Interest in variable annuities continues to sink on fears of the Department of Labor’s new fiduciary rule. LIMRA Secure Retirement Institute forecasts variable annuity sales to drop 15 to 20 percent in 2016, followed by another 25 to 30 percent drop in 2017, when the rule goes into effect. Third-quarter results should be out by Thanksgiving, says the Institute.

It’s too early to tell how the industry upheaval is impacting the variable annuity platform at Fidelity Institutional, Fidelity spokesperson Kate Taylor tells Financial Advisor. However, “Based on Fidelity’s research and client discussions,” she says, “advisors appear to be heading down the path where they may narrow their product universe, including the types of annuities they sell.”

Research conducted this year by Fidelity Institutional shows that advisors’ attitudes toward variable annuities have declined since the DOL released its final version of the fiduciary rule in April. According to its August survey, 39 percent of advisors will recommend variable annuities less often to clients, compared with 28 percent in its January survey. The more recent data, split out by advisor channel, is higher at the wirehouses (42 percent) and independent and regional broker-dealers (41 percent) than registered investment advisors (22 percent).

According to the survey, variable annuities top the list of products that advisors expect to recommend less often, surpassing alternative investments and proprietary products. And 58 percent of advisors say they need to re-evaluate the products they recommend or advise upon and the associated fees they charge for them.

Fidelity is regularly communicating with its clearing and custody clients about the new tools it’s adding to not only minimize the impact of the DOL fiduciary rule on their businesses, revenue models and clients, says Taylor, “but empower them as they evolve their businesses for a post-rule world.” Fidelity Institutional is working with key third-party technology providers to develop these tools.

AnnuityNet, an annuity-trading platform Fidelity provides to broker-dealers through its partnership with third-party provider Ebix, will be enhanced to help advisors with product- and plan-type vetting so the user doesn’t select a product that isn’t covered by whatever DOL “prohibited transaction exemption” (PTE) they may be leveraging, says Taylor.
The third-party enhancements will help advisors incorporate the “best interest contract exemption” (BICE). Under the fiduciary rule, advisors who wish to continue to continue to sell commissioned products must use a BICE to ensure retirement investors receive advice that’s in their best interest.

Financial Advisor also asked Vanguard whether it anticipates any changes as a result of the DOL fiduciary rule. Investors can purchase the Vanguard Variable Annuity, which has approximately $14 billion in AUM, through Vanguard’s direct retail business and also in partnership with a non-Vanguard investment advisor.

Vanguard’s variable annuity is sold without loads or commissions and is among the lowest cost available, and the company doesn’t take a stand on whether clients should buy them, “so we don’t anticipate any negative impact as a result of the DOL fiduciary rule,” says Phil Korenman, head of specialized retail programs at Vanguard. “In fact, we believe Vanguard’s variable annuity may be more attractive to clients and advisors given the new rule.”

According to Morningstar, as of December 2015, the Vanguard Variable Annuity had an average expense ratio of 0.54 percent, compared to an annuity industry average of 2.24 percent.