Q1 US annuity sales totaled $13.9 billion, a 21% increase over Q1 2023, and LIMRA forecasts that sales will continue to rise through 2024 and into 2025.
While inflation is down from its 9% high in the summer of 2022, its aftershocks are still present in the economy—the cost of living is higher than it was prior to the pandemic. The inflation-fuelled annuity sales window is still very much open.
Despite regulatory challenges and competition from internet and robo-advisors, the role of financial advisors is arguably even more critical—and remains full of opportunity.
Responding to consumer demand for lifetime income with downside protection, carriers continue to develop and market new annuity products. These products are inevitably somewhat complex as carriers seek to add features and create differentiation, but this complexity can provide knowledgeable advisors with a crucial advantage.
A recent survey from Nationwide revealed that 82% of respondents felt more positive about their annuity purchase due to their financial professional’s opinion. This surpassed other factors like historic annuity performance, market performance, and interest rates.
In a data driven world, these are notable numbers. Consumers also have more trust in human advisors than new IA services or other online options. This desire for a neutral source of information naturally benefits IFAs.
The growth of the annuity market and Americans’ demand for them challenge the cliché that annuities are sold rather than bought. Recent product development has provided consumers with unparalleled choices. While complexity might still linger, advisors can demonstrate value, expertise, and service, creating a virtuous circle of trust and confidence.
The 23% rise in annuity rates over the previous two years is unlikely to continue. Similarly, we cannot be certain that current rates form a new floor. The likelihood of incremental interest rate cuts and the DoL ruling creates uncertainty, and quite how the regulation will be enforced is still guesswork.
Nevertheless, the retirement investment landscape has changed. The classic 60/40 securities/bonds recommendation is increasingly perceived as outdated, and annuities are filling the gap. RILAs have recently proved particularly popular and are the poster-child for annuities’ increased sophistication and adaptability. The stock market’s recent upward trajectory has made customers a little more adventurous but retaining the downside protections.
RILAs do require some explanation to the uninitiated. They offer advisors the chance to prepare sales pitches of the fiduciary ruling era: use simple language, be upfront about fees, and frame RILAs as a diversifier among other options your clients might have.
Despite the DoL ruling, clients trust their financial professionals to develop secure and optimized retirement plans. More than ever, advisors have the opportunity to use their product knowledge to allocate the right financial vehicles for their clients.
We are still very much in the age of the annuity.