Again, you will probably have to register to read the entire article, but one of the financial planning industry magazines just wrote an extensive article on New Wave annuities. It's authored by Donald Jay Korn, who is a senior editor for the magazine and it goes into some of the products I discussed a few months back on the coming wave of new annuity products about to wash over the settlement industry.
I know many in the settlement industry don't consider variable annuities or annuities sold by investment advisors and financial planners to be a threat to the section 104 qualified settlement annuity, but a read of this product development and marketing makes it very clear that alternative products to settlement annuities are going to siphon off a great deal of premium that we might otherwise have seen go into settlement annuities. At the very least every professional needs to know what is out there competing with their product so that they can prepare for the inevitable questions and sales issues it presents.
For those of you too lazy to register and read this, i'll give you some highlights and low lights.
1. Premium into VA contracts was $117 billion for the first 9 months of 2006, and increase of 20% from the year prior. Compare this to the $6 billion going into structured settlement annuity products and the withdrawal of two major markets from writing settlement annuities.
2. The new emphasis of the sale of this product is now "living benefits" as opposed to the older sales tactic of tax deferral. As we know the tax deferral argument was the weakest part of the variable annuity sale, but now that the focus is on life time income and guaranteed benefits, you will see a direct attack on our core product of guaranteed life time income that can't be out spent.
3. The new guaranteed accumulation products, that offer 5% to 6% life time growth rates, in addition to also gaining market yields if they perform above that floor rate are creating a huge buzz in the conservative, life time investment market that we generally inhabit. Yes, that's right, they guarantee those yields, PLUS, give you a higher annual return if the market does better then that.
4. The new guaranteed INCOME products also offer the same protection on the payout side, providing for a guaranteed floor life time income, but also future increases if the market does better then the 5% or 6% life time pay outs. They also offer immediate death benefit payment of the entire account value income tax free, unlike our products commutation options which don't increase with time but tend to decrease in value.
5. Finally, the representative of the STRUCTURED SETTLEMENT INDUSTRY quoted in this article was J.G. Wentworth. Yes, that's right, they are quoted as a "structured settlement firm" that provides a liquidity to get out of high surrender products or immediate annuities. In the words of Matt Damon in Goodwill Hunting, " How do you like them apples?"
I've sounded this warning before, but the settlement industry needs to get on the stick and look at what is going on in our markets. I'm a registered representative, I sell all of these products and I can tell you that they are as good or better as advertised. They are going to have a tremendous response with trial lawyers, judges, guardians and plaintiffs who want life time income, guarantees and the ability to still track the market. Read the article and see the future.