Displaying items by tag: fixed annuities

Advisors have to offer personalized solutions for their clients’ financial needs. Of course, this presents an inherent conflict for any advisor who wants to grow their practice as these efforts are often not scalable. 

Unified managed accounts (UMA) are a potential solution for advisors to offer low-cost and customized solutions by outsourcing these functions from professional asset managers. UMAs provide an open structure for advisors to toggle between managed account programs, asset allocations, portfolio management, and trading in order to become more efficient and increase the speed of implementation. 

Advisors can leverage UMAs to reduce complexity and provide more holistic advice for clients while freeing up time and energy to focus on business development. In contrast to mutual funds or ETFs, UMAs and separately managed accounts (SMA) provide more customization and tax efficiencies. However, SMAs often lead to more administrative burdens since each account generates its own statements, tax documents, and portfolio management needs. 

In contrast, UMAs offer access to multiple strategies in a single account while enabling tax savings through tax-loss harvesting. There is more efficiency given that there is less paperwork while also providing a more holistic view of a clients’ financial situation. 

Finsum: UMAs can lead to more efficiencies for advisors, leading to less paperwork and tax complications. It also leads to a more holistic view of a clients’ finances. 

According to a study of retirement accounts by Fidelity, most older Americans are too heavily invested in the stock market. This is a potential risk especially in the event of a market downturn. 

One posssible solution is for investors to increase their allocation to fixed indexed annuities. These are annuities that guarantee the principal but offer more growth potential than traditional fixed-rate annuities. They are best suited for investors with a time horizon of longer than 5 years. They are less risky than equities but offer higher returns than most types of annuities.

Fixed indexed annuities follow a market index such as the S&P 500 or Dow Jones Industrial Average and interest is deposited based on annual gains of the underlying index. However when the index declines, there is no loss of principal or of previously accrued interest. 

Of course, there is no free lunch. The drawback is that most fixed indexed annuities have some sort of formula which limits the amount of gains that are captured. There is also a maximum rate of interest which limits the amount of total gains that can be captured. For instance, some have a maximum rate of interest of 12% which means that the annuity would only see a gain of 12% even if the underlying index was up 20%.  

Finsum: Fixed indexed annuities are one potential way that older investors can reduce portfolio risk and boost diversification. 

According to data from the insurance trade association Limra, annuity sales hit $310.6 billion in 2022, surpassing the prior annual record of $265 billion, set in 2008. That year the U.S. was in the midst of the Great Recession, while the S&P 500 index lost 57% from its peak. In 2022, the S&P 500 posted its largest loss since 2008, ending the year down 19.4%. Since annuities hedge risks such as market volatility, they became quite popular last year with investors. Annuities also benefited from the Fed raising interest rates, which created a better return on investment. Plus, U.S. bonds, which typically act as a safe haven for investors when stocks falter, suffered their worst year on record last year. This left very few options for savers looking for safety and a return. Investors were especially bullish on fixed-rate deferred annuities. Total sales of fixed-rate deferred annuities last year hit $112.1 billion, more than double the sales from 2021. They also broke the prior annual record from 2002, when investors bought $80.8 billion, according to Limra data. Indexed annuities also had a record year, with sales of $79.4 billion, an 8% increase on its 2019 record. However, variable annuities, which are generally tied to the stock market, saw annual sales of just $61.7 billion, the lowest since 1995.

Finsum: With a volatile stock market, rising interest rates, and the worst year on record for bonds, annuity sales had a record year, with fixed-rate deferred annuities and indexed annuities also posting annual sales records.

While many states are rushing to adopt an annuity sales rule revision, there are still some that are using the National Association of Insurance Commissioners (NAIC) old sales rules and are not likely to move to the new version anytime soon. The NAIC adopted the Suitability in Annuity Transactions Model Regulation in 2010. The model required annuity sellers to verify that the annuities sold to consumers suit those consumers’ needs. In 2019, the SEC adopted Regulation Best Interest, which requires annuity sellers to document that they have acted in the best interests of annuity clients, rather than putting their interests first. The NAIC then adopted suitability model changes that were based on the SEC’s Reg BI standard in 2020. This has resulted in state officials that support Reg BI and those that oppose Reg BI. The states that haven’t moved to the new model are considered gray zones due to a map created that reflects the NAIC’s understanding of state adoption efforts. The states colored gray on that map indicates that they are far from implementing the NAIC’s 2020 suitability model changes. They include larger states such as California and Florida as well as smaller states such as New Hampshire and Vermont. The NAIC’s Annuity Suitability Working Group presented the implementation map Wednesday at the NAIC’s fall national meeting

Finsum:The NAIC updated its suitability model for annuity sales based on the SEC’s Reg BI, but several states are nowhere near close to adopting the new model.

According to Wink’s Sales & Market Report, third-quarter sales of deferred annuities soared almost 21% over the prior-year quarter. Deferred annuities include variable annuities, structured annuities, indexed annuities, traditional fixed annuities, and multi-year guaranteed annuities (MYGA). Indexed annuities saw the largest gains. Sheryl Moore, CEO of Wink, Inc. and Moore Market Intelligence said that "It was a record-setting quarter for indexed annuity sales. In fact, 2022 will be a record year for indexed annuities as well." Total non-variable deferred annuity sales, which include indexed annuities, traditional fixed annuities, and MYGAs, came in at $48.8 billion for the quarter, up 67.1% compared to the prior year's quarter. However, variable deferred annuities, which include structured annuities and variable annuity product lines, did not see the same gains. While sales came in at $23.5 billion, that figure was down 10.8% compared to the previous quarter and down more than 23% compared to the same quarter last year. The No. 1 selling deferred annuity for the quarter was Jackson National’s Perspective II Flexible Premium Variable & Fixed Deferred Annuity. 

Finsum:With indexed annuity sales leading the way, total deferred annuity sales soared year over year.