Why Some Don’t Sell Fixed Annuities
Industry researchers are reporting sales growth for fixed annuities, especially the fixed index annuity (FIA), during the first half of 2014.
But are most producers selling them? No, according to a study from Cogent Reports. The researchers decided to find out why. The results — especially the reasons cited by insurance agents — are a bit baffling.
First, a recap on sales. The most recent numbers come from the Insured Retirement Institute, which reported out fixed results gathered by Beacon Research.
The Beacon results show that fixed annuity sales increased to $24.3 billion in second quarter 2014, up 7.6 percent from first quarter and up 41.6 percent from second quarter last year. The gains came largely from FIA sales, which Beacon said hit a record $12.9 billion in second quarter, up 14.8 percent from first quarter and up 41.5 percent increase from second-quarter 2013 sales. These findings generally track with those reported earlier by Wink Inc. and LIMRA Secure Retirement Institute.
Now about those producers who don’t sell the products. Cogent Reports surveyed insurance agents and registered representatives in this marketplace for its 2013 Fixed Annuity Brandscape study, due out this month.
The researchers did find that more than half of all insurance agents, and roughly one-fourth of financial advisors, said they were selling fixed annuities and FIAs. Neither of those findings will surprise, since agents have been the primary fixed annuity distribution channel for decades. Only in recent years have financial advisors come to the party, and then, only in small groups.
But Cogent Reports also found that “a sizeable portion” within each population is a “non-seller” of fixed annuity products. The reasons vary according to type of annuity.
When asked for the main reason for not selling fixed annuities, for instance, 37 percent of the insurance agents said they don’t have sufficient knowledge about how fixed annuities work.
At first blush, that seems astonishing, given that traditional fixed annuities are really simple products to grasp, even for consumers.
But then, the non-sellers among insurance agents were “significantly newer” to their roles than the overall agent population, the researchers point out. So the newbies may not yet have expanded beyond traditional life sales. That seems plausible. An acquaintance of mine went to a fairly new agent to buy an income annuity but ended up with something entirely different. When I asked why he did not sell what the customer requested, the agent said, “I don’t work with those products.” Sigh.
The researchers suggested that a “focused effort on education” might help win over these newer agents. That idea seems better than the alternative.
So, how did the financial advisors answer the “main reason for not selling” question? Fifty-nine percent said the current low interest rate environment is limiting the product benefits.
That reason rings bells with the traditional notion that fixed annuities are best for use in high interest rate environments. But then, what to make of the fact that, in the first half of 2014, fixed annuity sales rose, even though interest rates are still historically on the low side? It may be that financial advisors might want to learn a bit more about the unique characteristics of the current marketplace, especially the risk aversion among the growing senior population. Just sayin’…
On to FIAs. Why don’t non-sellers don’t offer those record-breakers? Thirty-three percent of the agents answered that “my broker/dealer does not allow me to sell fixed index annuities,” while 33 percent of the financial advisors said that “these types of products limit growth potential.” Might annuity marketers and wholesalers be able to provide such producers with insight to those issues?
Not everyone needs or wants a fixed annuity, and not every seller will be receptive to offering fixed annuities. However, educational approaches that address some of the sticking points that non-sellers have may open up possibilities not previously considered. In a market where other producers are selling the fixed products, despite the low interest environment, some producers might appreciate the insight.