Such annuities are ideal for clients who want to experience market growth with some downside protection, so they should be seen as equity-like. Equitable was the first to market the RILA product back in 2010. Low-volatility mutual funds and ETFs attempt to deliver similar investor experiences, as do certain alternative investment strategies like absolute return funds.

“These solutions have attracted many advisors who typically have not looked at annuities but are looking for solutions that help them keep clients moving toward their goals in today’s challenging economic environment,” says Day.

Fixed-Index Annuities
Fixed-index annuities offer similar protections but with a few important differences. They have a fixed floor that ensures a client’s investment won’t lose value even if the market falls. In exchange for that protection, gains also have a hard limit. The upside caps tend to be lower than they are for RILAs since the insurance provider is absorbing more of the downside risk. In general, these should be treated as fixed-income allocations.

But according to the Secure Retirement Institute (SRI), sales of fixed-index annuities fell 12% in the first quarter of 2020 from the same period the year before. Coming in at $15.8 billion, that was the third straight quarter of sales declines. That may partly be due to the growing popularity of registered index-linked annuities, the sales of which came in at $5.1 billion in the first quarter, up 44% from the preceding year and showing the highest quarterly sales record for this product class since its introduction a decade ago.

Cboe Vest, a fund manager in McLean, Va., with more than $1 billion under management, focuses on structured products such as registered index-linked annuities. Jeff Chang, Cboe Vest’s managing director, says such products “are particularly attractive investments in times of current volatility and uncertainty. These investments seek to strike the balance between downside protection and upside capture, and [they] deliver a higher level of certainty.”

Other Vehicles
Annuities are rarely simple, at least for most clients. “Annuity features can be as diverse as the people who purchase them,” notes Joe Boan, senior managing director of individual solutions at Transamerica Life Insurance Co. in Baltimore. “Customers can seek any combination of elements to appropriately fit their needs.”

In April 2020, in the middle of the Covid-19 pandemic, Transamerica launched a new low-cost variable annuity with average annual fees that are more than 70% below the industry average, says Boan. Called the Transamerica Advisory Annuity, it’s “designed for individuals who are seeking comparatively low costs, a choice of death benefits and a diverse menu of investment choices.”

He points out that low-cost variable annuities enable clients to “invest more tax-deferred money during the accumulation phase, at a lower cost.” These would be younger clients who are not near retirement. “People who are further away from retirement have time to ride out market volatility,” he says. “For people closer to retirement, though, annuities can help guarantee income in down markets while continuing to give them the opportunity to participate in market growth in up markets. For these people in particular, annuities can be an important tool in planning for a financially secure future.”

Reducing investment costs is certainly one way of improving client outcomes. Many annuity providers are trying to lower expenses by increasingly using technology. “We’re seeing annuity providers embrace digital tools,” says Harry Bartle, executive vice president of enterprise sales at LifeYield, a Boston-based financial tech company that partners with several annuity providers. During the pandemic, Bartle adds, this digital approach “has become even more important and is now accelerating.”

When Things Return To Normal
What will happen next? Harris at the Alliance for Lifetime Income predicts an upswing in annuity sales “once things start settling down.”

Many clients may want to buy an annuity before the next round of market volatility. Wade Pfau, director of the Retirement Income Certified Professional program at the American College of Financial Services in King of Prussia, Pa., says, “Having more protected lifetime income means that one is less affected by market volatility and can therefore more easily feel comfortable with staying the course.” 

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