from $1.5 billion, a 12.23% share, in the second quarter of 2015.

Meanwhile, full-service national broker-dealers — including wirehouses and large regional B-Ds — sold $1 billion in Q2, making up 5.83% of total sales, according to Wink. That's up from $287 million, a 2.34% share, three years earlier.

Through July 2018, indexed annuities accounted for 22% of wirehouses' overall annuity sales, up from 18% a year earlier, according to Saltzman Associates, a consulting firm.

Indexed annuity sales by distribution channel
Note: The "full-service national" category includes sales for registered representatives who sell through large regional B-Ds and national wirehouses. The "independent" category includes sales for registered representatives who sell through independent FINRA firms, and excludes sales through large regional B-Ds, national wirehouses and a company's own B-Ds.
Source: Wink Inc.

Indexed annuities, which are marketed as products offering upside potential with downside protection, have seen a surge in growth since the financial crisis. Last quarter marked a record in sales for the product line, and annual sales are on pace to break the record set in 2016.

Scott Stolz, senior vice president of private client group investment products and wealth solutions at Raymond James & Associates Inc., said products have "simply gotten more competitive.

"They've become more acceptable in getting through broker-dealers' due diligence committees," Mr. Stolz said.

Surrender-charge periods are shorter and commissions are reduced relative to where they were several years ago, for example. Rising interest rates have also allowed insurers to improve some product features, such as higher maximum returns offered to consumers.

Jacob Soinski, an annuity planner at ValMark Financial Group, said the product structures are "a little less scary" for advisers.

"You don't see as many 10- to 12-year-surrender products anymore," Mr. Soinski said, adding that brokers commonly use products with a five- to seven-year surrender schedule.

In addition, about half of indexed annuities sold by brokers come with income riders, said Steven Saltzman, principal at Saltzman Associates. These features, which offer a guaranteed income stream along with a degree of liquidity, have become competitive with similar features offered on variable annuities, he said.

As a result, some brokers have shifted away from variable annuities and toward indexed products to access these features, experts said.

Plus, several insurance companies that broker-dealers are used to using for variable-annuity business have shifted into the indexed side.

"That adds more credibility to it," Mr. Stolz said.

Some additional clarity around regulation has also helped, said Sheryl Moore, president and CEO of consulting firm Moore Market Intelligence.

The 2010 Dodd-Frank financial reform law contained a provision known as the Harkin Amendment, which codified indexed annuities as insurance rather than securities products. Prior to this amendment, B-Ds were unsure about their responsibility for oversight of product sales, and some stayed away from the products as a result, Ms. Moore said.

Other brokers say the threat of another market downturn plays into the decisions of clients looking for more conservative products.

"They understand we've been in a sustained bull run since 2009," said Lee Stadler, a broker with Lincoln Financial Group. "Portfolios and economic confidence are up now; however, long-term investors fear a loss of principal in the event of a market downturn."

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