The fiduciary rule and the wane of traditional wholesaling have prompted annuity issuers to change their pitch to financial planners, along with their product shelves. The firms are betting the new approach will appeal to advisors wary of sales calls, regulation and litigation.
Jackson National Life Insurance has instructed agents to strive for deep conversations around investment strategy, technology and planning rather than just “pushing their own product and bashing the competition,” says Jackson Chief Distribution Officer Greg Cicotte.
Similarly, Voya Financial hopes technology and tailored services help it shift away from a past in which “we were really kind of product pushers,” says Chad Tope, Voya’s president of annuities and individual life distribution.
Voya launched a data analytics pilot studying advisors’ sales, preferences and interests, with the tool slated for all external wholesalers in the annuities unit next year. In 2018, the firm will also bring to market a new structured variable annuity product with buffer protection against principal.
Jackson, which the LIMRA Secure Retirement Institute says is the No. 1 seller of annuities by revenue, recently introduced a new fee-only variable product with optional guaranteed living and death benefits. The firm also reached a deal with Vanguard to make 10 funds available on Jackson’s platforms.
Wholesalers know advisors, especially those at RIAs, have become skeptical of their usual approach. More than 80% of wholesalers chose “not receptive to traditional wholesaling” as a challenge of distributing to RIAs, the second most popular answer after time limitations, according to a survey by Cerulli Associates.
For their part, advisors from RIAs told the research firm they find only nine of 33 weekly contacts from wholesalers meaningful, on average. Cold calls and sales pitches usually turn advisors off, says NAPFA Chairman Scott Beaudin of South Burlington, Vermont-based Pathway Financial Advisors.
Annuity sales have fallen this year to a 16-year low, but LIMRA last month revised expected sales upward for 2018 due to the Trump administration’s delay of the fiduciary rule. The rule and accompanying uncertainty regarding its implementation have upended sales, with broker-dealers bulking up their compliance oversight and commissions from the products receiving enhanced scrutiny.
Fee-only advisors’ abstention from commissions does not spare them from sales pitches for highly technical products of questionable value to their clients. However, wholesalers can provide helpful education to advisors, and the fee-only variable products carry appeal, Beaudin says.
“We’re using them in our office for the first time ever. We started it earlier this year,” he says. “The cost structure has come down so much, particularly with the removal of surrender fees and lower ongoing fees. Advisors have to get rid of the old thinking that annuities are all bad. That’s changing.”
NEW OPTIONS HITTING THE MARKET
Voya works primarily through the independent broker-dealer space for its distribution, according to Tope. The firm counts about 400 IBDs as clients, including major firms like LPL Financial, Cetera Financial Group, Advisor Group and Cambridge Investment Research, Tope says.
Ascend, Voya’s upcoming structured product, provides four levels of buffer protection from 5% to 30%, four index investment options and three durations from one to six years. The firm will offer tech tools to advisors to help them match their clients with the best options for them.
Data analytics will allow Voya to assign what the firm calls a “propensity score” to advisors, based on their sales track record, their clicks on Voya’s website and their orders of research materials, according to Tope. The new tools and products will help the firm save advisors’ time in the fiduciary era, he says.
“I think the role of the advisor is challenging right now, to say the least. They’ve got a lot of things coming at them in understanding the products that they have to sell, making sure that they’re following the regulations, and then, of course, this best interest of the customer statement,” Tope says.
“And I think if you’re a company looking to work with them, you know, the wholesalers have to be able to provide value to their business and their practice.”
Cicotte, of Jackson, agrees that the fiduciary rule has altered annuity companies’ shelves, with more advisory products in particular hitting the market. Jackson’s first fee-only variable annuity came out last September, and its third such product, Perspective Advisory II, opened this September.
The product, which has a core contract charge of 45 basis points plus more for the living and death benefits, features no surrender period and low-cost institutional subaccounts with no 12b-1 fees. Clients may choose among more than 130 investment options, including the newly available Vanguard funds.
“From a cost structure standpoint, we feel that it’s going to be very attractive to traditional fee-based advisors,” Cicotte says, noting that Jackson's commission-based variable annuities held little sway with the group.
“We just did not fit into some advisors’ business models. With the introduction of advisory variable, it opens up an entire market not only for Jackson, but for the entire industry.”
BENEFITS TO CLIENTS, WITH CAVEATS
LPL advisor Sarah Carlson of Spokane, Washington-based Fulcrum Financial Group has developed productive relationships with a few knowledgeable wholesalers. However, Carlson doesn’t have enough time to meet with most of them because she wants to be available to her clients, she says.
She has been offering fee-only variable annuities for four or five years. Carlson cautions that advisors and their clients should keep the extra internal fees of the products in mind, but their benefits have proven helpful for older clients who haven’t saved enough, she says.
“For those people, the annuities have performed very well because they would otherwise not have been able to take that risk in their portfolio without the guarantees,” she says.
“You really have to be motivated to help people because it’s so difficult to get issued. It’s because those products are so complex. The insurance companies are constantly coming out with new products, and it’s difficult to service.”
The complexity among the various kinds of annuities and the required due diligence make advisors worry about litigation, Carlson adds. So far this year, 188 new FINRA arbitration filings have involved annuities, the fifth most commonly cited type of security in client claims, according to the regulator.
Clients usually hear a lot about benefits like a guaranteed income stream or a death benefit, and much less about surrender periods and fees, says Christine Lazaro, director of the Securities Arbitration Clinic at St. John University’s School of Law. She welcomes the new fee-only offerings, albeit with caveats.
“A more transparent fee structure is definitely an improvement in the annuity marketplace,” Lazaro says. “It costs something for the benefits that you get on any of these products. The problem is that most clients don’t understand the costs included with the benefits that they’re getting.”