Annuity Sales: Upward Trend May Be Coming to a Close

Second quarter annuity sales numbers are in and once again the products sold at a level unseen in more than a decade. According to a recent article from FinancialPlanning, while sales topped $60 billion, there’s a good chance that the upward trend is coming to a close. 

LIMRA Secure Retirement Institute has claimed that lower interest rates will push down annuity sales for the remainder of the year. Fixed-rate deferred annuities might just be the hardest hit with the lower rates. 

In the second quarter, fixed contracts hit $38.1 billion and fixed-index annuities were $20 billion, both records. Additionally, two of the top ten issuers were also awarded private letter rulings from the IRS that will allow RIAs to offer more fee-only products to clients. Previously, sales of these products had been flat until the Department of Labor’s fiduciary rule was vacated in March 2018. 

“While we didn’t see significant impact on the fixed-rate deferred annuity market during the second quarter, there is usually a lag between interest rates drops and sales declines,” LIMRA Annuity Research Director Todd Giesing said in a statement. “We anticipate sales to substantially drop in the third and fourth quarters.” 

Total sales across the fixed and variable product sectors increased by 7% year-over-year to $63.9 billion in the second quarter, reaching their highest level since the first quarter of 2009. Sales in the first half of this year rose 11% to $124.8 billion from the same time last year. 

Variable annuity sales remained flat this quarter, while buffered or structured VAs jumped 66% to $4.1 billion.

Research firm, Wink, also released preliminary data from its survey showing FIA volumes improved by 14% year-over-year, outpacing their previous record by 3%. 

“It is a great time to be offering annuities with growth based on an outside benchmark,” Wink CEO Sheryl Moore said in a statement. Sales of structured products and VAs also increased by nearly 20%, she added. 

Earlier this month, Lincoln Financial Group and Nationwide received letters from the IRS stating that clients can deduct advisory fees of up to 1.5% of the cash value of a fee-only, non-qualified annuity contract without tax consequences. 

“This ruling serves to harmonize the treatment of advisory-fee withdrawals across both qualified and non-qualified annuities,” Tad Fifer, Lincoln’s head of RIA distribution, stated. The IRS decision will “make it easier for investment advisors to incorporate non-qualified annuity solutions as part of their planning strategies,” he added.

Craig Hawley, head of Nationwide Advisory Solutions, is also pleased with the ruling. “Nationwide has committed to achieving this favorable ruling on behalf of RIAs, fee-based advisors and their clients, and now can provide them with an important benefit that they have been seeking for years,” he said.

Written by Rachel Summit

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