Annuity Sellers Face Rolling Economic Headwinds

Interest rate hikes planned by the Federal Reserve may prove to be a massive disruption.

By John Hilton

The first weeks of 2022 gave investors the shivers as stock shares plunged amid geopolitical fears, inflation, COVID-19, and interest rate hikes.

The Dow Jones Industrial Average fell about 7% before beginning a slow rebound in the last days of January. A series of interest rate hikes planned by the Federal Reserve might be the biggest disruption of all, analysts say.

“The largest driver of this move has been the intensified level of uncertainty. The usual suspects for this uncertainty have been the Fed and their rate hike plans, hot inflation, and slowing growth,” wrote Lindsey Bell, chief money and markets strategist for Ally.

Annuity sales are influenced by a whole range of economic factors, including market performance and interest rates. While annuity sales rebounded strong from a pandemic-influenced dip in 2020, the outlook for the rest of 2022 remains murky, analysts say.

In addition to interest-rate uncertainty, inflation concerns linger, and regulatory changes are causing disruption among distribution channels. It could all add up to a difficult sales year for annuities. But executives like Doug Wolff, president of Security Benefit Life, are banking on the power of annuities to deliver retirement security.

“I think it will be a good year for annuity sales, even if some of the things we’re talking about — the potential for higher inflation, the potential for a market pause or correction — come into play,” Wolff said. “Because in some ways, they will just remind people of some of the power of annuities — being able to save, invest and accumulate dollars in a relatively safe way.”

Strong Rebound

Growing annuity sales in 2022 will prove difficult simply because 2021 sales were so strong.

Total annuity sales totaled $254.8 billion in 2021, up 16% from 2020. It was the best year for annuity sales since 2008 and the third-highest sales recorded in history, according to preliminary results from the Secure Retirement Institute U.S. Individual Annuity Sales Survey. Total annuity sales were $63.4 billion in the fourth quarter, 8% high-

Doug Wolff er than fourth-quarter 2020.

“Strong equity market growth in the fourth quarter and in 2021 propelled double-digit growth in both traditional variable annuity and registered index-linked annuity sales, resulting in

strong year-over-year results,” said Todd Giesing, assistant vice president, SRI Annuity Research.

The pandemic cut sharply into 2020 sales, setting up the nice comeback year. Forced technology gains and new ways of distance selling were among the positives to emerge from the COVID-19 shutdown. Many in the industry expected sales to take off for greater heights thanks to these gains.

Although that may happen, there are new storms for producers to contend with — namely the Department of Labor Investment Advice Rule. The rule, written during the Trump administration and allowed to take effect by the Biden team, took full compliance effect on Feb. 1.

The investment advice rule has two main parts: a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the “five-part test” from 1975 to determine what constitutes investment advice.

It replaces the Obama administration fiduciary rule, which imposed substantial regulations on commission-based sales of annuities. A federal appeals court sided with industry plaintiffs and tossed out the rule in 2018.

The Federation of Americans for Consumer Choice, joined by a number of independent insurance agents and agencies, sued the Department of Labor last month, claiming the new rule improperly “broadens the agency interpretation of who is considered a fiduciary.”

For now, the new rules are the rules and will make selling annuities more difficult, said Sheryl Moore, head of Moore Market Intelligence.

“There will be required forms for agents to disclose their commissions and say that they don’t have a conflict of interest and show some due diligence to show the products considered,” she noted. “Any time there’s a change in the sales process, it has a negative effect on sales, at least temporarily.”

Sheryl Moore

Rate Hikes

Goldman Sachs is forecasting that the Federal Reserve will raise interest rates five times in 2022. Officially, the Fed is signaling its intention to raise rates in March. Subsequent rate increases will follow as needed, Fed Chair Jerome Powell has said, while officials monitor how quickly inflation falls from current multidecade highs back to the central bank’s 2% target.

Higher interest rates will make some annuities more attractive to consumers. Whether rates increase enough to lure buyers away from other options remains to be seen.

“I would expect annuity sales to be up again in 2022,” Wolff said. “And I think if interest rates go up, it may be even more than what people are predicting at this point.”

In particular, fixed indexed annuities could see a sales surge if rates climb. Momentum is already trending that way, the SRI reported. FIA sales were $63.7 billion in 2021, up 15% from the prior year, SRI found, and that marks the largest annual growth for FIA products in three years. “Sometimes I think a financial advisor’s toughest job is getting that investor to potentially take a little bit more risk, because they realize that investor may still need some accumulation,” Wolff explained. “A fixed indexed annuity is a way to do that but still have the client get a principal guarantee and some of the downside protection that comes with it.”

Todd Giesing

Market Fears

Harry Dent, Harvard University-educated economist and author, is among those predicting a market crash this year. Dent made a number of bold predictions through the recent decades, some right and some wrong. But he predicted the dot-com bubble burst in 2000 and the populist surge that ushered former President Donald Trump into office in 2016.

In a November interview, Dent predicted “the biggest recession, or a depression,

of our lives” in 2022 and added that the economy won’t recover its growth power until 2024.

Should we see a massive market correction this year, annuity sales would no doubt suffer. Individual annuity sales dropped 11% in 2009, the year following the housing crash and the Great Recession.

Again, Wolff is confident that consumers would find the protection offered by some annuity products to be a safe zone in a market downturn.

“Sometimes that can cause a pause for people putting their money anywhere,” Wolff acknowledged. “But I still think that the power of both fixed and fixed indexed annuities is even more evident when there’s some hit in the equity market.”

