Financial Crisis Changed View of VAs

The 2008 financial crisis changed advisers’ and investors’ attitudes about variable annuities (VAs), according to a survey.  

The survey, conducted by AllianceBernstein L.P. (AllianceBernstein) and the Insured Retirement Institute (IRI), found that investors and advisers found more value in variable annuities after the 2008 financial crisis. Amid the crisis, many strategies were less effective in limiting losses than expected—or made things worse. As advisers looked for a way to avoid a repeat of this experience, they focused more closely on the design of the variable annuity, with its guarantee of retirement income.

“Our survey found that more and more financial advisers are turning to VAs as a sound portfolio solution because they provide guaranteed income and can help clients attain financial security in retirement,” said IRI President and CEO Cathy Weatherford.

The survey separated participants into three categories: sellers (sold more than 10 contracts per year); dabblers (sold between one and 10 contracts per year); and non-sellers (sold zero contracts).

Financial advisers were surveyed about their feelings and their clients’ feelings toward guaranteed income solutions and VAs. Survey findings included:

  •  Seventy-three percent of dabblers and 79% of sellers said they never want their clients to have a year like 2008 again and will therefore continue to recommend VAs;
  •  Fifty percent of respondents said they started recommending VAs more because their clients are demanding “guaranteed investments;”
  •  Fifty-seven percent of respondents said they increased their use of VAs because the “designs have become more attractive;”
  •  Forty-nine percent of dabblers have increased their recommendations for VAs since the credit crisis;
  •  Sixty percent of sellers have increased their recommendations for VAs since the credit crisis;
  •  Forty-two percent bring up VAs in “every conversation” with clients and see them as an important part of financial planning solutions;
  •  More than seven out of 10 sellers have more than a decade of experience in selling VAs, compared with roughly half of non-sellers and dabblers;
  •  The average allocation for new clients is 29% VAs, 14% mutual funds, 14% IRAs, 8% life insurance, 6% unified managed accounts/mutual fund wrap accounts and 29% other;
  •  Approximately a quarter of sellers had assets under management in excess of $100 million;
  •  Nearly a third of sellers had annual revenues (fees plus gross commission) in excess of $500,000; and
  •  Sellers have twice the number of high-net-worth clients (with investable assets between $1 million and $29 million) of dabblers and one-third more than non-sellers.

More than 500 advisers participated in the online survey, commissioned by AllianceBernstein and IRI and conducted by market research firm InsightExpress.