Annuity vendors experienced robust performance in Q1, with traditional variable annuity sales rising by 13% year-over-year to $14.5 billion, benefiting from strong equity market performance. Overall annuities amassing $113.5 billion in sales, marking a 21% surge compared to Q1 2023. Although falling slightly short of the Q4 2023 pinnacle, preliminary findings from LIMRA's U.S. Individual Annuity Sales Survey reveal this quarter's sales accounted for 84% of the total U.S. annuity market, the highest first-quarter performance since the 1980s. 

Bryan Hodgens, head of LIMRA research, attributed this trend to favorable economic conditions and heightened investor interest in securing retirement income guarantees, foreseeing continued resilience in annuity sales despite potential regulatory and economic challenges ahead. Variable annuities are expected to tack on another 10% through the end of the year.

Fixed-rate deferred annuities reached $48 billion, a 16% increase from Q1 2023, driving over 42% of the total annuity market. Fixed indexed annuity sales hit a record high of $29.3 billion, up by 27% year-over-year. Income annuity sales soared to a quarterly high, with SPIA sales reaching $4 billion and DIA sales reaching $1.1 billion, up by 19% and 35% respectively.

Finsum: Bond rates could be coming down as the Fed starts to ease rates and other retirement vehicles will become more attractive.

Research from Nuveen's indicates that when it comes to advisor recruiting employers can boost their competitiveness in talent acquisition and retention by optimizing employee benefits. With the growing strain of succession planning for financial advisors this could be a key strategy to attracting talent. Among the recommendations is the expansion of benefit offerings to include family planning, caregiving assistance, and tuition aid, fostering a more diverse and engaged workforce.

By reframing benefits as investments rather than mere expenses, employers can potentially amplify returns on investments while addressing employee needs comprehensively. Clear communication and education about benefits are emphasized as essential for maximizing their impact, as evidenced by the findings that only 30% of employees are highly satisfied with their retirement plans.

Furthermore, disparities in benefit satisfaction and confidence in retirement prospects were observed across racial and generational lines, underscoring the need for tailored approaches. In conclusion, by aligning benefits with the diverse needs of employees, employers can drive productivity, efficiency, and overall workforce satisfaction, crucial elements in succession planning for advisors.

Finsum: The bottom line is no longer the bottom line when it comes to attracting new talent in the advisor space and benefits could offer a needed boost to recruiting. 

Stringer Asset Management shared some thoughts on fixed income, monetary policy, and the economy. The firm notes that while inflation has remained stubbornly above the Fed’s desired levels, it will move closer to the Fed’s target over time. One factor is that the M2 money supply is starting to decline, which is a leading indicator of inflation. Another is that fiscal stimulus effects are finally waning.

Thus, Stringer still sees rate cuts later this year, although it’s difficult to predict the timing and number of cuts, creating a challenging environment for bond investors. During this period of uncertainty, it favors active strategies to help reduce risk and capitalize on inefficiencies. Active managers are also better equipped to navigate a more dynamic environment full of risks, such as the upcoming election and a tenuous geopolitical situation.

Stringer recommends that investors diversify their holdings across the yield curve and credit risk factors. It favors a balance of riskier credit with Treasuries. This is because the firm expects the bond market to remain static until the Fed actually cuts. It’s also relatively optimistic for the economy given that household balance sheets are in good shape, corporate earnings remain strong, and the unemployment rate remains low. These conditions are conducive to a favorable environment for high-yield debt. 

Finsum: Stringer Asset Management believes that fixed income investors should pursue an active approach given various uncertainties around the economy, inflation, and monetary policy in addition to geopolitical risks.

There is a subtle distinction between fee-based and fee-only advisors. Fee-only advisors exclusively offer financial advice but don’t sell any products with commissions. Fee-based advisors also mainly offer financial advice, but they may also sell other non-investment products with commissions, like insurance. This means that they cannot market themselves as being ‘fee-only’. 

Many advisors are moving to these models due to their simplicity, while there has been an increase in regulations around the fiduciary standard. In fact, the industry as a whole is seeing fewer broker-dealer accounts and growth in investment-advisory accounts. As a result, many products can now be bought in investment-advisory accounts without a commission, such as annuities and alternative investments. 

An important consideration for an advisor going independent is responsibility for compliance. This requires registering with the state regulator or the SEC if there are more than $100 million in assets. It also means responding to regulatory inquiries, developing a compliance program, and having a system to ensure compliance. 

This additional burden highlights the challenge of running an independent shop. Another is that there is less time for clients, especially during the initial stages. Even afterwards, the additional responsibilities will lead to less time and energy for client service, prospecting, marketing, etc. By choosing a fee-only or fee-based model, advisors can have less of a regulatory burden.

Finsum: Many advisors are moving towards a fee-only or fee-based model. The biggest reason is that it simplifies and reduces the compliance demands for advisors.

Bonds have weakened to start the year, given increasing uncertainty about the direction of the economy and monetary policy. Weitz Investment Management notes that credit spreads have tightened even while long-term yields move higher. Thus, the firm believes there is greater potential for losses if inflation meaningfully picks up from current levels or credit spreads widen.

It also believes that massive fiscal deficits are an indication that the inflation issue is not going to disappear anytime soon. It notes that over the last 4 years, deficits have averaged 9% of GDP, which was only seen before during wars. Currently, the national debt is increasing by $1 trillion every 100 days. And this is a major reason why the Fed’s aggressive hikes have not resulted in a recession. It also means that Treasury issuance will continue to be elevated as debt will need to be refinanced at higher rates. 

Amid this backdrop, the firm notes that there is considerable complacency among investors. It notes that credit spreads declined across the board in Q1 and are now at 10-year lows. It believes this is likely a result of strong demand for bonds as new issues have been oversubscribed and there has been a flattening of yields in the credit curve. 

To combat these risks, Weitz recommends looking for opportunities in fixed income across the spectrum and beyond the benchmarks. It recommends diversified and broad exposure, including fixed and floating-rate securities. Ultimately, investors need to be nimble and prepare for various scenarios, such as the economy continuing to be robust, inflation resuming its ascent, or the economy stumbling into a recession.

Finsum: Weitz Investment Management sees considerable complacency within fixed income while also noting some risks. It recommends investors seek broad and diversified exposure to the asset class and pursue a more active and nimble approach.