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MassMutual Retirement Services appoints eight new sales reps

MassMutual Retirement Services has appointed eight new managing directors (MDs) to continue the firm’s momentum from record retirement plan sales. The appointments bring the total number of MassMutual sales representatives supporting financial advisors to 79.

“Our sales team achieved record retirement plan sales of $9.9 billion in 2015 and we are focused on breaking that record in 2016,” said Scott Buffington, vice president of sales for MassMutual Retirement Services.

 MDs train and educate financial advisors about MassMutual’s retirement plan products and services, identify retirement plan prospects, and promote MassMutual and its retirement products. 

The new managing directors support the emerging market, which targets retirement plans with up to $10 million in assets under management, and institutional plans, defined as plans with more than $10 million in assets. The new managing directors and their territories are:

Emma Tookey is based in Berkeley, Calif. and supports the Northern California/Pacific Northwest Regions, focusing on the institutional market in Northern California, Washington and Oregon. Tookey previously worked as a MassMutual specialist supporting the not-for-profit market.  Prior to joining MassMutual, she was a sales director for Principal Financial Group,.

Based in Cedar Rapids, Philip Saxon supports sales of retirement plans in the emerging market in Iowa. Saxon has 12 years of experience in retirement plan sales, most recently as Director of Internal Sales for Transamerica.

Michael Baron supports sales of retirement plans in the emerging market in Eastern Tennessee. Previously, he was a financial advisor specializing in retirement plans, as well as regional vice president at Nationwide Financial.  

Based in Denver, Ryan Moore supports the emerging market in Colorado, New Mexico and Wyoming. Moore was previously Regional Vice President with CUNA Mutual and has a CRPS designation.

Located in Scottsdale, Ariz., Jeff Beneteau supports the emerging market in Arizona. After three years at Merrill Lynch as a financial advisor, Beneteau joined MassMutual in 2011 as a business development consultant, and most recently served as relationship manager for fund partners.

Nate Charleson supports sales in the emerging market for Orange County, Calif., where he is based. Charleson previously spent nine years with John Hancock as a retirement plan business development officer and internal sales consultant.

Steve Carrera is based in Towson, Md. and supports emerging market sales for Maryland. Prior to joining MassMutual, Carrera served as area sales manager for ADP Retirement Services.  

Based in the District of Columbia, Jim Morris supports emerging markets sales across the District, Montgomery County, Md., and Northern Virginia. Previously, Morris was regional vice president of retirement plan sales for the Guardian Life and a financial advisor at Merrill Lynch.  

Brown to oversee Voya annuity sales partnerships

Voya Financial’s Annuity business has recently promoted Ken Brown to the role of senior vice president, sales development for the Annuity and Asset Sales team. Brown has worked on Voya’s Annuity team for more than 10 years and currently manages divisional sales managers, regional sales consultants, sales development and training, strategic sales support, and sales reporting.  

In addition to his current responsibilities, Brown’s expanded role will include oversight of Voya’s national marketing organization (NMO) sales partnerships for the Annuity business. Brown will continue to report to Chad Tope, president of Annuity and Asset Distribution for Voya Financial. 

Retirement plan costs continue to fall: 401k Averages Book

The average total plan cost for a small retirement plan declined from 1.29% to 1.28% over the past year, while the average total plan cost for a large retirement plan declined from 1.03% to 0.97%, according to the newly released 16th Edition of the 401k Averages Book.

Small plans have at least 100 participants and $5,000,000 in assets, while large plans have at least 1,000 participants and $50,000,000 in assets. The average investment cost for a small retirement plan declined from 1.22% to 1.21% over the past year, while the average investment cost for a large retirement plan declined from 1.01% to 0.95%.

There continues to be an uptick in 401k lawsuits and some have targeted revenue sharing as well as other fiduciary issues.  A small plan generates 0.66% of revenue sharing, while a large plan generates 0.40%, according to the 16th edition The book provides average revenue sharing, investment and recordkeeping fees for small, mid-size and large 401k plans. Average total plan cost for a 100 participant plan has decreased from 1.33% in 2010 to 1.28% in 2015.  

Most older women would “rather die than live in a nursing home”: Nationwide

The majority of women 50 and older in America keep their biggest retirement concern to themselves—the fear of becoming a health care or long-term care responsibility to their families, according to a new survey by Nationwide Retirement Institute.  

According to the survey of 709 women and 582 men aged 50 or older, two-thirds of these women (66%) are worried they will become a burden to their family as they get older (compared to 50% of men). Almost 80% of these women say they are concerned about having money to cover long-term care (LTC) expenses.

The online survey conducted in the fall by Harris Poll on behalf of Nationwide reveals six in 10 women aged 50 or older (62%) haven’t talked to anyone about long-term care costs. Of women with a spouse or women with at least one child, the most common reason they aren’t talking with these loved ones about health care costs in retirement is they don’t want them to worry (43% and 62%, respectively).

Despite their aversion to talking about LTC, the survey reveals that among women aged 50 years or older:

  • 67% say they would rather die than live in a nursing home
  • 73% prefer to get LTC in their own home, but only 51% think they will
  • 64% say they are “terrified” of what health care costs may do to their retirement plans
  • 47% are willing to give all their money to their children so they could be eligible for Medicaid-funded LTC

The average life expectancy for women is 86, with one in four reaching age 92. Longevity increases the chance of eventually needing LTC services.  

Despite few women 50 or older (9%) having discussed LTC costs with a financial advisor, 57% of those who have discussed retirement with a financial advisor plan to discuss LTC costs with them.

Insurers pursue growth through mergers: Conning

The aggregate value of global insurance transactions in 2015 was four times higher than in 2014, while the number of $1 billion-plus transactions announced was three times higher than the recent annual average, according to a new study by Conning, Inc.

“Global Insurer Mergers & Acquisitions in 2015: The Big Bang” tracks and analyzes both U.S. and non-U.S. insurer M&A activity across property-casualty, life-annuity and health insurance sectors. Specific transactions are detailed, and trends are analyzed across all sectors.

Close to half of the billion-dollar-plus transactions were outbound transactions by Japanese and Chinese buyers, as the Japanese sought external growth opportunities and the Chinese pursued asset accumulation and diversification strategies.

Four consolidation transactions among U.S. health insurers alone, valued at $100 billion, accounted for more than half of the global insurer mergers and acquisitions value.

