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New Wave of Annuities Likely to Fall Short of Investor Expectations

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expectations-vs-realityI’ve been warning investors about the perils of buying variable annuities for a long time (read: here, here, here and here). Now Investment News has reported that variable annuity sales are headed for their lowest year in nearly two decades. That’s the good news, but I am concerned about the continued increase in indexed annuities which are likely to fall short of investor expectations. More from Investment News here:

As independent broker-dealers have pulled back from variable annuities, they’ve embraced indexed annuities, according to Mr. Geising, who said sales grew 60% in the IBD channel since the start of the year.

Variable annuity sales of $25.9 billion in the third quarter were the lowest quarterly total since 1998. Indexed annuity sales in Q3 were $1 billion off last quarter’s record-high of $16.2 billion. …

Interestingly, indexed annuity sales don’t seem to be experiencing the same sort of weakening, even though they’re exposed to the same BICE compliance.

That’s perhaps due to a lesser awareness and preparation for the rule among independent insurance agents when compared with broker-dealers, because many didn’t expect indexed annuities would ultimately fall under the enhanced compliance regime of BICE, Mr. Geising said.

Independent agents are the primary distribution channel for indexed annuities, representing 58% of sales in the second quarter this year, according to Wink Inc., a tracker of the annuity products. By comparison, IBDs represented 16% of the total.

Limra previously forecast a big drop in indexed annuity sales next year, of 30%, as the rule takes effect.

Some believe independent agents will adopt a fire-sale mentality for indexed annuities ahead of the rule’s implementation date, because they’ll be more difficult to sell come April.

 

 

 

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.