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Brexit a “negative” for US life insurers: Fitch Ratings

Posted on July 14, 2016 by Editorial Staff -

The UK vote to withdraw from the European Union (EU), known as “Brexit,” will increase economic uncertainty and likely affect monetary policy in the US, making it a negative credit development for US life insurers, according to Fitch Ratings.

“The near-term impact on interest rates and financial market volatility exacerbates an already challenging operating environment for US life insurers,” Fitch said, adding however that there are no immediate implications for US life insurer ratings.

The Brexit vote will negatively affect GDP growth in the UK and elsewhere, which will likely prompt central banks around the world to extend their monetary easing policies, Fitch said in a release.

“For US life insurers, expected delays in further Fed rate increases and flight-to-safety buying of US government bonds has pushed Treasury yields to near-record lows. The macroeconomic volatility likely will force the Fed to delay further rate hikes and increases the likelihood of a ‘lower for longer’ interest rate scenario,” Fitch analysts said.

“Over the near term, the impact of sustained low interest rates will limit US life insurers’ earnings growth but not have a meaningful impact on statutory capital.”

Life insurers with exposure to equity markets through general account equity investments and/or large variable annuity and asset management businesses, will be negatively affected by financial market volatility in the wake of Brexit, Fitch said. While existing ratings already consider these equity exposures, a significant unexpected decline in the equity markets could affect ratings.

Positively, most US life insurers aren’t directly exposed to the insurance markets in the UK and EU, or have only minor exposure. For those with direct exposure to those markets, those operations represent a relatively small proportion of the group’s overall business. The ratings on US life insurers that are wholly owned by European insurers, most of which have a Stable Rating Outlook, are more vulnerable to a downgrade.

The short goodbye… it’s linked to retirement readiness

Posted on July 14, 2016 by Editorial Staff -

Historically, corporations used pensions for “workforce management.” A pension paid for itself, in theory, by incentivizing the departure of “dead wood” to make room for “fresh blood.” In this fashion, firms molted, continuously shedding their superannuated personnel.

By now, most companies have switched from defined benefit pensions to defined contribution plans. But, while the DC model shifts the responsibility for saving for away from the employer, it doesn’t solve the original problem: How to prepare older, venerable, long-tenured workers to retire on a timely, predictable schedule?

A new whitepaper from the Defined Contribution Institutional Investors Association (DCIIA), a trade group that advocates for the interests major retirement plan providers, urges more employers adopt auto-enrollment and auto-escalation procedures to help their employees save.

Even though it might take 20 to 40 years for a new auto-enrolled employee to reach retirement age—and even though high turnover rates, few new hires are likely to actually retire from a firm—DCIIA asserts that workforce management will be among the benefits of default programs.

Employers who use defaults this will see more enrollment, better economies of scale, more productive employees—and, ultimately, more employees who can afford to retire when the company wants to replace them, DCIIA claims. DCIIA’s members have a stake in this: they benefit from growth in plan participation and in assets under management.

The whitepaper does a good job of explaining how plan sponsors might benefit from auto-escalation and auto-enrollment. Indirectly, it also reveals why senior managers might resist those default programs. For instance:

Auto-enrollment and auto-escalation plans typically aren’t free. They cost money to implement and maintain. Ongoing financial education may also require significant expense.
If the employer matches part of each employee’s contribution, or all of the contribution up to a certain percentage, higher enrollment and higher savings rates will require bigger contributions to more employees.
Auto-enrollment without auto-escalation can actually depress contribution rates, because auto-enrolled employees tend to get stuck at the default contribution rate (typically 3%) while employees who enroll on their own tend to contribute more.

But it’s worth adopting default programs, DCIAA argues, because:

Auto features can improve Millennial employee engagement and satisfaction and potentially their workplace productivity and loyalty to their employer.
Higher plan participation and/or contribution rates among non-highly compensated employees reduce the probability of the employer having to make unexpected qualified non-elective contributions (QNEC).
Implementation of automatic features can increase DC plan participation and/or contribution rates among non-highly compensated employees, potentially reducing the need for a non-discrimination testing safe harbor.
Make employees want to extend themselves to the degree that corporations need today: to be more flexible, concerned, and willing to go out of their way to help out.
Productivity may improve when employees believe they will have retirement security.

The biggest impact of a more robust retirement plan, the report asserts, stems from the likelihood that it will enable older employees to look forward to retiring rather than cling to their jobs because they can’t afford to retire. For instance:

Allowing for the planned retirement of employees can create advancement and career diversification opportunities for others, which can help a company retain and attract a talented workforce.
Facilitating the timely retirement of employees not only allows for improved succession but also provides more flexibility to implement career development programs.
By making it easier for those approaching retirement to retire according to plan, a company creates the opportunity for talent to be continuously deployed optimally across the organization.
This is likely to result in a more efficient operation and superior execution, and may well also serve to increase satisfaction among high-value employees, which in turn may decrease the probability of employee turnover. Delayed retirements may also reduce the employer’s ability to hire new employees, reducing the flow of new ideas and talent into the organization.

Honorable Mention

Posted on July 14, 2016 by Editorial Staff -

Hugh O’Toole promoted at MassMutual

Massachusetts Mutual Life Insurance Co. (MassMutual) has named Hugh O’Toole as senior vice president, Head of Workplace Distribution. He leads all distribution and customer acquisition functions for MassMutual’s retirement plans and workplace insurance businesses, reporting to Eric Wietsma, head of Workplace Solutions.

O’Toole is a veteran of MassMutual, having served in a variety of leadership roles for the retirement plans business. Most recently, O’Toole headed the Viability Advisory Group, which MassMutual purchased in November 2015. Previously, O’Toole served as head of sales for retirement plans for seven years, leaving in July 2014 to form Viability.

Milliman enhances participant website

Milliman, Inc., the global employee benefits consulting and actuarial firm, has launched a series of website enhancements for its defined contribution clients and their plan participants.

New features on MillimanBenefits.com include an interactive “It’s Your Move” dashboard with tools that support successful retirement behaviors, such as saving enough to get the company match, diversifying investments, and utilizing automatic increase and automatic rebalance features. The site enhancements build on Milliman’s “PlanAhead for Retirement” projection tool, educational Financial Resources Center, and mobile application.

Men and women think about retirement differently: OneAmerica

Men think about retirement more often than women, talk about it more frequently with work colleagues and believe they are more educated about tools needed to prosper in their golden years, according to OneAmerica’s second poll in three years on the role of gender in retirement readiness.

Men self-scored themselves as having a significantly higher level of knowledge than women across 10 personal finance and retirement topics, including student loans and taxation on Social Security benefits.

Regarding pre-retirement debt, men and women showed the same propensity to avoid taking loans or hardship withdrawals at about 71%.

Regarding retirement plan features, men and women both placed the highest priority on an employer match on the employee’s contribution to the 401(k) or other retirement plan. It was ranked first in importance by both sexes, followed by having investment options.

Women were more likely to place higher importance on the employer match (64% vs. 61% of men. Men were more likely to place importance on investment options (29% of men vs. 21% of women). Sixty-nine percent of men but only 55% of women say they think about retirement at least monthly.

Other highlights:

Men are more likely to discuss retirement with work colleagues (29%) compared to women (22% percent) and to cite a story in the news or media (16% vs. 11% of women) about retirement.

Men monitor their retirement plans more frequently than women. More than half of men do so monthly (53%) compared to 36% of women. Both men and women say it’s important to know their current status relative to retirement savings goals, men are more likely to describe it as “very important” (54% vs. 48%).

OneAmerica conducted an online survey of 5,424 women and 5,331 men. More results of the OneAmerica survey will be released later this summer.

Off the Grid

Posted on July 13, 2016 by Kerry Pechter -

Incentives matter. Compensation shapes behavior and vice-versa. And, where retirement accounts are involved, the compensation system that banks and brokerages have used for decades to pay advisors could change dramatically because of the DOL fiduciary rule, which begins to kick in next year.

