Principal Financial Group has jumped into the registered index-linked annuity (RILA) market with the launch of Principal Strategic Outcomes, which will provide the options that advisors and clients seek in a RILA.

As other firms launched their own RILAs over the past few years, Principal remained on the sidelines biding its time and conducting its own research. The firm spoke with advisors to determine the features investors are looking for as well as the look and design of the product. 

The firm learned clients want a choice in the indices the annuity invests in. However, they do not want to be overwhelmed by options, according to Sri Reddy, senior vice president for Retirement and Income Solutions at Principal.

“We learned that consumers and advisors … want underlying indices that they can choose from, but they don’t want a menu that looks like the Cheesecake Factory,” he said. “We crafted a menu, but it’s much smaller for sure because that’s where the bulk of the flows are going based on consumer and advisor preferences.”

The index options include the S&P 500, the Russell 2000, the MSCI EAFE, and the SG Smart Climate Index, which is an ESG index. It uses models created by independent climate data and analytics provider, Entelligent, to calculate the E-score, which estimates the sensitives of investor returns to potential clime change situations. 

“The sustainability index gives Principal Strategic Outcomes a distinctive element that supports both a stable income stream in retirement and environmental stewardship,” Reddy said.

While ESG is not an option everyone wants, Reddy admitted that a significant number of investors seek it. In addition, it can diversify a portfolio and attract new customers.

“Part of the reason we put ESG in is when you come as a new entrant you want to make sure you have some level of differentiation, so advisors at least know how you’re different in the marketplace,” Reddy said.

The decision to launch Principal Strategic Outcomes comes at a time when Reddy believes investors are looking for options to build on their retirement savings while also trying to wade through current market volatility. 

“We’re seeing absolutely client/advisor preference because when markets are choppy and you’re seeing volatility day-to-day and month-to-month, there are a lot more people who want to take some risk off the table and have some level of protection,” he said.

The firm saw the opportunity as market volatility and inflation pressures helped boost sales of RILAs to a record $41.1 billion last year, according to LIMRA.

“Sustained market uncertainty has investors thinking about their asset allocation mix which, along with volatile equity markets, has triggered movement to solutions that help individuals build retirement savings while managing their risk tolerance,” Reddy said.

Principal Strategic Outcomes comes two years after the Des Moines, Iowa-based firm announced it was getting out of the fixed annuity marketplace. The decision to launch a RILA does not go back on that decision, according to Reddy.

“Principal never left retail annuities,” he explained. “We’re still in the variable annuity space which includes RILAs.”

As for the new RILA, Reddy did not elaborate in detail about what Principal’s plans are in the space after the launch of Principal Strategic Outcomes but did confirm that the firm is looking into additional income-producing products. 

Principal Strategic Outcomes will be available through Principal’s network of more than 1,000 advisors as well as independent broker-dealers working with clients on retirement solutions. There are no premium charges collected when the premium payment is applied under the contract. There will be a surrender charge assessed for certain full or partial withdrawals in the first six years, the firm said.