Blazing a new trail, Signet Banking Corp. has introduced a proprietary variable annuity that lacks sales charges or penalties for early withdrawals.
Of the 10 banks that sell their own variable annuities, the Richmond, Va.-based Signet is the only one to offer a "no-load" product. The bank is targeting customers in their 50s who are trying to accumulate assets on a tax-deferred basis, and want life insurance too.
Many banks have found selling variable annuities tough going, because customers have been slow to accept them. They are a complicated product, and high sales charges and early withdrawal penalties have been an impediment.
By dropping the sales charges, Signet hopes to eliminate a barrier to sales, said James Eads, president of the bank's brokerage.
Observers called the move daring. Fleet Financial Group Inc. recently abandoned the same route, slapping charges onto its Galaxy variable annuity.
Boston-based Fleet didn't generate enough assets to justify removing sales charges, said Jennifer Strickland, editor of Morningstar Inc.'s Variable Annuity/Life.
"You have to pay the people who are distributing it, and variable annuities are still a product that bank customers aren't walking into branches demanding," she said.
But Signet's product is different than Fleet's annuity, she conceded. Dubbed ImprintTD (tax-deferred), the Signet annuity is designed after the company's Imprint asset allocation service.
The customer can choose among eight different mutual funds, including those managed by Signet, as well as by Fidelity Investments, Alger Funds, and Scudder, Stevens & Clark Inc. Every quarter Signet repositions the customer's portfolio depending on risk aversion and goals.
"If they're trying to push asset allocation, then a variable annuity is a smart way to do it," Ms. Strickland said. "All the exchanges will be tax deferred."
Indeed, Mr. Eads said customers are attracted to the asset allocation service almost as much as they are to the drop in sales charges. Since the company added the asset allocation service to its load product, Strive Variable Annuity, sales have jumped 230% year to date.
Signet is following a trend among insurers to design no-load products. Most recently, mutual fund giant T. Rowe Price Co., insurer American Skandia, and discount brokerage Jack White & Co. introduced no-load variable annuties.
Many companies tried similar products in the early 1980s, but no-load mutual funds attracted much more attention, Ms. Strickland said.
"It took a long time for the concept to catch on, for investors to become savvy enough to understand their variable annuity investment on their own," Ms. Strickland said.
Underwriting Signet's product is Security First Group, a Los Angeles insurer that also underwrites the Strive annuity.
Mr. Eads said the bank will probably phase out Strive over time.
