With annuities enjoying a record-breaking year in sales, experts in that market believe that success could lead to advisors continuing to use these products even after the boom has subsided.
Annuities, in particular fixed-rate deferred annuities and fixed indexed annuities, have experienced sales numbers this past year they have never seen before. Annuity sales last year increased by 22% over the year before to $310.6 billion, according to Windsor, Conn.-based LIMRA. This is 17% higher than their best numbers in 2008, LIMRA said.
Meanwhile, total fixed-rate deferred annuities experienced their best sales quarter ever documented with $37.5 billion in sales in the fourth quarter for a 241% increase over the year before, LIMRA said. Over the course of the year, these products sales totaled $112.1 billion, which is more than double (111%) the sales in 2021, according to LIMRA.
Finally, fixed-indexed annuity (FIA) sales also saw a record quarter and year with sales of $21.9 billion for the fourth quarter and $79.4 billion for the year, according to LIMRA.
Annuities have garnered additional attention recently because of unique aspects of the current market. With equities not performing well, the traditional response has been to invest in bonds. That option was quelled due to the U.S. Federal Reserve’s interest rate increases. This has motivated advisors to turn to annuities as an alternative.
Having gained that exposure to these products, many believe that it will only continue as advisors learn about the benefits of annuities.
“As more and more advisors recognize the value of incorporating protected accumulation and protected income strategies into well-balanced financial plans, momentum will continue to build,” said Dylan Tyson, president of Retirement Strategies at Newark, N.J.-based Prudential Financial.
Rona Guymon, senior vice president of Columbus, Ohio-based Nationwide Annuity Distribution, said the influx of new advisors into annuities allows them to become comfortable with them going forward.
“The current economic and regulatory environments have made investors more aware of the benefits of an annuity,” Guymon said. “We expect to see financial professionals using that both now and, in the future, to start conversations and educate clients on how an annuity can help manage today’s risks and guard against market volatility and rising interest rates.”
Annuities have been incorrectly associated with high commissions, illiquidity, and significant fees, which has contributed to a reluctance among advisors to recommend annuities to their clients, said Sheryl Moore, CEO of Wink Inc., a third-party market research firm that operates in the life insurance space in Des Moines, Iowa.
“There’s still a lot of reluctance on behalf of the fiduciary to talk about annuities and that's just because there's so much misinformation about the products and they've been maligned for a very long time,” she said. “I think there's still a lot of hurdles that have to be overcome in order for somebody ... to sell [annuities].”
However, with the recent success, many believe annuities can begin to gain more of a following.
“I think ... it's helpful that the more people that are talking about [annuities] and the more people that are describing the benefits and the value within these products, it is just going to create more awareness of what they do and how they help you if it's the right fit for your needs,” said Todd Giesing, assistant vice president at LIMRA Annuity Research.
Moore is unsure if the current boom will help foster greater interest in annuities going forward, but she said there have been changes in the industry that have made it easier for advisors to use annuities in their clients’ portfolios. One of those was the introduction of outsourced insurance desks.
These services provide advisors with an individual who has the expertise and license to sell annuities. They can suggest the right product for an investor while the advisor maintains their fiduciary status over their client, Moore said.
Another change that helped annuities is the SECURE Act, which passed in 2019. Among other things, the legislation allows annuities to be included in 401(k) plans. When that change happened, the news about annuities became more positive, Moore said.
“We used to have a lot of negative, inaccurate, and biased publicity about annuities in the public domain but since the SECURE Act came out, there's been a lot of positive press about annuities,” she said.