Harry Dent, economist and author, predicted “the biggest recession, or a depression, of our lives” in 2022.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@ innfeedback.com.

Signal Advisors Takes a Big Swing

The only technology-enabled IMO, Signal Advisors is now the fastest-growing IMO, too

In 2019, Signal Advisors launched with a simple vision – to be the first IMO built on a technology backbone. And they’ve certainly lived up to that vision. Today, advisors are leveraging a unified technology platform to manage all aspects of their business across annuities and life insurance – from electronic applications, new business dashboards, and case design to commission management across 30+ carriers, marketing analytics, annual review preparation, and more. “It’s becoming the operating system for my insurance business,” says Bob Smith, founder of RCS Wealth. “Having everything in one place has been a gamechanger. My firm is way more e icient and the platform is simple to use.”

The fastest-growing IMO

Smith was an early adopter of the Signal platform, moving his business just over two years ago. And in those two years, Signal has earned another accolade – they are now the fastest-growing IMO in the country. “In the past two years, we’ve 10x’d the number of advisory firms we serve, and we’ve 10x’d the size of our team,” says Patrick Kelly, Co-Founder and CEO of Detroitbased Signal Advisors. “It certainly makes us proud, but we are truly still in the first inning.” Kelly is keenly aware of the risks that come with that level of growth. “Whenever you go from 10 team members to over 110 team members in just two years, it’s easy to dilute your culture,” says Kelly. “For us, however, I think the growth has actually strengthened our culture.”

Building a winning team

Kelly started his career as a financial advisor at Northwestern Mutual, and then moved on to Kelly Capital Partners where he built a successful independent advisory firm alongside his mother, Janie Kelly. “Anyone who has ever built a company will understand that it’s all about the team, whether you’re building an advisory firm or an IMO,” says Kelly. Even at first glance, it’s clear that Signal’s team is unique, with its blend of deep industry expertise, having courted some of the top executives from rival IMO’s, combined with fresh perspectives from industry newcomers who bring experience from blue-chip companies. Brian Nephew recently joined the team after 18 years helping build Johnson Brunetti, one of the largest independent advisory practices in the industry, where he most recently served as Chief Operating O icer. “I had a great job working with great people,” says Nephew. “But I joined Signal because I get a chance to build a company that will change the way the next 100 Johnson Brunettis scale their business.” That’s exactly what Nephew will do at Signal as the Head of Coaching, where he will provide one-on-one mentorship to other advisors in the industry. “I saw a team at Signal that was poised to shake up the industry,” Nephew says. “I saw industry veterans coming from great IMOs like Advisors Excel, FIG, TrueChoice

Signal team o -site at the Detroit Athletic Club in September 2021.

working side-by-side with industry newcomers from Google, Deloitte, JP Morgan. Now that I’m here, I can see what they all have in common — they are all obsessed with finding a better way.

A focus on culture

“This is our long-term competitive advantage and it’s the only way we know of to build a lasting and great company,” says Jacob Cohen, Co-Founder and President of Signal Advisors. You might assume the “competitive advantage” Cohen is talking about is the industry-leading technology that Signal has become known for in recent years. So, perhaps it’s surprising to learn that the founders are completely fixated on something di erent – culture. Cohen has learned a thing or two about building great culture. He spent the past 11 years managing venture capital investments for Dan Gilbert, founder of Rocket Mortgage. Gilbert scaled Rocket from 3 people in a shared o ice, to over 30,000 team members, and has become the largest mortgage company in the world along the way.

We aren’t just building an IMO. We are building something that

simply doesn’t exist.”

— Patrick Kelly

CO-FOUNDER AND CEO, SIGNAL ADVISORS

“Obsessed with finding a better way. Do the right thing. Always raising our level of awareness. Every client, every time. The inches we need are everywhere around us. Urgency is the ante to play,” Cohen rattles o the values that are ingrained in every team member at Signal, and reinforced at every turn.“ Culture is something you have to work at. We look for these traits in our hiring process, and then we obsessively reinforce our values day in and day out. You can’t build great technology or great service without a great culture.”

Taking a big swing

“People may be surprised to see the Signal logo on a former #1-in-the-world PGA Tour golfer this season, but I guess it just goes to show how far we’ve come in two years!” Kelly reflects. He’s referring to Signal’s new partnership with Luke Donald, which he sees as symbolic of the “big swing” that is the company’s long-term vision. “We aren’t just building an IMO. We are building an end-to-end platform encompassing annuities and life insurance and then securities. From new business, to case design, to marketing and lead generation, to providing working capital for advisors, we are building something that simply doesn’t exist,” says Kelly. For Kelly, success stories like Bob Smith’s are clearly what it’s all about. “When I first started hearing the buzz about Signal, it was all about how they pay commissions in 24 hours. That made me curious – how are they doing things that all the other bigger IMOs haven’t done?” says Smith. “Turns out, it’s not only about the commissions. They are just obsessed with finding a better way of doing all the little stu we’ve been doing the old way for years. And it’s making a real impact. I’ve tripled my business in two years.” “2022 is all about helping more advisors like Bob. Plus, we get to play some golf with Luke!” says Kelly with a laugh. “After all, if we’re not having fun along the way, what’s the point?”

Signal Advisors Co-Founder and President Jacob Cohen (left) with pro-golfer Luke Donald (right) at the 2021 Rocket Mortgage Classic Pro-Am event.