Few investment restrictions for advisors and robust wholesale distribution support are key reasons for Jackson National Life's success in the variable annuity market, a company executive said last week.
While plenty of competitors might argue with that, Jackson prefers to let the numbers do the talking.
Jackson sold a lot of new variable annuities last year — $17.2 billion worth. That's far ahead of its closest competitor TIAA with $13 billion, according to LIMRA Secure Retirement Institute and Morningstar.
Ever since 2013, when Jackson wrested the lead in variable annuity sales from Prudential, the company forged ahead as competitors trimmed their generous guarantees in an era of falling interest rates.
Jackson hasn’t looked back since. Last year, the company retained the top spot in variable annuity sales for the fourth consecutive year, even if sales are down from their 2014 high of $23 billion in line with the broader contraction in the variable annuity market.
All of which begs the question: Does the company know something no one else does? More to the point, is the company doing something that other companies don’t care — or dare — to do?
“Jackson has a different way of hedging,” said Kevin Loffredi, senior product manager for annuity solutions at Morningstar.
Hedging risks on an economic basis rather than on an accounting basis is the “largest single factor” that influences specific performance, according to the company’s approach to risk management.
Advisors flock to Jackson’s Elite Access and Perspective family of variable annuities as the products and their guaranteed living benefits offer more flexibility and fewer restrictions around investment options, experts said.
The restrictions, known as “guardrails,” and volatility control investment funds available in subaccounts, only serve as a drag on potential growth in a rising market, according to Jackson.
“Managed volatility and the living benefit guarantees result in double (redundant) protection to the policyholder who has to pay for the guarantees and the managed volatility fund,” said Alison Reed, executive vice president of operations with Jackson.
Why pay for a charge of about 1 percent to 1.25 percent for the living benefits and then an expense for the managed volatility fund?
In a rising market, managed volatility doesn’t give you all the upside and investors receive a more muted return. As a result, many advisors are dealing with phone calls from clients who don't understand that they are in managed volatility subaccount, Loffredi said.
Without the guardrails, investors in Jackson products are getting more of what the market offers — not unlike their 401(k) — so it’s not hard to see why advisors might prefer a Jackson product compared with that of a competitor, he said.
Other variable annuities may offer lower costs, or higher guarantees, but those benefits come at the expense of limiting market exposures, Reed said.
By contrast, Jackson provides the potential for higher growth. Along with step-ups, the company’s variable annuities offer the potential for higher guaranteed income for life over time, she said.
There’s another lever Jackson likes to point to as a tool allowing the company to offer fewer restrictions: client behavior.
Since the financial crisis, advisors and clients have shifted to more conservative allocations. They also have acted to limit exposures on their own without the help of restrictive investment menus and choices imposed by an insurer.
“Clients tend to invest in more balanced portfolios even within variable annuities with guarantees, and the broker-dealers have rules in place to make sure clients are electing investment choices that align with their risk tolerance,” Reed said.
Jackson seems happy to let advisors make their own investment decisions.
Conversely, advisors are happy to oblige that kind of freedom by steering clients into Jackson’s Elite Access and Perspective product families.
“Advisors like the investment freedom that Jackson provides because they can customize their client investment portfolios and they like the choices we give them with the living benefit guarantees,” Reed said.
The variable annuity market has shrunk markedly over the past few years, but Reed says Jackson has no intention of ceding ground.
Regulatory issues around fiduciary standards and L-share classes will work themselves out long before demand for guaranteed income slackens from a generation of the retirees that many surveys show are underprepared for retirement.
“All investors have similar concerns in that they want guaranteed lifetime income. So even if 2016 was a challenging year in the variable annuity space, the demand for guaranteed income will persist,” Reed said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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