‘We Don’t Need Sexy,’ RIA Says of Annuities

Fee-based annuity sales are rising, but they still make up a tiny sliver of overall annuity sales so what’s it going to take to crack the registered investment advisor (RIA) channel?

Fee-only advisor to high-net-worth clients Karen E. Van Voorhis has some thoughts about that.

“I am usually only interested in an annuity for its ability to give the client some tax-deferred growth,” Van Voorhis said. “I want a place to park taxable money; therefore it needs to be low fees. The income stream is completely irrelevant to me.”

Van Voorhis prefers simplicity, eschews guarantees and approaches annuity features warily.

“We don’t need sexy, that’s not an appeal,” said Van Voorhis, an advisor with Sapers & Wallack in Newton, Mass. “When I hear sexy, I think what’s this going to cost?”

Financial planner Todd Curry stopped placing clients into variable annuities with income benefits in 2015 in anticipation of the Department of Labor’s fiduciary rule. He often ponders what would cause him to use variable annuities again.

Products that can be used on his fee platform, where Curry can bill an advisory fee appropriate for the work involved would be a start.

“The advisory fee needs to be able to be deducted from the annuity account," he explained. “Right now, the fee must come from another source.”

“For the most part, I don’t think we need more features,” said Curry, an advisor with Second Half Strategies in Charlotte, N.C. “It would be nice if we could put together features we want, cafeteria style.”

Advisors have enough trouble understanding the differences among annuities, he noted.

“I assure you most clients don’t really have a clue regarding how these products work,” he said.

In Scottsdale, Ariz., financial advisor Darin R. Shebesta’s advice on how to attract RIAs is decidedly more routine.

“I’d like to see a private letter ruling or just an IRS modification on annuities that allows advisors to debit management fees directly from the annuity contract without putting out a 1099-R and having the client pay taxes on the distribution,” said Shebesta, an advisor at Jackson/Roskelley Wealth Advisors.

Van Voorhis, Curry and Shebesta may get their wish before long.

More Choices Bring RIAs to the Table

Cracking the RIA channel has become something of a hot topic within insurers and some company insiders like Allianz Life’s Cory Walther believe demographic, regulatory and technology trends have generated new momentum for many RIAs to finally take serious notice.

Fee compression, brought on by low-cost investment products, means RIAs may not be so quick to walk away from guaranteed income products for clients turning their attention to the deaccumulation phase of the retirement portfolio.

“That’s brought RIAs to the table, which was almost impossible to do even a few years ago,” said Walther, senior vice president, Distribution Relationship Management and Business Development for Allianz Life.

Better reporting requirements and newer platforms have helped shed more transparency on the billing and the performance metrics of annuity products as well.

As RIAs, the largest ones especially, look to grow beyond the $10 billion or even the $100-billion asset threshold, those growing shops are likely going to want to include insurance, guaranteed income and asset protection.

Some market experts say fee-based products are not getting enough traction to make a difference, at least thus far, and even industry veterans like Walther don’t expect to see massive growth of fee-based annuities in the next 12 months.

Still, Walther, who has been in the financial services industry for more than 25 years, senses a fundamental underlying change even if the current generation of guaranteed income products will need more refining before RIAs bite down hard.

Fee-based variable and indexed annuities finished 2017 with sales of about $2.3 billion, or 3.1 percent of all variable and indexed annuity sales, data show.

When RIAs are finally able to take their fee out of the annuity without having to create a separately managed account, annuities will have taken a step forward in reaching RIAs.

A Discussion Around Complementarity

RIAs know there are lots of products other than annuities to choose from, though none are quite like annuities so insurers have to make a case for how RIAs can use annuities to complement a retirement portfolio.

“A fee-based annuity fits best in a client’s portfolio when it is a piece of what the advisor is managing, not the whole thing,” said Tony Compton, vice president of broker/dealer and RIA sales for Great American Insurance Group in Cincinnati.

Great American, which launched Index Protector 7 in 2016, has signed up many of the industry’s top RIA firms to include the company’s fixed indexed annuity (FIA) in their respective line-ups.

In a rising rate environment, it may just be the right time to talk about complementarity.

FIAs, it turns out, have comparable volatility to bonds, but with better downside protection, according to new research from Roger G. Ibbotson, professor emeritus of finance at the Yale School of Management.

A mix of stocks and FIAs modeled under interest rate scenarios of up to 3 percent increase over a three-year period, generate higher returns compared with the more traditional 60/40 stock and bond portfolio.

“It is our view, considering today’s low interest rate environment and our modest expectations for bond returns in the coming future, FIAs are an alternative to consider,” wrote Ibbotson, chairman and CEO of Zebra Capital Management.

Which should bring RIAs to the table, at the very least.

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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