Fixed Index Annuities Gaining Traction with Broker/Dealers, Banks
February 23, 2016 by PE Kelly
But they use them in wholly different ways, say Saybrus’ Mark Fitzgerald
We caught up recently with Mark Fitzgerald, National Sales Manager at Saybrus Partners, who reported a 10% spike in FIA sales coming out of the B/D and Bank channels.
This represents $13.8 billion segment, according to LIMRA. He attributes the continued low interest rate environment, coupled with an increased consumer appetite for safety as harbingers of growth coming into 2016.
However, he noted that how these products are presented to a client can vary by distribution channel.
LIMRA recently noted that advisors in the broker-dealer channel primarily turn to FIAs for guaranteed income, while just 25% of bank sales include a guaranteed income rider, presumably focusing instead on the product’s accumulation features.
In the next year, he expects banks to continue to sell simpler product variations, but eventually, as the industry educates them about the menu of offerings, they will broaden out.
What are the broader demographic or market trends impacting the industry as we enter 2016?
Mark: First, we are still on the front end of the Baby Boomers retiring – and increasingly fewer of them have pensions. So, demand for products that provide guaranteed retirement income will continue to accelerate.
Second, even with the Fed’s recent rate hike, the relatively low interest rates we expect to see in 2016 will continue to make fixed indexed annuities (FIAs) an attractive alternative to typical offerings such as CDs, fixed income investments, money market accounts and variable annuities. In addition, if rates continue to rise, we should expect to see more enhancements to product pricing.
Retirement planning is always a tricky balance when the stock market is doing well and interest rates are relatively low. Clients naturally want to participate in the market upside, so the challenge is to find a product that allows them to capture some of it while still protecting principal and providing income guarantee options. I believe FIAs ultimately help temper unproductive behavior regarding the stock market – being a step behind the crowd and buying at peak prices – by allowing clients to realize more of the upside while maintaining some protections.
What are the biggest product development trends you expect to see in 2016?
Mark: We expect to see continued FIA product innovations in 2016 especially with the newer uncapped and volatility controlled index strategies and enhanced living and death benefits that have expanded in recent years.
As the Fed has now shown a willingness to raise interest rates, we also may see more flexible premium products. These would make FIAs more attractive for consumers to buy earlier, at younger ages.
Can you tell me about some of the distribution trends for new and existing channels in 2015? What do you think the distribution landscape will look like for 2016?
Mark: One big trend we have seen in 2015 is the continued growth of FIAs offered in broker-dealer and bank channels in addition to the more typical sales by independent agents. Market share of broker-dealers and banks jumped 10% in 2014, with sales totaling $13.8 billion, according to LIMRA.
With enhanced product introductions, continued product education, and a broadening awareness, we anticipate a greater opportunity in 2016 for sales in these distribution channels, ultimately leading to sales growth across all channels.
Are there any new sales trends you’re anticipating for the year ahead?
Mark: We are watching two trends carefully: first, growing acceptance of FIAs in the broker-dealer channels, and, second, product innovation opportunities resulting from rising interest rates that could make FIAs more appealing to younger age groups and open the door to this currently untapped market. If both of these trends take hold, we could see annual sales volume for the industry increase from the mid-$40s to perhaps $100 billion over the next several years.
We are also watching how FIA products are being sold – or, put another way, how they are being put to use in clients’ portfolios. And we expect differences among the distribution channels to continue. Current industry data suggests independent agents and many advisors in the broker-dealer channel are turning to FIAs primarily for guaranteed income.
On the other hand, bank advisors have predominately utilized FIAs for accumulation features, as an alternative to variable annuities or fixed rate products. In the next year, we expect bank advisors will continue selling accumulation focused product variations but, eventually, we see a broadened application of use to include more income guarantees and other product benefits.
So, in 2016 and beyond, we expect the industry to see overall growth in FIA sales and more utilization of income riders in traditional distribution channels, the broker-dealer space, as well as in banks.
What are the latest technology innovations that are impacting fixed indexed annuities? What are the new technologies you are expecting to impact the industry in the coming year?
Mark: From a manufacturer’s perspective, we expect to see more synergy of data feeds provided to broker-dealers that will allow for consolidated statements and valuations.
For consumers and producers, we expect to see much better illustrative capabilities in three particular areas. First, the technology will allow consumers to see how the caps on performance and guarantees work together. Second, the technology will be able to show how systematic withdrawals impact other benefits. And, finally, consumers will have a clearer view of how the various benefits in combo products work in tandem.
FIAs can seem complex – and some of the features require careful explanation. Any technology that offers a clearer line of sight to how the benefits and features work and how they are performing will benefit consumers, advisors and manufacturers alike. ◊
Mr. Kelley is the managing editor of Advisor Magazine. Connect with him by e-mail: firstname.lastname@example.org.