PROSPECTS FOR VARIABLE ANNUITIES IN THE RETIREMENT INCOME MARKET Product & Marketing Strategies to Best Position Annuities

Transcription

1 PROSPECTS FOR VARIABLE ANNUITIES IN THE RETIREMENT INCOME MARKET Product & Marketing Strategies to Best Position Annuities SHARPEN YOUR EDGE SM

2 Financial Research Corporation 100 Summer Street 15th Floor Boston, MA For more information contact: Craig Kilgallen at Deborah Wetherbee at Elizabeth Wetherbee at Canadian-domiciled firms should contact: David Enns at Copyright 2006 by Financial Research Corporation, a company. All rights reserved. Your payment for this report is for one copy only. If you desire additional copies of the report, or copies of any section of the report, you can purchase them separately. Reproduction of any part of this report is illegal under the Federal Copyright law (17 USC 10 et seq.) and is prohibited. Photocopying or transmission of the information in any electronic or mechanical fashion is strictly forbidden, unless the user has purchased an annual usage license from FRC that allows the user the capability to quote directly from the FRC content with attribution to the firm. Contact FRC to learn more about your redistribution/attribution options. Publication Date: September 15, 2006

3 TABLE OF CONTENTS TABLE OF CONTENTS Directory of Exhibits iii Key Study Findings Biographies Methodology Executive Summary Chapter One Manifest Destiny or Lost Opportunity? I. The Income Opportunity II. Fear Factors Favor VAs III. Identifying the VA Sweet Spot Chapter Two Obstacles to Overcome I. Traditional Objections to Annuitization A. Investor Issues B. Advisor Issues II. Negative Perception of VAs A. Fees and Expenses B. Product Complexity C. Sales Practices III. Competing Solutions A. Products Currently in Use B. Fixed and Indexed Annuities C. Multi-Product Solutions IV. Advisor View of Needed Improvements Chapter Three Positioning for Success I. Annuity Value Propositions A. How Advisors Position VAs B. Income for Life Page i

4 PROSPECTS FOR VARIABLE ANNUITIES IN THE RETIREMENT INCOME MARKET II. Income Plan Cornerstone A. Advisors Currently Using VAs for Income B. Retirees Accessing VAs for Income III. Meeting the Needs of Advisors A. Importance of Advisor Training B. Tools for Selling Retirement Income Chapter Four Product Development I. The New Annuitization A. Building a Better Option B. Income VAs II. Living Benefits A. GMWB: The Hot Seller B. Benefit or Distraction? III. Advisor Compensation Chapter Five Prospects for Success I. Product Projections A. Advisor Projections for VA Use B. Future Product Preferences C. Prospects for Rollover Success by Distribution Channel II. Income Story Takes Hold A. Annuitization: In the Insurer s Best Interests B. Product Comparison and Allocation C. The Advisor View on Annuitization III. Future Face of VAs Appendix: FRC/AdvisorCentral Survey of Advisors, January Page ii

5 DIRECTORY OF EXHIBITS DIRECTORY OF EXHIBITS Exhibit 1-1: Retirement Market Segmentation Model # Exhibit 1-2: Retirement Market Segmentation Model # Exhibit 2-1: Advisor Self-Assessment of VA Knowledge (All Channels Combined) Exhibit 2-2: Advisor Self-Assessment of VA Knowledge (By Channel) Exhibit 2-3: Advisor Perspective on Impact of Increased Regulatory Scrutiny on Use of VAs Exhibit 2-4: Most Frequently Used Products by Advisors Exhibit 2-5: Percentage of Current Client Assets in VAs (All Channels Combined) Exhibit 2-6: Percentage of Current Client Assets in VAs (By Channel) Exhibit 2-7: Advisor Suggestions for Encouraging VA Use for Rollover Clients (All Channels Combined) Exhibit 2-8: Advisor Suggestions for Encouraging VA Use for Rollover Clients (By Channel) Exhibit 2-9: Comments from Industry Executives on What VA Providers Can Do to Significantly Increase Annuities Share of the Retirement Income Market Exhibit 3-1: Reasons Why Advisors Recommend VAs to Their Clients Exhibit 3-2: Reasons Why Retirees Chose Variable Annuities Exhibit 3-3: Percentage of Average Investor's Income Stream Generated by VA (All Channels Combined) Exhibit 3-4: Percentage of Average Investor's Income Stream Generated by VA (By Channel) Exhibit 3-5: Percentage of Retirees Using VAs to Generate Retirement Cash Flow Exhibit 3-6: Advisor Use of VAs, by Product Knowledge Exhibit 3-7: Services That Advisors Want from VA Wholesalers Exhibit 3-8: Comments from Industry Executives on Advisor Tools Needed to Support a Retirement Income Focus Exhibit 4-1: Flexible Annuitization in Lincoln s i4life Advantage Exhibit 4-2: Advisor Inclusion of GMWB in VA Sale Exhibit 4-3: Enhancements to GMWBs Exhibit 4-4: Revenue Sources Among Advisors, Split Between Fees and Transactions Exhibit 4-5: Expected Change in Revenue Sources (10-Year Projection) Exhibit 4-6: Advisor Assets Under Management, by Compensation Structure Page iii

6 PROSPECTS FOR VARIABLE ANNUITIES IN THE RETIREMENT INCOME MARKET Exhibit 5-1: Expected Change in VA Use (10-Year Projection, All Channels Combined) Exhibit 5-2: Expected Change in VA Use (10-Year Projection, By Channel) Exhibit 5-3: Expected Change in VA Use (10-Year Projection, by Current Use of VAs) Exhibit 5-4: Expected Product Preferences for Client Rollover Assets (5-Year Projection) Exhibit 5-5: Expected Use of Annuities for Rollover Assets (5-Year Projection, All Channels Combined) Exhibit 5-6: Expected Use of Annuities for Rollover Assets (5-Year Projection, By Channel) Exhibit 5-7: Comments from Industry Executives on Distribution Channels Best Positioned to Capture Rollover Assets Over the Next Five Years Exhibit 5-8: Asset Distribution, Product Allocation, and Convergence Exhibit 5-9: Advisor Preferences for Withdrawal Plans vs. Annuitization Exhibit 5-10: Comments from Industry Executives on the Most Significant Changes Over the Next Five Years in How VAs Are Built and Sold Page iv