Variable Annuities Gain New Respect in Crisis Aftermath

Michael Hart

The 2008 market crash has given variable annuities (VAs) a new lease on life. As clients search for ways to rebuild retirement nest eggs with less downside risk, US financial advisors are increasingly prescribing VAs as part of the solution.

These were some of the key findings of a recent AllianceBernstein survey of more than 500 financial advisors to learn more about how and why they use VAs in their practices. Roughly 80% of the respondents use these products, with nearly a third of them selling more than 10 contracts in the past year. We defined these advisors as “sellers”; we defined those who sold less than 10 contracts as “dabblers”. 

Variable annuities are insured retirement products that can be purchased with optional benefits and riders to preserve capital, cap losses and guarantee growth and lifetime income. There is, of course, a fee, which varies depending on the terms of the benefit or guarantee.

As we highlight in a recent report, “After the Crisis,” on our findings, advocacy of VAs has increased dramatically in the aftermath of the global financial crisis. More than 60% of sellers and roughly half of dabblers have increased their VA recommendations since 2008. Roughly one-third of both groups said that their recommendations stayed the same. Top VA sellers said that the nearly all of their new-client business since 2008 included a VA.

Improved product design and clients’ demand for secure retirement income were by far the biggest drivers of advisors’ increased advocacy. These reasons far outweighed factors such as an aging clientele or more focus on VAs by their firms.

We don’t think this momentum will slow any time soon. By a large majority, VA sellers and dabblers said that they would continue to recommend VAs because they never want their clients to experience a year like 2008 ever again, as we see in the display below. Driving home that point, nearly half of them told us that their VA clients were their happiest customers during and after the market downturn.

Better Design and Client Needs Drove Increased Advocacy

Proponents view VAs as an important part of their retirement-planning business, and more than 40% said that they bring them up in every client conversation. According to our study, advisors consider VAs best suited to retirement strategies that focus on attaining long-term income. These would include Baby Boomers or couples with a sizable nest egg, no education expenses and low debt, who are seeking moderate growth but are leery of market volatility.

VAs are not a silver-bullet solution, and they are not for everyone. But, as this research shows, they help broaden an advisors’ set of investment options and, thus, can play a valuable role in the overall retirement-planning dialog and in rebuilding clients’ confidence.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio-management teams.

Michael Hart is Managing Director—Total Retirement Client Group at AllianceBernstein.

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