Indeed, some believe that the DOL rule could have the biggest impact on the economics of the brokerage business since May Day 1975, when the SEC banned fixed commissions and opened the gates to disruptors like Charles Schwab and The Vanguard Group.

“This is a once-in-a-business-generation change,” said Peter Bielan, a principal at Kehrer Bielan consulting in Chapel Hill. “The degree of difficulty just went up for the advisor job and the pay went down.”

Last spring, not long after the DOL issued its controversial rule—which in essence requires the financial industry to treat rollover-IRA accounts more like 401(k) accounts and less like after-tax retail accounts—Kehrer Bielan sponsored a webcast for its banking clients. The firm expects that:

The traditional compensation “grid” for new or low-producing advisors could be modified to include a salary-plus-bonus compensation option, especially for new or low-producing employee-advisors;
Banks and brokerages will begin to look for future advisors who are more consultative and less sales-driven than the current cohort;
Sales of commissioned insurance products to retirement clients will decline but not disappear. Up-front commissions will be smaller and trail commissions will become more common, to reduce the incentive to favor, and the appearance of favoring, higher-compensation products.
Top-producers who have flourished in the advisory side of the business—as opposed to selling lots of commissioned products—will be increasingly valuable, especially if the overall advisor population continues to shrink.
To reduce costs, firms may consider paying advisors less for servicing existing assets-under-management than for bringing in new assets.

The DOL rule, in effect, pressures advisory firms to emphasize service over sales and to charge less for their services. With compensation still based on the grid system, which appears to favor quantity of sales over quality of advice, it’s clear that something has to give. (A sample grid from a large brokerage firm is shown below.)

Raymond James compensation grid

Compensation disruption

The Kehrer Bielan webcast was aimed primarily at banks and their advisory businesses. A bank or brokerage firm earns fees on assets under management and commissions on product sales. Advisors receive 20% to 50% of the fee and commission revenue they produce, as determined by the grid. The more revenue, the greater the advisor’s percentage. Here are some of the takeaways from the webinar. (The quotes are mainly attributable to Bielan, below right):

The grid is in question

“Traditional grids will not meet the needs of all advisors going forward. If you think about the mix of business today, you have some advisory, some commission. A one-size-fits-all grid that just looks at production will be difficult to sustain. You’ll be paying some of your advisors what you paid them last year, but not the ones who do a high level of commission business. And think about the ramp-up time for new advisors. If they can’t get the revenue they did in the past, you can’t put them on 12-to-18 month ramp-up and expect them to cover their compensation and commission costs and be profitable.” Peter Bielan

Salary-plus-bonuses for new or lower-producing advisors

“We need new methods of compensation. Let’s start with a base salary and a bonus or profit-sharing. Lower-producing or new advisors would get paid this way until they achieve a certain production threshold. Then they might move to a different plan. This is an opportunity to get the modestly producing advisor off the grid. It also means that advisors would be paid more like other individuals in the institution.”

The DOL’s Best Interest Contract Exemption has limited usefulness

The BICE allows commissioned sales to retirement clients if the advisor pledges that the sales will be solely in the clients’ best interest. But advisors shouldn’t make a habit of using it, Bielan said:

“A business model based mainly on getting exemptions from prohibited transactions wouldn’t pass regulatory muster. Some firms will decide to operate with the BICE, but it’s very difficult to implement, it involves transactions that are prohibited to begin with, and it opens you to class action litigation. The DOL has no enforcement power so it will rely on class action litigation to solve problems. That’s very troubling. Some firms will abandon business that requires a BICE.

“The cost of that business—driven by implementation and defense costs—will go up. Profitability will go down. Revenue in that area won’t be as valuable. There will be little impact on purely advisory business. The biggest impact will be on packaged insurance products. That are will see the most change.”

A different personality may be needed

“As for bringing new advisors into the business, you may have to look at a different type of individual. When we examine what makes advisors succeed, we foresee a different profile, especially in terms of organizational and technical skills. Among the best sales people of today, that may not be their strong suit. It will be require listening better and communicating better with high-net-worth clients, who will be even more in demand than they are today. It may be a different kind of person, someone not as financially motivated.”

Top producers will be in higher demand

“The demand for higher-producing advisors will increase. You’ll be at higher risk for losing them and it will be harder to get those individuals in the future. They’re in an envious position, especially if their book is advisory-based production. Those that can operate in the new environment will be the most valuable.

Off the grid call out “At the same time, the net new number of advisors is very flat. We are stagnant in the last five years. I worry that, with the new headwinds, we’ll go backward in number of advisors. We don’t have enough advisors, and that’s one of the best revenue growth opportunities around.”

RIA firms will poach top producers

“RIA firms are saying that the DOL rule is great news for them. They believe there will be a two-year window while advisors from brokerage firms become accustomed to the new changes, and there will be disarray. It will be an ideal time to poach some of your best advisors, and an even better time to tell clients that they’ve done business this way all along.”

‘Robo’ capability will be essential

“That’s what the industry is being priced towards. Besides, letting advisors pick the clients’ investments—you can’t afford the risk of letting that happen,” Bielan said, noting that Labor Secretary Tom Perez implicitly blessed robo-advice by putting a Financial Engines executive on the dais with him at the press conference to announce the fiduciary rule last April.

“After the announcement, the DOL did a roundtable with four government officials and someone from Financial Engines. That’s four officials and someone offering a robo-solution. If Secretary Tom Perez chose that moment to interview the guy from Financial Engines, I have to believe the intention is to move people toward automated advice. It sounds like a hint. And with the promotion of robo-advice I think in time it will be difficult to justify 125 basis points on investment management only. You can’t earn the same revenue off the same assets.”

‘We have to embrace it’

“The message is that we charge too much. We have to address that,” Bielan said. “If there’s a product that can do the job at a lower cost, that’s what we have to provide. The financial metrics behind that are difficult: $17 billion [the DOL’s estimate of excessive annual fees on retail retirement accounts] will come from advisory firms and go to consumers. As a consumer, you can’t fault that. That’s why we have to embrace it.”

Great Hopes Ride on Great-West’s New Annuity

Posted on July 8, 2016 by Kerry Pechter -

Although Empower Retirement is a powerhouse in the retirement plan industry, its corporate sibling, Great-West Financial, has never issued a lot of individual annuities. Ranked 26th in VA sales ($71 million) and 31st in VA assets ($2.55 billion) in the first quarter of 2016 by Morningstar, the firm has no more than a toe in the market.

But Robert Reynolds (below left), the former Fidelity COO who became Great-West’s CEO in 2014, has given his minions the big hairy aggressive goal of becoming a top-five retirement income company within the next three to five years. Selling a lot more variable annuities is on the agenda.

To that end, Great-West has headhunted a new team of annuity sales managers from top issuers. Michael McCarthy (at right) arrived from AXA in April as senior vice president of national sales. He has hired annuity executives from AIG, MetLife and Transamerica. He also doubled the number of life/annuity wholesalers, to 32; 27 are assigned full-time to annuities.

The company is also launching new products. Last week, Great-West announced Smart Track II − 5 Year Variable Annuity, a B-share contract with a surrender period of only five years instead of the usual six to eight. The surrender penalty in the first two years is 7%, then 6%, 5% and 4% in the remaining three years.

The product is aimed at commission-earning investment advisors, especially in the bank channel (where Great-West is a top seller of life insurance) and at Wells Fargo, one of four remaining full-service brokerages. Great-West may also try to market the product through the Allstate and State Farm sales networks, McCarthy told RIJ this week.

Smart Track II is a two-sleeve variable annuity. As seen in similar products from AXA and Hartford in the past, the first sleeve is built for accumulation. Contract owners can invest in dozens of funds from well-known families, with annual expense ratios starting at 0.46%. The mortality & expense risk fee is 1.20%.

