Interest Picks Up in Proprietary Annuities
1995; American Bankers Association; Volume: 87; Issue: 7 Linguagem: Inglês
ISSN
0194-5947
Autores Tópico(s)Banking Systems and Strategies
ResumoFollowing in the wake of the proprietary mutual funds that have been introduced by major banks over the past few years, banks are now developing joint ventures with companies to create their own proprietary variable annuities. As with mutual funds, archaic legal and regulatory restrictions prohibit a bank from creating and managing a variable annuity on its own. In the mutual fund area, banks are prohibited from the role of distributor, the function in the mutual fund field that is akin to the role of a producer in the film industry. In the variable annuity area, banks generally cannot underwrite insurance, so they need to team up with an insurer for what has come to be called the insurance wrapper in a variable annuity. From the point of view of the investor, a variable annuity looks like a mutual fund family within an annuity. Just like in a mutual fund family, the investor can choose among various investment options, and transfer money among them fairly easily. And just as in a mutual fund, the investor shares in the fortunes of the investments, good or bad. But just as in an annuity, there is the advantage of tax deferral of earnings, and the potential for both IRS and company penalties for early withdrawal. While most banks cannot underwrite a variable annuity, the bank can be the investment advisor to one or more of the variable portfolios, just as it can in a bank proprietary mutual fund. A recent phenomenon The first variable annuity from a depository institution was introduced in the late 1980s by Washington Mutual, the statechartered savings bank in the Pacific Northwest that has been a pioneer full financial services provider. Washington Mutual owns its own company. The first joint venture between a bank and an unaffiliated company to create a bank proprietary product was launched in January 1993, when Fleet Financial and American Skandia Life teamed up to create the Galaxy Variable Annuity, named to mimic the bank's mutual fund complex. That same year Great Western Bank, the $40 billion-assets California thrift, joined with American General Life to create the Sierra Variable Annuity, and Signet Bank in Virginia turned to Security First Life to help create its Strive Variable Annuity. By the end of 1994 the number of bank proprietary variable annuities had doubled, with First of America (with Security Benefit Life), Wells Fargo (with American Skandia), Norwest (with Fortis), and Banc One (with Nationwide) all introducing products. The pace has picked up this year, as Premier Bank in Louisiana (with GNA), NBD Bank (with Hartford Life), Chase Manhattan (with Anchor National Life and its affiliate Sun America Life of New York), and Citibank (with its own affiliate) have all brought annuities to market. Three others are on the way: in May, First Union announced that it had created an as-yet-unnamed annuity underwritten by Nationwide. SunTrust (with Glenbrook Life) plans to introduce an annuity sometime this summer, and First Interstate is developing an annuity with Sun America that should come out this fall. What's in it for banks? Banks are interested in stemming the flow of assets to mutual funds and companies, and see proprietary annuities as one way, along with proprietary mutual funds, to retain control over these assets. And they prefer to have control over how the money is invested on behalf of their customers, as well as the money management fees that come from control. But probably the most important reason for the move of banks to create their own variable annuities is the disappointing growth of long-term assets in their proprietary mutual funds. Most of the same 118 banks that have created their own mutual fund complexes have experienced slow growth, and remain below the asset levels required to be profitable. These banks are looking at the potential of proprietary variable annuities to top off their mutual fund assets, spreading their money management costs over a wider asset base. …
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