ABA Banking Journal - September 2011 - (Page 46)

feature story | revenue sOurces Annuities Strong sales performance through the first quarter generated welcome fee income. Will that pace continue? What impact will new FINRA regs have? By Michael D. White the long and short of A nnuity fee income jumped sharply in the first quarter— welcome news to an industry with an operating revenue problem. With no significant change in banks’ net interest income expected soon, and service charges on deposit accounts pinched, the sale of annuities can give a boost to earnings. Annuities are subject to market forces, of course, but have solid long-term potential. A significant turnaround Annuity fee income took off in second half 2010. Then, in first-quarter 2011, annuity commissions registered their high-water mark, reaching a record $748.2 million, up 28.4% from first quarter 2010, according to the Michael White-ABIA Bank Annuity Fee Income Report, compiled by Michael White Associates and sponsored by the American Bankers Insurance Association. To get there, 40.1% of reporting bank holding companies participated in annuity sales; also, 12% of banks contributed $204.2 million, or 27.2% of the total. Among the top 50 BHCs in annuity concentration (i.e., annuity fee income as a percent of noninterest income), the median ratio was 7.3% in first quarter 2011. Among the top 50 small banks, the median was 16.6%. Overcoming broker bias These results were achieved despite the fact that some Series 7 securities brokers dislike annuities. They typically believe annuity guarantees are too expensive and that mutual funds, laddered bonds, and other securities are better buys. Community banks (those under $4 bil- lion in assets) tend to orientate more toward financial planning and sales of packaged products like annuities. These different attitudes and approaches to delivering financial services are reflected in the fact that, in first quarter 2011, annuities represented 13.1% of investment program income among big banks, versus 25% at community banks. An important factor in successfully distributing annuities among big-bank brokers has been a resurgence in the deployment of field wholesalers. These wholesalers, usually employed by insurers, are critical in delivering to financial advisors needed product training; sales ideas; and professional sales, marketing, and service support. Community banks receive similar assistance through their use of third-party marketers. near-term environment Fixed annuities thrive when decent rate spreads exist between 5-year certificates of deposits and the average effective yield of fixed annuities guaranteed for 5 years. Historically, those spreads were about 150 basis points, 46  |  ABA BANKING JOURNAL  |  september 2011

Table of Contents for the Digital Edition of ABA Banking Journal - September 2011

ABA Banking Journal - September 2011
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
ABA Community Banking
Pass the Aspirin
Tech Topics
Cover Story: Mobile money at stake
Insurance revival
The long and short of annuities
Compliance Inbox
ABA Resources
ABA Annual Convention
First Person

ABA Banking Journal - September 2011

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