The second sleeve is earmarked for lifetime income. Contract owners can transfer money from the first sleeve to this sleeve (and back again, with constraints) to gradually build up an income base. Any of four guaranteed lifetime withdrawal benefit (GLWB) riders can be applied to the second-sleeve assets, at an annual cost of 0.65% to 1.30% of the second-sleeve account value. Second-sleeve assets must be invested in asset allocation funds (with equity exposure ranging from 35% to 65%) at an annual cost of 0.88% to 1.10% of the account value.

A chance for age-related gains

The catchiest aspect of this product is the potential, under all four GLWB riders, for contract owners to get higher payout rates as they reach new age thresholds. If the account value is high enough (see explanation below), there’s a step-up in withdrawal rates from 4% (for single life starting at age 59½) to 5% at 65, to 6% at age 70 and to 7% at age 80. (The withdrawal rates for joint contracts are based on the age of the younger spouse and are 50 basis points lower at each threshold than rates for single life policies.)

The riders are:

Secure Income Foundation (0.90% of benefit base). This rider provides potential increases in income as the contract owner crosses the age thresholds of age 65, age 70 and age 80. If a client invests $100,000 at age 65 and begins taking $5,000 a year in income, his or her income at age 70 would be the greater of 6% of the account value or 5% of the benefit base ($5,000).
Secure Income Plus (1.30%). This rider is similar to Foundation but provides a 5% simple interest annual “roll-up” to the benefit base for the first ten years of the contract. If a contract owner invested $100,000 at age 60, the benefit base would be at least $150,000 after ten years, assuming no transfers from the second sleeve back to the first sleeve.
Secure Income Max (1.20%). This rider raises the withdrawal rate by an additional 1% for any contributions older than five years. If a 60-year-old invested $100,000 and took no excess withdrawals for five years, he or she could withdraw at least $6,000 a year at age 65, $7,000 at age 70 and $8,000 at age 80. (Or $5,500, $6,500 and $7,500 for couples, respectively.)

Some explanation is called for here. The payout rate doesn’t always rise at the threshold ages of 65, 70 and 80. The increase is conditional on the size of the account value. If the current account value, multiplied by the new rate, is not greater than the current payout (the existing rate times the existing benefit base), the new rate doesn’t apply. The payout rate and benefit base stay where they are.

For example, consider a single contract owner who reaches age 70 and has a benefit base of $100,000. If the account value has declined (because of withdrawals, fees and/or poor market returns) to, in this particular example, less than $83,333, then that new 6% rate doesn’t kick in. That’s because 6% of $83,333 is $4,998.98, which is less than the current annual payout of $5,000. The benefit base stays at $100,000 and the payout rate remains 5%.

What triggers the rate increase? If the account value at age 70 was, say, $90,000 and the new payout is $5,400 (6% of $90,000, and higher than $5,000), then the client’s payout rate jumps to 6%. The client’s payout rate going forward will be 6% and the minimum payment will be $5,400. But, in that case, the benefit base would drop—this is unusual for a GLWB—back to $90,000. As a consolation to the policyholder, the rider fee would also fall, because it is a multiple of the benefit base.

In short, there’s a trade-off. Unless market appreciation (or new premia) overcome the natural decline in the account value (as a result of income payments and annual fees), the age-related hikes in payout rates may not apply. The same calculation is repeated each year, so the contract owner can get a second chance at a higher rate.

Smart Track II offers an additional income rider, called the T-Note Tracker (0.65%), where the withdrawal rates increase with a rising 10-year Treasury rate. But that product has gotten little traction because rates are still infinitesimal and don’t appear ready to rise significantly in the near future.

“Most variable annuities will allow the contract owner only one way to get a raise. That’s through a step-up in the benefit base, and the only way to get that is through market performance. But the odds of getting a pay raise during the income stage are almost nil if you get a down market and you’re still withdrawing five percent,” McCarthy told RIJ. “We offer several ways to get a pay raise.”

The Secure Income Max is expected to appeal to couples, McCarthy said. Industry-wide, couples often buy single-life annuity contracts because the payout rate is higher. Secure Income Max, which provides an additional one-percentage-point hike in the withdrawal rate for premia that’s left untouched for at least five years, gives couples who don’t need income right away the opportunity to buy joint contracts without suffering a “marriage penalty.”

To build an annuity sales team, McCarthy has recruited Lance Carlson, a former head of distribution at MetLife; Brett Ford, a former divisional sales manager at Transamerica; Barbara Dare, a former vice president of third-party distribution at MetLife; and Greg Alberti, a former head of strategic accounts at AIG. They report to McCarthy, who reports to Bob Shaw, president of individual markets for Great-West Financial, which is based in Greenwood Village, Colorado.

Great-West currently markets the low-cost, investment-only, no-surrender-fee Smart Track variable annuity through TD Ameritrade and Charles Schwab. Last month, that product was named one of the top 50 annuities of 2016 by Barron’s magazine.

Great-West recently filed a prospectus with the Securities & Exchange Commission for a no-commission version of Smart Track II that is tailored to the needs of fee-based independent financial advisors affiliated with broker-dealers who will be operating under the terms of the Department of Labor’s fiduciary rule starting next April.

Under the new rules, advisors who sell B-share contracts and accept commissions must sign (or rather, their broker-dealers must sign) a contract (the so-called Best Interest Contract or BIC) promising that the sale is not merely suitable for a client but also in the client’s “best interest.” Many advisors are expected to avoid the BIC by switching to fee-based compensation, which means they’ll need to sell no-commission versions of their favorite variable annuity contracts. The new version of Smart Track II would fill such a need.

Neither Great-West Life & Annuity Insurance Company nor any of its subsidiaries have reviewed or approved these materials or are responsible for the materials or for providing updated information with respect to the materials.

A Hydrologist’s View of Cash Flows in Retirement

Posted on July 7, 2016 by Kerry Pechter -

Calculations of “safe withdrawal rates” from retirement portfolios often feel like exercises in false precision. Their assumptions are, well, assumptions. Historical performance, the basis for testing withdrawal rates, has limited value. And clients don’t necessarily follow the financial diets that advisors cook up for them.

Yet an advisor arguably must take a position on withdrawal rates, if only to answer the retiree’s inevitable question: “How much can I afford to spend every year?” While the traditional answer—4% of savings, adjusted for inflation—still serves as a starting point, advisors and academics keep trying to improve on it.

Writing in this week’s issue of Advisor Perspectives, John Walton (below right), a hydrologist and chemical engineer at the University of Texas at El Paso, shares the history of his personal search for a withdrawal rate that can deliver what he and everybody else naturally wants: the most income with the least risk of running out of money.

Three broad classes

Walton compares three broad classes of withdrawal rates: constant rate methods (e.g., variations on the 4% rule), mortality methods (which use life expectancy as a guide to spending), and mortgage methods, which “increase withdrawal rates over time based on a maximum lifetime rather than expected lifetime.” He divides each class into sub-classes, and tests their effectiveness in good, bad and median markets. John Walton

The best withdrawal methods, he finds, are the constant-rate and mortgage methods. The mortality-based methods, for reasons described below, are in his opinion inferior. Both the constant rate and the mortgage rate can be improved by “tilting,” Walton says. By that he means tweaking the withdrawal rate up or down in response to portfolio returns. (Walton also discussed tilting in a May 17, 2016 Advisor Perspectives column.)

ISO the optimal withdrawal rate

Walton compares nine different withdrawal methods:

Four versions of the constant rate (4%) method, using four different degrees of tilt—zero tilt, which means spending 4% of current account balance each year; +1, which means spending 4% of the original principal every year; -1/3 tilt (slightly favoring higher income over capital preservation); +1/3 tilt (slightly favoring capital preservation over higher income).
Three mortality-based methods: (1/the number of years of remaining life expectancy plus seven years); the IRS Required Minimum Distribution withdrawal rates; or an average of expected and maximum longevity.
Two “mortgage methods;” one is based on tilting the withdrawal rate back each year toward the payout from a fixed-term annuity based on a maximum life expectancy. In the other, the rising withdrawal rate is “analogous to the fraction of a mortgage payment going to principal.”