“M&A activity in 2015 was driven by continued low interest rates, high levels of industry capital, and low-growth economies in developed countries,” said Steve Webersen, head of Insurance Research at Conning, Inc. “These issues… came to a head in 2015, as insurers capitulated to the need for acquisitions to spur growth. Looking forward, the transformative consolidations of 2015 may pressure other competitors to merge, and may also provide opportunities for mid-market players as certain components of the merged businesses are spun off and talent is displaced.”

To purchase “Global Insurer Mergers & Acquisitions in 2015: The Big Bang,” call (888) 707-1177 or visit www.conningresearch.com

PSCA encourages DOL to simplify ‘Best Interest Contract’

In a release this week, the Plan Sponsor Council of America (PSCA) said it is preparing for the expected release of the Department of Labor’s final fiduciary standard definition.

In written testimony to the DOL, the PSCA’s Board Chairman, Steve McCaffrey, has expressed the following concerns:

Potential disproportionate impact on small plans. PSCA encouraged the DOL to consider the rule’s potential impact on small plans and to avoid applying it in a way that might make fee structures onerous or deny education for small-plan participants due to high cost.  PSCA encouraged the DOL to extend several exemptions to small plans, arguing that small does not necessarily mean unsophisticated.

Potential impact on participant education. PSCA believes that the DOL should ensure the preservation of a robust participant investment education program so that service providers can continue to deliver meaningful investment education to plan participants in accordance with a workable and reliable standard of distinction between investment education and investment advice.

The best interest contract exemption. PSCA encouraged the DOL to simplify the rules that permit financial advisors to negotiate agreements with retirement investors to achieve prohibited transaction relief when receiving compensation. 

Inflows return to taxable U.S. bond funds: Morningstar

In its report on estimated U.S. mutual fund and exchange-traded fund (ETF) asset flows for February 2016, Morningstar noted the following highlights:

Taxable-bond funds led inflows by category group for the first time since October 2015, driven by inflows of $12.9 billion to passive taxable-bond offerings.

While U.S. equity funds sustained outflows again in February, the month’s redemptions of $4.5 billion were much smaller than January’s $14.8 billion. International equity, the category-group leader for many months, saw smaller but still-positive flows in February, mostly to actively managed funds. Commodities funds experienced a stronger February than January, with gold driving most of their $6.3 billion inflow.

As of the end of February, flows by category group were distributed quite differently than they were 12 months ago, when international-equity funds received the majority of inflows. After the first two months of 2016, flows were almost evenly distributed among category groups—some positive and some negative—but no category has clearly dominated.

For the first time since September 2014, PIMCO Total Return was not among the five actively managed funds with the greatest monthly outflows.

© 2016 RIJ Publishing LLC. All rights reserved.

Confronting the Fiscal Bogeyman

The world economy is visibly sinking, and the policymakers who are supposed to be its stewards are tying themselves in knots. Or so suggest the results of the G-20 summit held in Shanghai at the end of last month.

The International Monetary Fund, having just downgraded its forecast for global growth, warned the assembled G-20 attendees that yet another downgrade was pending. Despite this, all that emerged from the meeting was an anodyne statement about pursuing structural reforms and avoiding beggar-thy-neighbor policies.

Once again, monetary policy was left—to use the now-familiar phrase—as the only game in town. Central banks have kept interest rates low for the better part of eight years. They have experimented with quantitative easing. In their latest contortion, they have moved real interest rates into negative territory.

The motivation is sound: someone needs to do something to keep the world economy afloat, and central banks are the only agents capable of acting. The problem is that monetary policy is approaching exhaustion. It is not clear that interest rates can be depressed much further.

Negative rates, moreover, have begun to impair the health of the banking system. Charging banks for the privilege of holding reserves raises their cost of doing business. Because households can resort to safe-deposit boxes, it’s hard for banks to charge depositors for safekeeping their funds.

In a weak economy, moreover, banks have little ability to pass on their costs via higher lending rates. In Europe, where experimentation with negative interest rates has gone furthest, bank distress is clearly visible.

The solution is straightforward. It is to fix the problem of deficient demand not by attempting to further loosen monetary conditions, but by boosting public spending. Governments should borrow to invest in research, education, and infrastructure. Currently, such investments cost little, given low interest rates. Productive public investment would also enhance the returns on private investment, encouraging firms to undertake additional projects.

Thus, it is disturbing to see the refusal of policymakers, particularly in the US and Germany, to even contemplate such action, despite available fiscal space (as record-low treasury-bond yields and virtually every other economic indicator show). In Germany, ideological aversion to budget deficits runs deep. It is rooted in the post-World War II doctrine of “ordoliberalism,” which counseled that government should enforce contracts and ensure adequate competition but otherwise avoid interfering in the economy.

Adherence to this doctrine prevented postwar German policymakers from being tempted by excesses like those of Hitler and Stalin. But the cost was high. The ordoliberal emphasis on personal responsibility fostered an unreasoning hostility to the idea that actions that are individually responsible do not automatically produce desirable aggregate outcomes. In other words, it rendered Germans allergic to macroeconomics.

The aging of the German population then made it seem urgent to save collectively for retirement by running surpluses. And an exceptional spate of budget deficits following German reunification in 1990 appeared only to aggravate, not solve, reunified Germany’s structural problems.

Ultimately, hostility to the use of fiscal policy, as with many things German, can be traced to the 1920s, when budget deficits led to hyperinflation. The circumstances today may be entirely different from those in the 1920s, but there is still guilt by association, as every German schoolboy and girl learns at an early age.

The US did not experience hyperinflation in the 1920s—or at any other time in its history. But for the better part of two centuries, its citizens have been suspicious of federal government power, including the power to run deficits, which is fundamentally a federal prerogative. From independence through the Civil War, that suspicion was strongest in the American South, where it was rooted in the fear that the federal government might abolish slavery.

In the mid-twentieth century, during the civil rights movement, it was again the Southern political elite that opposed the muscular use of federal power. Starting in 1964, in conjunction with Democratic President Lyndon Baines Johnson’s “New Society,” the government threatened to withhold federal funding for health, education, and other state and local programs from jurisdictions that resisted legislative and judicial desegregation orders.

The result was to render the South a solid Republican bloc and leave its leaders antagonistic to all exercise of federal power except for the enforcement of contracts and competition—a hostility that notably included countercyclical macroeconomic policy. Welcome to ordoliberalism, Dixie-style. Wolfgang Schauble, meet Ted Cruz.

Ideological and political prejudices deeply rooted in history will have to be overcome to end the current stagnation. If an extended period of depressed growth following a crisis isn’t the right moment to challenge them, then when is?

Barry Eichengreen is Professor of Economics at the University of California, Berkeley; Pitt Professor of American History and Institutions at the University of Cambridge; and a former senior policy adviser at the International Monetary Fund. His latest book is Hall of Mirrors:The Great Depression, the Great Recession, and the Uses−and Misuses−of History.

