“RILAs fill a gap in the product landscape,” said David Blanchett, the Lexington, Ky.-based head of retirement research at PGIM, the investment management group of Prudential. RILAs “allow investors [and/or] advisors a lot more personalization around the types of risk they’d like to take. I honestly see a lot of room for growth still in the RILA space.”
With their downside protection and as-good-as-if-not-better-than-bonds upside potential, RILAs “are addressing a few consumer concerns, especially given this year’s stock and bond market volatility,” said Branning.
VA Reversal
Traditional VAs, however, did not fare well in the quarter. As a group, their sales fell 27% from the corresponding period last year, to $16.5 billion—the lowest quarterly results for the category since 1995.
An obvious reason: market jitters. Traditional VAs are tied to the stock market, with no downside protection.
Other Fixed Products
Other types of fixed annuities did well, too. Fixed-indexed annuities (FIAs), which are similar to RILAs except the upside potential is less generous and the downside is locked at zero, brought in $19.7 billion in the quarter, a gain of nearly 28% year-over-year. Again, these reflect a flight to safety. Since you cannot lose money with FIAs, they are as safe as CDs or investment-grade bonds (though in an up market they pay better).
Single premium immediate annuities (SPIAs), the oldest type of annuity contract, purchased with a large upfront payment for a guaranteed income that can begin immediately, had total sales of $2 billion in the quarter, up 11% year-over-year. Sales of deferred income annuities (DIAs), which pay a fixed rate at a later date, slipped nearly 4% in the quarter, compared to the second quarter of 2021, to $520 million.
Shifting Sales Channels
Perhaps more surprising, annuity sales through national full-service broker-dealers were up 55% in the quarter, while those through independent broker-dealers fell 12%. At the same time, sales through banks advanced 48%.
“Banks and the full-service national broker-dealers are driving this record-setting growth,” said Giesing. “Independent broker dealers have not taken advantage of the rising rates and growth in FRDs.”
Demand for annuities is likely to keep rising as more Americans retire, said Bamji at the Alliance for Lifetime Income. “Recent Alliance research shows that more than a third of current annuity owners would actually consider adding another annuity to their portfolio,” he said.
Advisors who aren’t at least considering annuities as a solution shouldn’t be surprised if their clients turn elsewhere for advice, Bamji said. “Many advisors who had little true understanding of annuities in the past [are] finally becoming wise to the various protection benefits annuities offer in a truly diversified portfolio,” he said. “The bottom line is that the antidote to risk is certainty, and annuities provide certainty.”