Great American Inks Annuity Distribution Pact with Top RIA
One measure of the rise in demand for fee-based fixed indexed annuities is the burgeoning roster of products. Another is the expanding number of distributors for the new FIA offerings.
Ratchet up the latter a notch. Great American has begun offering its Index Protector 7 FIA on Brookstone Capital Management’s web platform for registered investment advisors.
The addition brings to 50-plus the number of RIA firms offering Great American’s fee-based annuity. The Cincinnati-based company’s largest RIA distribution partners (in terms of assets under management) include Dynasty Financial, Commonwealth Financial, HighTower, Raymond James and United Capital.
Brookstone, which does business through 350-plus investment advisor reps (IARs), is a prized partner for Great American. In 2016, the Financial Times named the Wheaton, Ill.-based company to the FT 300 Top Registered Investment Advisers list for the third year running. FT based the designation on, among other criteria, Brookstone’s AUM (now $2 billion-plus), AUM growth rate, years in existence and stellar compliance record.
“These [accomplishments] were one reason for partnering with Brookstone,” says Tony Compton, a VP of broker-dealer sales at Great-American. "Another was the company’s investment philosophy, which values fixed indexed annuities as part of a well-rounded portfolio. We didn’t have to teach them how annuities work; they were already comfortable with the products.”
Other life-annuity carriers that have rolled out fee-based fixed indexed annuities during the year past — Allianz Life, Lincoln Financial, Pacific Life and Voya Financial — also are seeking RIAs partners to expand distribution of the new offerings. In the variable annuity space, Ameritas and Great-West unveiled agreements with RetireOne in June and July, respectively, to distribute their VA products.
Brookstone’s platform offers, among other third-party data aggregators, access to EnvestNet Advisor Suite, a web portal providing institutional research, investment products and advisory resources. The site is a must for RIAs needing to report on fixed indexed annuity account values and performance and to share this data with clients, Compton says. Further, Great American is wholesaling Index Protector 7 to Brookstone and other RIA partners through affiliated independent marketing organizations, Compton adds.
(Citing confidentiality agreements, Great American declined to name these IMOs. Collectively, the IMOs interface with “thousands” of RIAs, though, Compton notes not all are currently licensed to sell Great American products.)
With the initial phase of the Department of Labor fiduciary rule in effect, Compton expects that distribution through fee-based advisors will grow — including financial professionals transitioning from commission-based compensation. Top of mind for them is compliance with the rule’s Best Interest Contract Exemption or BICE, a streamlined version of which, available for level-fee advisors, carries fewer documentation and disclosure requirements.
(As reported, the DOL is now seeking an extension of the rule’s implementation of the BICE and other components of the rule from January 1, 2018 to July 1, 2019.)
But Compton emphasizes that the DOL rule was not the primary driver in Great American’s decision two years ago to add RIAs as a key distribution channel by offering fee-based versions of its annuity products.
“We realized there was a unique opportunity to drop the sales commission — and thus increase earnings potential for the client by giving them higher caps and participation rates on our fixed-indexed products — while allowing investment advisor to charge a fee,” says Compton. “The decision was a no-brainer. The DOL rule, which has accelerated a push already underway among advisors to go-fee based, was just the cherry on top.”
Debuted in August 2016, Index Protector 7 lets RIAs tie the fixed indexed product’s account value to assets under management and, thereby, charge an AUM-based fee in client billing statements. Whereas the commission-based version comes with a 5.15% cap (annual maximum percentage increase), the fee version boasts 7%. The difference in participation rates (percentage increase in the index by which the contract value will grow) is also significant: 65% versus 95%, respectively.
For an additional 50 basis points, Index Protector 7 also boasts an optional rider, Income Keeper, that guarantees an income stream for life. Should the annuitant die before taking income, charges assessed for the rider are refunded.
“Over the next 5 years, we'll be creating new opportunities for RIAs to generate guaranteed retirement income for clients,” says Compton. “GMIBs [guaranteed minimum income benefits] will become a bigger component of the investment advisory business.”
Additional features of the contract include a return of premium after the 3rd contract year, a 7-year surrender charge schedule and 10% penalty-free withdrawals. The product requires a minimum $100,000 investment.
A division of American Financial Group (AFG), Great American generates about 95% of statutory annuity premiums through a retail distribution channel of 5,000-plus independent agents/brokers and some 35 financial institutions, according to the company’s 2016 annual report. Citing LIMRA statistics, the report adds that AFG “ranked first” in FIA sales and 8th in sales of all fixed annuities sold through financial institutions, including RIAs.
The report attributes the 7% growth in annuity premiums last year — statutory annuity premiums in 2016 attained $4.4 billion, a record for the multiline carrier — to “new products, additional staffing and increased market share” among partnering financial institutions. Collectively, these FIs account for 55% of the AFG division’s annuity premiums.
AFG and its Great American member companies (including units offering P&C and specialty insurance) collectively accounted in 2016 for an additional $6 billion in written premiums and field about 7,600 employees across 120 offices worldwide. AFG’s assets in 2016 totaled nearly $55.1 billion, up from $49.8 billion in 2015.
A family-run operation, AFG is principally owned and operated by co-CEOs Carl Lindner III and S. Craig Lindner, the sons of financier Carl Lindner Jr. The father founded American Financial in 1959 and was the company’s chairman until his passing in 2011.