Walton uses Monte Carlo simulations to approximate the likely performance of each withdrawal method. He uses a single female life expectancy as a compromise between single male and couple’s life expectancies. As the investment, he assumes an 80%/20% stock/bond portfolio.

And the winners are…

Walton dismissed three of the methods—constant dollar amount, the IRS/RMD percentage, and the 1/life expectancy-plus-seven-years method—as too risky for the average person. He also disqualified the three mortality-based methods on the grounds that they shifted spending toward the later ages, when most people actually tend to spend less, and because they suffer from “the subtle error of applying concepts that work only for groups to the isolated individual.”

The most successful methods in Walton’s study, as far as achieving the best balance between income and final capital under moderate market conditions, were the two mortgage-based methods and the two constant rate methods with a modest (plus or minus 1/3) tilt. “They eliminate sequence-of-returns risk and minimize longevity risk,” Walton writes. Sequence risk, of course, refers to the losses associated with having to sell depressed assets for income during a downturn; longevity risk refers to the risk of running uncomfortably low on savings during one’s lifetime.

“Tilting” without windmills

The concept and calculation of tilt seems to be the Walton’s main contribution to withdrawal rate science. As noted above, the tilt factor can range from minus one (-1), which means spending exactly 4% of the original savings each year, to zero (which means withdrawing exactly 4% of the account balance each year) to infinity, which means using the portfolio return as the withdrawal rate.

The appropriate tilt is calculated “by taking a ratio of current capital divided by the capital that would keep the client on track and then raising the ratio by an exponent. A positive exponent preserves capital at the expense of income stability, and a negative exponent preserves income at the expense of capital,” Walton writes.

The tilt, in short, defines the degree of income volatility that the retiree is willing to accept. A tilt factor can be applied to any of the three withdrawal methods—constant rate, mortality, and mortgage. All of Walton’s calculations are based on real dollars, so inflation is considered implicitly.

Add a SPIA?

Choosing the best withdrawal rate method is never easy, Walton concedes, because different clients have different risk tolerances, different personal goals and legacy ambitions, different tolerances for income fluctuations, and different tendencies toward longer or shorter lifespans.

Walton notes in the article that annuities are preferable to bonds in a retirement portfolio, and promises to explore the benefits of adding an annuity to the income strategy in a future article. That article, he writes, “will illustrate how different amounts of tilt and single premium immediate annuity (SPIA) can be used to place clients anywhere desired along the capital preservation versus income stability continuum.”

Now accessible on all platforms: DOL fiduciary training from LIMRA

Posted on July 7, 2016 by Editorial Staff -

The LIMRA LOMA Secure Retirement Institute has launched a new short online course called “DOL Fiduciary Basics for Employees” that explains the rule’s meaning to industry organizations and their employees.

Almost three-quarters of retirement plan providers anticipate that their call center staff will need training about the implications of this rule, new research by the Institute shows.

“Call center employees aren’t the only ones who will need to understand the DOL fiduciary rule,” said Kathy Milligan, FLMI, ACS, senior vice president of LOMA’s Education and Training Division, in a release. “This rule touches almost every part of the business, so it’s vitally important for financial services organizations to prepare employees as they transition to this new regulatory environment.”

DOL Fiduciary Basics for Employees is presented in 13 multimedia vignettes, each several minutes long. The vignettes are accessible through mobile devices, tablets, or personal computers and can be integrated with company-specific training and education.

Lapse rates of ordinary life products near two-decade low: A.M. Best

Posted on July 7, 2016 by Editorial Staff -

Running between 5.3% and 5.9% in the years 2012 to 2015, lapse rates on ordinary life insurance products have fallen to their lowest level in nearly two decades, according to a new A.M. Best report.

The Best Special Report, titled, “Anemic Yields Put Spotlight on Retention,” asserts that ordinary life persistency has been relatively steady, fluctuating between 81.1% and 86.5% in 1997-2015. The trend appears to be somewhat correlated to the U.S. unemployment rate. The last two years have seen the highest persistency rates in nearly 20 years, around 86%.

Lapse and persistency rates remain important issues for U.S. life/annuity (L/A) insurers, the report said. They can suppress revenue and reduce profitability. New policy sales can be a relatively costly and time-consuming process; if more policies remain in force, as measured by the persistency rate, acquisition costs decline and profitability rises.

Reducing lapses (policy terminations by nonpayment of premium, insufficient cash values, or full surrenders) isn’t necessarily easy. Lapse rates result from a complex combination of enterprise-wide risk management (ERM) strategies and macroeconomic factors.

Total ordinary life DPW (direct premiums written) has generally risen since 2009, with a slight decline in 2013. At $140.0 billion in 2015, DPW reached its highest level since 2008. However, several factors have shifted the composition of total life premiums written.

Renewal premiums, for example, which accounted for 65.3% of ordinary life DPW in 2005, accounted for 72.6% in 2015. During this shift, single premium DPW declined to $18 billion in 2009 from $40.3 billion in 2007. Allocations of single premium ordinary life policies as a percentage of total life premiums have declined as well, to 14% of DPW in 2015 from 27.7% in 2007.

Generally, A.M. Best said it “views more favorably those companies that have an increased percentage of higher creditworthy and less risky products, which can positively impact business profile. Unless it is a lapse-supported product, persistency generally benefits a company’s profitability; however, it is noted that even lapse-supported products need to persist for a good number of years to become profitable.

“Higher profit margins can be attained on renewal business, since acquisition expenses are recorded at the time of sale. Nevertheless, operating performance is also impacted by low interest rates, which may cause spread compression on interest-sensitive life products, such as universal life. Balance sheet strength is also impacted by strong persistency, as profitability from renewal business contributes to capital and surplus.”

Poland’s experiment with private pension funds nears end

Posted on July 7, 2016 by Editorial Staff -

The second-pillar of Poland’s pensions system (known as Open Pension Funds or by its Polish acronym, OFE), which consists of individual accounts in privately-run investment funds, is about to topple.

The Polish government intends to transfer 75% of the savings held in the OFEs to the voluntary third pillar tax-advantaged system of individual savings accounts (IKEs), and 25% to a fund (the Demographic Reserve Fund, or FRD) that Poland set up in 2002 to cover shortfalls in the ZUS, the basic, first-pillar government pension.

A government official said that the plan was not a “nationalization” of the OFE system. He described it rather as “a transfer of public funds to the Polish people themselves.”

The current OFE system, a once-mandatory private capital markets investment program, was introduced in 1999. Inspired by the exuberance of the late-90s equities boom, it helped Poland develop a capital market, centered on the Warsaw Stock Exchange.

But then came the financial crisis. Starting in 2010, various changes weakened the OFE program. The contribution rate was cut to 2.3% of pay from 7.3%. The program became voluntary, and workers began shifting their contributions to the ZUS.

In 2014 and 2015, much of the OFE assets were shifted, first in a lump sum and then in stages, to the ZUS, to satisfy the first pillar’s funding needs. Net outflows from the OFEs to the ZUS eventually exceeded OFE inflows.

Most Poles do not have an IKE, the private third-pillar vehicles that will receive three-quarters of the remaining OFE funds. IKEs are offered by Polish pension fund companies, insurance companies, banks, brokerages and investment fund companies. As of the end of 2015, Poles had set up only about 850,000 IKEs, compared with some 16.5 million OFE accounts at their peak. About 2.5 million OFE accounts are still active.

Future pension reforms call for a new workplace savings system, called Workers’ Capital Plans (PPKs). Employers and employees would each contribute 2% of wages into the plans. If the participants are willing to add a further contribution (1% from employers and 2% from employees), their PPK will receive a bonus of PLN250,000 ($62,224).

