Market uncertainty boosts popularity of variable annuities

In the cash-flush days of pre-economic meltdown America, annuities were derided as old news - products purely for the elderly and only for glacial wealth accumulation.

Post-2008, advisors hoping to reassure their clients that their drained retirement accounts can gradually be rebuilt are beginning to look more fondly on the security and upside potential of variable annuities.

A study released Monday at the IRI Marketing Summit, conducted by AllianceBernstein, suggests that more than half of all financial advisors have begun to recommend including VAs as part of a healthier and more diverse portfolio of investment options. The survey targeted licensed advisors with Series 6 and 7 credentials.

According to the results, 57 percent of respondents said they have increased their use of VAs because the product designs have become more attractive; half simply said the products are in demand because clients are asking for guaranteed investments. More than three-quarters of the respondents said clients "never want to have a year like 2008" ever again.

Sixty percent of sellers - those who turn more than 10 VA contracts a year - have begun to more strongly suggest VAs since the credit crisis.  

"Clients clearly have a strong appetite for the benefits of variable annuities, and it is important that the industry better communicate how they can become a key portfolio ingredient," said Michael Hart, managing director of insurance services with Alliance Bernstein.

"We found that the more educated advisors are, the more likely they are to use VAs in client portfolios, and not surpisingly, the happier the client."

VAs can also offer advisors a more successful business and be the key to attracting more high-net-worth clients, the survey suggests. A quarter of VA sellers had assets under management in excess of $100 million, and nearly a third had annual revenues in excess of $500,000.

Those surveyed said their average product allocation for new clients is 29 percent VAs, 14 percent mutual funds, 14 percent IRAs, 8 percent life insurance, 6 percent unified managed accounts or mutual fund wrap accounts and 29 percent other products.

"The fact that fewer people today feel confident that they will be able to meet their financial needs in retirement is driving a robust market for lifetime income solutions," said Cathy Weatherford, IRI president and CEO.

 

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