More Bad News for Variable Annuities in Wake of DOL Fiduciary Rule

'Primary issue' facing the VA industry

Variable annuity sales to decline in wake of Department of Labor rule.Variable annuity sales to decline in wake of Department of Labor rule.

Variable annuities will continue to feel the negative effects of the Department of Labor’s (DOL) Conflict of Interest Rule, according to Boston-based Cerulli Associates.

The research and consulting firm projects variable annuity sales to continue to decline at an annualized rate of close to 10 percent through 2017 and 2018 as the DOL Rule is implemented.

Calling it the “primary issue facing the VA industry is the DOL Conflict of Interest Rule,” Cerulli notes the rule extends fiduciary protection to all retirement accounts, including individual retirement accounts (IRAs), and requires point-of-sale disclosure of an advisor’s conflicts of interest.

Its findings are in line with Ignites Research, which also expects advisors to to scale back their use of variable annuities, “most of which sell on a commission basis and therefore represent potential conflicts of interest under the new regulations.”

In other news, Cerulli noted that mutual fund assets dipped 2.1 percent during October, falling to $12.3 trillion at the end of the month. Capital market performance was responsible for much of this decline, it said, but mutual funds also had redemptions of $9.8 billion.

And despite declining in magnitude for three straight months, ETF flows remained positive, totaling $16.5 billion in October. However, flows were not enough to offset market depreciation, and assets fell 1.2 percent to end October at $2.37 trillion.

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