Data & Research July 20, 2015

B/Ds Embracing Fixed Indexed Annuities

Fixed indexed annuity sales increased 24% in 2014 to $48 billion.
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Broker/dealers (B/Ds) are increasingly embracing fixed indexed annuities (FIAs), according to a survey by the Insured Retirement Institute (IRI). Sales of fixed indexed annuities rose 14% in 2013 to $38.7 billion and 24% in 2014 to $48 billion—or about 21% of all annuity sales. Since 2012, fixed indexed annuities have outsold traditional fixed annuities, IRI says.

Seventy-nine percent of B/Ds say that 11% or more of their financial professionals sell fixed indexed annuities, and 29% say that more than 50% of their financial professionals sell these products. Sixty percent say that annuities comprise 10% to 25% of their total sales, and 20% say they comprise 26% to 50% of their total sales.

However, variable annuities (VAs) with guaranteed lifetime withdrawal benefits capture 48% of all annuities sales, followed by variable annuities without guaranteed income (22%) and fixed indexed annuities (10%). Nearly four out of 10 B/Ds (39%) say that their sales of FIAs are growing significantly, and 31% expect sales to grow significantly in the future. Forty-three percent of B/Ds (29%) say that their financial professionals are either extremely or very receptive to RIAs with lifetime income.

“While variable annuities capture the lion’s share of premium dollars in third-party distribution channels, sales of FIAs are growing, reflecting the appeal of the product to both advisers and consumers,” the survey concludes. “They can provide principal protection, some upside potential and guaranteed income benefits comparable to those currently available on VA products. Advisers and consumer value these attributes, as evidenced by their receptivity to FIAs, particularly when guaranteed lifetime income benefits are offered.”

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IRI based its findings on a survey of 15 member distributor firms between January and March 2015. The full report can be downloaded here.

Compliance July 20, 2015

SIFMA Comments Support Commission Accounts

Eight comment letters to the DOL address SIFMA’s concerns about the fiduciary redefinition, including what it sees as an unfair position on commission-based accounts.
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In hopes of getting a chance to testify at the DOL’s August hearing, The Securities Industry and Financial Markets Association (SIFMA) has sent eight comment letters to the Department of Labor (DOL) about the proposed fiduciary redefinition. Among the association’s concerns are the potential effect of the rule on investors with commission-based accounts.

The group said it is deeply concerned that the DOL has proposed a rule that would harm U.S. individual investors because of what it calls the DOL’s complete recasting of the ERISA definition of who acts as a fiduciary. Two of the letters comment on the rule itself; each prohibited transaction exemption is addressed separately. SIFMA’s concerns are similar to the ones it stressed in 2011, when the last fiduciary rule was proposed.

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Among SIFMA’s concerns are that the prohibited transaction exemptions in the proposed rule will limit access to financial guidance, reduce choice and ultimately raise the cost of saving for retirement. 

According to Tom Price, managing director, operations and technology at SIFMA, the organization factored account-level data and actual trading data of investors with individual retirement accounts (IRAs) into its opinions. The data—from a study by NERA Economic Consulting—is up to date, Price said on a media call to discuss the letters, not from a decade ago or more.

Among their findings: the cost of commission-based accounts would be higher for many individuals if they had to convert, Price said, noting that currently investors can choose, and do in fact select the model that’s appropriate for them.

NEXT: Investors left in no man’s land?

“Many accounts might not even meet the minimum balance required to have an account,” Price said, since thresholds can be between $25,000 and $50,000. If the economics don’t work to move these investors into a wrap account, some investors could be left on their own, unable to access a commission-based account but below the level needed for an advisory account.

The performance of commission-based accounts is a high-level point, Price said, and NERA found that commission-based accounts do not underperform fee-based accounts. “What is the problem that you’re solving here? People are making these choices ably already,” he said. According to NERA’s study, in 2014, the median trade frequency in commission-based accounts was just 6 trades versus 57 trades in fee-based accounts, with larger accounts trading more frequently than smaller ones.

“We agree with the DOL that more can be done to help Americans save for retirement and that there should be a best interests standard in place; however, we believe DOL is the wrong regulator to be in the lead here,  and the rule as written completely misses the mark,” said Kenneth E. Bentsen, Jr., SIFMA president and CEO.  “SIFMA’s comment letters reflect our ongoing concerns that the DOL’s proposal would cause harm – particularly to low and middle-income retirement savers – by limiting investors’ access to choice and guidance, while raising the cost of saving.”

A link to all SIMFA’s comment letters is on their site.

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