Indexed, variable annuity sales slump as DOL fiduciary rule looms

Uncertainty around the rule may be contributing to tentativeness from advisers and distributors.
MAY 18, 2017

Annual sales of indexed and variable annuities took another nosedive in the first quarter with the Department of Labor's fiduciary rule set to come into force. Despite a stronger equities market and interest-rate environment, the fiduciary-rule factor "overwhelmed" their positive impact on annuity sales, said Todd Giesing, assistant research director at the Limra Secure Retirement Institute. Variable annuity sales declined 8% year-on-year in the first quarter, to $24.4 billion, according to data from Limra, an insurance industry group. Indexed annuity sales were off 13%, to $13.6 billion. Implementation of the fiduciary rule, which raises investment-advice standards in retirement accounts, is currently set for June 9. As of that date, many more brokers and insurance agents will be considered fiduciaries, a higher standard of care from the present, when selling annuities and other financial products to retirement investors. All of the rule's provisions, including one that increases litigation risk for advisers and their supervisory firms for selling certain products such as indexed and variable annuities, will come into force in 2018. There's a chance the Trump administration will seek a delay in both implementation dates, and a revision of the rule's contents. Those changes may include shielding variable and indexed annuities from the litigation risk that currently exists under the rule's best-interest contract exemption. "I think somewhat with the uncertainty out there, that's impacting sales," said Mr. Giesing, who explained it creates a "tentativeness" among annuity distributors and advisers. Variable annuity sales have been on the decline for the past half-decade, but indexed products, which have had nine consecutive years of sales growth, have been a bright spot for insurers. Limra is forecasting annual indexed sales to fall off 5%-10% this year over 2016, and 10%-15% for variable annuities. One bright spot for insurers in Q1 was structured annuities, also known as buffer annuities, a sort of hybrid between indexed and variable products. Sales of structured annuities were up 60% year-on-year in the first quarter, but represent a small sliver of total sales, at $1.7 billion of the total VA market. They're sold by fewer than five carriers, and more than 80% of their distribution comes from banks and independent broker-dealers, according to Limra.

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