'Fire sale' probably helped ignite surge in VA sales

Advisers notified clients about planned reduction in features, hike in fees
APR 20, 2011
Insurers saw a sizable rise in the sale of variable annuities in the fourth quarter. While an improving stock market no doubt helped fuel the surge, the spike may also may have been the result of a push to sell existing VAs before insurers cut back on product features. First, the numbers. Sales of variable annuities jumped by 10% in 2010, reaching $140.5 billion. Meanwhile, fourth-quarter sales climbed a sizeable 17%, compared with the year-earlier period, according to LIMRA. In general, sales of individual annuity fell 7% to $221.3 billion, the association said. Joseph Montminy, assistant vice president for annuity research at LIMRA, attributed the flood of VA sales to a surging equities market and interest in guaranteed income riders. But advisers said other forces were in play, as well. Specifically, financial advisers pointed to a big sales push at the end of last year as carriers prepared to eliminate attractive product features and raise fees. For instance, late last year, Prudential Financial Inc. said it would replace its Highest Daily Lifetime 6 Plus with the less generous Highest Daily Lifetime Income Benefit, effective Jan. 24. (See the latest rankings of the largest and top-selling variable annuities.) Meanwhile, MetLife Inc. changed the internal calculation for new sales of its guaranteed minimum income benefit, effective Feb. 28, thus lowering the amount of income clients get when they activate the rider. “I would say undoubtedly there was some aspect of fire sale activity in the fourth quarter,” said Steven Schwartz, an analyst with Raymond James and Associates Inc. Lincoln National Corp. had announced in December that they were raising fees on it riders, and Mr. Schwartz said it was "well known" by early to mid-December that Prudential would make changes. “Reps get their clients to buy before the negative changes occur,” he noted. Advisers said that they didn't foist sales on clients simply because product features were about to change. Rather, they were mindful of the effective dates of the changes if investors were already planning to make a purchase. “You have to do the right thing for the right folks,” said Rich Dragotta, a branch manager with LPL Financial. “If a client is on the fence and hasn't gotten back to you after a presentation, you can alert them to the fact that they have two or three weeks [until the change].”

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