Advisors Helping Fuel Annuity Growth

By Andrew Coen April 02, 2014, 11:33 a.m. EDT 2 Min Read

The annuity industry has been riding momentum, with advisors helping fuel the growth. And as more advisors at some of the larger broker-dealers and wirehouses embrace fixed indexed annuities in recent years, total annuity sales are likely to keep growing in 2014, says Morningstar analyst John McCarthy.

Fixed indexed annuity sales rose 45.2% year over year in the fourth quarter of 2013 -- the most recent quarter for which data is available -- to $23.5 billion, according to data from Morningstar and Beacon Research. Industrywide, annuities sales grew 17.2% year over year in the fourth quarter.

"The footprint of who is selling and who is buying these products is really expanding," says McCarthy. "Fixed indexed annuities are becoming much more accepted by advisors."

Insurance carriers have responded to advisor concerns about the controversial product by lowering commission fees paid to B-Ds -- to help increase returns for investors -- and reducing surrender years, McCarthy says. The shorter surrender years mean the advisors, their firms and the insurance carriers will face less scrutiny from the SEC since investors are less likely to bring complaints to FINRA, McCarthy explains.

Among other insurance products, income annuity sales rose 23.3% to $3.5 billion from $2.8 billion in the previous quarter, passing the $3 billion sales mark for the first time, according to the new data.

MIXED RESULTS FOR VARIABLE ANNUITIES

Meanwhile, variable annuity sales slipped 1.5% from 2012 levels to $142.8 billion in full-year 2013, although they edged back up 2% in the fourth quarter from the preceding quarter. Variable annuity net assets reached a new all-time high of $1.87 trillion at the end of 2013, according to the data.

"Industry growth is being fueled by strong demand, concern over rising taxes and innovation, which has expanded the sustainability of the industry's solutions," Bruce Ferris, president of Prudential Annuity Distributors, said in a statement.

Variable annuity sales may also be getting a nudge from growing interest in tax deferral products, argues an executive at Jefferson National -- which specializes in such products.

"Advisors are, more and more, embracing the structure of an annuity as a tax deferral solution," says CEO Mitchell Caplan; Jefferson National sells solely through the RIA and fee-based channels. "It is really resonating with advisors," he adds.

Tax deferral products make up only 4% of the variable annuity marketplace, but that's up from only 2.2% in 2011, according to Morningstar's McCarthy. "The bulk of variable annuities were slightly down last year, but tax deferral was improved and growing," McCarthy says. "They are increasing their share."

Andrew Coen