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ETF-only Variable Annuities Gaining Traction

As the implementation date of the new fiduciary rule gets closer, we’re seeing an increase in development of fee-based advisory products in the annuity industry. One such development is a variable annuity from Lincoln Financial, branded as “Lincoln Core Income built with iShares,” which offers only passive, low-cost ETFs from asset manager BlackRock. And according to a recent article from InsuranceNewsNet, the product, which launched in February, has found some success with distributors, as stated by Lincoln Financial’s president and CEO Dennis R. Glass.  

“We’ve had four or five successes so far with getting it on the shelf and having the technology work, but nothing significant in terms of sales. We wouldn’t expect any real significant sales to pop up overnight, but to grow over time,” Glass said.

Sales of variable annuities have been continuously falling in recent years. In 2016, new sales fell 21.4% to $100.58 billion, in comparison to sales figures from 2015. Analysts will be watching sales of Core Income with iShares throughout the year, as it represents a potentially new product class within variable annuities. Sales of the product, which is designed to be distributed through fee-based channels, are expected to significantly improve in the coming year as distributors adjust their technology platforms to accommodate it.

Traditionally, variable annuities have been commission-based, allowing advisors to invest in a variety of actively managed and passive mutual funds. However, with the DOL’s fiduciary rule looming, passive investing has been on the rise, and with it, ETF-only variable annuity products. Also associated with passive investing, index funds mirror a basket of investments or an asset class, just like ETFs. But ETFs differ in that they trade throughout the day and retain liquidity advantage over index funds.

Core Income with iShares provides guaranteed lifetime income equal to 4% of the initial deposit with an annual 2% cost of living adjustment. There is no surrender charge, however a return of investment death benefit is available.

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