Independent broker-dealers saw big growth in their sales of variable annuities last year, even as other distribution channels such as the wirehouses and other large national brokerage houses saw sales stay flat or decline.
The boost appears to be the result of several factors: more attractive product features, the growing popularity of structured or buffer annuities, and the disappearance of the Labor Department's fiduciary rule.
Independent broker-dealers sold $39.4 billion of variable annuities in 2018, an increase of $3.7 billion or 11%, according to the Limra Secure Retirement Institute. IBDs captured 39% of overall VA sales last year, eclipsing sales by other distributors, such as banks, career and independent insurance agents and full-service national broker-dealers.
Product sales among full-service national broker-dealers, a category that includes the four wirehouses and firms like Edward Jones, were unchanged, at $12.2 billion.
This dynamic in part reflects independent broker-dealers' uptake of structured annuities, a sort of cross between a variable and indexed annuity, said Todd Giesing, director of annuity research at Limra. These products, which the industry counts as a type of variable product, accounted for $1.7 billion of VA growth last year. Wirehouses likely haven't taken to the products as readily, Mr. Giesing said, since their brokers have alternative products such as structured notes available to them.
In addition, the rise in interest rates through most of last year led many insurers to make certain product features more attractive, such as annual withdrawal rates offered on riders offering guaranteed living benefits, Mr. Giesing said. That's significant since the majority — roughly 60% — of variable annuities sold by IBDs had a guaranteed living benefit.
Broker-dealers were also buoyed by the regulatory environment last year, as the Fifth Circuit Court of Appeals struck down the Department of Labor's fiduciary rule, which increased investment-advice standards in retirement accounts like IRAs.
"The cloud over the DOL thing was put to rest, so everybody went back to saying, 'I can recommend these again' — not because it was bad to do it before, but because so many people didn't know what rules they were playing under," said Scott Stolz, senior vice president of private client group investment products and wealth solutions at Raymond James & Associates Inc.
Of course, that also holds true for other types of annuities, such as indexed annuities.
IBDs saw sales of indexed annuities jump 43%, or $3.2 billion, to $10.6 billion in 2018 compared with the year prior, according to Limra. Sales among full-service national brokerage firms grew 53%, to $3.9 billion.
Broker-dealers have been slower to adopt indexed annuities than other distribution channels, such as independent insurance agents, which have the largest share of the market, Mr. Stolz said.
"Go back five to six years and indexed annuities didn't have the best reputation," he said. "There were a lot of high-commission, high-surrender-charge products. You can't really approve those for your platform."
The products have become more acceptable from a client point of view, he added.
And the past few years have seen the insurers with which broker-dealers typically do business — such as American International Group, Lincoln Financial Group and Jackson National Life Insurance Co. — debut indexed annuity products, Mr. Stolz said.