Response to Andrew Silva, Financial Planning
September 11, 2014 by NAFA Response
NAFA Response to Annuity Sales Up, But Should They Be?
Annuity sales are up, even as some experts question whether certain products make sense for clients in a low-interest rate environment.
In the second quarter, industry-wide annuity sales reached the highest level in three years, with fixed annuities reaching peak sales for the last five years, according to data compiled by the Insured Retirement Institute.
Annuity sales overall rose to $59.9 billion in the second quarter, a 6.8% increase from $56.1 billion in the previous quarter and a 9.9% increase from $54.5 billion in the year-ago quarter, according to Beacon Research and Morningstar data.
‘UNDERWHELMED AND IMPATIENT’
But is this trend a positive one for clients?
“No one should be buying fixed annuities because they’re not competitive right now,” says Kellan Finley, managing director of Insurance Decisions, a consulting firm founded by an RIA firm.
NAFA: Taking a more disciplined and analytical look at the numbers would tell you that the reason for the increase is clearly and inarguably an “insurance decision”, not an interest rate decision. The largest increase is in fixed indexed annuities (FIAs). FIAs offer (and have verified records to show) that a bit more interest could be earned from the positive performance of a market index. The main driver of the increased sales is the guaranteed income riders, many with bonus interest. Also, deferred income annuities – an up and rising insurance product with an income-for-life promise – are driving the sales numbers.
But, Finley says, many older clients are indeed looking to annuities because in a low-rate environment, other options like CDs are not providing the returns they once did. “One thing we’ve seen for older clients who are used to being in fixed products is that they reached a point where they are underwhelmed and impatient,” she adds.
Finley also argues that the majority of clients who request information about annuities are ones who already have an annuity. “We’ve seen a lot of situations with clients reaching the end of their guarantees,” she says. “Their option is to stick with this with a low rate.”
NAFA: Actually, almost 9 out of 10 annuity owners “stick with” annuities because they believe annuities are an effective way to save for retirement and they protect against losing money (Source: 2013 Survey of Owners of Individual Annuity Contracts, conducted by The Gallup Organization and Mathew Greenwald and Associates for the Committee of Annuity Insurers)
Older clients who are seeking tax-deferred growth and have already maxed out their retirement accounts represent another group that may be interested in annuities, Finley says