MassMutual completes purchase of MetLife’s U.S. retail advisor force

Posted on July 7, 2016 by Editorial Staff -

Massachusetts Mutual Life Insurance Company (MassMutual) has completed its acquisition of the MetLife Premier Client Group (MPCG), MetLife’s U.S. retail advisor force, for $165 million. The purchase was announced last February 29.

The acquisition includes certain MetLife employees who support MPCG, along with MetLife’s affiliated broker-dealer, MSI Financial Services, Inc. (formerly MetLife Securities, Inc.), and certain assets associated with MPCG, including employee contracts.

The acquisition significantly expands MassMutual’s footprint in the U.S., which will grow to more than 9,200 financial professionals in more than 2,000 offices nationwide, increasing 60% and 45%, respectively.

The two firms also entered into a product development agreement under which MetLife’s U.S. retail business will develop certain annuity products to be issued by MassMutual.

Advisors Excel invests in technology to integrate annuities and investments

Posted on July 7, 2016 by Editorial Staff -

Advisors Excel, a registered investment advisor (RIA) and field marketing organization (FMO) for investment advisors and independent insurance agents based in Topeka, Kansas, will use Orion Advisor Services, LLC, a portfolio accounting service provider, to support its RIA, called AE Wealth Management.

Orion will provide back-office services related to reporting, billing and client statements. It will integrate the investment, annuity, and life insurance products on AE Wealth Management’s client relationship management (CRM) platform.

Orion’s “dashboards aggregate data [and] provide performance reporting, customized client statement and the fee billing structure,” said Cody Foster, Advisors Excel co-founder, in a release.

Orion Advisor Services was founded “for investment advisors by an investment advisor in 1999,” according to the release. The firm’s technology solutions are used by over 900 advisory firms with total assets under administration of more than $300 billion in more than one million individual accounts.

Vanguard reports on its services for small 401(k) plans

Posted on June 30, 2016 by Editorial Staff -

Vanguard has issued the third annual “How America Saves: Small business edition,” a report detailing the plan design and participant savings trends of the small business 401(k) plans served by Vanguard Retirement Plan Access (VRPA).

VRPA was launched in 2011 to provide cost-effective 401(k) plans for small business owners with plans with up to about $20 million in assets. As of year-end 2015, VRPA served 4,500 plans and 200,000 participants, up from 445 plans and 16,000 participants at year-end 2012. Small businesses represent 99.7% of American employers.

One-sixth of VRPA plans have adopted automatic enrollment. “In VRPA plans with automatic enrollment, researchers reported participation rates that were nearly 50% higher than voluntary enrollment plans,” said a Vanguard release. More than one-third of these plans have instituted automatic annual escalation of contributions.

As of year-end 2015, average deferral and median deferral rates were reported at 6.7% and 5.0%, respectively. Twelve percent of VRPA participants saved to the maximum of $18,000 ($24,000 for participants age 50+). Nearly one in five participants saved 10% or more of their annual income.

As of year-end, 75% of participants used a target-date fund when offered. In aggregate, more than 6 in 10 VRPA participants were invested in a professionally managed allocation—most of them in a single target-date option.

Vanguard manages more than $800 billion in defined contribution plan assets as of March 31, 2016. It record-keeps for more than 5,900 plan sponsors and 4.1 million participants, including the 4,500 plans and nearly 200,000 participants served by VRPA (as of December 31, 2015).

‘Live to 100? We can’t afford it’: Allianz Life survey

Posted on June 30, 2016 by Editorial Staff -

“Everyone wants to live a long life, but nobody wants to get old.” So goes the adage. One might add that few people know how they would cover cost of living to 100, if they were so lucky.

The Gift of Time, a new study from Allianz Life Insurance Company of North America, shows that while Americans are optimistic about the prospect of living an average of 30 extra years, 70% feel financially unprepared to live to 100 and beyond.

The study found that fears surrounding money and a lack of planning keep people from taking risks and following their dreams. Nonetheless, Americans understand that preparation, self-discipline and a longevity plan are essential to a sense of fulfillment.

More than three-quarters (79%) of the Gen Xers surveyed say they feel financially unprepared for a longer life, compared with 74% of Millennials and 57% of Baby boomers.

When respondents were asked to finish the sentence, “Following your dreams is all well and good, but you need to have—-,” the top two prerequisites named were “enough money” (57%) and “a good financial plan” (50%). The biggest regrets reported (or potential future regrets for Millennials) were not saving more money (52%), not traveling more (38%), and not spending more time with their kids (32%).

For 45% of those surveyed, “uncertainty” best described their outlook. More than half (51%) identified “having enough money to last my whole life” as a very big problem when they thought about living to age 100. In contrast, the study also showed people’s awareness of solutions that could help.
51% of respondents believed they would need to better plan their spending and saving, or live more modestly; 37% acknowledged that they might need to work longer or retire later.
Respondents who had a financial professional reported being happier (79%) with their major life choices; 64% of those who were happy with their major life decisions did not have a financial professional.
72% of respondents reported not having a financial professional. But 47% of these respondents would be more willing to seek one if he or she helped them create guaranteed income for life (47%), helped them plan for and fund a longer life (34%), and helped them with finances throughout life stages (31%).
When asked what stopped them from following a less conventional path in life, 46% blamed “worries about money, ” 33% said “life events” got in the way, and 22% cited “lack of a clear plan for how to go about it” or “fear of failure.”
65% admitted that it was better to explore, experiment and travel earlier in life by changing when and how they attended school, worked, married or raised kids.
The Gift of Time found that almost half (49%) of respondents were open to a non-traditional model that was unique to their interests, instead of taking a traditional sequence of school, work, marriage, parenthood and retirement.

Bank customers welcome “robo” solutions: Accenture

Posted on June 30, 2016 by Editorial Staff -

Nearly one-half (46%) of bank customers are open to using robo-advice for banking services, according to a new report on the banking industry by Accenture. Consumers in the U.S. are slightly more open to robo-advice (46%) than Canadian consumers (43%).

The report, titled “Banking on Value: Rewards, Robo-Advice and Relevance,” is based on a survey of more than 4,000 retail bank customers in the United States and Canada, and is the most recent report in Accenture’s multi-year research on consumer banking attitudes and behaviors.

The report said that 79% of consumers welcome robo-advice from banks to determine how to allocate investments, what type of bank account to open (74%) and for retirement planning (69%).

This year’s survey found that speed and convenience (50%) and lower costs (29%) were cited by respondents as the primary benefits of robo-advice, with millennials and mass-affluent consumers expressing the most interest in the service.

The survey found that consumers are increasingly willing to bank with non-traditional players, closing the gap with those switching to large regional or national banks. Eleven percent of North American consumers (11% in U.S. vs. nine percent in Canada) switched banks in the past year. Among those respondents who have switched, 33% joined a non-traditional provider (online-only bank, payments providers, retailer or insurer), versus 23% who switched to a large regional or national bank.

Of those who switched, 15% of consumers ages 55+ joined an online-only bank, up from only five percent who said they did the same a year ago. Millennial switchers increased the move to online-only or payments providers from 24% in 2015 to 27% this year. Consumers ages 35-54 had a reverse trend; 30% moved to online-only or payments providers in 2015, down to 24% in 2016.

One-fourth of consumers in the U.S. said they would consider switching to a bank with no branch locations, up three percentage points from last year. Among Canadians, 23% would consider switching to a branchless bank, which is up eight percentage points from last year. Across North America, 26% of Millennials would consider switching to a branchless bank (up three percentage points from last year), and 34% of mass affluent consumers would do so, up ten percentage points from 2015.

While nearly one-quarter of North American consumers would consider switching to a branchless bank, the survey found that the branch remains popular. Today, one-fourth of survey respondents use the branch at least weekly, and it remains the second most preferred channel, after online.

By a wide margin, those who use the branch prefer “full service branches,” which include extended office hours and full sales support, over all other formats (61%). However, 19% of Millennials prefer “light branches” – highly automated with videoconferencing access to remote specialists.

