FIA Buyers Keep Getting Younger

By Linda Koco InsuranceNewsNet

Fixed index annuity (FIA) buyers are getting increasingly younger, according to an analysis of sales data for the first quarter periods in the last four years.

The average age for buyers in first quarter 2015 was 62, with the age range being 47 to 70, according to quarterly FIA sales trends data from Wink Inc.

That may not seem especially “young” in comparison to Millennials, who range from 18 to 34. However, when compared to average age of FIA buyers in the previous three years, the average buyer age has definitely skewed younger.

For instance, the average age of 62 in first quarter 2015 is two years younger than the average of 64 in first quarter 2014, according to Wink’s Sales & Market Report for the quarters. The age range of FIA buyers also shifted younger, to 47-70 for first quarter 2015 from 50-74 the year before.

In first quarter 2013, the average buyer age was 63, and the year before, it was 64. The buyer age ranges for those quarters were 57-67 and 57-72, respectively

And five years earlier, in first quarter 2008, the average age was 63, and with an age range of 50-77 — a much higher range than in this year’s first quarter.

It will continue

The downward trend in buyer age is likely to continue, said Sheryl Moore in an interview. She is president and CEO of both Moore Market Intelligence and Wink in Pleasant Hill, Iowa. She cited several reasons.

The prolonged low interest rate environment is a key factor. Due to the low rates, she said, banks, and broker-dealers in wirehouses have been selling more FIAs than they did in years past.

In first quarter 2015, for example, banks gained an 11.6 percent market share, according to Wink. By comparison, in first quarter 2012, banks’ FIA market share was only 0.1 percent. Likewise, in the wirehouses, the first quarter 2015 market share for wirehouse sales of FIAs was 5.5 percent, up from just 1.6 percent in first quarter 2012, the Wink data shows.

This growth is significant because these channels tend to have younger customers than do independent insurance agents, the dominant FIA distribution channel, Moore said.

In banks and wirehouses, FIAs provide greater upside growth potential than do other fixed rate options the channels currently have to sell, such as bank CDs, she said. For conservative buyers in those channels, FIAs have therefore become a compelling story. Hence, the sales increase—including increases among those channels’ younger buyers.

Spike in inquiries about FIAs

Another factor is that younger buyers seem to be researching FIAs more than in years past, said Moore. For example, over the past two years, she said she has noticed a “spike” in email inquiries to her firm from younger adults who are in search of information about FIAs. She receives about two such emails every week, up from just one per every five months in 2005.

Wink does not provide a consumer advice service, but it will point consumers to educational resources where they can learn about the products.

In reading through the emails, Moore said she has noticed that many ask for information that will help them decide whether a FIA is right for them.

“Some are thinking of rolling over money from other assets and have been offered an FIA,” she said. “Some are interested in alternatives to CDs or securities, but they said they don’t want to lose money. Some comment drolly that, ‘I want to roll over what’s left of my 401(k) after the last market crash.’” A couple said they are planning to roll money out of mutual funds.

A lot of the emailers are mid-career and “they are not happy with having a 401(k) as their only retirement savings option,” Moore said. “They want alternatives.” This is helping to drive interest in FIAs from this market segment.

They want alternatives

This leads to another trend that Moore believes is drawing younger people. This is the impact of the internet.

Simply put, people in search of alternative retirement savings options can now search on the internet, she said. Some put out a question on their social media networks, such as Facebook, asking for ideas. Others do general searches (which is how some of them find Moore).

“It’s important to them, that they be educated,” she said. “They want to know if they have choices.”

This a problem with this though. Where annuities are concerned, many people still don’t know what an annuity is, or they think of an annuity only as an income product. “Most aren’t familiar with a deferred annuity at all, or that they can use a deferred FIA for part of their retirement savings,” Moore said. That could deter some consumers from even trying to search-and-learn, let alone buy..

Then again, based on Wink’s average buyer data and on the consumer emails Moore is receiving, some younger adults are moving forward with FIAs. Moore thinks some younger adults just keep checking around until they understand. Then, some do go ahead and buy.

Will the trend continue?

When interest rates go back up, sales of FIAs in banks and wirehouses could decline, Moore noted. This could happen if those channels resume sales of their more customary products, such as banks selling more CDs, thus reducing the pool of customers — including younger adults — who might otherwise be invited to consider a FIA.

However, trends are afloat that may keep that from happening, even in a rising rate environment. For instance, consumers will continue to have access to technology, and thus to information about alternatives.

“Because of that, younger adults will continue to take control of their finances in a way that their parents could not and did not,” Moore predicted. “They won’t just rely on information from one source. They will continue to check around, before they buy, to see if there is something better out there.”

The fact that many FIAs today offer hybrid index options from brand-name financial firms will be a factor in this. Even if consumers don’t know the name of the insurance company offering the FIA, Moore explained, if the name of a well-known Wall Street firm is on a hybrid index, some buyers might recognize the brand.

They might think, “Oh yeah, I’d like to be associated with them,” or “This must be legit,” she said.

For that reason, it’s important that consumers be able to look up the index in an easy-to-access public resource, she said, reiterating her point that younger buyers’ tend to check the internet before they buy.

A voice of experience

Moore knows a thing or two about being a younger buyer. She said she bought her first FIA when she was age 25. That’s a lot younger than the youngest buyers (47) in the Wink sales surveys. But she had her reasons.

A single mother at the time, money was tight. But Moore said she still made sure to participate in the 401(k) at work. Then the dot-com bubble burst in 2000 and she said she lost a lot of money. The loss galvanized her to look for alternatives — for retirement savings products that wouldn’t lose money but had the potential to grow. That’s when she discovered FIAs, and that’s when she decided to buy.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].