In the annuities world, where the talk can be inscrutably complex, the buzz on new products and trends for 2019 seems dominated by a single word: simplicity.

Kent Sluyter, president of Prudential Annuities in Newark, N.J., anticipates “a continued demand for transparency and simplicity.” Craig Hawley, head of Nationwide Advisory Solutions (formerly Jefferson National), says, “The right kind of simplified, low-fee insurance products can be a real differentiator.”

This wave of simplification comes even after an appellate court officially “vacated” the Department of Labor’s fiduciary rule last June. Intended to protect consumers by, in part, providing transparency of fees, the ruling would have required greater simplicity in products and distribution. It’s as if a button were pushed, and once carriers began creating more straightforward fee-based annuities—as opposed to the traditional commission-based products—they couldn’t stop. Full disclosure and the elimination of even potential conflicts of interest kept gaining traction.

“You’re going to see the industry continue to move toward overcoming complexities,” says Sluyter.

More Low-Fee Products Likely

The move toward transparency in fees also created a demand that those fees go lower. Stripped-down annuities will likely keep gaining market share. One example: Nationwide's "Monument Advisor", an “investment-only variable annuity” (IOVA) with no bells and whistles—and therefore lower fees. “Ours remains the only flat-fee IOVA built expressly for RIAs and fee-based advisors,” insists Hawley.

At Lincoln, Neb.-based Ameritas Life Insurance Corp., a pioneer in the fee-based annuities market, Thomas Fink, vice president of institutional business, points out that roughly half of the 80-some fee-based annuities on the market today “were created in the past four years.” Plainly, this stemmed from rising demand. Annuity providers “desire to offer consumers choices in how they pay for services and receive financial advice,” Fink says. “Companies are trying to capitalize on this trend.”

Carriers Target Advisors’ Needs

Of course, just saying something is made for RIAs and fee-based advisors doesn’t necessarily make it the best choice. It’s become almost a trendy kind of label. “As more advisors begin moving to a fee-based or fee-only advice model, the decisions to be made go beyond just offering products labeled as fee-based,” cautions Fink.

Advisors, he says, should consider several factors, such as whether the annuity company requires RIAs to have a broker-dealer affiliation or an insurance license, and if it facilitates the application process, allows block trading or helps with billing. “Advisors should explore whether the carrier understands advisor data needs and recognizes the advisor as the owner of the client relationship,” says Fink.

Increasing Tech

Another aspect of simplification is the increased use of technology. “Lincoln is focused on improving the client experience at multiple touch points, including digital connectivity and communications,” says Brian Kroll, head of annuity solutions for Lincoln Financial Group, based in Hartford, Conn. “These features include text alerts, online resolution capabilities, statements, forms, letters and illustrations.”

Hawley at Nationwide confirms that a number of annuity providers are already “offering mobile apps that are designed to make the annuity products easier to understand, with visual aids and simplified planning tools.” Beyond convenient apps for consumers, many companies have built detailed high-tech infrastructure to support busy planners and advisors, too. Nationwide, says Hawley, increasingly “uses advanced analytics and artificial intelligence to ensure that we serve RIAs and fee-based advisors the way they want to be served, using the channels they want to use.”

Simple apps, he says, aren’t “always the best fit when it comes to sophisticated analysis and comprehensive planning. There is a place for both.”

Sluyter at Prudential points to Prudential’s Guaranteed Income For Tomorrow, (GIFT), a “truly completely digital experience [that] will be a model as we expand our products and services in the coming years,” he says. GIFT is a deferred income annuity, launched in April 2018, which allows customers to contribute after-tax dollars via electronic transfers or through payroll deductions. Each contribution buys more guaranteed lifetime income, which can start anytime the customer chooses.

Income Versus Accumulation

The emphasis on guaranteed income isn’t by chance. “The financial planning mind set is fundamentally changing,” says Sluyter, in favor of emphasizing income over principal accumulation. Citing the aging population, increasing longevity, risks to Social Security and stagnant wage growth, he stresses that the need for secure retirement income is more vital than ever. “There is an industry-wide initiative underway to change the dialogue from accumulation to income. If your financial plan doesn’t explicitly address the income challenge in retirement, it’s missing a critical element.”

