Freelance writer Michael O'D. Moore asked bankers and industry analysts what bank customers find most appealing about variable annuities.

Variable annuities, whose performance is linked to underlying mutual funds, are tax-deferred products that are popular with people planning for retirement.

While the value of the underlying investments fluctuate, these products provide an income stream, which many investors use to supplement their retirement income.

Banks have emerged in the last few years as a growing distribution point for these products.

Insurance companies, recognizing this, have honed the products in an effort to make them even more appealing to bank customers.

As the popularity of mutual funds has waned this year, due to stock and bond market conditions, sales of fixed and variable annuities have soared.

Many banks are reporting that these insurance products currently make up the bulk of their investments sales.

Bradley Powell

Vice president, financial institutions, Jackson National Life Atlanta

Diversification, through asset allocation, is an appealing feature for variable annuities. Customers allocate investments across a spectrum of mutual funds, from the most conservative fixed account to the most aggressive international fund, and everything in between.

Another popular feature -- and one I take advantage of -- is dollar cost averaging within the variable annuities. (Through dollar cost averaging, investors place a set amount of money into annuities at regular intervals.)

Annuities' tax advantages are also attractive. You can switch among the various mutual funds in variable annuities and not be taxed for making the changes.

Variable annuities also offer many ways to draw money out. The products have withdrawal provisions and can also provide a monthly check. This is aside from the ability to get a guaranteed income for life or even longer, if a spouse is designated to receive payments from the product.

Steven B. Plump

Director of sales, training, and recruiting, Chemical Investment Services New York

Customers say they really like the ability to allow earnings and principal in the account to grow on a tax-deferred basis.

There's been a trend toward fewer tax-savings opportunities in the marketplace. And in the last couple of years there's been an overall increase in tax rates. So the tax-deferred feature of the variable annuity is a very important feature.

Right now, one of the things we see is a very high desire for variable annuities with multiple managers. In these cases, more than one company is used to manage the annuities' various portfolios.

For example, you can have access to eight or 10 of the most recognized money management names in America all under the wrapper of one insurance company.

A lot of variable annuities are starting to offer very competitive yields in their fixed accounts. This allows people who don't want to take a lot of risk to place a significant amount of money in accounts that have no principal fluctuation, while placing a smaller portion in stock and bond funds.

Kenneth Kehrer

President, Kenneth Kehrer & Associates Princeton, N.J.

Variable annuities are attractive to some bank customers, but will not be appealing to others.

In fact, banks sell three dollars of fixed annuities for every $1 of variable annuities.

This translated into $10.7 billion of fixed annuities sold through banks last year, compared with $2.8 billion of variable annuities.

One reason banks haven't sold a lot of variable annuities until recently is because they haven't had a substantial book of mutual fund customers.

But with the growth of mutual fund sales in the last two years, banks now have a block of business to target for variable annuity sales.

People who like the idea of tax deferral of their mutual fund earnings could be attracted to variable annuities. Another way of looking at it is that variable annuities, with their tax benefits, are like an enhanced mutual fund.

My research shows that banks' sell $2 of variable annuities for every $100 of mutual funds they sell.

Michael McCoy

Senior vice president, Holden Group Los Angeles

I think the primary reason for purchasing a variable annuity is tax-favored growth. That's the overall reason and it's an excellent vehicle for wealth building because of that.

There are also certain features that can make one annuity more attractive than others.

These considerations include fee structures, rebalancing options (that protect against market fluctuations), and stepped up death benefits (that shield earnings and principal).

A second popular feature is rebalancing.

Asset allocation is all the rage right now, but essentially after you go through asset allocation you're out of balance because not all the markets and all the funds perform the same.

With automatic rebalancing, assets are reallocated back to their original mix each year.

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