Although variable annuity sales, both with and without guaranteed lifetime income benefits, far outpace total annuity sales for broker-dealers, fixed indexed annuity sales account for 10% of broker-dealers' total annuity sales, according to a survey released Monday by the Insured Retirement Institute. Furthermore, FIAs are starting to displace sales of VAs and traditional fixed annuities.
Almost 70% of respondents said they were seeing at least some displacement among variable annuities without lifetime benefits. The same percentage said FIAs are causing at least some displacement among traditional fixed annuities, and almost half of those said they were seeing significant displacement.
Respondents were less likely to say variable annuities with lifetime benefits were being displaced by FIAs.
Monday's FIA survey is based on a small sample: 15 firms surveyed between January and March. Six of those firms were independent BDs, two were national wirehouses, and two were regional broker-dealers. One respondent was in the bank channel. The remaining four categorized their firm as "other."
First-quarter FIA sales in 2015 reached $11.6 billion, according to a report issued in June by IRI based on data from Morningstar and Beacon Research. First-quarter sales were up 3% over the first quarter of 2014, and down 5% from the previous quarter.
Fixed indexed annuities account for more than 55% of the total fixed annuity market, according to IRI. Despite a drop in sales of fixed annuity products, "positive sales trends continue," according to Beacon Research President Jeremy Alexander, especially among independent broker-dealers. That channel had a "record-breaking quarter" with a 104% increase in sales of market value adjusted (MVA) products, he said in a statement. "Fixed indexed products also set a new record in the wirehouse channel with a 14.5% increase," he said.
The firms that responded to the FIA survey were fairly optimistic about the future of the product. Nearly 40% said their FIA sales were growing modestly, and 46% expect that moderate growth to continue. Another 40% said growth was significant, with 31% saying they expect future growth to be significant as well.
Furthermore, 46% of respondents said they expected FIAs would account for a greater share of their total annuity sales going forward.
"The retirement income market continues to evolve its product offerings, developing innovative strategies to deliver guaranteed lifetime income to consumers," Cathy Weatherford, president and CEO of IRI, said in a statement. "The evolution of fixed indexed annuities is representative of this trend, with a significant percentage of FIAs being sold with lifetime income benefits."
The survey found 46% of respondents said more than half of the FIAs they sold had lifetime income benefits attached.
In fact, lifetime benefits, and concerns that they'll be less generous in the future, are driving FIA sales growth, according to IRI. Those were among the top five growth factors for FIA sales, along with principal protection with upside potential and, interestingly, both high and persistent low interest rates.
"Both higher interest rates and persistent low interest rates were cited as potential sales drivers, which seems paradoxical but in fact is simply viewing the product from two different perspectives," according to the report. "In a persistent low interest rate environment, sales are boosted by the product being an attractive alternative to low interest products such as CDs. As rates rise, index options become less expensive and FIAs are able to provide more upside potential, making the product more attractive from a growth standpoint."
