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.”