Fixed-annuity sales driven by frustration with low interest rates, thirst for income

Fixed-annuity sales in the third quarter reached their highest level since 2009, topping $22 billion. That number represents a 31% rise from the previous quarter and more than a 35% increase from the same period last year.
JAN 31, 2014
Fixed-annuity sales in the third quarter reached their highest level since 2009, topping $22 billion. That number represents a 31% rise from the previous quarter and more than a 35% increase from the same period last year, according a report published Thursday by the Insured Retirement Institute. Cathy Weatherford, the institute's president and chief executive, said she doesn't expect the increasing popularity of fixed-annuity products to fall off anytime soon, given the aging population of Baby Boomers and their need for an income stream in the post-working years. “People are becoming much more aware of the longevity that they're going to face in retirement and they want to be sure that that risk is mitigated,” she said. “I just think we are in a very, very favorable time for these products.” Overall annuity sales reached $57.5 billion in the third quarter, a spike of 5.5% from the prior quarter and nearly 9% from the same quarter last year. That's the highest industrywide sales rate in two years. Every adviser isn't jumping to buy fixed-annuity products for clients, however. Many fee-only advisers shy away from the products, which are typically commission-based. “We're not advising toward annuities whatsoever,” said Joe Henderson, a senior financial planner at Vintage Financial Services. “I'm thinking the sales boom there is a result of people's frustration with bank interest rates … Fixed annuities are still preying on people's fears of what happened in the stock market five years ago.” Kim Gardey, chairman of Gardey Financial Advisors, also said he avoids annuities. The current 10-year Treasury rate is just under 3% and he said he would need it to reach 5% before feeling comfortable investing in such offerings. “They are one of the most complex investments around,” he said. “There are advantages to an annuity, but you have to be really careful.” Ms. Weatherford acknowledged that interest rates are driving sales of annuities, since the rate of return on fixed-annuity products is beating many other investments on the market. There also is increasing product innovation in the fixed-annuity area, causing increased interest. She expects sales of fixed annuities to continue rising into 2014 and thinks the expanded shelf of annuity products allows advisers to address individual clients' needs more easily. “I think we're going to continue to see growth in annuity sales overall every year from now on,” Ms. Weatherford said. “We have known for a long time that demand would be increasing.”

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