 © 2016 Project Syndicate.

 

Americans like Robo-Advice: Survey by Capital One Investing

Positioning itself as a hybrid robo-advisor in the retirement space, Capital One Investing has taken the well-trod path of self-promotion by sponsoring a study on retirement savings habits.

The survey reinforces the idea that many Americans find the hybrid robo experience acceptable or desirable.

In unrelated but striking findings, the survey also showed that most Americans favor mandatory availability of workplace retirement and—not surprisingly—that most would rather travel or lose weight than save for retirement.

The online broker offers “fully self-directed digital accounts and advised accounts.” Among the findings of its 2016 Financial Freedom Survey: 75% of Americans see benefits in robo-advised investing, with 33% valuing 24-hour access most and a quarter valuing most the ability to manage and maintain control a portfolio independently.

Those with reservations about robo-advice were in the minority. About 31% of Millennials question the accuracy of robo-advice algorithms and 30% of Generation X think a lack of human oversight is a drawback to planning. During market fluctuations, however, 45% said they would prefer advice from a live financial advisor.

Thirty-nine percent of self-directed investors said they preferring to work with an advisor when creating a portfolio, 34% when doing financial planning work, and 36% when rebalancing a portfolio.

The survey also showed that 83% of Americans think all employers should be required to offer retirement savings plans. Only 16% of Americans named increasing their retirement savings as their top priority in 2016; 27% said “travel to a new destination” was their top goal. “Weight loss” was the top goal for 23%.

Americans’ savings habits are slipping, not improving, the survey suggested. A lower percentage of Americans is investing for retirement this year compared with 2015 (by five percentage points) and fewer (by eight percentage points) are confident they are investing enough to live comfortably throughout retirement.

The combined sample consisted of 1,005 Americans 18 years old and older living in the lower 48 states. ORC International conducted the study in January 2016.   

© 2016 RIJ Publishing LLC. All rights reserved.

Bad Apples in the Brokerage Business

As the brokerage world awaits a regulatory coup de grace from the Department of Labor—in the form of the “fiduciary rule”—three academics claim to have found that 7.28% of the 650,000 registered reps and Series 6 investment advisors affiliated with brokerages in the U.S. have some smirch of “misconduct” on their work records.

Titled, “The Market for Financial Advisor Misconduct,” the report makes several serious charges:

  • Half of advisors who have committed misconduct keep their jobs
  • Many (44%) are able to get new securities jobs within a year
  • Some firms tolerate misconduct by advisors more than others
  • Firms and advisors with records of misconduct tend to cluster near wealthy older people in Sunbelt states and in counties with low numbers of college graduates
  • Advisors who have committed misconduct in the past are five times more likely than average to be repeat offenders
  • Brokers who work with retail clients are more likely to have a history of misconduct than those who work with sophisticated institutional clients.

The study isn’t as much a man-bites-dog story as it might first appear. It’s an open secret that many people who describe themselves as “financial advisors” are in reality highly incentivized sales personnel in the famously cut-throat and arguably under-regulated securities industry. Given the public’s documented mistrust of the financial services industry, a report saying that 92% of brokers have clean records might have been more surprising.         

But the report is a kind of wake-up call—especially in its assertion that “some firms ‘specialize’ in misconduct and cater to unsophisticated consumers.” The authors, Gregor Matvos and Amit Seru of the Booth School of Business at the University of Chicago and Mark Egan of the Carlson School of Business at the University of Minnesota, claim this to be the first large-scale study of misconduct among advisors and advisory firms.  

“Our intention was to put out some facts,” Matvos told RIJ in an interview. “We thought this was an interesting issue on which people held strong beliefs but where systematic research was lacking.”

The researchers looked at data on 1.2 million people who worked as advisors in the U.S. from 2005 to 2015. Data on misconduct came from FINRA’s BrokerCheck database. “We document substantial misconduct among U.S. financial advisers. More than 12% of financial advisers have a disclosure [of a client dispute] on their records and approximately 7% have been disciplined for misconduct and/or fraud,” the paper said.DC03102016

One in four disputes listed unsuitable investments as an underlying cause of the dispute. “Misrepresentations or omissions of key facts” together accounted for a third of disputes. About 7% of allegations fell under the category of fraudulent behavior, which carries more severe penalties. The most popular investments (insurance, annuities stocks and mutual funds) were most commonly engaged in disputes. Most annuity disputes were related to variable annuities rather than fixed rate annuities.

One practical finding in the report was that investors can find out on FINRA’s website if an advisor has been involved in a dispute, and should assume that the risk of future misconduct is relatively high.

“Financial advisors with prior misconduct are five times as likely to engage in misconduct than the average financial advisor. More desirable or popular firms have lower rates of misconduct on average,” the report said. 

Financial advisors who held a Series 66 or 65 exam were 50% more likely than average to be disciplined for misconduct than the average financial advisor—apparently because brokers were more transaction-focused or worked mainly with institutional clients or both.

Firms that charge hourly or based on assets under management were more likely to engage in new misconduct and have a higher share of advisors who have engaged in misconduct in the past.  

“We found that some firms are very good at getting rid of people [who commit misconduct], but other firms are hiring them and neutralizing the cleansing effect,” Matvos told RIJ.

About half of advisors who are found guilty of misconduct lose their jobs afterwards, and about 44% of those who lose their jobs find new jobs in the industry within a year, albeit at annual compensation that is on average $15,000 lower and at less reputable or prestigious firms, the report said. The median settlement was for $40,000 and damages in a quarter of cases exceeded $120,000.

The report compares financial advisors unfavorably with medical doctors. Though more than half of doctors are sued for malpractice during their careers, there’s apparently less indication of patterns of abuse or tolerance for repeat-offenders.

But that’s an unfair comparison. On the one hand, both doctors and brokers are in a position of trust, and usually have big information advantages over their clients. But doctors go through rigorous post-graduate training and take the Hippocratic oath to “first, do no harm.”

Brokers aren’t necessarily even college graduates, and they’re held to a suitability standard, which bans abuse but allows them to put their interests or their firms’ interests ahead of the clients’.  There’s a relatively low barrier to entry to the field; it makes the incidence of misconduct less surprising. 

If the authors of the study had looked only at registered investment advisors or Certified Financial Advisors or fee-only advisors, all or most of whom have to meet a “fiduciary” standard of conduct that requires them to put their clients’ interest ahead of their own, it might have found a much lower rate of misconduct. Alternately, if you compared brokerage advisors with sales personnel in general, they might compare favorably.      

