Advisor Sounds Cautionary Note On Bank-Sold Annuities

By Cyril Tuohy

InsuranceNewsNet

At first blush, the higher second-quarter numbers of fixed and indexed annuities sold through banking institutions would appear to be a good sign: consumers are looking to take advantage of recent stock market gains but ultimately want to protect themselves from a sudden loss.

Fixed annuity bank and credit union sales hit the $3.2 billion mark, an increase from $2.7 billion in the first quarter. Indexed annuity bank and credit union sales reached $1.06 billion, an increase from $774 million in the first quarter, according to the Bank Insurance & Securities Research Associates (BISRA), the research arm of the Bank Insurance and Securities Association.

“Indexed annuities headed up in 2009 reaching almost $900 million in the third quarter,” Janet Cappelletti, head of research for BISRA, said in a news release. “Indexed sales then cooled for a few years, but we are now seeing sales that surpass the 2009 record. With the Dow over 15,000, consumers are hoping for some upside but trading ultimate gains for downside protection.”

For banks and insurers, it’s a good sign. Total bank-sold annuity sales last year declined to $29.6 billion, its lowest level since 1999. Numbers so far this year may inject a bit of optimism as the industry looks to reverse the declining trend.

“A big key to our success has been our close collaboration with banks and broker-dealers – from the early stages of development to our ongoing product enhancements today,” said Dan Guilbert, executive vice president of Symetra’s Retirement Division.

Symetra Life announced earlier this month that total sales of its Edge Pro Fixed Indexed Annuity had crossed the $1 billion mark for the first time since the product was launched a little more than two years ago.

Surpassing the threshold caused Guilbert to boast that the company had launched the “right product at the right time.” Symetra, seeking a larger footprint, simultaneously announced the expansion of its wholesaling support in New Jersey and in Florida, new territories for the West Coast-based life insurer.

Melody Juge, a North Carolina-based financial advisor and ardent critic of selling insurance products through banks, said it’s no wonder bank-sold annuities are delivering larger numbers. Higher interest rates are causing retirees with $30,000 locked up in anemic-yielding certificates of deposit (CDs) to shift their money into annuities at renewal.

Juge , managing director of Life Income Management, called the strategy “a huge money maker for the banks,” as front-office clerks and tellers let their depositors know that an annuity will yield higher interest than simply rolling the funds over into another CD.

Depositors have been a captive market for banks and thrift institutions, ever since banks began selling insurance products the early 1990s. Government-insured banks are where Main Street investors keep their liquid assets and depositors are mostly likely to come into daily or weekly contact with their banks, as opposed to a financial advisor.

But as interest rates rise after two or three years of dwelling in record-low territory, banks are in the best position to take advantage of this new opportunity, knowing that depositors have a high level of trust in their banks and thrifts since the funds are always there.

Banks reap millions in commissions, and front-office tellers make a few extra bonus bucks for pointing retirees to the banking and investment consultant on the other side of the building. “The hourly teller is so excited but the consumer doesn’t know whether they are coming or going,” Juge said in an interview with InsuranceNewsNet.

Unlike CDs which are insured by the government for up to $250,000, annuities are not insured by the Federal Deposit Insurance Corp., and an annuity contract that goes south because an insurance carrier has gone belly up can never be made whole again.

“Never buy insurance, annuities or life insurance through a bank,” Juge said.

Independent advisors – who, of course, are competing with banks for business – are best, she said, as independent advice is free of the conflict of interest that so often beset financial institutions who answer to Wall Street or shareholders.

Banks pushing insurance products to unsuitable buyers isn’t new. In 2005, in the wake of a lawsuit filed by Massachusetts regulators, Bank of America agreed to offer refunds to several thousand senior citizens who were pressured into buying variable annuities.

The bank, then the second largest in the U.S., agreed to the settlement after complaints surfaced about the bank’s broker-dealer division using high-pressure sales tactics on people who were 78 or older in 2003 and 2004.

Massachusetts regulators filed similar charges against other banks and brokerage firms as well.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].