By Linda Koco
Advisor interest in selling variable annuity products appears to be continuing, despite predictions that advisor interest in variable annuities would wane due to the volatility and scale-backs the market has seen in recent times.
That’s the take from Cogent Research, LLC. The Cambridge, Mass., researcher has found that 77 percent of advisors surveyed in 2012 expect to continue selling variable annuities and to allocate 11 percent of their assets under management toward the products in the coming year.
Those are the same percentages that Cogent found in 2011, says Meredith Rice in an interview with InsuranceNewsNet before release of the 2012 data. In fact, the percentage of those expecting to continue selling variable annuities is even slightly higher than in 2010 (75 percent) and in 2009, (76 percent), says Rice, who is senior project director at Cogent.
The data comes from the firm’s annual Advisor Brandscape survey of advisor perceptions on brands that offer various financial products.
The fact that advisor intentions regarding selling variable annuities is holding steady, and not declining, may surprise some market watchers.
After all, many insurers have been scaling back on variable annuity offerings (especially guaranteed income benefits), and a few have even exited the market altogether, in response to the challenge of managing books of guarantee-rich annuities in a prolonged low interest rate environment.
As the scale-backs and exits have taken hold, expectations have risen that many advisors would decide to walk from the remaining products rather than sell products with features that are “less-than” before.
That apparently hasn’t happened. The 2012 Brandscape survey found that not only is advisor intention to sell variable annuities holding firm, but that advisors “seem to be really committed to certain carriers,” Rice says.
In particular, the survey found that Jackson National and Prudential increased their penetration among VA sellers by 12 percent and 7 percent, respectively. In addition, both firms are leaders in Advisor Investment Momentum, a Cogent measure of advisor intent to increase or decrease use of existing providers in the coming year, she says.
Other carriers that the survey found increased penetration among VA users in the past year include MetLife, Aegon/Transamerica and RiverSource.
The penetration increases vary by channel. For instance, the survey found that RiverSource improved its penetration among independent advisors (in part due to cross-selling with Ameriprise Financial advisors). Meanwhile, Prudential appears to have made inroads in the regional channel, and Jackson National experienced a “significant increase” in the national wirehouse channel, Cogent says.
An attractive alternative
Rice speculates that advisors are continuing to offer variable annuities because “there doesn’t appear to be another attractive alternative to meet the particular need” of clients.
That need is for products that can protect principal and provide guaranteed income, she says, citing results of other Cogent surveys. These surveys found that both advisors and investors are “flocking to low-risk investments.”
Even Generation X and Y investors want low-risk investments, Rice says. In fact, “the risk profile of today’s younger investors looks much the same as that for older investors—the baby boomers—before the meltdown occurred in 2008.”
Before the downturn, baby boomers where already up in age, and nearing retirement, so they were had begun shifting their investment mix more toward low-risk options, she points out. Now, in 2012, younger people are doing the same thing.
Advisors are responding to that shift. In fact, they are not only responding; they are shifting their investment philosophy, Rice contends.
For instance, according to Cogent data, over 50 percent of advisors now say their primary philosophy is “managing risk or delivering absolute return,” whereas only 31 percent say it is “wealth preservation” and 13 percent say it is “exceeding a benchmark.”