According to the survey, the vast majority (87%) of consumers say that they will use the branch in the future. Respondents said they anticipate using the branch two years from now because “I trust my bank more when speaking to someone in person” (49%), and “I receive more value from my bank when speaking to someone in person” (47%).

Nearly one-fourth (23%) of respondents have experienced at least one incident of their financial data being hacked online over the past two years, including 25% in the U.S. and only 16% in Canada.

Despite this, consumers are willing to share their data in order to receive better service from their bank. Nearly two-thirds (63%) of respondents are willing to give their banks direct access to personal information, such as mortgage, credit card and student loan data, so their bank can use it to present them with suitable products and services.

Respondents want banks to use their data to provide access to lower prices, faster service (such as rapid loan approval), more relevant advice, and personalized offers based on location.

Surrender to Lapse Risk? Not These Insurers

Posted on June 29, 2016 by Kerry Pechter -

The variable annuity with a guaranteed lifetime income benefit (VA/GLWB) was and remains a masterpiece of flexibility. It lets contract owners keep their investment and income options open indefinitely. Since the early 2000s, that formula has helped close over a trillion dollars in sales.

But by giving clients lots of options, insurers made it harder for their own actuaries to predict how policyholders would use their contracts. That in turn, made it difficult to set prices and anticipate reserve requirements. Overestimates in surrender rates, for example, have led to sudden, expensive and unwelcome calls for extra reserves.

Moody’s red-flagged this danger three years ago. Insurers “misestimated and underpriced the lapse rates on this product, as policyholders held on to their policies at a greater rate than the insurance companies anticipated,” a Moody’s analyst wrote in mid-2013.

“This miscalculation forced insurers to take significant, unexpected earnings charges and write-downs over the past year and a half,” he noted. In November 2013, to name one instance, lower-than-expected lapse rates forced Prudential to take a $1.7 billion charge.

To better understand the factors that have driven their contract surrender rates in the past and to help them predict those rates more accurately in the future, a group of 18 large VA issuers, ranging from AIG to Voya, has been sharing anonymous client data with Ruark Consulting, a Simsbury, Conn., actuarial firm that specializes in this specific topic.

For several years, Ruark has been producing a series of “experiential” studies of actual VA contract owner behavior. This year, the firm and its “advisory council” of annuity issuers turned to the relatively new discipline of predictive analytics to build models that can predict policyholder behavior and help each company’s actuaries make more accurate assumptions. That project, now being implemented at several of Ruark’s client companies, could help annuity issuers hit their targets and meet the expectations of senior management, regulators, analysts and investors.

Predictive analytics

“Policyholder behavior assumptions used to be a relatively quiet corner of these products. They weren’t reviewed or challenged all that often,” Ruark president Tim Paris told actuaries from VA issuers during a recent webinar. “But income utilization behavior, and partial withdrawal behavior on GLWBs, are big question marks hanging over this line of business. How we answer them will help determine the profitability of the business over the next couple of years.”

Predictive analytics has been used, variously, to forecast the effects of global warming, to infer the creditworthiness of new loan applicants from a few bits of personal data, or to complete the URLs that you begin typing into your browser’s address bar. IBM is using its Watson technology to help broker-dealers predict which advisor will be most compatible with a new client, or to identify clients who are dissatisfied and likely to jump to another firm.

When it comes to applying predictive analytics to annuity policyholder behavior, insurers can’t do it—or can’t do it very effectively—on their own. Though each VA issuer has its own actuaries, and some insurers even have their own predictive analytics teams, their data is limited to their own experience, and some of their products are too new (and contract owners too young) to have established behavior patterns around withdrawals and income rider utilization. That’s why issuers have reached outside their walls to collaborate with Ruark and their peers.

“Even large companies have holes in their data and can’t make statistically credible assumptions,” Paris told RIJ. “We can bring our tools to bear on a very large data set.” Ruark says it now has 50 million contract years of monthly data going back to 2007, provided by 20 VA/GLWB issuers. For a separate study, it has compiled 10 million contract years of data from a dozen providers of indexed annuities with GLWBs.

Four factors drive surrenders

During a webinar in April, Ruark presented its plans for creating a predictive model for annuity surrender rates. Creating a model is both an art and a science. It involves choosing from among several existing techniques of statistical analysis, which, in laymen’s terms, means deciding which equations to use. Once those choices are made, the analysts must decide which types of data to plug into the equations.

From ten years’ worth of industry experience studies, Ruark has learned that a contract owner’s likelihood to surrender a contract is determined primarily by four factors: The number of years left in the contract’s surrender period; the type of living benefit rider on the contract; the “in-the-moneyness” of the contract (i.e., the extent to which the guaranteed benefit base exceeds the current market value of the contract assets), and the size of the policy.

Interpreting the exact roles of these factors isn’t easy, however. “We understand intuitively that surrender rates will spike as people come out of the surrender period and level off,” Paris (below left) said. “But we now know that the surrender rate also depends on the value of the guarantee, which goes up and down with the markets,” he added. “When we saw surrender rates go down after the financial crisis, we assumed it was an in-the-moneyness effect. Then the equity market recovered and the guarantees weren’t so deep in-the-money, but surrender rates stayed low.”

Now that Ruark has established its predictive model and settled on the four most important factors to run through it, the actuarial firm hopes to apply the analytic tool to creating benchmarks. Going forward, the benchmarks will reveal the accuracy of each company’s forecasts and show each issuer whether its experience falls within industry norms or not.

“The results will vary by company because each company has a different mix of living benefits types, different ages of policyholders, and a different history of actual-to-expected results. The benchmark will show every company’s position relative to its peers,” Paris told RIJ, noting that the results are blind—each firm’s data remains confidential.

“Each company will then be able to explain to their analysts and stakeholders why their experience is different and to ask themselves if they want it to be different,” he added. The benchmark results can also give companies early warning signs, which will enable them to change their product distribution, for example, sooner rather than later.

“If you have more data and better analysis, then you won’t have to be as conservative in your use of capital,” Paris said. “You could also weed out products that are being used in undesirable ways. It brings clarity to the business. We’re talking about products that could be in force for as long as 40 or 50 years but have been around for only about ten years. So we try to squeeze as much insight out of the existing data as we can.”

PwC to Wealth Managers: Go Digital or Drown

Posted on June 29, 2016 by Kerry Pechter -

At a recent fintech conference, several people spoke highly of a new whitepaper from PriceWaterhouse Cooper called, “Sink or Swim.” The paper’s authors make a strong case for the idea that big wealth management firms don’t fully appreciate the size of the competitive threat they face from the so-called robo-advisors and from the digital revolution generally.

For instance, wealth managers are kidding themselves, PwC says, in their much-too-common belief that merely having websites makes them “digital,” or that rich people will only deal with advisors face-to-face, or that the wealthy are too secretive to share personal financial data with a website, no matter how secure.

As a group, they’re just whistling past the proverbial graveyard. “Across the wealth management industry, current levels of digital adoption are chronically low,” the paper says. “This is indicative of a sector that’s been focused on human capital, of assuring individual clients high levels of discretion, and where there has been little or no internal impetus to change existing business models.”

Three key misconceptions are driving wealth managers’ complacency in the face of digital disruption, according to PwC consultants. The first one is that the rich don’t want to put their personal information on the Internet, where hackers, swindlers or hucksters might find it. PwC’s research shows that that’s increasingly untrue.

While most (59%) high net worth individuals over age 45 are in fact still squeamish about data-sharing, two-thirds of those under age 45 don’t mind using apps that gather personal information—such as purchasing histories—if the information is used to customize their online experience in ways that they like. In short, young people are ready to trade privacy for better service, PwC asserts.

“The world’s wealthy are integrating digital technology into their day-to-day lives as rapidly as everyone else,” the paper says. “Although they may have reservations about technology that draws on their personal data, ceding information is seen as a necessary price for enjoying the convenience that personalized digital services can bring.”

