Here Come the Fee-Based Indexed Annuities

By Cyril Tuohy

With less than two months to go before new fiduciary standards take effect, insurers have lined up new fee-based fixed indexed annuities for independent marketing organizations and their advisors to sell.

Insurance companies say they want to be prepared for the Department of Labor’s fiduciary rule, which is designed to steer distributors away from commission-based sales.

But independent agents and advisors, who have sold billions of dollars’ worth of fixed indexed annuities in the past 10 years, rarely get excited about fee-based annuities.

The market will simply have to wait and see whether distributors take to fee-based models.

“It’s a little too early to tell if fee-based indexed annuities will experience successful sales levels,” said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink, publisher of the indexed life and annuity industry tracker Wink’s Sales & Market Report.

“I definitely think that the outcome of the DOL’s proposed fiduciary rule has the power to influence sales of these products going forward,” she said.

In any case, recasting commission-based fixed indexed annuities into fee-based siblings isn’t difficult, said Ron Grensteiner, president of American Equity Investment Life Insurance, a top seller of fixed indexed annuities.

“We have a couple of products on the shelf that is just a matter of stripping off the commissions and leaving the surrender charges and the other features intact, and then increasing caps and participation rates on those products and put them out there,” he said in an analyst conference call.

“So, there is no filing that we feel we have to do, it’s just something that we haven't done yet, and waiting to see if there is a demand for it,” he said.

Insurers have recently introduced a wave of changes to variable annuity product lines, including the launch of fee-based variable annuity products.

Choices, Choices and More Choices

Still, insurers insist advisors and distributors are better off with choices under the DOL rule, which requires advisors uphold a “best interest” standard.

“We believe in choice, and in allowing advisors and consumers to decide which model is best for their retirement income objectives,” said Brian Kroll, head of annuity solutions for Lincoln Financial Group in Radnor, Pa.

“Commissions and fees can both be in the best interest of clients,” he said.

Since the launch of Lincoln Core Capital, the company’s fee-based FIA for registered investment advisors, the company has added fee-based versions of Lincoln Covered Choice 5 and 7 to its FIA portfolio, the company said.

With the FIA market on track to register 2016 sales growth of about $60 billion, an 11 percent increase from 2015, insurers don’t want to miss out on potential sales because they don’t have a fee-based product for distributors to sell.

Retirement investors like FIAs because they offer higher returns than bank products at a time when interest rates — though rising — are still very low by historical standards.

Toss in a bull market on the verge of celebrating its eighth anniversary next month and retirement investors searching for higher yield have even more reason to buy an index-linked annuity that exposes principal to minimal risk yet lets investors share in market gains.

Transamerica, for example, has already taken advantage of the strong stock market performance by offering index account cap rates ranging from 2.25 percent to 4.35 percent, rates superior than what investors could collect on bank savings or certificates of deposit.

Other insurers such as Nationwide, Athene and Great American have made changes to the index options tied to the companies’ respective FIA families to take advantage of performing asset classes.

Fee-Based Product Brands

Earlier this month, retirement specialist Voya Financial launched its new Voya Journey Index Annuity with a “two-stage” interest-crediting approach. The annuity offers advisors the flexibility to use more than one interest crediting strategy to match long-term financial goals.

Voya Journey Index Annuity is sold via commission but the company is developing an advisory version for release later this year, the company said.

“In today’s low interest rate environment, the Voya Journey Index Annuity is a good alternative to taxable bank certificates or the volatility of bond mutual funds,” said Carolyn Johnson, CEO of Annuity and Individual Life at Voya Financial.

On Feb. 7, Allianz Life Insurance in Minneapolis, the biggest seller of FIAs in the U.S., announced the launch of Retirement Foundation ADV Annuity, the company’s first fee-based fixed indexed annuity.

“There is a growing market demand for fee-based products and we believe Retirement Foundation ADV will be well received,” said Matt Gray, Allianz senior vice president of product innovation.

In October, Great American Life Insurance signaled it was ready to enter the investment advisory channel with the release of Index Protector 7, a fee-based FIA with an optional guaranteed income rider.

“This is a relatively new development in the fixed-indexed annuity marketplace,” said Joe Maringer, national sales vice president of Great American Life. “Due to the persistently low interest rate environment, advisors may be seeking alternatives for the traditional fixed income portion of clients’ investment portfolios.”

The annuity, sold through financial advisors at Raymond James, complements the Cincinnati-based insurer’s commission-based indexed annuities already in the market.

“We invited Great American to provide an annuity option for those advisors and clients who prefer an advisory arrangement,” said Scott Stolz, senior vice president, PCG (Private Client Group) Investment Products, at Raymond James.

“We believe that, given the changing regulatory landscape, the need for fee-based annuities will only grow,” he said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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].