In a still volatile financial market, diversification and tax-deferred investing are taking center stage-a trend reflected in new offerings by Jefferson National and Jackson National Life Insurance Co. that meld variable annuities with alternative investments.

"The attractiveness is that it's a tax deferral, especially for the high-net-worth clients," said Donnie Ethier, senior analyst at Boston-based research firm Cerulli Associates. "A high-net-worth client may not need four to five percent lifetime income, [but] they can sure use tax deferral."

Net variable annuity sales last year rose to $27.7 billion, a 28 percent increase over 2010 and the best performance since 2007, according to the Insured Retirement Institute.

Industry-wide fourth quarter annuity sales topped $54.5 billion. Although sales were down 6.6 percent from $58.1 billion in the third quarter, sales increased to $231.1 billion in 2011 from $214.6 billion in 2010.

"As the RIA channel grows, insurance companies are seeing variable annuities as a pool of new money," Ethier said.

Jefferson
Louisville, Ky.-based Jefferson National launched its first flat-fee variable annuity in 2006. The inclusion of alternative investments in an annuity represents another step in the company's effort to re-engineer annuities for the RIA market, according to David Lau, Jefferson's chief operating officer.

"When we looked into the variable annuity space; there were very few annuities designed for the fee-based advisor-most are commissioned based," Lau said.

The new products offer advisors diversification and tax deferred gains in one package, he noted.

 

Jefferson offers more than 350 funds, which it says is seven times more than the typical VA, including more than 50 alternative investment options. These include non-correlated assets such as commodities and managed futures, as well as funds using unique strategies such as inverse, leveraged, hedging and long/short.

"A lot of [advisors] are feeling that there's a lot of risk in various aspects of the market. They're looking for less volatile, more predictable asset classes. Some of them view these asset alternatives as fitting that bill," Lau said.

Jackson
Earlier this month, Jackson rolled out its "Elite Access" annuity program to provide advisors with an investment tool designed to diversify portfolios with alternative asset classes.

Elite Access is a collection of investment options that combine alternative funds, risk management and tactical management strategies to offer investors the potential for higher returns and offset market volatility in clients' portfolios, according to company officials.

The program features 12 alternative investment options comprising managed futures, commodities, global infrastructure, covered calls, natural resources, emerging markets debt, global real estate, global alpha strategy, convertible and merger arbitrage, listed private equity, and market neutral equity.

There is also a group of traditional investment options from established investment managers such as American Funds, Franklin Templeton, J.P. Morgan and T. Rowe Price, according to company officials. Jackson National modeled the offerings after portfolios that are available to institution investors.

"The buzz so far has been very positive," said Greg Salsbury, executive vice president of Jackson National Life. "This is clearly what investors are looking for. They're looking for an alternative strategy. The old 'buy-and-hold' strategy has kind of morphed into a 'buy-and-hope' strategy, and investors no longer are satisfied with that."

However, another Cerulli Associates analyst believes that insurance companies selling annuity products still have a ways to go before getting sizable distribution among RIAs.

"It's going to be kind of an uphill battle," said Tyler Clotherty, a senior analyst for Cerulli. "Traditional advisors who are very fee conscious, who are managing a greater portion of their assets than using outside managers-they're not going to really be as receptive to this product."

Increased sales indicate insurance companies are making some headway, but there's still a lot of resistance to the product in RIA circles, he notes.

"The broad base of advisors that are in the RIA segment are barely using any annuities," Clotherty said.      

-Jim McConville