Other industry watchers agree. The appellate court ruling lifted a burden off the industry’s shoulders. “The strict DOL rule that was approaching, and has since been struck down, limited consumer choices by forcing broker-dealers to create product bucketing,” explains Jessica Rorar, a senior planner at Akron, Ohio-based Valmark Financial Group, referring to the strategy of grouping different retirement products to collectively address specific goals. “This product bucketing may have taken products off the shelf at some broker-dealers, or perhaps the broker-dealers restricted commissionable products in general. The demise of the DOL rule has brought choice back to the consumer.”

Annuity Differences

In annuities, the chief distinction is fixed versus variable. Variable annuities hold assets in mutual fund-like subaccounts that rise and fall with the underlying equities. Fixed annuities are CD-like contracts that credit the annuity-holder with a guaranteed fixed interest rate, usually for a fixed period of time, while maintaining principal. Fixed indexed annuities, the most popular type of fixed annuity, sometimes simply called “indexed annuities,” link accounts to an index, such as the S&P 500, via a formula, but they do not invest directly in tradable securities.

Though the fixed indexed annuity sales growth has outpaced that of variable annuities, the net assets in VAs remain much greater. At Valmark, for instance, Rorar says “a majority of the premiums we receive goes into VAs—about 80%—but that’s not the sector that is growing as rapidly. About 6% of the annual premiums we receive goes into indexed annuities.” So far this year, she says, variable annuities are up more than 30% over 2017, while fixed indexed annuities have more than doubled.

One reason variable annuity assets continue to be so high is simply that they’ve been around longer. “The overall in-force assets of VAs is a little more than $2.1 trillion, and for indexed annuities that number is around $400 billion,” says Giesing. “That’s a significant difference, and it comes from when these products were introduced. VAs have been around since the 1950s, whereas indexed annuities didn’t hit the market until the mid-’90s.”

Several Factors At Play

Of course, there are several factors at play in annuity sales. One is rising interest rates, which tend to make fixed annuities more attractive. Fixed indexed annuities in particular had a record-setting quarter, partly due to “stronger economic conditions, resulting in products with higher cap rates and no downside market exposure,” says Alison Reed, executive vice president for distribution operations at Jackson National Life Distributors in Denver.

She’s referring to the fact that fixed indexed annuities generally have both caps and floors—i.e., limits on gains and losses—to buffer volatility. The appeal of high cap rates will likely continue to drive sales of these products.

“One of the primary reasons that indexed annuities have passed VAs in sales is the principal-protection feature,” says Daniel Thomas Jr. of Thomas Financial Group in Troy, Mich. “They might be restricted on their upside growth, but it is the downside- or principal-protection feature that has made indexed annuities so popular between advisors and their clients.”

For all these reasons, Thomas expects that the “FIA market will continue to grow,” he says. Moreover, he notes, the lifetime-income stream that annuities can throw off (usually for a fee) adds to their appeal. “With our clients living longer, many are willing to pay a fee to purchase a lifetime income [so] they don’t outlive their money,” he says.