The “misconduct” that the report describes sounds suspiciously like the behavior of aggressive salespeople. It wouldn’t be surprising if disgraced brokers get rehired for the same aggressiveness they were fired for.

© 2016 RIJ Publishing LLC. All rights reserved.

New business for Prudential Retirement

Three companies with more than 18,000 participants have chosen Prudential Retirement, a unit of Prudential Financial, to administer their defined contribution plans, the company announced today.  

The three plan sponsors—CCC Group, AccentCare, Inc., and LJT & Associates, Inc.—have combined plan assets of $66 million.

CCC Group, a leading heavy industrial construction company in San Antonio, Texas, has 1,000 active and deferred participants in its defined contribution plan with $29 million in assets. A Prudential recordkeeping client since January, it provides multi-disciplined construction and specialty engineering services in the U.S. and internationally. John B. Abeyta of the Abeyta Bueche & Sanders Group at Morgan Stanley advises the plan.

AccentCare has 17,000 participants in its defined contribution plan with $27 million in assets; it transitioned to Prudential on Dec. 1, 2015. A specialist in post-acute home healthcare, AccentCare provides personal, non-medical care and skilled nursing, rehabilitation, hospice and care management. David Altimont, senior vice president of Lockton Retirement Services advises the plan.

LJT & Associates, Inc. has 200 participants with $10 million in assets. Established in 1994, the aerospace company provides systems engineering services to customers such as the National Aeronautics and Space Administration, the U.S. Air Force, the U.S. Navy, the Defense Information Systems Agency, the Internal Revenue Service, the National Oceanic and Atmospheric Association, and the National Science Foundation. Alliant Retirement Services, based in Alpharetta, Ga., advises the plan.

Retirement products and services are provided by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, or its affiliates. PRIAC is a Prudential Financial company.

© 2016 RIJ Publishing LLC. All rights reserved.

Jackson National posts record pre-tax operating income

Jackson National Life Insurance Co. generated $2.6 billion in IFRS [International Financial Reporting Standards] pre-tax operating income during 2015, an increase of 10% over 2014 and the most in company history.

The indirect wholly owned subsidiary of the United Kingdom’s Prudential plc reported sales and deposits of $27.9 billion in 2015.

In a release, Barry Stowe, CEO of the North American Business Unit of Prudential plc, attributed the growth to “greater fee income from higher levels of separate account assets under management.”

The company increased total IFRS assets to $220.3 billion at the end of 2015, up from $212.2 billion at the end of 2014. As of December 31, 2015, Jackson also had $5.1 billion of regulatory adjusted capital (more than nine times the minimum required) and $207.1 billion of IFRS policy liabilities set aside to pay future policy owner benefits.

The North American business unit of Prudential plc includes Jackson and its affiliated and subsidiary companies, Jackson National Life Distributors LLC, Curian Capital, and Curian’s U.S. affiliates, National Planning Holdings, Inc. and PPM America, Inc. It has major offices in Lansing, MI and Denver.

Jackson also generated a record level of IFRS net income of $1.4 billion and remitted $710 million to the parent company. Jackson’s net income was impacted by an increase in accounting reserves, primarily related to movements in interest rates, which were not fully offset by hedging gains.

© 2016 RIJ Publishing LLC. All rights reserved.

Cerulli sees convergence of technology and goal-based planning

Platform consolidation is fostering more goals-based planning in which advisors evaluate a client’s assets on a macro level and shift the focus away from short-term performance, according to global analytics firm Cerulli Associates,

The first quarter 2016 issue of The Cerulli Edge–Managed Accounts Edition is dedicated to advice, goals-based planning, and the transition to fee-based accounts. 

“While digital advisors and impending regulations are driving sponsors to provide low-cost managed account solutions for retirement, platform consolidation is also stimulating more goals-based planning,” said Cerulli associate director Tom O’Shea in a release.

“Clearing away the clutter of multiple accounts has allowed sponsor firms to build better tools for goals-based planning,” the release said. “It’s impossible to consistently beat a benchmark, so updating the client on the performance of a widely-quoted market index sets up the advisor to fail. A more sensible approach is to keep the client[s] focused on their progress toward achieving their goal.

“Rather than cobble together a hodgepodge of accounts that might include a mutual fund wrap, a sub-advised separate account, and an advisor-managed portfolio, an advisor using a consolidated platform can minimize the number of client brokerage accounts.

“Streamlining the account setup and maintenance process frees the advisor to think about the client’s household assets on a macro level. Instead of juggling five or six accounts assigned to a household goal, the advisor may only have to manage two, three, or possibly just one.

“Both sponsors and asset managers should recognize the preeminent importance of retirement to American consumers. Investors express apprehension about the rate of return on the stock market, the value of household investments, and the level of inflation. These factors are economic forces beyond their control that might erode their finances in retirement.”

©  2016 RIJ Publishing LLC. All rights reserved.

More private equity for new indexed annuity firm

Kuvare Holdings, a Chicago-based “growth-oriented insurance platform” started by a former Sammons Financial Group executive, has announced unspecified new infusions from Altamont Capital Partners, Makena Capital Management and Access Holdings, a group that manages more than $20 billion for investors.

In October, Kuvare announced the acquisition of Guaranty Income Life Insurance Company (GILICO), a Legal Reserve Life Insurance Company based in Baton Rouge, LA and licensed in 31 states.

When it bought GILICO, Kuvare said it wanted “to develop and seek approval to deploy a fixed index annuity product, explore developing a fixed index annuity version of Annuicare [a long-term care insurance product], as well as enhance the current fixed annuity and life products.”

In a release this week, Kuvare said it intends to “deliver diversified annuities, life insurance, and supplemental products to the middle-income and mass-affluent consumer segments through its acquisition-led growth strategy.”

Kuvare wants to buy “differentiated annuity and life insurance companies,” saying that it will “work with existing management teams to unlock growth by expanding product breadth and distribution as well as implementing tactical asset management strategies. The firm also will partner with reinsurance companies to provide additional services and solutions to primary carriers.”

Kuvare was founded by Dhiren Jhaveri, a former executive of Sammons Financial Group (SFG), the holding company for Midland National Life Insurance Company and North American Company for Life and Health (NACOLAH).

“Despite aging U.S. demographics, middle-market consumers are significantly underserved when it comes to life insurance and supplemental products. With a base of patient capital, Kuvare is well-funded and actively acquiring insurance practices that are in search of an outside growth partner,” Jhaveri said in a release.

 © 2016 RIJ Publishing LLC. All rights reserved.

