Variable Annuity Sales Dip Again
June 13, 2014 by Andrew Coen
Variable annuities are still in negative territory.
Variable annuity net sales declined$1.1 billion for the first quarter following a$2.8 billion loss in flows from the 2013 fourth quarter, according to new data released by Morningstar Thursday. Variable-annuity total sales in the first quarter dropped to$33.5 billion, or 6.4%, from$35.8 billion in the previous quarter.
Henry Montag, a CFP inUniondale, N.Y., says he last sold a variable annuity about five years ago and that the tax-deferred retirement vehicles have a “horrible reputation” among investors. That’s why some advisors have been reluctant to utilize them with clients.
“Between bad press, high mortality expenses, adverse tax expenses and high commissions, they have been given a very bad reputation. So fewer people are buying them,” says Montag. “For the time being I don’t think variable annuities are going to go back up, because the insurance industry isn’t doing anything to combat the negative perception.”
FIXED-INCOME ANNUITIES RISE
Fixed-income annuity sales in the first quarter fell to $22.6 billion from $23.5 billion, a decline of 4.1%, according to data provided by Beacon Research. However, the first quarter total was 51% higher from a year-earlier. The year-over-year growth in fixed-income annuities was due largely to a 44.3% increase in indexed annuities which reached$11.2 billion in sales. This was the second highest quarterly sales of fixed-income annuities on record, according to Beacon.
Market value adjusted annuity sales reached$2.48 billion in the first quarter, 26% higher than in the previous quarter, and jumped 154.6% from a year earlier.
Montag says he likes fixed-income annuities lately due to the minimum guaranteed rate investors receive from insurance companies. They also offer protection should interest rates rise during their contracts.
“They have great tax-advantages,” says Montag. “People are looking for safety.”
