(New York)

A new report shows that fixed index annuities sales have been surging. FIAs saw sales jump 57% in 2019, and there appear to be two reasons why. Firstly, the defeat of the DOL’s fiduciary rule completely reopened the market to a product that had been in serious trouble in the period leading up to the rule. Additionally, due to de-risking, variable annuities have become less attractive, and more money has been moving into fixed index annuities, which also offer higher rates than fixed annuities. Generally speaking, “Broker-dealers have embraced the solution as products become more transparent and consumer-friendly”, says Cerulli Associates.

FINSUM: The whole sales process for FIAs has really cleaned up its act and the marketing materials and structures are more accessible now. We expect this market to keep rising.

(New York)

Many have been wondering when junk bonds were going to start feeling pain. Despite the previous risk of recession, junk bonds did quite well over the last several months. However, since the big flare up over coronavirus, they have started to be seriously wounded. On Friday, junk bond spreads to Treasuries were at 366 bp—very low. As of yesterday, they were at 418 basis, a 50bp+ rise in two trading days, showing how much investors fear the economic impact of coronavirus.

FINSUM: We think these spreads are going to keep moving higher, even if stocks level out. Bond investors are a suspicious bunch and an economic slowdown would hit high yield companies harder than average.

(New York)

Global and US stocks are teetering on the brink of a major correction right now. US indexes fell around 3.5% and fears over the spread of coronavirus and its impact on the economy continue to rattle the psyche of markets. One analyst summarized the deepening fears of the virus’ potential impact this way, saying “When countries are closing borders, the threat of an outbreak is becoming more pronounced in Europe and the Middle East and supply chains are just going to be more disrupted, how do we model risk when we can’t even model economics with any confidence?”.

FINSUM: There was an early morning bounce in Asian markets that fizzled. The news today is not any better than yesterday. It is easy to imagine the bottom temporary falling out of markets.

(New York)

Very high stock market prices and the continual threat of major downturn has sent fixed index annuity sales surging lately. Fixed Index Annuity sales accounted for 57% of all annuities sales in 2019 and amounted to $74 bn. “The high number of fixed-index annuity sales are a response to investors observing that the market continues to go up and this is a strategy to put a safety net under their portfolio if the market fails”, says one advisor in Pittsburgh. Fixed Index Annuities guarantee your principal while still offering limited upside, so they present a compelling case for people worried about a big downturn who need the peace of mind of principal protection and a steady income stream.

FINSUM: This is a perfect market for FIAs because of sky high prices and falling bond yields (which sap income). Just make sure you completely understand the contracts.

(Boston)

Advisors will have likely noticed that Massachusetts has just introduced a new fiduciary rule. The rule, announced on Friday, makes Massachusetts the first state to adopt a best interest standard since courts struck down the DOL’s fiduciary rule. The rule is under the usual attacks from industry trade groups, but more surprisingly, it is also being attacked by fiduciary rule advocates. Such advocates had initially praised the rule’s first draft, but now say the state made too many changes before implementation. According to the Consumer Federation of America “What’s left is a modest improvement on Regulation Best Interest but not the kind of tough standard needed to protect investors from conflicted advice.”

FINSUM: The changes to the rule were significant, such as not applying to insurance product sales and not applying to brokers unless “account monitoring” was specifically specified in the customer contract. The rule takes effect March 6th.