Advisers Use VAs for Wealth Transfers

Cerulli research shows that 15% of advisers always use deferred variable annuities for wealth transfer needs and about 31% use them sometimes. However, more than half of advisers do not use them. Advisers use other annuity types—such as deferred fixed annuities, immediate variable annuities, and immediate fixed annuities—much less for wealth transfer needs. In fact, for each type of annuity, more than 80% of advisers said they never use them for wealth transfer assets.

The increase of annuities in general is evident in other areas of the adviser business. In the retirement plan space, earlier research from Cerulli found that 79% of advisers said they would recommend annuities (either deferred, immediate, or both) for a portion of rollover dollars—an increase from 73% in 2005 (see “As Good as Annuity“).

Cerulli noted in a press release that industry experts attribute high levels of deferred variable annuity usage in part to the widespread expansion of guaranteed minimum withdrawal benefits (GMWBs) on the annuity (see “The Inside Story’). But that’s not the only reason: Cerulli said there has also been an increase in the use of annuities with spendthrift protection, both inside and outside of a trust.

Spendthrift trusts are typically used by higher net worth populations, but the need for wealth transfer solutions impacts every wealth tier. In fact, Cerulli said 24% of clients served by wealth transfer advisers have net worth of less than $1 million. When outside of a trust, an annuity can be used so that the benefit cannot be taken in a lump sum.

“A growing number of firms have reported to us that they see an increase in spendthrift concerns in the past several years,” said Lisa Plotnick, associate director of Cerulli and coauthor of the report, in the release. “The older generation wants to protect the assets from what they call ‘the misuse of funds’ by the beneficiaries…And there is also a concern about ensuring that assets are protected from ex-spouses, creditors, and a ‘litigious society,’ thereby keeping tax-deferred wealth within the family.”