Could FIAs Break Advisors’ Hearts?

Dear agents and advisors:

We’ve had a great run, but we don’t know if we can keep up the pace. Sales hit a record last year, but by a smaller percentage increase than the previous year. OK, that’s all for now. Got to run …

See you soon!

Signed: Fixed indexed annuities (FIAs).

Could 2017 break the long-running record of FIA sales? Possibly.

If so, would it come as a surprise, given the torrid pace the segment has kept up over the past few years and the uncertainty around the implementation of Department of Labor’s fiduciary rule?

Probably not.

“It is entirely possible that 2017 will not be a record-setting year for indexed annuity sales,” said Sheryl J. Moore. Moore is president and CEO of Moore Market Intelligence and Wink Inc., publisher of the life and annuity industry data tracker Wink’s Sales & Market Report.

Percentage Increases Soften

FIA sales rose 9.7 percent to a record $58 billion last year over 2015. But that percentage increase was lower than the 13 percent rise in FIA sales reported in 2015 over 2014, according to Wink’s data.

Preliminary estimates of first quarter FIA sales in 2017 are down compared with the fourth quarter last year. But sales in the first quarter are always down relative to the fourth quarter of the previous year, Moore said.

LIMRA Secure Retirement Institute reported 2016 FIA sales of $61 billion, a 12 percent increase over the year-ago period. That, too, was shy of the 13 percent rise in FIA sales recorded in 2015 over 2014, LIMRA reported.

“In the near term, we may experience lower quarterly fixed rate and fixed indexed annuity sales,” said Jeremy Alexander, CEO of Beacon Research, an annuity sales tracking company.

Mid- to long-term, however, sales may pick up once again. That especially would be true if interest rates continue to rise, he said.

Moore said she expects that new procedures and regulation related to DOL fiduciary rule compliance will slow sales of indexed annuities in 2017.

But whether sales slow and reach an inflection point by year-end, who knows?

Delays, Uncertainties, Competition

Investors like FIAs because they deliver higher yields than competing bank products saddled with low interest rates. Meanwhile, advisors have incentive to sell FIAs because they pay relatively high commissions.

Nevertheless, industry analysts weren't surprised by the slowing rate of FIA growth in 2016. Analysts cited the headwinds generated by the DOL’s fiduciary rule and the uncertainty among agents and advisors with large FIA books of business.

DOL guidance issued in January to independent marketing organizations added new twists around the eligibility status of IMOs as supervisory financial institutions.

A 60-day delay to the fiduciary rule was issued this week by the DOL pushing back the fiduciary rule’s applicability date from April 10 to June 9.

The delay was promulgated in the wake of directives from the new administration of President Donald J. Trump, who campaigned on rolling back the burdensome financial regulations.

Meanwhile, annuity companies have spruced up their fixed annuities through income riders to make them look more like indexed annuities. This gives advisors more incentive to sell new flavors of plain vanilla fixed annuity contracts.

Still, the headwinds don’t seem to have dented the FIA juggernaut. Sales rose last year despite turmoil and uncertainty surrounding their distribution.

If FIAs broke sales records last year, even with lower year-on-year percentage increases, why can’t they break new records in 2017?

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may 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].