There was a time, not too long ago in fact, when a clear dividing line seemed to cut across the annuity landscape. On one side of the line resided the fixed annuity specialists and on the other, the variable annuity devotees, with minimal crossover between the two.
How times have changed. Nowadays, to build an annuity book of business, it behooves advisors to be well versed enough in fixed and variable annuities alike to be successful selling both. That's no easy task, however, given the sheer breadth, changeability and complexity of the annuity marketplace, including a seemingly endless parade of new product designs and contract features, both embedded and optional.
That, plus other complicating factors such as high equity market volatility, bottom-dwelling interest rates and lingering client risk-aversion, make the annuity salesperson's job even tougher, whether the product at hand is a variable annuity, traditional fixed annuity or fixed index annuity, or whether it's a deferred or an immediate contract.
Regardless of product type, says Tom Mullen, vice president of sales for John Hancock's annuity business, it's clear where the annuity market is headed. "With people's [asset] portfolios having gone through so many [changes] in the last 18 to 36 months, it's becoming more and more apparent that many people would benefit from having longevity and income protection. As for what flavor annuity you use to deliver that protection, that's open to debate."
What's not debatable is that annuities don't sell themselves. The more you know about which products and features are selling best, which sales and marketing tactics are resonating most and what's happening on the product development front, the bigger edge you'll have in finding annuity-based solutions for clients and, in the process, fortifying your practice.
Much of the essential annuity knowledge you'll need to gain that edge resides right here. So read on.
Fixed index annuities
The sales story: After a record year in 2009, fixed index annuity sales were heading toward another record year in 2010. FIA sales for the first three quarters of 2010 were up 4 percent compared to the same period of 2009, according to figures compiled by the insurance industry research group LIMRA International.
Meanwhile, according to a separate report from Beacon Research, FIAs now represent a record 44 percent share of fixed annuity sales. Third-quarter 2010 indexed annuity sales reached $8.6 billion, their second consecutive quarterly eight-year high. FIA sales were up 17 percent in 3Q2010 compared to the same period of 2009, while most other annuity products lost ground.
Head-to-head vs. VAs: While FIAs can't rival variable annuities in terms of overall market share (despite record FIA sales levels, variable annuities still easily outpaced their indexed counterparts in the third quarter of 2010, $34.9 billion to $8.6 billion), competition between the two product types clearly is escalating.
Indeed, the emergence of "better [indexed annuity] products with better consumer value" is making insurers, marketers and advisors alike take notice, says annuity expert Garth Bernard, founder and CEO of the Sharper Financial Group, in Boston, Mass. "There's no reason why advisors who sell variable annuities with income riders should not and would not take a look at indexed annuities with the same income riders."
Why? For one, the fees for those income guarantee riders on FIAs are "massively lower" than those of similar VA riders, according to Bernard. What's more, he says, FIAs, unlike VAs, offer built-in principal protection "and you don't have to be securities-licensed to sell them, which can save a lot of red tape."
Nowadays, says William E. Kauffman, Jr., CLU, ChFC, LLIF, director of marketing for life and annuities at Senior Market Sales in Omaha, Neb., the combination of downside protection and upside potential offered by the FIA resonates more with many annuity shoppers than does the pairing of greater upside potential and greater downside risk found with a variable annuity.
Factor in the emergence of reasonably priced VA-like income guarantees on indexed products, plus the U.S. government's decision not to regulate FIAs as a security, and it's clear why independent marketing organizations such, as Kauffman's, are urging their advisors to put a greater emphasis on FIAs.
New features, new players: Similar in some ways to the living benefits "arms race" that unfolded in the VA market several years ago, the escalating competition among FIA providers to outdo one another with their guarantees bodes well for consumers and the advisors who serve them, Kauffman says. "We're seeing [insurance] carriers trying to find new and innovative ways to do things a little differently to offer people a safe means of protecting and growing their retirement dollars."
That trend is manifesting not only in richer guarantees and higher rates of return, but also in the new indexing options available with some FIA contracts, including indices with more of a global flavor.
The influx of new indexed annuity products and features will likely continue, especially with insurance carriers that historically have steered clear of FIAs now looking to join the fray.