Stan the Annuity Man Goes (Almost) Robo

Expecting digitization to disrupt the world of annuities any day now, Stan “The Annuity Man” Haithcock has set up several new websites where he’s selling plain-vanilla annuities in a fashion as close to “robo” as current regulations permit. 

“We’re already getting hate e-mail from agents,” said Haithcock, the 6-foot, 6-inch red-haired former basketball player, Florida-based insurance agent, and annuity industry gadfly. His denunciations of variable and fixed indexed annuities have earned him many enemies, while helping him market himself as American’s most trustworthy annuity agent.   

So far, online customers are proving his instincts about the Internet correct, Haithcock told RIJ. “I’ve sold more annuity volume online in the last four days than most agents sell in a quarter,” he said in an interview yesterday.

Haithcock’s personal domain remains www.stantheannuityman.com. His four new e-commerce sites are Annuities.direct, Spia.direct, Dias.direct, Qlac.direct, and Myga.direct. Annuities.direct serves as the core platform; the other sites are spokes to its hub. The tagline at Annuities.direct reads: “No agent needed!”

Haithcock (right) concedes that he is not yet selling truly direct—as in “direct from the manufacturer.” His process still requires clients to put their “wet signature” on a lengthy, carrier-issued paper contract. His phone reps are duly licensed, and he serves as the agent of record. But he claims to be preparing for a not-too-distant future when consumers can buy fixed annuities online as confidently as they book flights at Expedia.com or apartments on Airbnb.com.Stan Haithcock

“The platform is set up so that when the insurance companies decide to go direct, we can adapt immediately,” he told RIJ. “Stage One is getting it up and available. Stage Two is, ‘Let’s give the consumer better pricing.’” He doesn’t expect annuity issuers to question his liberal use of the word “direct.” On the contrary, he said: “Most carriers will tell you behind closed doors that they’d love to get rid of the agents.”

How it works

Individual investors (or perhaps fee-only planners) can visit Haithcock’s sites and get instant sample quotes on single-premium immediate annuities (SPIAs), deferred income annuities (DIAs), qualified longevity annuity contracts (QLACs, which are DIAs for qualified money), and multi-year guaranteed rate annuities (MYGAs), which are generally used for slow but safe appreciation and principal protection. If clients want specific quotes from specific companies, he sends a pdf of the quotes to them by email. He claims to let clients set the pace, and not hound them with follow-up calls or emails.

Don’t expect to find better annuity payout rates on Haithcock’s sites right now—although he believes that robo-annuities will eventually be cheaper than retail. Like his competitors, he gets his annuity quotes from Cannex.com (to which he claims to add a special sauce). His prices may be slightly higher than the “institutional” prices that are available on the Hueler Companies’ Income Solutions website, which specializes in serving people leaving 401(k) plans.  

“This is my shot across the bow to agents,” Haithcock said. “The direct model is a game changer. Other sites want you to call so that their agents can cross-sell other products. We don’t want you to call us. We don’t even have an 800 number on our site. We have no agent. At the end of the process, the purchaser can talk to a licensed representative who is not an agent.”

Annuity manufacturers are loath to vary their pricing by channel, because they don’t want to create conflict or offend agents. Haithcock thinks it’s only a matter of time before that changes.

“We’re still at the infancy stage. I intend to go to work with the carriers to provide preferential pricing. Once the establishment types figure out where the puck is going, I’ll have more leverage,” he said. “People in general and Millennials in particular don’t want to buy much face-to-face anymore, and that includes insurance products. They don’t want bad chicken dinners [at free seminars]. They don’t want home visits. Amazon, Vanguard, and Über paved the way for this. Now all bets are off.”

A small percentage of Americans has already shown a willingness to buy annuities online, with a little help from a phone rep and an exchange of signed contracts through the mail. Hersh Stern, the founder of immediateannuities.com, has been selling annuities that way since 1996. “Imitation is the sincerest form of flattery,” Stern told RIJ when informed about Haithcock’s entry into the online space this week. Many people feel more control and safety when shopping electronically than when sitting with an insurance agent at their own dining room table, he has found.  

Haithcock SPIA site illustration  

Fidelity, of course, has had an income annuity sales platform on its website for several years. Vanguard participants and retail investors can buy income annuities by linking to Income Solutions. Haithcock says he offers a broader range of quotes than Vanguard or Fidelity do. AARP markets New York Life annuities through its website. Annuity websites that offer free annuity quotes are plentiful, but many of them are magnets for sales leads rather than self-service transaction portals.        

There’s some debate over whether the free-look guarantee helps or hurts annuities sales. During the free-look period, whose length varies by state and which usually lasts two or three weeks, a client has the legal right to return a contract to the insurance company and get the premium back, no questions asked.

Stern told RIJ that, in his experience, prospects who focus on the free-look tend to be less committed to a purchase. Haithcock thinks that the availability of a free-look period makes annuities ideal for sale through digital channels. He intends to draw attention to it on his site. “Annuities are the only financial product with a money-back guarantee,” he said. “It’s Elizabeth Warren’s dream-come-true.”  

It should be emphasized that Haithcock’s sites don’t threaten sales of the two most popular types of annuities—variable annuities and fixed indexed annuities. Life insurers pay financial advisors and insurance agents substantial commissions to sell those products. In 2015, $133 billion worth of variable annuities was sold, and $54.5 billion worth of fixed indexed annuities. Such products allow investors to combine risk protection and exposure to stock market performance in a single bundle. They tend to be complex, customized, proprietary and highly profitable.   

Haithcock’s four types of annuities tend to be simple rate-dependent products with commodity pricing. The market for them is much more modest. Sales of income annuities were just $11.8 billion in 2015. But, as Haithcock has said in public appearances, articles, interviews, self-published pamphlets and at stantheannuityman.com, he thinks SPIAs, DIAs, QLACs and MYGAs offer more value for customers. He preaches that annuities are best used for guaranteed outcomes, not unpredictable ones. “That’s what I believe in,” he said, “and I’m not coming off of it.”  

© 2016 RIJ Publishing LLC. All rights reserved.

Scaling Retirement Solutions

The term “mass customization” was in vogue 25 or 30 years ago, when U.S. manufacturers wanted to learn how to satisfy every customer’s desires while achieving economies of scale and raising quality levels to six-Sigma. They called it “agile manufacturing.”

Given the recent advent of robo-advice and “fintech,” the chief of a European financial think tank believes that it’s time to mass-customize retirement income solutions. His name is Lionel Martellini, and he’s presenting on that topic at a conference on Retirement Investing to be held at Oxford University next September.     

