Nearly half the large banks and third-party broker-dealers in a broad new survey plan to add to or pare back their annuity providers - and the carriers' financial strength will be the key to which ones make the cut, according to a study released today.
One-quarter of annuity product managers plan to reduce the number of providers they work with, and 22% plan to add providers, according to the survey of 32 banks and third-party broker-dealers, accounting for about 80% of annuity sales through banks, by the research firm Kehrer-Limra.
"Big banks like to do business with big companies," said Kenneth Kehrer, the founder of the firm. "With so many to choose from, that becomes the table stakes."
Midsize banks were the most interested in adding providers, he said, and the smallest ones were most interested in reducing the number of their selling agreements.
Replacing a lost provider can take as long as a year, said John Harline, the head of variable annuity distribution through banks at the U.S. Financial Services unit of Holland's ING Group NV, which commissioned the study.
Banks are planning to "right-size" their annuity offerings in order to simplify the provision of the right products to the wave of baby boomers preparing to retire, Mr. Kehrer said. As banks work toward that goal, he said, an important selection criterion is having "products that are potentially additive to sales rather than merely shifting sales from existing products."
Indeed, annuity providers have been scrambling to differentiate themselves, often by incorporating various sorts of guarantees in their products.
But from a provider standpoint, "it's becoming more difficult to differentiate yourself in the environment we are presently in," said Chad Tope, who heads ING's fixed annuities distribution.
Large banks or third-party broker-dealers typically have selling agreements with 21 annuity providers, though the number ranged from as few as five to more than 40 in the study's sample. Respondents included Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., and Invest Financial Corp. These selling agreements may include inactive ones, obtained, for instance, through a merger with another bank. On average, banks actively sold products from 12.6 carriers.
The actively sold carriers in banks' and broker-dealers' lineups typically included four companies that sell only fixed annuities, two selling only variables, and four supplying both.
The number of banks looking to bolster their provider rosters gives hope to annuity companies aiming to rise up the sales ranks, Mr. Kehrer said.
Banks planning to trim their provider totals had an average of 30 sales partners, the survey said, and those looking to add carriers averaged 13. The survey also cited "proven commitment to bank distribution" as an important factor in evaluating annuity partners.
"Banks are wary of insurance companies moving in and out of the market," Mr. Kehrer said. Experience has taught this wariness, he added: Banks have been burned when interest rates fell below the minimum guarantees on some annuities and the carriers stopped selling them.
The bankers and third-party broker-dealers rated the importance of a carrier's wholesaling at four out of a possible five and financial strength at 4.4. "Financial support" and "product breadth" drew ratings of 3.4 and 3.2, respectively.
Ninety-six percent of the respondents who rated product breadth as at least "somewhat important" - at least 3 on the scale of 5 - said they wanted carriers to offer both fixed and variable annuities. This share rose to 100% among managers who felt that product breadth was "very important" or "most important."
The growing competition among annuity carriers for shelf space at banks has led them to offer broader training - not only about the carriers' own products but also concerning where these products fit among all the bank's offerings, Mr. Harline said.
"There is far less entertainment now and more branch training for the adviser as well as the platform reps," he said. "There is only so far that product differentiation will get you."
