Annuity sales are down in recent years. And the reason stems from falling interest rates.

In a round of phone calls with bank advisors, program managers, TPMs and industry analysts, those nuggets appear to be the only two things on which everyone agrees.

Beyond that, when it comes to insurance products sold through the bank channel, opinions were all over the map. At one extreme: Advisors don't know enough about these products to do their jobs very well. Another: The bank channel just isn't a good business model for selling annuities.

First, some numbers on the first point of agreement. Total annuity sales in the bank channel hit $8.1 billion in the second quarter, down nearly 20% from $10.1 billion in the year-earlier period, according to research from Bank Insurance and Securities Research Associates. Going back a few more years, in the second quarter of 2008 (on the eve of the crisis, just before the entire financial industry nearly unraveled), total annuity sales in the bank channel were $14.4 billion.

Annuities are usually seen as the alternative to CDs. And the rates of the two products are often compared to each other, with annuities offering higher yields, obviously. But over the past few years, there have been times when rates on CDs-the safer option-were higher, says Scott Stathis, managing director of BISRA (formerly Kehrer-Limra). In times like that, all the extras offered by annuities just don't seem to matter, he says. "The wheels kind of came off the cart of fixed annuities."

Still, this is not an insignificant product. The sales decline in just the bank channel from 2008 to this year (roughly $6.3 billion) is as large as the annual revenue of companies on the Fortune 500.

For variable annuities, the carriers found themselves in a position where they could not continue to make the spread they were offering. So they began to water down the features of those products, Stathis says.

Even so, people are beginning to venture back into annuities after they hit a 10-year low of $7.9 billion in the first quarter, Stathis says. There has been so much money sitting on the sidelines for so long, he shrugs off the modest uptick to $8.1 billion in the second quarter, describing it as a "lesser of two evils" investing situation.

But just as there is no quick fix, the situation is not all gloom and doom, either. A recovery will just take time. Or more to the point, it will take higher rates. When rates come back, annuity sales will also come back more significantly, Stathis says.

And that could be especially beneficial to bank advisors, notes Joe Montminy, assistant vice president at Limra. Historically, these products appealed to affluent investors, but they are increasingly being embraced by the middle market, a sweet spot for bank advisors' typical clientele. This shift is partly because people in this market are having their work retirement benefits scaled back.

Moreover, as an outgrowth of that shift, there is also a generational shift happening among clients, he says. While the traditional customers were in their fifties and sixties, more people in their forties are now asking about them. Both these trends combined will give bank advisors more prospects-once rates come back.

The Options
As with any overall trend, there are outliers along the way. Some banks and some advisors have experienced solid client interest in annuities and have been enjoying good sales.

One such advisor is Jimmy May. He works with Raymond James out of First Bank & Trust in Brookings, S.D. He says his customers have been increasingly concerned with what he calls the "what-if moments."

One such area of what-if interest involves health care, May says. He's seeing a lot of interest in an insurance product that can be used for health costs. If the client never needs to use it over his lifetime for health expenses, the money goes to the next generation. May and others say that combination of benefits helps alleviate a major concern of aging clients.

Another what-if moment flows from the economic situation his clients find themselves in at the moment. Many of his customers are farmers and are having a tough year as the Midwest suffers through a bad drought. Still, some of them are sitting on a lot of cash from previous years and now are interested in future payment streams.

May says he is seeing success with these products because his customers are coming in with specific needs. They may not know which carrier to choose or just when to start a payment stream, but their specific situation calls out for some sort of annuity, he says.

About 350 miles southeast, Greg Driskell is also seeing some success with annuities. Driskell, who also works with Raymond James, is based in First National Bank in Creston, Iowa. He says the benefits can outweigh the fees incurred, but cautions clients not to put too much of their overall portfolio into annuities. Since they tie up the principal, clients must be sure that the payment stream will cover what it's intended to cover.

For Driskell, one issue in the annuity arena is reduced competition among the carriers. Seven to 10 years ago, "every company out there had innovative products," he says. For an advisor, "the real job was just keeping up with all of it." Today, a handful of carriers get most of the attention.

Not surprisingly, there is another side to this story as some in the bank channel have not had as much luck with annuities. One program manager who oversees about 10 advisors has had bad luck in getting traction with annuities at his bank. He asked not to be named.

Over his career, he says annuity sales have been a mixed bag. At times, at other companies, they were big sellers and interest rates weren't even the biggest determining favor, he says. For annuities to really sell well, a shop must have a foundation of financial planning instead of a focus on transactions. Then, the discussion about insurance isn't perceived as a sales pitch, but rather just one more discussion on long-term planning.

But for many companies in the bank channel, there is still a pervasive mind-set on sales. "I think bank advisors are transactional, even though they'll tell you they're not," he says. Even at his own bank he's having trouble changing this mind-set, he says.

The best aspect of being an advisor at a bank is the constant stream of potential clients walking in the door, he says, echoing a common refrain. But, on the other hand, these customers are there to do banking business and are seldom in the mood to sit down and talk about long-term planning-or annuities.

The bank channel and annuities can mix successfully, the program manager says. He has been part of a successful sales effort. But a program needs the right support from bank management as well as the third-party marketer. Too often, he says, all of those necessary parts are not in order.

What Could Be Simpler?
In the discussion of the declining sales, another issue that surfaced repeatedly is the complexity of annuities, particularly variable annuities.

In the good days (before mid-2008), insurance companies were offering new products with abandon. And they all had attractive features. But they were also complex. A lot of industry sources say it got to the point that products were not totally understood by advisors, let alone clients.

After the crisis, the VAs started coming "off the shelf," says Shelly Megna, SVP of sales support for Invest. "They became too expensive to cover and the carriers had to recalibrate," she says.

As they came back, however, what was offered wasn't what a lot of customers wanted-namely, a higher level of guaranteed income. A certain level of complexity is needed to guarantee a return that's higher than what the broader market would offer, which is, of course, what clients want most, she says, echoing the sentiment of several others in the industry.

If advisors look to their bosses for sympathy on the complexity issue, they probably won't get it. Stathis says this issue has come up at industry meetings where the carriers often latched onto the idea of simpler products (partly because complexity is harder to price.) And it was the program managers who took the opposite position. He heard managers say that if advisors could not explain annuities to their clients, they probably shouldn't be advisors.

Still, the statistics show that simpler products like index annuities have become more popular. And anecdotal evidence bears this out. First Bank & Trust's May agreed with the notion that variable annuities can get complex. And many of his customers indeed have shifted to fixed-index annuities.

Invest's Megna notes, however, that even index annuities can get complex. She worries that some advisors aren't fully comfortable with them, noting that a big part of her job is educating FAs.

Stathis says the industrywide push toward simplicity may have been poorly timed. During the recession, people were looking for safety and yield; he wonders if the simplicity effort would have found more traction during a more robust economy.

While an industrywide push like that isn't likely, there are specific examples. Jefferson National is one carrier that prides itself on its single, simple annuity. "We kind of abandoned the arms race of benefits about seven years ago and dialed back our annuity," explains David Lau, chief operating officer. "We stepped back and looked at what annuities were originally designed to do. and that's tax-deferred accumulation," he adds.

In just the past three years, its flat-fee variable annuity has doubled in sales, he says. Last year, sales were $268.2 million, up from $131.1 million in 2009.

With so many disparate opinions and strategies, the one lesson to draw is the importance of knowing the products and your clients. Even if you keep it simple, there is work to do. You need to graft those simple products onto clients' complicated needs. And you have to know why you're choosing the products you're recommending.