Banks lagged behind brokers in capturing share in the $1.1 trillion U.S. variable annuity market last year, according to research by a unit of Claritas Inc., a marketing company.
The broker distribution channel has benefited from the wave of baby boomers approaching retirement, said Julie Simard, a consultant for customer research at Claritas' Integras division in Chicago. Banks may have been more focused on fixed annuity sales, an insurance executive said, and a consultant said that many, like a Michigan community banking group, may be in the business more for defensive reasons than to compete for share.
Brokers' and other investment professionals' share of variable annuity sales jumped five percentage points last year, to 57%, an Integras study said. Banks' share remained flat from the 2003 level, at 15%, according to the study.
Integras' analysis was developed from more than 175,000 interviews it commissioned comparing variable annuity purchase channels.
Limra International Ltd., the Windsor, Conn., research and marketing trade association, said banks sold $16.4 billion of variable annuities in 2004 and financial planners and independent broker-dealers $25.6 billion. Variable annuity sales for the year totaled $133.5 billion, it estimated. Limra's distribution channels are more numerous, and defined more narrowly, than those in the Integra study.
Many baby boomers are seeking personalized advice and guidance as they approach retirement, leading them to turn to brokers and financial advisers, Ms. Simard said.
"It's a fallout of the overall affluence of baby boomers," she said of brokers' increasing success. Boomers are "handling multigenerational financial issues, and they want face-to-face contact with a broker or adviser," she added.
Bank salespeople most likely were more focused last year on selling fixed annuities than the equity-linked variable annuity product, as a result of the recent bear market in stocks, said Bradley Powell, the president of the institutional markets group at Jackson National Life, a unit of Prudential PLC.
"The changes in the market over the past couple of years were still fresh on people's minds," he said.
Jackson National Life has pushed to keep its bank distribution partners competitive with the brokerage channel by offering extensive education and training, Mr. Powell said. The training modules include client education seminars and multimedia presentations on topics like retirement, he added.
Jackson National Life's annuity platform is "a la carte" rather than packaged together, allowing bank representatives to select annuity features based on client needs, he said. The insurer's variable annuity sales rose 19% in the first quarter of 2005 from the year earlier and topped $1 billion.
Citizens Banking Corp., a Flint, Mich., community bank group, does not have the resources to compete with variable annuity providers in other distribution channels, said Scott Zimbrick, an executive vice president. So it refers customers who request investment services to a local branch of Raymond James Financial Inc., a St. Petersburg, Fla., brokerage and investment banking company, he said.
"Many years ago, we decided that investment services were a defensive service for us," he said. The partnership with Raymond James "defends us against customers' going to a bigger bank and taking their deposit and loan business with them," he added. Citizens gets a small referral fee, but it is "very immaterial" to the company's overall revenues, Mr. Zimbrick said.
Like Citizens, many banks may not be looking to compete against brokers and other variable annuity distributors, said Ken Kehrer, the president of Kenneth Kehrer Associates, a Princeton, N.J., consulting firm.
"Banks have seen an ebb and flow of market share for variable annuity sales over the years," he said. Regulatory pressures, particularly concerns over variable annuity sales practices, also have hampered bank sales of the product in the past year, he said.
"Naturally, some banks are being very cautious in selling variable annuities," he added.
The Securities and Exchange Commission and the National Association of Securities Dealers last year issued a report that found instances of broker-dealers making unsuitable recommendations to senior citizens and other people who could not afford the products without mortgaging their homes. Other weaknesses included failure to disclose fully the product's fees, risks, and tax consequences.
People who bought variable annuities through banks tended to be older and had fewer income-producing assets than those who bought through brokers, according to the Integras survey. Bank variable annuity customers' mean age was 65; broker customers' mean age was 60.5.
Older people tend to seek variable annuity products through their banks because they often have longstanding relationships there, Integras' Ms. Simard said. Baby boomers, however, tend to be more affluent and to seek out brokers for investment services as they face complex financial issues linked to retirement, she said.