Secondly, wealth managers vastly underestimate the scope of the digital revolution, PwC says. The consulting firm foresees the approach of a Third Wave of digital evolution, where trusted “digital infomediaries” will have access to fully-aggregated, continuously updated financial information and will push out recommendations to buy both financial and consumer products.

Many in the wealth management industry think they’re on third base in this game, PwC argues, when they’re still standing on first. Evidently, only a quarter of wealth management firms use digital channels beyond phone and email, very few have automated their back office and administrative functions and many are only now investing in web portals and mobile apps.

“Many relationship managers dangerously overestimate their firm’s digital capabilities. Some rate their business as digitally advanced when the only service offered to clients is a website. Low digital literacy throughout the sector means that most relationship managers cannot perceive their adoption of technology extending beyond tools to reduce their administrative burden,” the paper said.

Thirdly, PwC says, wealth managers don’t realize the fragility of their client relationships. Only 37% of wealth management clients strongly believe that their advisor “takes their life goals into consideration.” Only a third of wealth management clients claim to be “very satisfied with their chosen firm’s service.” And only 39% are likely to recommend their wealth managers to others. Of clients with more than $10 million, only 22% were very satisfied and only 23% would recommend their wealth managers.

“Sink or Swim” goes on to describe the steps that wealth management firms should take to avoid being left behind. These steps include: buying a robo-advisor instead of building one in-house; digitizing their entire organizations, from back to front; and recognizing that “bolted-on” (i.e., superficial) fixes won’t be adequate.

“Rather than just an add-on, digital has the potential to completely transform every stage of the wealth management journey, from how existing clients are advised and serviced to how prospective clients are identified and marketed to,” the whitepaper said.

In sum, PwC sees a future where wealth managers create a digitized, scalable version of the services that a typical family office currently offers high-net-worth individuals. “By capturing and interrogating client data digitally, wealth managers may eventually be able to consider offering this highly personalized life guidance to families with lower levels of assets.”

The report, from a consumer’s perspective, is actually a bit scary. It takes for granted that the financial industry will follow Amazon, Netflix and other digital pioneers into a Big Data era (the “Third Wave”) where firms will know almost everything about their clients—their portfolio details, mental attitudes, day-to-day purchasing habits, life-event schedules and even their real-time geographic locations—and use this information to anticipate sales opportunities and recommend specific products.

Sounds like hell to me. “Sink or Swim” doesn’t address the possibility that consumers, at every wealth level, might turn around and ask for as much transparency from wealth managers as wealth managers ask from them. Personal data-sharing will, arguably, require a lot more public trust in the financial industry than currently exists. PwC therefore takes a big leap in assuming that just because clients are embracing the First Wave of the digital revolution—the convenience of mobile apps and the low cost of robo-advice—they will accept the loss of privacy that arrives with the Third Wave. Or at least I’d like to think so.

Brexit: A Long Goodbye, Not a Clean Break

Posted on June 29, 2016 by Llaria Maselli -

‘Live to 100? We can’t afford it’: Allianz Life survey

Posted on June 29, 2016 by Editorial Staff -

“Everyone wants to live a long life, but nobody wants to get old.” So goes the adage. One might add that few people know how they would cover cost of living to 100, if they were so lucky.

More than three-quarters (79%) of the Gen Xers surveyed say they feel financially unprepared for a longer life, compared with 74% of Millennials and 57% of Baby boomers.

For 45% of those surveyed, “uncertainty” best described their outlook. More than half (51%) identified “having enough money to last my whole life” as a very big problem when they thought about living to age 100. In contrast, the study also showed people’s awareness of solutions that could help.
51% of respondents believed they would need to better plan their spending and saving, or live more modestly; 37% acknowledged that they might need to work longer or retire later.
Respondents who had a financial professional reported being happier (79%) with their major life choices; 64% of those who were happy with their major life decisions did not have a financial professional.
72% of respondents reported not having a financial professional. But 47% of these respondents would be more willing to seek one if he or she helped them create guaranteed income for life (47%), helped them plan for and fund a longer life (34%), and helped them with finances throughout life stages (31%).
When asked what stopped them from following a less conventional path in life, 46% blamed “worries about money,” 33% said “life events” got in the way, and 22% cited “lack of a clear plan for how to go about it” or “fear of failure.”
65% admitted that it was better to explore, experiment and travel earlier in life by changing when and how they attended school, worked, married or raised kids.
The Gift of Time found that almost half (49%) of respondents were open to a non-traditional model that was unique to their interests, instead of taking a traditional sequence of school, work, marriage, parenthood and retirement).

Pace of stock buybacks slows: TrimTabs

Posted on June 29, 2016 by Editorial Staff -

Stock buyback announcements by U.S. companies have fallen sharply this year, sending a longer-term negative signal for U.S. equities, according to TrimTabs Investment Research.

“Corporate America announced $2.8 trillion in stock buybacks in the past five years, and these buybacks have provided a key source of fuel for the bull market,” said David Santschi, CEO of TrimTabs, in a release. “Corporate actions this year suggest this support is going to diminish.”

U.S. companies have announced only $11.8 billion in stock buybacks in June through Friday, June 24, according to TrimTabs. It is the lowest monthly pace this year. Buyback announcements by U.S. companies have totaled $291.7 billion this year, or 32% lower than the $432.0 billion in the same period last year. Only four companies have announced plans to repurchase at least $1 billion this month.

“The sharp decline in buyback announcements suggests corporate leaders are becoming more cautious, and it doesn’t bode well for the U.S. stock market,” said Santschi. “Even if some of the too-big-to-fails roll out buybacks after the release of the second part of the Fed’s stress test results, this month’s volume is likely to be among the lowest in the past three years.”

Honorable Mention

Posted on June 29, 2016 by Editorial Staff -

PacLife acquires Genworth’s term life new business platform

Pacific Life Insurance Company has acquired Genworth Financial’s term life new business platform, saying that the transaction will allow it to “extend its ability to fulfill the financial protection needs of a broader consumer market without disruption to Pacific Life’s current business platforms and sales channels.”

The new term life business will offer a separate product suite of low-cost life insurance protection products for the mass market. No financial details of the transaction were disclosed. The business will be located in Lynchburg, Va., and will begin operations in the fourth quarter of this year.

The acquisition “will allow us to accelerate our growth into the protection business without sacrificing our focus and responsibility to our core markets of highly affluent individuals and businesses,” said Rick Schindler, Executive Vice President of Pacific Life’s Life Insurance Division, in a release.

As part of the transaction, Pacific Life hired certain Genworth staff, as agreed upon by the parties. Dawn Trautman, senior vice president of Product and Strategy Management for Pacific Life’s Life Insurance Division said her company expects to create at least 300 jobs in Lynchburg in the next three years.

Indiana Public Retirement System taps MetLife for annuities

The Indiana Public Retirement System (INPRS) selected MetLife as its future provider of member annuities. The change is expected to be effective April 1, 2017, with a contract finalized by next Jan. 31.

The decision by INPRS’ board of trustees, at its June 24 meeting, follows four years of public discussion regarding the financial risk of INPRS providing annuities internally. In 2014, the Indiana General Assembly passed House Bill 1075 which set a glide path toward market-rate annuities and allowed the INPRS board to move to a third party provider in January 2017.

“MetLife will provide our members a similar benefit while protecting employers and taxpayers from the risks of managing this program internally,” said INPRS’ Executive Director Steve Russo. “They manage a more diversified line-up of businesses that uniquely positions them to accept more risk and potential reward than INPRS can.”

MetLife serves over 3,000 public sector organizations across the country. Over one-third of state governments across the U.S. offer MetLife group insurance or annuity benefits.

Use of an outside annuity provider has no impact on the pension benefits of current or future retirees. It affects only retiring members who choose to annuitize the money they’ve saved in INPRS annuity savings accounts (ASAs).

