Fidelity teams up with MetLife for annuity sales

Fidelity Investments and MetLife said on Monday they will team up to sell variable annuities, a notable joint venture at a time when the funds industry and insurers are looking to capitalize on jitters about the stability of retirement savings.

Mutual fund companies like Boston's Fidelity traditionally have promoted products like 401(k) plans and individual retirement accounts, while insurance companies like MetLife have pushed annuities — contracts that specify a stream of payments, sometimes variable, over the life of the arrangement.

Sharp stock market losses in 2008, although partly reversed this year, have fueled concerns among many Americans about the stability of mutual funds and other investments they expect to tap for retirement income.

Variable annuities are meant to be more stable, but their sales were down 23% for the first nine months of 2009 compared with the year-earlier period, according to data from Morningstar Inc, as sellers of the retirement plans reduced their guarantees on income streams.

Coupled with uncertainty around the Social Security system and the demise of many traditional company pension plans, fund and insurance companies have tried to develop new products that emphasize either conservative investments or capital preservation — though often with higher fees.

In 2008, for instance, Vanguard Group Inc introduced its "Managed Payout Funds" and tools meant to help investors determine exactly how much they could afford to withdraw each year. Putnam Investments recently rolled out new Absolute Return funds meant to reduce volatility.

Fund and insurance companies have also teamed up in the past to offer variable annuities. Until this year Fidelity was an exception, offering its own guaranteed variable annuity from 2007 until March 2009. During that period it took in USD 1.8 billion.

Plunging equities markets convinced Fidelity to suspend sales until it could find a partner to help shoulder the risks of providing income guarantees, said Jon Skillman, president of Fidelity's insurance division.

Other companies are raising their fees or cutting back on guarantees, he said. "They call it 'de-risking,' and it's all driven by the experience of the past year in the markets."

Fidelity still offers other annuities of its own, as well as products from insurers including MassMutual and New York Life Insurance Co.

Robert Sollmann, MetLife's top retirement-product executive, said his companies' annuity will be the only one Fidelity sells with a guarantee of income.

In contrast to the general industry trend, MetLife's variable annuity sales were up 11% for the first nine months of the year, according to the Morningstar data.

"People are realizing they need to hedge their bets," Sollmann said.

The variable annuity that Fidelity will sell, called MetLife Growth and Guaranteed Income, will have a minimum investment of USD 50,000 that in many instances is likely to be funded from a 401(k) account as the worker nears retirement.

Workers would be able to withdraw around 5% of their investment each year, according to an age-based schedule that starts at age 59 and a half.