Indeed, last summer a nonprofit organization called the Alliance for Lifetime Income was formed in Washington, D.C. Supported by a consortium of financial companies, its purpose is to encourage, assist in and educate about the protection of retirement income. Annuities are key ingredients. “We are seeing a number of unique protected lifetime income products introduced that reflect evolving consumer needs and changing market conditions,” says Jean Statler, the alliance’s executive director.

Statler cites target-date funds that are starting to use annuities as a way of guaranteeing retirement income. Other member companies of the alliance are allowing annuitants to “test-drive” income payments “without a long-term commitment,” says Statler. “This can help them gauge how much they will need to help cover their expenses during retirement.”

Providing resources and tools for consumers and advisors alike, the alliance is “the first real attempt by the industry to better control some of the messaging for annuities,” says Scott Stolz, a senior vice president at Raymond James in the St. Petersburg, Fla.-based Private Client Group, Investment and Wealth Solutions division. “Such an effort is long overdue.”

Legislative Developments

Still, if the biggest annuities-related news of 2018 was the demise of the DOL fiduciary rule, the most important development of 2019 might be a series of similar statutes from other regulatory bodies. New York state, for instance, finalized its own “best interest” standard last July, and officials there are reportedly lobbying the National Association of Insurance Commissioners to incorporate it into its nationwide model. Other state legislatures may follow suit. In addition, the Securities and Exchange Commission is considering an analogous proposal.

These efforts, says Raymond James’s Stolz, “will continue to put pressure on commissionable packaged products like annuities. Therefore, the industry needs to continue to shift towards more fee-based sales.”

Nevertheless, other developments on the horizon may produce mixed results for annuities. Congress is considering allowing annuities into 401(k) plans, which is either good news, since it would allow the greater use of annuities, or bad news, depending on your perspective. If it happens, “advisors cannot pull fees from the annuity,” says Tatyana Bunich, president and founder of Financial 1 Wealth Management Group in Columbia, Md. “The fee has to be pulled from another account, because if pulled from the VA, [it] would be considered an early withdrawal, which will lead to a 10% penalty from the IRS if the client is under 59½—and income taxes at any age.”

She adds that many variable annuity providers are lobbying the IRS for a ruling that would allow fees to come out of the VA without tax implications, but that hasn’t been resolved yet.

New Indexed Annuities

Fixed-indexed annuities are popular items that link returns to a market index, typically with a cap on gains and a floor on losses. Bunich says advisors should see more uncapped and low-volatility-index options in this area. “Low-volatility indices have emerged as added choices for indexing allocations, and provide more stable and predictable returns,” she says, adding that carriers are also “offering more indexing options without caps.”

Andrew Murdoch, president of Somerset Wealth Strategies based in Portland, Ore., notes that more FIAs may be moving toward an asset growth strategy, as opposed to income generation. “We have been going more in the direction of growth style to get to a higher [interest] rate environment,” he says.

Some carriers are also creating indexed variable annuities, a product that’s proved so popular you can expect to see more of them come to market soon. “Lincoln introduced an indexed variable annuity to the market in 2018, Lincoln Level Advantage, which has been our most successful product launch ever, with $266 million in sales in the third quarter,” says Lincoln’s Brian Kroll. “We continue to ramp up sales with the addition of new distribution partners.”

The indexed variable annuity is aimed at those nearing or already in retirement. Like some structured notes, it offers its holders tax-deferred growth potential by allowing them to participate in an equity index with downside protection against losses, in the form of various floors you can choose. For an additional fee, it also allows holders to switch on a lifetime income stream.

Some observers also expect continued growth in so-called “structured” annuities. These come in different flavors, but generally link returns to a stock index without actually investing in the equity market directly. Like other indexed annuities, they usually feature downside protection, but typically in the form of either floors or buffers (floors set a maximum loss level, such as 5% even if the market is down 10%; buffers set a minimum downside, protecting you against the first 5% decline, say, but not against any losses beyond that). These products also offer a higher-than-average ceiling on gains, depending partly on the annual fee, if any; the greater the fee, the higher the cap.

As for optional riders, look for a greater array of possibilities for enhanced benefits. “There are more offerings for products with income enhancements for chronic illness,” cites Bunich at Financial 1. Such options are “multiplying as we head into 2019,” she says.