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• W336351641 abstract "Research shows fixed annuities make a comeback. Branch referrals remain biggest source of investment sales leads The bank investment services business had a banner year in 1999. Sales, gross revenue, and sales force productivity all increased in the typical bank retail investment sales program, according to the 2000 Consumer Investments Study released last month by the Consumer Bankers Association. But declining profit margins constrained the contribution of the investment sales unit to the overall banking enterprise. Sales of investment products--mutual funds and annuities--averaged 3.3% of a bank's retail deposits last year, up 14% from 1998 and 22% higher than the 2.7% sales penetration of deposits in 1997. The typical bank consumer investment program had annual gross revenue of $1,786 per million in retail bank deposits in 1999, compared to $1,645 in 1998, a 9% improvement (Chart A). Revenue penetration of deposits measures revenue from mutual funds, annuities, and securities brokerage that the bank achieves, relative to the size of the retail bank. Revenue mix Fixed annuities accounted for 21% of bank consumer investment services revenue in 1999, up from 17% in 1998 (Chart B). Fixed annuities used to account for the lion's share of revenue, but slipped from 40% in 1995 to 25% in 1997 and 17% in 1998. Between 1995 and mid 1999, low interest rates and the flat yield curve made fixed annuities relatively unattractive to retail investors, who were becoming more attracted to the booming equity market. The growing popularity of mutual funds and then variable annuities coaxed conservative investors away from fixed annuities. Those that were leery of the stock market could earn higher nominal interest in short-term CDs. The investing environment changed with the stock market volatility during the last half of 1999 and a steepening yield curve, which combined to make fixed annuities a safe harbor for skittish investors. Mutual fund sales were strong during the first half of 1999, but fell sharply in the second half. As a result, mutual fund revenue was down to 36% of total consumer investment revenue in 1999, compared to 43% in 1998. The share of third party mutual funds fell from 39% to 33%, while bank proprietary mutual funds also lost revenue share, falling one percentage point to 3%. Variable annuities avoided the sales setbacks experienced by mutual funds, maintaining a 25% share of revenue in bank consumer investment programs during 1999. This might seem anomalous, since variable annuities are essentially a tax-advantaged way of investing in mutual funds. But over the past few years various guarantees have been added to variable annuities, making them more attractive to investors who are nervous about losing money in mutual funds but don't want to miss out altogether on the outsized returns posted by some funds. Features that guarantee an increase in the investment's value upon death or annuitization have allayed many investors' fears, and high interest paid in dollar cost averaging accounts have spurred many to act now, rather than wait. The share of sales revenue attributable to individual stock and bond sales remained the same at 14%. Life insurance, wrap accounts, and money market mutual funds each accounted for only a thin slice of consumer investment revenue. In spite of all the press about bank marketing of fee-based investment products, wrap accounts generated less than 1% of bank consumer investment services revenue, the same level as 1998. Money market mutual funds increased their share of total revenue from 1% to 1.7%, while the revenue share of life insurance doubled to 2.2%. While life insurance sales are showing signs of life in bank consumer investment programs, they remain a small contributor to program revenue. Profit margins Bank consumer investment programs saw their profit margins shrink again during 1999. …" @default.
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• W336351641 date "2000-10-01" @default.
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• W336351641 title "Investment Services Report Card: Higher Growth, Lower Profits" @default.
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