A variable annuity using exchange traded funds (ETFs) and designed for fee-based advisors has found some success with distributors. That was the word from Lincoln Financial’s president and CEO Dennis R. Glass in a conversation with analysts last week.
The variable annuity, branded as “Lincoln Core Income built with iShares,” offers only passive, low-cost ETFs from asset manager BlackRock.
Lincoln announced the launch of the variable annuity in February.
“We’ve had four or five successes so far with getting it on the shelf and having the technology work, but nothing significant in terms of sales. We wouldn’t expect any real significant sales to pop up overnight, but to grow over time,” Glass said.
Analysts are watching Core Income with iShares’ take-up rates closely as it represents a potentially new product class within variable annuities.
Variable annuities are in the midst of a sales slump with new sales falling 21.4 percent to $100.58 billion in 2016 compared with 2015, mutual fund tracker Morningstar reported.
More "significant" sales of Core Income with iShares are expected in the latter part of this year and into next year as distributors need to adjust their technology platforms to accommodate the product, Glass said.
Core Income with iShares is designed to be distributed through fee-based channels and belongs to a family of fee-based “advisory” variable annuities.
A Variable Annuity for a New Era?
Fee-based advisory products are being developed in anticipation of new regulations that tamp down on commission-based forms of income to advisors.
Variable annuities in the past have tended to be commission-based, and have allowed advisors to invest in all sorts of actively managed and passive mutual funds.
The ETF-only variable annuity mirrors the rise of passive investing.
Index funds pioneered passive investing, a strategy that simply mirrors the performance of an asset class or a basket of stocks or funds.
ETFs are similar to index funds in that they mirror a basket of investments or an asset class and benefit from very low expense ratios.
But ETFs differ from index funds in that they trade throughout the day and retain a liquidity advantage over index funds with only one closing price at the end of the day.
Features of Core Income with iShares include no surrender charge, guaranteed lifetime income equal to 4 percent of the initial deposit with an annual 2 percent cost of living adjustment and a return of investment death benefit.