Many wealth managers are reluctant to recommend annuities to their clients, while providers try to disassociate themselves from the product's scandal-plagued past.
The Chicago consulting firm Spectrem Group Inc. found in a study conducted in April that 70% of advisers are concerned about locking their clients into annuities and would prefer other long-term retirement products.
Mitch Politzer, senior vice president of Ameritas Advisor Services, the Lincoln, Neb., division of Ameritas Life Insurance Corp. that sponsored the study, said advisers formed the belief many years ago that annuities are inflexible and expensive and do not provide enough benefits for clients.
Firms continue to report growing revenue from annuity sales, as salesmen continue to recommend the high-commission products. June annuity sales rose 19% from a year earlier, to $4.4 billion, according to the Princeton, N.J., consulting firm Kehrer-Limra.
Nonetheless, advisers and financial executives continue to associate annuities with recent scandals such as the one at Citizens Financial Group of Providence, R.I. Regulators found that the Royal Bank of Scotland Group PLC unit sold inappropriate variable annuity contracts to elderly clients from October 2003 to March 2005.
"It's not that we're avoiding them now. We never went down that path," said Rusty Cloutier, the chief executive of MidSouth Bank in Lafayette, La. The MidSouth Bancorp Inc. unit has recommended only around 10 annuities so far this year, compared with around 20 all of last year.
Mr. Cloutier said he associates annuities with subprime mortgage lending, and his bank managed to stay out of trouble in both areas because it never got into the rush of mass marketing such products.
Geoffrey Kanner started the North Haven, Conn., wealth management firm Kanner Financial Services LLC in recent months. He said he worked a few years ago at a brokerage (which he would not name) where advisers were encouraged to sell annuities that charge hidden fees, but he rarely recommended those products. "There are just a few that are restriction-free and allow clients to get their money out without paying penalties."
Stacey Hyde, a certified financial planner, certified public accountant, and chartered financial analyst at First Tennessee Brokerage Inc. in Memphis, has recommended around eight to 10 annuities this year out of roughly a hundred investment products that she has sold. "I have a rule that if it's not easy for me to understand, then it's bad for my client," she said.
But Ms. Hyde also said she thinks annuities have gotten more consumer-friendly in recent years. A couple years ago she would have recommended only one annuity over a six-month period.
Some providers have been battling the resistance from advisers by creating products that charge lower fees. Ameritas started offering a variable annuity last year that does not have any withdrawal charges or sales commissions. Sales of the new product have been "excellent," Mr. Politzer said, though he would not provide specific numbers.
Fidelity Investments launched the Fidelity Personal Retirement Annuity in October. The Boston company says its product does not have any surrender or annual maintenance fees, and that its yearly annuity charge is 0.25%, versus an industry average of 1.41%.
It remains to be seen how advisers will respond to such developments. Now that Mr. Kanner owns his own firm, he recommends that clients who are not in annuities stay out of them. Those who have bought annuities that they should switch theirs into the lower-fee one from Fidelity, he said. "If this is so good for the client, then why aren't all the annuities like this?"
