New Innovations
But not all annuities participants are waiting for decisions from the administration. In reaction to changing market forces, many insurance companies have been conjuring new types of annuity products and add-ons.
“I’ve seen quite a few variations of annuities coming out, new product innovations across the spectrum,” says Drew Horter, the president and chief investment strategist at Horter Investment Management in Cincinnati. “Annuity sales are likely to rise to fill insurance needs, to fill retirement-income gaps, so retirees can make sure they have enough money to live off of for the rest of their lives.”
Horter cites “unique income riders for fixed annuities, and immediate annuities with unique bonus features.” He declines to recommend one brand over another.
The breadth and variety of annuities currently on the market or soon to be launched can’t be denied. Josh Jalinski, the president of Jalinski Advisory Group and Wealth Quarterback LLC, a registered investment advisor, both based in Toms River, N.J., is encouraged by many of the new offerings. “Among the product innovations that we see, we particularly like income riders without a fee,” he says, singling out the Midland National IncomeVantage, a fixed-indexed annuity with no fees, loads or sales charges. “Products like that will become popular,” he says.
If the DOL rule stays, he anticipates a surge in “fiduciary-minded fixed-indexed annuities,” he says, such as those offered by Great American Insurance Group and American Equity, which are fee-based, not commission-based, to avoid the rule’s requirement of having clients sign a best interest contract exemption (BICE) to indicate their full knowledge of all associated costs. “In light of the BICE, an advisor might just say, ‘Screw it. I’ll take the flat fee and not have to fill out all this extra paperwork.’ So if the DOL rule stays, more of these fee-only fixed-indexed annuities are going to come to the forefront.”
VAs, on the other hand, are “playing defense,” he says. “I don’t know how they’re going to be sold” under the new standard.
A possible exception, says Jalinski, is the low-cost investment-only VAs popularized by Jefferson National, a unit of Nationwide and Jackson National. “There’s always a need for that, low-cost tax deferral on a fee-based chassis,” he says.
Other Forces at Work
Whatever happens with the regs, it’s undeniable there are always other market forces at work: most notably, equity returns and interest rates. “We see the demand for fixed-indexed annuities continuing to grow,” says Carolyn Johnson, CEO of annuities and individual life at Voya Financial, the retirement products and services company.
People haven’t forgotten the market downturn during the financial crisis, notes Johnson, who is based in Windsor, Conn. They see VAs as too risky, too volatile, given their underlying mutual-fund-like investment accounts. Instead, clients are drawn to the safer growth that FIAs can offer. “Fixed-indexed annuities provide upside potential by linking to an index like the S&P 500,” she explains, “while a floor offers downside protection if equity markets turn volatile. Plus, they also provide tax-deferred growth.”
Johnson says that Voya recently launched a single-premium deferred FIA called Voya Journey Index Annuity, which “offers full participation in the growth, if any, of one or more dynamic indices over a seven-year period,” she says, quoting company literature. It was designed as “a good alternative to bank CDs, since consumers can potentially earn a better return,” she says, especially in this low-interest-rate environment.
Johnson acknowledges that Voya isn’t the only annuity provider that’s coming up with new products. “Given the current regulatory environment, we also expect to see more annuity manufacturers roll out products that are built for the advisory market,” she says. “A fee-based model naturally lends itself to more regular touch points with advisors, which gives consumers the opportunity to develop a holistic financial plan that meets their needs.” She adds that Voya is “planning to roll out an advisory version of our Voya Journey Index Annuity product later this year to meet the evolving needs of our customers and partners.”
But even if the fiduciary ruling doesn’t remain in effect, Johnson is unfazed. “Regardless of the future status of the DOL’s fiduciary rule, Voya is confident in our ability to meet the needs of our distribution partners and any changing demand for various product suites,” she says.
Kroll, at Lincoln Financial, is similarly bullish. “Innovation and product development have brought more options to the marketplace than ever before, in fee- and commission-based models,” he says, adding, “Both can be in the client’s best interest.”
An example of Lincoln Financial’s new annuity offerings: Kroll says that Lincoln recently partnered with BlackRock to launch a fee-based VA that invests exclusively in exchange-traded funds (ETFs), the first of its kind, he says. Built with iShares, the family of ETFs run by BlackRock, it’s called Lincoln Core Income. It “captures trends in both passive investing and fee-based advice—an area that we believe presents a significant long-term growth opportunity,” he says.
And that’s just the beginning for this still-evolving industry. “Given that the need for guaranteed lifetime income in retirement has never been greater, we expect product innovation will continue across the industry,” says Kroll.