Simplified Annuities? Don’t Hold Your Breath

Advisors should quit waiting for simplified annuities.

Such annuities typically mean “watered-down guarantees” and there’s not a lot of demand for that, a panel of speakers said at LIMRA’s 2013 annual conference on Monday.

“Simple in our industry means not as good. I’d love to develop a simple variable annuity but there are too many other complicated variable annuities that people will sell because they will be perceived as better,” John C. Kennedy, senior vice president and head of Retirement Solutions Distribution at Lincoln Financial Distributors, told the gathering of advisors and insurance professionals.

Advisors don’t need to have the products dumbed down as they’re already selling managed futures and structured products, which are equally if not more complicated than annuities, said Robert Pettman, senior vice president of Investment Products and Planning Solutions for LPL Financial. “I don’t think the answer of offering a simple product is the way to get them to adopt it,” he said.

Instead, greater adoption of annuities will come from greater education, which both Lincoln and LPL were committed to do, Kennedy and Pettman said.

“We at Lincoln still have 130 wholesalers who go out and educate people on the benefits of these products every day and I don’t see that number going down,” Kennedy said.

While the industry is unlikely to simplify annuities, it will innovate, the panelists said. Over the last three to four years, the industry has added products that didn’t exist three to four years ago, such as structured and alternative investment products, Kennedy pointed out.

Christopher Grady, executive vice president and head of Retail at Athene Annuity & Life Assurance Company, talked about some of the products his company has in the pipeline, including deferred SPIAs (single premium immediate annuities) and products that incorporate living benefits in fixed annuities. He also discussed a “cool product innovation” in indexed annuities, saying that plans are in the works to combine lifetime payouts with the floors of fixed annuities as guarantees.

“Taking the features and benefits that existed in a VA and wrapping them in a fixed annuity kind of portfolio we think is going to be the best of all worlds for many people,” he said, “because you have the guaranteed floors of fixed annuities along with the lifetime income and payouts and futures in benefits that have existed in a VA.”

Another significant innovation being discussed revolves around advisors’ compensation as their clients draw down income out of their annuities, Grady noted. Instead of disincenting advisors from paying out income, the company is considering paying advisors trail income, he said.

“We’re discussing solutions that will pay trail compensation instead of just upfront commission,” Grady said in an interview following the panel discussion.  Instead of paying an advisor a 3% commission on a SPIA, for example, it would pay, say 2%, and 10 basis points “trail” on reserve, Grady explained.