MOVE over insurance agents; here comes your neighborhood banker.
At one time, annuities were sold mainly through insurance companies, by independent insurance agents, or by investment houses. But in recent years banks have increasingly become major players in marketing annuities. In fact, United States banks have become so aggressive in distribut-ing annuity packages that some industry analysts reckon that they could be the dominant providers of annuities by the mid-1990s.
"We started selling annuities on Nov. 1, 1991," says Mary Larkin, who handles new customer accounts for the First National Bank of Mt. Vernon, Mo. "We've never seen anything like this, in terms of interest in a new product. Since last November we've sold $543,000 worth of annuities, and over 90 percent of that money represents `outside money,' not funds shifted over to annuities from some account within the bank, such as certificates of deposit (CDs)."
Annuities are long-term contracts with insurance companies that allow the investment funds to accumulate tax-deferred interest earnings. They typically have lifetime income payment options that allow the customer - the buyer of the annuity - to receive a monthly check over the course of his or her lifetime. Thus, annuities differ from a life insurance plan: instead of paying premiums into an account so that one's heirs receive a payment (or monthly payments), the customer receives the pay out.
"We're finding that more and more of our member banks are now either offering, or looking for, annuity products to offer their clients," says Nancy Ness Judy, a spokeswoman for the American Bankers Association (ABA) in Washington. To meet the growing interest in annuities by its member banks, the ABA has endorsed the Holden Group, an annuity marketing firm in Los Angeles, as the ABA's exclu- sively-sponsored provider of annuity products. Thus, if a bank does not offer an annuity program, it can call on t he Holden Group to offer annuity products through the bank. Most money- center banks and large regional banks have agreements with specific insurance companies to market annuities.
"Just two years ago, in 1990, banks accounted for roughly $8 billion in sales of annuities," says Michael McCoy, vice president of the savings and banking division of the Holden Group, based in Los Angeles. "We're estimating that by next year annuity sales by banks will be in excess of $16 billion."
Americans currently own over $800 billion in individual and group annuity plans, according to the American Council of Life Insurance in Washington, D.C. Some experts say the amount could double by the year 2000.
Kenneth Kehrer, who heads up his own consulting firm based in Princeton, N.J., says that by the mid-1990s banks will distribute about $40 billion worth of annuity products, and account for just under 40 percent of all annuity sales. Part of the reason for the banking industry's interest in distributing the product, he says, is that banks are eager to "hold on to their customers who might take business elsewhere if the bank does not provide annuities."
At the same time, many banks are "aggressively offering a greater range of investment products than ever before," including annuity packages. Moreover, banks like the fee income that they receive on annuities. "The fee income is attractive relative to the `spread income' [that is, money earned by the bank] on a certificate of deposit, because bank CDs are so competitive," Dr. Kehrer says.
No matter who markets or distributes annuities, they are underwritten by insurance companies. Thus, the Holden Group is a subsidiary of London Insurance Group, which owns London Life, Canada's leading life insurance company in terms of market share.
Last Friday the ABA announced that it was endorsing a new annuity plan called the "Banker's Choice Annuity," offered by the Holden Group. The new annuity provides for an interest rate bonus for new customers, low surrender charges for a withdrawal of funds, no initial sales charge or administrative fee, as well as a guarantee of the entire principal invested in the annuity by the underwriting insurance company. A spokesperson for the ABA says that the new annuity was designed to enable banks, particularl y smaller or medium-sized banks, to better compete with nonbank financial institutions.