The repeal of the U.S. Department of Labor's conflict of interest rules and the new SECURE Act are helping propel sales of fixed-indexed annuities, according to a report by Cerulli Associates.
The robust performance of index strategies, growing acceptance of annuities by broker-dealers and innovative product designs are among the other factors that are expected to boost fixed-income annuity (FIA) sales, the report said.
FIA sales made up 57% of annuity sales in 2019, climbing to a new all-time high of nearly $74 million, according to Cerulli, which predicted that FIA sales will overtake variable annuity (VA) sales by 2023.
"In sharp contrast to the steady outflows VAs have experienced since 2012 due to derisking, FIAs are generating positive net flows," Cerulli said in a press release. "FIAs should not be harmed greatly by Fed rate cuts, and if markets become volatile and or bearish, fixed annuities will once again serve as safe havens for risk-averse investors."
In surveys of financial advisors, Cerulli said the top-five reasons they attribute to the success of FIAs are better pricing, generous guarantees, low interest rates on fixed annuities, consumer-focused marketing materials, and the diminishing attractiveness of VA guarantees, respectively.
The repeal last year of the DOL rule that would have created a blanket fiduciary standard for both investment advisors and broker-dealers was also cited by Cerulli as a key development that has helped drive FIA sales. The report also cited the recent adoption of the SECURE Act, which loosened fiduciary restrictions on annuity sales as part of an overall effort to increase access to retirement savings plans.
"The threat of the DOL rule had been a key reason for reduced sales especially into VAs and FIAs," Cerulli director Donnie Ethier said in the press release. "The passage of the SECURE Act may open the door for further growth."
But the report said the strongest catalyst for future growth is the extent to which broker-dealers are warming up to annuity solutions.
Independent broker-dealers have experienced the largest 10-year gain in fixed annuity marketshare at nearly eight percentage points, while regional B-D marketshare has grown by nearly seven percentage points, according to the report.
“Broker-dealers have embraced the solution as products become more transparent and consumer-friendly,” Ethier said.