DOL rule slowed, not stopped, variable annuity sales
December 26, 2017 by Marlene Y. Satter
Sales of variable annuities slowed in 2016, as development of new products had to take into account the requirements of the Department of Labor’s fiduciary rule.
But that doesn’t mean everything came to a grinding halt—indeed, quite the contrary.
New research from Cerulli finds that sales of fee-based VAs and fixed-indexed annuities bucked that trend last year, the only kind to post sales growth.
In addition, last year approximately 25 of the new product filings were I-share VAs—that is, fee-based VAs.
While fee-based VAs were growing even prior to the announcement of the DOL rule, and growth did slow in 2016, it still improved year over year, passing $2.8 billion in sales as of the second quarter of 2017.
In the report, Donnie Ethier, director at Cerulli, is quoted saying, “The share class is important as the insurance industry looks to address the DOL. However, the wealth management industry had already been transitioning toward the fee-based compensation model and the DOL Rule will have the effect of accelerating this process.”
The real star, however, of the annuity field is the FIA. Ethier points out that in 2016, FIAs sold a record $60.1 billion, although in the fourth quarter sales slowed on the news that FIAs would have to satisfy the same standards as VAs under the DOL rule. But when full implementation of the rule was delayed, sales picked up “a bit.”
Says Ethier, “More broker-dealers and advisors are beginning to warm up to the FIA concept. The products have come a long way in terms of transparency and acceptance; however, like the majority of surveyed insurers, Cerulli believes much of the surge in FIA sales is a result of an inadequate supply of attractive VA guarantees. Therefore, advisors are looking at new retirement income solutions.”
Fixed annuities, including FIAs, are projected to continue gaining market share over the next five years. And annuities with optional guaranteed income riders, says the report, will represent approximately 77 percent of the market in the next five years.
Most insurers—81 percent—believe the diminishing guarantees provided by VAs is driving FIAs’ recent success; in 2016, FIAs accounted for 44 percent of all fixed annuity assets.