Investors' fears of impending tax hikes have sent variable annuities sales soaring at Invest Financial Corp.
"You can thank President Clinton for all this increased interest in variables annuities," said D. Mark Olson, president and chief executive of the Tampa, Fla.-based company, which markets investment products through more than 200 banks and thrifts.
Two years ago, variable annuities represented just 15% of Invest's annuity sales. This year, Mr. Olson expects variables to account for 60% of total annuity sales, which he projects at $500 million.
Annuities are insurance contracts that invest in an underlying pool of securities to generate a steady stream of income, typically for retirement. Earnings aren't taxed until they are tapped.
Fixed annuities, which pay set yields muck like bank certificates of deposit, have traditionally been far more popular than variables annuities, whose yields fluctuate day to day depending on the performance of the investments.
But the decline in interest rates over the past two years has helped to boost interest in variable annuities. Sales of variables, which totaled $14.9 billion in 1992, came to $6.8 billion in the first quarter of 1993 alone, according to Lipper Analytical Services, Denver.
Variable annuities now account for about one-third of all annuities sales through banks, according to Cerulli Associates, a Boston-based consulting firm.
On average, Invest's customers are doing far more business in variable annuities than their competitors are. Mr. Olson credits Invest's efforts to educate investment product sales people and investors.
|Evolution Is Easy'
Once a consumer understands mutual funds, Mr. Olson said, "the evolution to variable annuities is fairly easy."
Invest's client banks receive no special incentives for selling variable annuities, so the surge is "truly motivated by helping the consumer," Mr. Olson said.
Buying variable annuities is just another way to invest in your favorite mutual fund without being taxed, Mr. Olson explained. "In reality, it has always been better for people to own their mutual funds this way."
Historically, consumers have shied away from variable annuities because they were perceived as a complicated product, Mr. Olson said. And, he added, the financial services industry has not done a good jog of demystifying them.
Out of economic necessity, consumers are becoming more receptive to variable annuities.
Seminars for Investors
In an effort to help customers understand variable annuities, Invest has started training its representatives and conducting seminars for prospective investors. The company is promoting annuities as a good hedge against tax increases.
Bank customers appear to be heeding the advice. And while Invest's variable annuities sales are soaring, Mr. Olson admits his company "doesn't have the corner on great ideas."
Variable annuities sales are generally up substantially at banks, according to Kenneth Kehrer Associates, Princeton, N.J. "Last year, bank sales of variable annuities more than doubled" to $1.35 billion, said Kenneth Kehrer, the company's president.
Currently, there are roughly $90 billion in variable annuities. Cerulli Associates has estimated that volume will double over the next few years.
Twice the Industry Average
Variable annuities sales are running about 5% of banks' sales of all annuities and loaded mutual funds, Mr. Kehrer said. At Invest, the product now accounts for 9% of total sales, or nearly twice the industry average.
As one of the nation's top mutual fund sellers, "Invest is very well positioned to sell lots of variable annuities," Mr. Kehrer said.
Companies that have been successful in mutual fund sales have the best chance of succeeding in the variable annuities arena, Mr. Olson said. "There is a correlation."