By Cyril Tuohy
On the same day this week, three sellers of variable annuities -- Prudential Annuities, Jackson National and Jefferson National -- said they would expand their portfolios of variable annuity investment choices and add new fund managers to their roster.
Why? Investors in variable annuities are looking for what financial advisors like to call “upside potential” to income-generating products.
Although Morningstar reported variable annuity sales hit $143.4 billion last year, down 6.6 percent from the previous year, the equity markets were up 13 percent in 2012 and have set further records this year.
It surely would work out for fixed-income investors if they could squeeze a little more out of their annuity, particularly for retirees looking to recoup losses suffered from the Great Recession or trying to buttress a fragile nest egg.
What is happening among a handful of issuers of variable annuities is that income guarantees are moving from a fixed-rate product to a variable-rate product with a fixed-rate floor, said John McCarthy, product manager for insurance solutions with Morningstar.
Instead of offering a firm guarantee of 5 percent withdrawals for life, for example, some carriers are making the guaranteed rate dependent on a metric that might fluctuate, McCarthy said.
The result is “a guaranteed product with a floating guarantee,” in which the lifetime withdrawals vary between, say, 4 percent and 8 percent. “If you’re looking for income from your portfolio, you have less certainty with some newer benefits compared with the past,” McCarthy told InsuranceNewsNet.
While the new options will give advisors choices when newly retired baby boomers sit down and think about how to make their defined contributions last long enough to give them a comfortable retirement, many new variable annuity product structures push the risk back to investors.
Offering a guaranteed 5 percent or 6 percent in such a low-interest-rate environment is difficult, so carriers continue to tweak their product lineups to attract buyers, McCarthy said.
There were 434 variable annuity product changes filed in 2012, up from 380 in 2011, according to Morningstar. Prudential, Jackson and Jefferson are simply the latest to adjust the levers.
Jackson, the No. 2 seller with $19.72 billion of variable annuities last year, boosted its Elite Access variable annuity investment platform earlier this week with the addition of 20 subaccounts and seven fund managers.
The changes are aimed at offering retail investors a broader mix of products that combine traditional and alternative asset classes, said Clifford Jack, executive vice president and retail chief for Jackson.
He also said the changes would offer retail buyers more diversification and financial advisors more latitude in customizing investments through Jackson’s retail asset management subsidiary Curian Capital.
“With several subaccount options to choose from, advisors can help their clients find a combination of investments and strategies that help address their individual financial goals and develop diversified retirement plans,” he said.
Jackson’s sales of variable annuities in 2012 totaled $19.7 billion, up 12.5 percent compared with 2011, the company said. Elite Access contributed more than $1.3 billion to Jackson’s variable annuity sales total in 2012, Jackson said in a news release.
For its part, archrival Prudential Annuities, which sold $19.9 billion of variable annuities last year, announced six new portfolios to offer “choice, flexibility and active management,” said Timothy Cronin, chief investment officer for Prudential Annuities.
The new asset allocation portfolios were added to Prudential’s Highest Daily variable annuity investment options, the company said.
Douglas McIntosh, vice president of investment management for Prudential Annuities, said investors want returns that can give them a secure retirement, and Prudential’s new asset allocation portfolios “can help provide additional opportunity for investors to achieve returns.”
Jefferson National, in a deal with Envestnet, a provider of wealth management technology and services to investment advisers, added 14 new “institutional-caliber model portfolios” available only to advisors using Jefferson’s flat fee Monument Advisor variable annuity, the company said.
Market volatility and rising taxes have made for a challenging environment for registered investment and fee-based advisers, said David Lau, chief operating officer of Jefferson National, and they are looking for help to manage clients’ portfolios.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He has also written about food, restaurants and travel. He can be reached at [email protected]
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