Fixed index annuity sales are on pace for a record year in 2016 as low interest rates and product features driver their popularity among broker-dealers and in the face of a potential new Labor Department investment-advice regulation that will make sales of these harder. Simultaneously, sales of variable annuities are projected to be their lowest in nearly two decades, continuing their multi-year dip, according to insurance industry group, Limra.
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Limra projects indexed annuity sales to hit $62 billion by year-end, which would represent growth of roughly 14% over the record $54.5 billion set in 2015. However, Limra estimates a 21% decrease in variable annuity sales in 2016, to $105 billion from $133 billion last year. That would be the lowest figure since 1998, when variable annuities saw $100 billion in sales.
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This is due in part as independent broker-dealers, the largest distribution channel for variable annuities, have started to embrace indexed annuities more.
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One reason for the switch may be the risks associated with variable annuities. Variable annuities offer some level of freedom to investors with a higher risk tolerance but have a number of drawbacks that make them poor choices for most investors:
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- Because these are long term investments, they are generally illiquid.
- They often come with a number of hidden fees and expenses, including surrender charges, sales charges, tax penalties for early withdrawals, mortality charges, etc.
- They offer fewer tax benefits than the average 401(k)
- Because these are usually high commission paying products, your broker may have an incentive to convince you to buy them, even though they may not be appropriate for you.
[su_spacer size=”10″]If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.