The 48-year-old Martellini directs the EDHEC Risk Institute, a research arm of the prestigious international business school, EDHEC. Recently, he published an editorial and a March 2015 research report that should interest anybody who cares about retirement income planning or is affected by the robo-advice wave or both.

The two documents, respectively, have long titles: “Mass Customization versus Mass Production: How an Industrial Revolution is About to Take Place in Money Management and Why It Involves a Shift from Investment Products to Investment Solutions,” and “Introducing a Comprehensive Investment Framework for Goals-Based Wealth Management.”

In a recent conversation, Martellini (right) told RIJ, “We need to move to solutions, not products, and the client’s problem should always serve as the starting point for the discussion. We can already create custom solutions for pension funds or high net worth individuals, so the real challenge is to do customization on a large scale.”Lionel Martellini

Broadly speaking, Martellini advocates a two-bucket solution made up of a low-risk income-producing (“replicating”) portfolio, perhaps of TIPs, and a low-cost risky (“dynamic”) portfolio, perhaps of smart-beta exchange-traded funds, linked by rebalancing or hedging strategies that respond to changing conditions.  

“The financial engineering is the easy part,” he said. “The hard question is, how do you communicate with the client? We’re starting an initiative to put together an algorithm for the end client, doing it in a nice communication way. Ultimately it’s an educational challenge.”

Martellini’s ideas about retirement saving and investing will sound familiar to anyone acquainted with goal-based investing, the household balance sheet approach, or the floor-and-upside principle. They also resemble the thinking that has gone into institutional solutions like Financial Engines’ Income Plus managed account program, and to Robert Merton’s ideas, which drive Dimensional Fund Advisors’ target-date funds.

But he recognizes that nobody has figured out an optimal way for individual advisors to deliver scalable solutions. “The missing component is in the distribution,” he told RIJ. “How do we take the clients’ inputs and turn them into solutions? That’s the feedback process. There’s a lot of inefficiency in this area now. The investment advisor has no tools to help people understand tradeoffs, you need a goal-based investing reporting tool.” He’s looking to robo-advisors to fill part of the gap, adding, “We can only hope that fintech initiatives are providing a strong push in the sense of reducing cost of distribution.”

Looking for upside

Martellini approaches the income challenge with special urgency, because low interest rates, risk aversion, and pressure on social security programs is a growing problem for retirement savers and retirees. “The whole French population is buying French bonds. They’re not generating any upside. The benefits coming from pay-as-you-go will decrease,” he said.  

There was a time when many people might have described the variable annuity with lifetime income benefit as the perfect way to scale the retirement income challenge, because it combined all the necessary elements—a guaranteed income plus exposure to upside—in a single tidy package. Today, there are some who might say the same about the fixed indexed annuity with a living benefit. But he thinks those solutions, while profitable for manufacturers, are too expensive for mass consumers.

Income for life can be generated less expensively and almost as safely without an annuity, he believes. “You can basically replicate the payout by using tradable fixed income securities. During accumulation, if you’re dynamically trading between a performance-seeking portfolio and a replicating portfolio, you can do it in such a way as to generate a minimum of replacement income,” he told RIJ. That sounds something like the constant-proportion portfolio insurance method in Prudential’s discontinued Highest Daily variable annuity riders.

“You can’t replicate the longevity component, but that’s not a big uncertainty. It’s okay not to worry too much about longevity risk if you take care of the other risks. Later, when people are in decumulation, they can buy income annuities if that makes sense for them. But you’re not buying annuities for them,” Martellini added. Annuities, he implies, makes the complex challenge of mass customization all the more challenging.

If scaling customized retirement planning solutions is the general goal, it has two dimensions, he points out. There’s a “cross-sectional” dimension that addresses the needs of different investors entering at the same time and a “time-series” dimension that addresses the needs of different investors entering at different points in time.”

Some might argue that target date funds can already address those dimensions and that they are effectively distributed through retirement plans. But he and his colleagues don’t believe that TDFs have adequately solved the retirement savings problem.

Case-studies

The best illustrations of Martellini’s approach can be found in the hypothetical case studies that are described in the March 2015 report, “Introducing a Comprehensive Investment Framework for Goals-Based Wealth Management,” which he co-wrote with an EDHEC Risk Institute colleague and two members of the Investment Analytics Group at Merrill Lynch Wealth Management.

The report describes three hypothetical clients: an executive and spouse with $4.5 million who are transitioning into retirement and want to maintain a wealth level of at least $3 million; a just-retired couple, both age 67, with $2.75 million, who have no specific bequest motive and want to prepare for long-term care contingencies; a 45-year-old with $940,000 in investments and a $250,000 mortgage on a $300,000 home.

The EDHEC team approached each case by dividing the client’s assets into a personal bucket (home and ready cash), a market bucket (liquid investments), and an aspirational bucket of long-term illiquid assets. They also listed each client’s goals, noted the time-horizon for the achievement of those goals, and calculated the probability of achieving those goals with existing assets.

The complexity of the solutions to these cases suggests that it would be hard to mass-produce them. The EDHEC team admits that it would be impractical for information systems to devise a custom solution for every client. They are not the first to observe that while it might be relatively easy to mass-customize client’s investment strategies using existing theories, it will be harder to scale solutions that enable clients, or identifiable types of clients, to achieve individualized goals.

To even come close to managing the risks that endanger those goals, the solutions will have to be highly dynamic. That will require new and faster fintech, which Martellini et al describe as “an information technology system that can effectively process and update the key inputs of the framework at each point in time for each investor.” Stay tuned.

© 2016 RIJ Publishing LLC. All rights reserved.

The Old Folks are Alright (More or Less)

You don’t hear much about Americans who retire with tiny nest eggs and who rely mostly on Social Security in their old age. But, according to focus groups and interviews conducted for the Society of Actuaries, working class retirees in their mid-70s and older seem to be muddling through with little complaint.

“We don’t have a lot of money, but we never needed it,” one man in Dallas, Texas told an interviewer.  “We never lived above our needs I guess. I take a couple of trips every year and my wife goes up and visits her brothers. We do basically what we want. We are happy.”

At a time when economists lament the inadequacy of savings among pre-retirees, the SoA’s findings, released in January under the title, “Post-Retirement Experiences of Individuals Retired 15 Years or More: A Report on 12 Focus Groups and 15 In-depth Interviews in the U.S. and Canada,” was encouraging. 

In those in-depth interviews, retirees’ most common financial headaches were sudden expenses due to a leaky roof or expired furnace, to a grown child’s emergency or to a sudden out-of-pocket medical expense. And the specter of having to pay for long-term care costs seemed to hang over their heads (Americans, not Canadians). 

