Survey: Annuity providers see a path in the RIA channel

The push to include more annuities in the registered investment advisory channel has, so far, been largely a story of unrealized potential.

Annuity companies have wooed wealth managers and independent investment advisors for several years, offering reduced contract expenses and new annuities that focus on retirement planning risks, and creating fee-based versions of popular commission-based annuities.

Despite the full-court press, however, annuity sales through the advisor channel remain minuscule. But encouraging signs are there, according to Goldman Sachs Asset Management’s 2023 Annuity Survey.

Marci Green leads U.S. Retail Insurance within Goldman Sachs Asset Management.

“We are continuing to see, as we did last year, what industry participants believe will be the prospective growth of the RIA channel,” Green said. “As an industry, we are very focused on trying to move where we know the puck is going in the broader wealth management channel, which is full-service registered investment advisory firms that can also incorporate insurance inside these types of fee-based accounts.”

Goldman Sachs’ third annual survey gathers insights from U.S. annuity providers to identify market trends and uncover emerging product and distribution themes, the firm said in a news release.

The questions were grouped into three categories:

1. Global macroeconomic and investment landscape.

2. Product offerings and innovative implementation.

3. Industry and distribution themes.

This year’s survey included input from 138 industry participants, which reflects a 15% increase in participation over last year and a 38% increase from the initial survey.

The survey responses have been aggregated from 30 insurance companies representing more than $1.1 trillion in variable annuity net assets — including nine of the top 10 annuity issuers in terms of net assets, Goldman Sachs said.

“We’re trying to reflect the views of a lot of the functional areas in terms of annuity intuition on design and investment selection as well as the marketing and value-added component of what it takes to really engage with the annuity distribution client,” Green said.

Recessionary views

From an economic perspective, survey respondents are nervous about several things. For starters, 78% consider credit and equity market volatility as the greatest macroeconomic risk to their investment portfolio.

Eighty-four percent believe the U.S. economy will enter recession within the next five years, with almost half expecting that the recession will come within the next two to three years.

The Federal Reserve has raised interest rates to a level not seen since 2007. Typically, the Fed has never been able to raise interest rates so quickly without prompting a downdraft in the business cycle. Historically, the Fed has also never been able to defeat inflation without a recession.

Economic expectations can provide clues to how annuity companies line their product shelf, Green explained. In fact, 50% of respondents place structured or buffered annuities as the top prioritized investment strategy over the next 12 months. These annuity products, also known as registered indexed-linked annuities, protect investors from losses with a zero floor.

“When there is equity market volatility or credit market volatility, it does impact how annuity carriers are designing their products,” Green said, “and how these types of annuity products can provide different benefits to the end investor.”

Recent sales data shows that to be true. Overall annuity sales hit $181.1 billion in the first half of 2023, increasing 27% and setting a new record, LIMRA reported. Economic conditions drove buyers to fixed-indexed annuities, with sales up 34% through six months.

Respondents are bullish on technology helping annuity sales continue to grow. Fifty-six percent of respondents said the rise of insurtech presents positive opportunities for the insurance industry, with only 2% holding that the impact will be negative.

The finding aligns with the growing increase in collaboration between insurance carriers and insurtech entities.

Advocacy remains important

Survey respondents cited annuity advocacy as “the most sought-after value-added resource.” Market insights and practice management were the next two ranked-choice resources, but advocacy is top of mind.

Annuity companies are facing regulatory challenges from the states as well as another fiduciary rule rewrite by the Department of Labor. Leadership from industry trade organizations paid off in 2018 when the Obama-era fiduciary rule was tossed out by the Fifth Circuit Court of Appeals.

But the threat has returned, with the Biden administration DOL working on a new definition of fiduciary. Anxious industry executives expect regulators to craft a rule that satisfies the precedents set by the Fifth Circuit decision. In that scenario, having trade industry advocacy is even more valuable.

Otherwise, having trade groups like the Alliance for Lifetime Income advocate for the importance of lifetime income in financial planning discussions is vitally important to annuity companies, Green said.

“They really need support, particularly from third parties like the Alliance for Lifetime Income and as well, the folks that work in their asset management partner businesses, to really showcase the value of annuities,” she said. 

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.