I’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.