“That I wouldn’t want to put on my children, and that is where my house will come into play, if they need to do something for me,” said one woman in Chicago. “Whether they use a reverse mortgage and bring someone in to take care of me in the house, that house is my nest egg at the very last, when there is a Hail Mary that has to be thrown somewhere. I mean I hope I fall off a cliff.”

The statements by middle- or lower-middle-class retirees confirmed certain truisms about retirement. Even though planning patently helps, most people do not have a plan for retirement. Most “focused their planning on spending in the first half of retirement. The majority did not have a financial plan when they entered retirement; nor do they have one now that they are in retirement.”

Yet many seem to have financial goals, in their minds if not on paper; they prefer to preserve principal and they often have so-called bequest motives. “Most state their financial plan going forward is to keep their asset levels where they are currently are,” the study said. “Many report that they want to leave something to their children.”  

Divorce during retirement, the report makes clear, may be the single biggest threat to financial security. “Divorce is more costly than widowhood, and retirees typically cannot adjust or absorb the cost of divorce,” the report said. “Those who divorce after retirement report losing up to half of their assets or having to sell their home, either because it was part of their settlement or they could no longer afford it. Every retiree in the focus groups who divorced post-retirement reported a financial impact.”

Following are the key findings of the report:

  • The Society found in 2013 that near-term retirees do little planning and do not have a long-term goal for their assets. They essentially adapt and adjust to major expenses. The Society asked similar questions to longer-term retirees in 2015 and found that long-term retirees in this study for the most part had done the same thing. The strategy of absorbing and adapting seems to have worked reasonably well for both short-term and long-term retirees of the type represented in the focus groups.
  • Many focus group retirees note that their expenses have changed over the course of their retirement. Many say they pay more attention to what they need and try not to buy frivolous items or spend money lavishly. Most state they are frugal or thrifty.
  • Very few shocks financially devastate the long-term retirees participating in the focus groups. The expenses that financially devastate these long-term retirees are long-term care, divorce and providing major financial support to children. They report being able to mitigate other expenses with insurance coverage or by absorbing and adapting their spending.
  • The in-depth interviews conducted with children and spouses of those who need long-term care in an assisted living or skilled nursing facility reveal that this type of care is financially devastating unless that person has long-term care insurance. However, very few say their relative had this coverage, and even among those who did there were still out-of-pocket expenses. Many focus group participants express concern over long-term care costs, but only a small number have long- term care insurance. Most long-term care expenses are not covered by Medicare or the Canadian equivalent, although in the U.S. Medicaid covers substantial long-term care expenses for low-income individuals who have run out of assets.
  • Divorce in retirement is more financially devastating than widowhood. Divorced participants report losing half of their assets and often say they have to move out of their family home as a result of their divorce. Meanwhile, some widowed participants are better off financially as a result of being widowed. Often widows are living off pension incomes that were designed for two or are able to invest a large sum of money as a result of being widowed, thus making them financially better off as a result of their marital shock. Some lost some income as a result of being widowed but most report that they have adjusted to widowhood.
  • Two of the most common unexpected financial expenses for these long-term retirees are home maintenance costs and dental expenses. The cost for these items can be large. However, both of these types of costs can be anticipated. Many of these long-term retirees live in their own home so some home maintenance costs should be expected. Dental costs can also be expected as people age and could also be partially planned for in retirement by purchasing dental insurance.
  • Gifts and loans to family are another big expenditure for long-term retirees participating in the focus groups. Many who give gifts or loans to children do so because a child has a problem. They say that although they sometimes give or lend large sums of money to children they are able to absorb and adapt to these costs. Exceptions are costs associated with recently divorced children with children of their own and children with mental illness.
  • Very few report a major expense related to health care costs. This finding was expected in Canada but unexpected in the United States. American focus group participants cite Medicare supplemental insurance as the main reason they are able to avoid large health care costs in retirement. The few who report large medical expenses usually do not have a supplemental Medicare policy or fall into a gap in the policy.
  • Very few of these retirees use a financial advisor. Some say they do not use an advisor because they have lost money with an advisor previously or they cannot find an advisor they trust. Women are more likely than men to report working with a financial advisor than men.

© 2016 RIJ Publishing LLC. All rights reserved.

Mission Improbable

In the U.S., there are more than a few highly articulate, liberal female advocates for the economic interests of under-paid, under-saved middle and lower-middle class workers. Senator Elizabeth Warren (D-Mass) is perhaps the best known (or, depending on your politics, most notorious).

At the risk of leaving out many worthy people, I’ll mention only a few (in alphabetical order, with specialties): Anna Maria Lusardi (financial literacy), Teresa Ghilarducci (retirement plans), Cindy Hounsell (women), Alicia Munnell (retirement preparedness), and Barbara Roper (consumer protections).

Of this group, Dr. Ghilarducci (right) has been making news lately with a book, How to Retire With Enough Money (Workman, 2015), a recent New York Times op-ed piece and, this week, a report co-authored with Hamilton “Tony” James of The Blackstone Group called “A Comprehensive Plan to Confront the Retirement Savings Crisis.”Teresa Ghilarducci

As I understand her proposal, Ghilarducci, an economist who runs the Schwartz Center for Economic Policy Analysis at the New School in Manhattan, proposes a mandatory defined contribution savings plan with individual accounts, a choice of pension-style asset managers, and delivering a life annuity at retirement.

According to the report description of her Guaranteed Retirement Account:

  • Each account would be funded by an annual contribution of 3% of income (half from employer, half from participant).
  • The required contribution would be applied to income up to $250,000 a year.
  • Those earning under $40,000 a year would have their contributions offset by a $600 tax credit.  
  • To smooth investment outcomes and reduce sequence risk, the U.S. government would guarantee a minimum return of 2% on each participant’s contributions.
  • Like Social Security, invested assets would be available only as annuities, not as lump sums or prior to the retirement date. 
  • Contributions would be invested and managed by a variety of private asset managers using defined benefit pension principles and taking advantage of the higher returns possible through alternative investments. 
  • Survivors would receive a death benefit during the accumulation period but not during the income period.
  • The plan would replace the voluntary system of ERISA-regulated 401(k) plans in the U.S., eliminate the $100 billion+ annual tax expenditure for retirement savings, eliminate the overhead of DC plans for plan sponsors, and use the savings to pay for the tax credit for those earning under $40,000 and the employer contribution.   
  • The Social Security Administration would administer the payout of the annuity.

