In a play to broaden its role as an asset manager, UJB Financial Corp. is unveiling its first proprietary fixed and variable annuities in the coming weeks.
Early next month, the Princeton, N.J.-based banking company plans to begin offering the Pillar Fixed Annuity through brokers working in its 204 United Jersey Bank branches.
In April, the bank plan expects to gain regulatory approval to begin selling the Pillar variable annuities through its branches. The variable annuity accounts will essentially be tax-deferred versions of the portfolios managed in the bank's $1.4 billion-in-assets Pillar family of funds.
About a dozen banking companies have created their own variable annuities over the past three years. Of that group, only a handful - including First Union Corp. and SunTrust Banks Inc. - have made fixed annuities a part of the mix.
A UJB official said he expects the annuities to win strong acceptance. "We have found that our customers like the idea of their money being managed locally," said Louis M. Daniels, senior vice president for insurance services and alternative investments. "Plus, we are currently in an asset accumulation mode."
The annuities will be underwritten by Western National Life Insurance Co., a Houston firm that is working to help banks develop their own proprietary annuities. In addition to UJB, its bank clients include Charlotte, N.C.-based First Union and First of America Bank Corp., Kalamazoo, Mich.
UJB Financial has sold annuities since 1990, acting as marketing agent for the tax-deferred investments. In launching the proprietary annuities, the company is taking on the management of the assets that make up the investment portfolios. In return, UJB will collect management fees from Western National ranging between 20 and 100 basis points.
While banks were originally attracted to fixed annuities - investments that pay customers a steady return and therefore resemble certificates of deposit - they see greater growth potential in mutual fund-like variable annuities.
Indeed, changes in the interest rate environment and the growing popularity of long-term mutual funds caused fixed annuity sales to plummet in the third quarter to only one-fourth of their year-earlier level, according to Kenneth Kehrer, a Princeton-based consultant.
Mr. Daniels said his bank has felt the effects of this trend. Last year, UJB Financial's fixed annuity sales increased by about 7%, compared with a 50% jump in variable annuity sales.
Mr. Kehrer said that banks are selling about $2 worth of fixed annuities for every $1 of variable annuities, compared to a $6-to-$1 ratio a year ago.
Nevertheless, he said he has no trouble understanding UJB Financial's decision to offer a proprietary fixed annuity, even with their lagging popularity.
"The bank is better off managing the money and collecting the fees, no matter how small the pot, rather than letting something else manage it," Mr. Kehrer said.