Members of the Teachers’ Retirement Fund (TRF) and Public Employees’ Retirement Fund (PERF) participate in a “hybrid” pension plan that includes both a pension plan and a separate ASA.

While TRF and PERF pensions provide a specified lifetime monthly benefit, members may choose what to do with their ASA funds. Some opt to take the money in a lump sum, while others leave it invested with INPRS. About 40% convert their ASA funds to a monthly benefit payment called an annuity.
With approximately $29.9 billion in assets under management at fiscal year-end 2015, the Indiana Public Retirement System (INPRS) is one of the largest 100 pension funds in the U.S., serving about 450,000 members and retirees and representing more than 1,100 public universities, school corporations, municipalities and state agencies.

LPL advisors gain access to BlackRock’s iRetire platform

BlackRock’s iRetire retirement investment framework, iRetire, is now available to LPL Financial 14,000 independent advisors The platform uses on CoRI, BlackRock’s series of retirement income indexes, and the risk analytics of Aladdin.

According to a BlackRock release, iRetire “enables advisors to initiate an income-focused discussion and then move clients to take action to help manage their income situation… [It] lets advisors show clients how much income their current savings could provide annually in retirement and how changes in behavior (e.g., working longer, saving more, changing their investment strategy) could help close the income gap.

Advisors can also use iRetire insights to build various portfolio scenarios for clients to consider, based on their retirement income goals.

BlackRock launched iRetire in November 2015 to help reframe the retirement planning problem and provide new solutions using BlackRock’s proprietary technology and support. Currently, the iRetire offering is available to 18,000 advisors on the wealth management platform powered by Envestnet, Inc., a provider of unified wealth management technology and services to investment advisors.

Prudential surveys financial concerns of LGBT community

In its first survey of LGBT Americans since the U.S. Supreme Court legalized same-sex marriages, Prudential Financial, Inc., found the LGBT community more worried about the threats that market volatility or low interest rates pose to their financial security than about gay rights issues.

LGBT Americans, in other words, share the same concerns about saving for retirement as the general population. That finding departs from Prudential’s 2012 survey, when basic rights issues were top of mind.

The 2016/2017 LGBT Financial Experience, explores changes following the U.S. Supreme Court’s year-ago landmark Obergefell decision and is the result of interviews with LGBT Americans in all 50 states during April and May.

“Having the fundamental right to marry has begun to simplify financial lives within the LGBT community,” said Kent Sluyter, CEO of Individual Life Insurance and Prudential Advisors. “Unfortunately, wage inequality, workplace insecurity and pension survivor benefits issues still cast a shadow on the ability to attain true financial security.”

Those surveyed say the right to marry has given them the ability to file joint tax returns, pay for health benefits with pre-tax earnings, list same-sex partners on health insurance, and ensure that a loved one’s interests are protected in the event of death.

But only a third say the Obergefell decision affected future financial plans. Among key findings:

The LGBT marriage rate has more than tripled since 2012, to 30% from just 8% in 2012’s survey. Most of the newly wedded said they married a longtime partner.
Half surveyed said being in a legally recognized same-sex partnership has simplified their finances, up from 13% four years ago.
Lesbian women reported an average annual salary of $45,606 vs. $51,461 for hetersexual women. Gay men reported average earnings of $56,936, compared with $83,469 for heterosexual men.
Concerns over legal and institutional barriers to achieving financial goals are strongest among same-sex partners.
Financial needs for the LGBT community are the same as for the general population, said 46% of those survey, but 45% said they need to follow a different path to meet their needs.

For more information about The 2016/2017 LGBT Financial Experience, please visit:http://www.prudential.com/lgbt.

FidelityConnect, a portal for plan sponsor advisors, to roll out in early 2017

FidelityConnect, a new website for the more than 5,000 retirement advisors and consultants who manage workplace plans with Fidelity, is being piloted with a number of Fidelity advisor clients and is expected to be fully available during the first quarter of 2017, Fidelity said in a release this week.

Fidelity’s User Experience Design (UXD) team has met with more than 150 retirement advisors to find out how much time they spend researching investments, compiling reports and navigating the existing site. Retirement advisors and consultants said they wanted a single view into their entire book of business with Fidelity.

In response, Fidelity designed a personalized executive summary with three tabs: plans, investments and compensation. This view offers advisors instant, high-level analysis of all their plans with Fidelity, with the ability to drill down for details.

Behind the homepage, plan-level information helps advisors view and evaluate individual plan statistics and design, investments held, compensation, and contact information for sponsor clients.

These pages leverage Fidelity’s Executive Insights to offer advisors the same intelligence and benchmarking that sponsors receive. An advisor can easily see all the plans and participants invested in a single fund across their book of business, plus their performance and assets.

New regulations from the Department of Labor’s (DOL) Fiduciary Investment Advice Rule could put even more pressure on an advisor’s time with retirement plan clients. FidelityConnect is intended to give them greater access and control over a client’s plan design and investments.

DC plan participants crave lifetime income guarantee options: Prudential

Partly because many plan sponsors assume that participants aren’t interested in guaranteed lifetime income options with their plans, only about 4% (35,500) of defined contribution plans offer guaranteed lifetime income solutions.

But Prudential Retirement, which offers an optional guaranteed lifetime withdrawal benefit on target date fund portfolios in its plans, believes that most participants are in fact interested in so-called in-plan annuities. Prudential’s findings, based on a 2015 survey of 1,000 employees, are outlined in a report called The Ease of Automation and Guaranteed Lifetime Income.

The report, the fourth in a series of reports examining how plan sponsors can help American workers save for retirement, shows that employees have a keen interest in auto-enrollment, auto-escalation and guaranteed lifetime income options as part of DC plans such as 401(k) or 403(b) plans.
Of plan participants who said they were familiar with guaranteed lifetime income options, 78% believe it’s “very important” to include them in workplace savings plans and 77% said they would choose such an option, Prudential found. Among other findings:

54% of participants say they believe guaranteed lifetime options offered as a default investment option would provide better-than-average retirement outcomes.
80% of plan participants plan to rely on their workplace plans as a source of lifetime income more than any other source—including Social Security.
71% say auto-enrollment is an importance feature of DC plans.
45% worry they won’t meet their retirement goals through their current plans.
Millennials are more enthusiastic about automatic plan features and guaranteed income solutions than any other age group.

Software maker sees opportunity in DOL ruling

Anticipating rising demand among advisors for more holistic financial plans and better documentation systems under the DOL fiduciary rule, Advicent, a software-as-a-service (SaaS) provider to financial institutions, has launched two new tools, called Narrator Clients and Narrator Advisor.

“Financial planning software was often regarded as ‘nice to have,’ but the DOL is now driving it to be a ‘need to have,’” said an Advicent release. “If advisors want to remain relevant in the digital world and remain compliant to new legislation, they need to re-think the way they work.”

According to Advicent’s website, Narrator Clients is an interactive client portal that “offers advisors and their clients insight into their personal financial plan anytime, anywhere with transparency and security… with 24/7 accessibility and actionable analytics.” Narrator Advisor gives advisors a dashboard where they can see and analyze their clients’ holdings.

“Holistic financial planning will play a key role when creating compliance strategies for the impending DOL fiduciary rule for many financial services professionals,” said an Advicent release. “Advisors will need to deliver proof that they are providing credible advice that is in the best interest of their clients. Planning software and other FinTech tools will make this easier to accomplish and keep these records if they are needed in the future.”

Advicent provides SaaS technology solutions for the financial services industry. Its products include the NaviPlan, Figlo, and Profiles financial planning applications (which power the Narrator Advisor and Narrator Clients portals); the Advisor Briefcase marketing communications tool; and the Narrator Connect application builder, which drives Advicent APIs.

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DC plan participants crave lifetime income guarantee options: Prudential

Software maker sees opportunity in DOL ruling

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