Annuity FYI Visitor Blog

In the Investment News article “Eight big changes that will reshape the annuity biz,” Darla Mercado summarizes a report from Jack Marrion of Advantage Compendium Ltd.  Fixed annuities will see their largest sales ever in the next ten years because of the 58 million Americans nearing retirement will be more receptive to the product’s value.  The 1st change we’ll see in the next ten years is a drop off in 1035 exchanges as it becomes more difficult to transfer from one annuity to another.  With the likely passage of Rule 151A classifying annuities as securities, marketing organizations (MOs) will phase out of existence.  The 3rd change will be a takeover by securities regulators ensuring suitability of annuity products.  The MOs that remain will have to have securities connections with broker-dealers or RIAs to stay competitive.

The 5th change that Marrion believes will happen when you compare annuities today and in ten years is that they will be seen much more in pensions as the planners get comfortable with the products.  Next, the way that guaranteed benefits are offered now will be overhauled with new options that are better for investors.  The 7th change is that Wall Street could be a large part of the annuity industry by getting involved through the teaming of investment firms and life insurers.  The final change will likely be a skyrocketing of fixed annuities sales in the next ten years.  As the products and their benefits evolve, Marrion believes that future retirees will be very open to fixed annuities.

In “Sidestepping Skepticism, Prudential Scores with Variable Annuities,” Matt Ackerman of Bank Investment Consultant describes how consumers’ opinions of variable annuities are changing.  While many people thought variable annuities were “too expensive or too complicated”, they seem to realize the great potential of these annuity products now.  Since retirement savings have gone down by 40% over the last year and a half, consumers are warming up to this product with its guaranteed income, protection against the market downside, and the ability to reap the benefits of an upswing in the markets.

Prudential Financial’s U.S. annuity business is very strong.  They saw a 53.8% increase in annuity sales last year, with fourth quarter annuity sales increasing 71.4% from the year before.  Their growth in the bank channel has been very substantial as well.  After adding fifteen new banks to their distribution channel last year, their bank sales of variable annuities increased by 152%.  Bank clients typically like to purchase fixed annuities, CDs, and other products that they deem “safer.”  Since the returns in those products haven’t been quite as successful for their retirement income savings, variable annuities are garnering more interest.  Prudential is sticking with this product that they believe in by introducing new products and options, and always being an innovator.

According to Darla Mercado of Investment News, insurance companies have new targets in their sight to increase sales of variable annuities.  Mercado’s article “Insurers target new channels to help boost VA sales” talks about the insurance companies’ plans.  At the Insured Retirement Institute’s marketing conference in New York this week, the panel spoke of their need to change direction due to the financial crisis.  Insurers are looking to reach out to different types of potential customers and advisers in previously uncharted territories.

One of the biggest groups of people who could potentially benefit from variable annuities are 401k participants and managed-money programs.  Insurers hope that pre- and post-retirees will make 401k annuity transfers and purchase variable annuities from them.  The purchase of annuities will guarantee a lifetime income stream throughout retirement.  Some new products have also come out of this need to advance with the changing economic climate.  Lincoln Financial is introducing a long-term-care rider with both their fixed and variable annuities.  Updates and changes from insurance companies are meant to help consumers in the long run.  A little competition can breed great ideas.

FINRA alerted investors last month about financial scams based on “green” companies.  Their Investor Alert, “Save Your Greenbacks-Don’t Fall for Green Energy Scams” describes how green energy scams work and how to avoid them.  Investments that promise huge gains by investing in alternative or renewable energy products should be looked at with a fine-toothed comb.  Since green energy initiatives are so popular right now, scam artists have emerged with “green” based Ponzi schemes and “pump and dump” stock fraud to try and get investors’ money.  This is happening through Twitter, text messages and webinars targeting investors looking to make a lot of money on something different.

The purchase of fixed annuities might be a wiser investment for you.  While you aren’t going to get rich quick with annuities, you can guarantee a stream of lifetime income to help pay your expenses.  Any investment that is recommended to you unsolicited should be fully researched and questioned, especially those promising enormous returns.  A recent “green” scam advertised a potential 1,000 percent jump in a company’s stock value.  As the old adage says, if it sounds too good to be true it probably is!  Another scam warning sign is the pressure to go “all in” with these investments.  A recent scam encouraged investors to liquidate all of their other investments and borrow against homes and businesses to put all of their money into a new “green” company.  It is crucial for investors to spot these potential scams before being financially hurt by dishonest people.

In “AIG Learns It’s All in the Name” from FinancialPlanning.com, we learn that taxpayers’ bailout dollars have helped AIG bounce back faster than many expected.  American International Group is one of the few insurance companies that has successfully come back from the financial mess it was in through creative branding.  It’s subsidiary was previously named AIG Annuity Insurance Co. but was switched this year to Western National Life Insurance Co.  That distancing from the tarnished brand name of AIG helped lead Western National to be the third quarter’s number one seller of fixed annuities through banks.  New York Life Insurance Co. does still hold the number one spot for the year, but believes it lost it’s third quarter spot due to low interest rates in the market.

Western National has been able to attract more annuity clients because they are offering higher interest rates than competitors.  They do this by making agreements with banks to lower the commissions they pay to the banks.  In turn, the banks receive more annuity clients after a couple years of clients shying away from the products.  Banks believe that the volume of fixed annuity customers they receive will make up for the lower commissions they are being paid by Western National.  While some other insurance companies may not think it is fair that AIG’s Western National is using government bailout money to cushion it’s higher interest rate offerings, that was part of the purpose for the bailout.  Companies should use that money in a way that they will become successful again and repay the bailout money to taxpayers.