Cold Water on Banks' Hopes for Fixed Annuity Sales

Findings from a recent survey have begun to cast doubts on widespread projections that banks will become the leading sellers of fixed annuities in the next five years.

Banks are losing their status as the "primary" financial institution among annuity buyers, according to a survey conducted by Kenneth Kehrer Associates, Princeton, N.J., and SRI Consulting, Menlo Park, Calif.

"In the past it looked like banks would be the dominant sellers of annuities, but there are dark clouds on the horizon," said Kenneth Kehrer.

Industry observers, including Mr. Kehrer, have expected banks to account for as much as 50% of total fixed annuity sales by the year 2001.

That's because banks were the only financial intermediaries that saw growth in sales of fixed annuities between 1990 and 1994. In those years, banks' market share in fixed annuity sales jumped from 17% to 31% , Mr. Kehrer said.

But sales plummeted in 1995 as low interest rates and a surging stock market combined to favor other investment products.

And a change in investors' attitudes suggests they are more likely to purchase annuities in the future through insurance agents, stockbrokers, and financial planners, Mr. Kehrer said.

SRI surveyed 4,000 households in 1994 and 1995 to get a profile of investors throughout the country. This year the company, which has conducted the study every two years since 1978, asked Mr. Kehrer to analyze results related to annuity buyers' perceptions of banks.

Mr. Kehrer found that existing annuity owners are less likely than the general population to call banks their primary financial institution. And unfortunately for banks, prospective annuity buyers are even less loyal.

The study found that 47% of Americans "likely" to buy annuities consider banks their primary financial institution. That's down from the 52% of established annuity owners who gave banks the same distinction. Of the general population, 63% said they consider banks their primary financial institution.

Part of the problem is that banks have not developed much skill marketing annuities beyond their list of buyers of certificates of deposits, said Larry Cohen, SRI's director of consumer financial decisions group. "That market has been saturated," he said.

And despite earlier sales success, some bankers agree they have more work to do to bring in new annuity customers.

Crestar Financial Corp., for instance, is searching for ways to get customers to associate the bank with more than CDs, loans, and deposits.

"We have a wealth of customer information, but we're not as good at using it as we'd like to be," said C. Bayne Northern, senior vice president and managing director, Crestar Securities, Richmond.

Other bankers dismiss the two consultants' pessimism. Indeed, annuity sales are up 100% over last year at Huntington Bancorp, Columbus, Ohio.

Brokerage sales manager Robert Comfort attributes the increase to the bank's efforts to market itself as a one-stop retirement services supermarket.

Capturing retirement assets is where the real money is, Mr. Comfort explained. "The bulk of our business this year is outside money from lump- sum distributions and things of that nature," he said.

As a result, Columbus, Ohio-based Huntington is touting itself as the "retirement bank" in mailings that have gone to almost 200,000 bank customers in five states. Nearly 7,000 customers have responded with requests for educational materials. Bank employees' follow- up offers of free investment analyses have led in turn to new product sales.

"We don't like to take the view that the annuity is a CD alternative," Mr. Comfort said. Rather, it "is part of an overall investment plan."

Most of banks' recent annuity sales, however, have been buoyed by a soaring stock market and customers' increasing comfort with investment risk. Those factors, in combination with variable annuities that feature brand-name mutual funds, have enticed many annuity customers to buy variable rather than fixed products.

At Huntington, for instance, 75% of sales are variable annuities. Crestar's Ms. Northern said that 65% of total annuity sales are in variable portfolios.

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