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A Face-lift for Variable Annuities

With interest rates on the rise, equity markets holding steady and the fiduciary regulations on the horizon, it’s not surprising that variable annuity products are seeing many new developments and enhancements. Other factors are also contributing to the flurry of change, including the appearance of a significant drop in sales last year. In 2015, variable annuity sales reached $133 billion, however in the first nine months of 2016, sales dropped 22% to $79.4 billion, according to a recent article from InsuranceNewsNet.

The combination of woes have forced the industry to develop more fee-based products. In December, Lincoln Financial Group, an industry leader in variable annuity products, partnered with mutual fund powerhouse BlackRock to launch a fee-based variable annuity for advisors that utilized exchange-traded funds, or ETFs. The product, Lincoln Core Income built with iShares, has created a new category of product, based on structure and the targeting of the registered investment advisor (RIA) sales channel. The new variable annuity is available for sale in many states and Lincoln Financial is currently signing up its broker/dealers to distribute it.

In addition to the new product, Lincoln Financial’s commission-based product families, American Legacy, Lincoln Investor Advantage and Lincoln ChoicePlus, have all  evolved to offer fee-based options for advisors. The fee-based “cousin” products have added the “Advisory” suffix, becoming American Legacy Advisory, Lincoln ChoicePlus Advisory and Lincoln Investor Advantage Advisory.

The new product will “enable us to reach new advisors and we believe fee-based annuities present a significant long-term growth opportunity,” said Lincoln Financial CEO Dennis Glass.

And apparently others feel the same way. In January, Transamerica launched their fee-based variable annuity, Transamerica Variable Annuity I-Share, offering advisors and investors more flexibility in retirement planning. There is no commission charge to buy the new product, nor a surrender charge. A fee is charged based on a perecentage of the investor’s assets.

“The investment landscape is changing, and we see that investors and their advisors want more options when choosing how they invest,” said Joe Boan, senior vice president with Transamerica in a recent news release.

Then in January, Pacific Life launched a fee-based variable annuity that works through LPL Financial’s asset and wealth management platforms. The product, Pacific Odyssey, is designed to fit the new parameters set by the Labor Department’s fiduciary rule.

“Pacific Odyssey is a cost-efficient option for LPL Financial advisors seeing a fee-based product that provides the opportunity for growth, guaranteed income for retirement and legacy protection,” said John White, vice president of national accounts and sales support for Pacific Life’s Retirement Solutions Division.

At the same time, the nation’s top seller of variable annuities, Jackson National, announced the launch of its first fee-based investment-only variable annuity. Elite Access Advisory followed the company’s September announcement of their first fee-based variable annuity, Perspective Advisory.

“As advisors and their firms continue to determine how best to comply with the DOL fiduciary rules, we’ve seen increased market demand for products compatible with fee-based accounts” said Greg Cicotte, executive vice president and chief distribution officer for Jackson.

Another strategy for making variable annuities more attractive is by enhancing the available riders. Lincoln Financial plans to give advisors more exposure to equities and more income through higher payout percentages through enhancements to guaranteed lifetime income riders that are available to the Lincoln ChoicePlus Assurance and American Legacy families of variable annuities.

Obviously, fee-based variable annuity products are trending as the industry adjusts to the current environment. Insurers are hopeful that the fee-based products will bolster variable annuity sales, although it’s likely that any benefit won’t be evident until the later part of this year, and into next year.

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