Dr. Ghilarducci believes that this type of plan is needed because, in her opinion, the current DC system doesn’t adequately fill the retirement security vacuum left by the slow death of the defined benefit system, doesn’t reach more than half of full-time U.S. workers at any given time, and whose tax benefits are highly regressive.

In private, many people agree that the status quo is a mess—either because of its needless complexities, inconsistencies and inequities or because of the ambiguities of its regulation by the Department of Labor, or all of the above. One of the 401(k)’s principal private-sector spokespersons once joked publicly that ERISA stands not for Employee Retirement Income Security Administration but for “Every Ridiculous Idea Since Adam.”   

Jokes and complaints notwithstanding, the many people whose livelihoods depend on the DC system (and its byzantine nature) are sure to defend it to their deaths. The opposition to the DOL’s fiduciary proposal would be nothing compared with the opposition to ending the DC system.

I agree with Dr. Ghilarducci that the DC system has serious shortcomings. The popularity of Roth conversions and Roth 401(k)s seems to me like a strong hint that tax-deferral creates more problems than it solves. But you have to pick your battles. I would rather see political energies spent on reforming Social Security and removing the cloud over its future. If we wait much longer to fix the proverbial third rail of American politics, it might be too late.

© 2016 RIJ Publishing LLC. All rights reserved.  

ETFs suffer outflows for first time in over two years

Highlights of the February 2016 issue of The Cerulli Edge–U.S. Monthly Product Trends Edition include:  

  • Mutual fund assets sank for the third straight month, slipping 4.7% to $11.3 trillion in January. Flows were net negative ($12 billion) for the month.
  • ETFs bled $1.8 billion in January flows. Combined with poor market returns, that led to a 4.7% drop in assets. The vehicle still maintained more than $2 trillion in total assets, however.
  • Institutional investors have seen value in liquid alternative products given their favorable fee structures, increased transparency, and greater liquidity. Many of these benefits are not available in traditional private placement or LLC structures.
  • Alternatives are still under-utilized across client types. Cerulli data from 2015 illustrates that allocations range from 5% for conservative investors to about 7% for aggressive investors. Almost two-thirds of asset managers cite a lack of knowledge among sales force/employees as at least a moderate challenge to the distribution of liquid alternatives.  
  • Vanguard continued to dominate mutual fund charts. Of the $6.64 trillion in assets managed by the top 10 fund managers as of January 2016, Vanguard managed more than one-third, with $2.34 trillion. Fidelity and American Funds combined for another third. The top 10’s share of the total was 58.5%.
  • In January 2016, Vanguard’s net inflows were $18.31 billion. That surpassed the combined flow of the next nine mutual fund managers, and more than five times the flow of the second-ranked firm, Dimensional Fund Advisors, at $3.27 billion.

© 2016 RIJ Publishing LLC. All rights reserved.

Group annuity risk transfer sales top $14 billion in 2015: LIMRA

With five plan sponsors reporting jumbo ($1 billion+) buy-outs, the volume of group annuity risk transfer sales rose 54% in 2015, to $14.4 billion, according to LIMRA Secure Retirement Institute’s U.S. Quarterly Group Annuity Risk Transfer Survey.

In the fourth quarter, group annuity risk transfer sales were $5.8 billion or almost 19% lower than the previous year. Total assets of buy-out products increased 10%, to $90 billion at the end of the fourth quarter 2015. 

In such deals, a defined benefit pension sponsor transfers all or part of its plan assets and liabilities to a life insurer in exchange for a group annuity contract, thus removing a liability from its balance sheet and reducing the volatility of the funded status. In 2015, the pension risk transfer business was characterized by lots of small deals rather than a couple of jumbo deals. “Companies reported selling more than 300 separate contracts under $100 million,” noted Michael Ericson, LIMRA Secure Retirement Institute analyst.

In the fourth quarter, single premium buy-out sales were $5.6 billion. It was the first time sales exceeded $3 billion in three consecutive quarters (chart). For the year, buy-out products accounted for more than 95% of the total group annuity risk transfer market, totaling $13.6 billion, a 61% increase from 2014. Annual buyout sales have only eclipsed $10 billion one other time (in 2012).

Single-premium buy-in product sales were $7.2 million, down 95% from 2014. To date, only five single-premium buy-in contracts have been sold. “With PBGC premium increases, market volatility and continued low interest rates, employers are becoming more interested in transferring their pension risk to an insurer, said Ericson. “The Institute expects this trend to accelerate in the next few years.”

© 2016 RIJ Publishing LLC. All rights reserved.

MassMutual pays $165 million for MetLife’s captive agent force and retail operation

MassMutual has agreed to acquire MetLife’s U.S. retail advisor force, the MetLife Premier Client Group, a retail distribution operation with more than 40 local sales and advisory operations and approximately 4,000 advisors across the country, for $165 million. The transaction is expected to close in mid-2016.

The two firms announced their discussions around this transaction last week. The transaction follows MetLife’s previously announced plan to pursue the separation of a substantial portion of its U.S. retail segment.

A.M. Best did not change either firm’s financial strength or credit ratings. The ratings agency said in a release that “it views the acquisition favorably, as it brings additional scale to MassMutual’s existing captive distribution sales force and increased opportunities to expand their product portfolio. Following some one-time integration and infrastructure expenses, the acquisition is expected to be accretive to earnings.” 

With an expanded distribution network, MassMutual said it is better positioned to become the top individual life insuranceand whole life insurance–provider in the marketplace. The acquisition adds to MassMutual’s existing force of over 5,600 career agents, broadens the company’s geographic reach and expands its product line, according to a release.

As part of the transaction, MassMutual and MetLife also entered into a product development agreement under which MetLife’s U.S. retail business will be the exclusive developer of certain annuity products to be issued by MassMutual.

“This transaction will enable our U.S. Retail business to focus on product manufacturing while also providing a broader distribution network through the partnership with MassMutual,” said Steven A. Kandarian, MetLife Chairman, President and CEO, in a prepared statement.

In addition to MetLife’s retail advisor firms, the transaction includes certain MetLife employees who support the MetLife Premier Client Group; MetLife’s affiliated broker-dealer, MetLife Securities, Inc.; and certain assets associated with the MetLife Premier Client Group, including employee contracts.

On a combined basis, MSI and MassMutual’s existing broker-dealer, MML Investors Services, LLC, will be among the nation’s largest insurance company-owned broker-dealers. Additionally, as part of the agreement, approved MassMutual financial professionals will provide individual life insurance and annuity products through the MetLife PlanSmart Financial Education Series.

Other transaction highlights:

  • The transaction is expected to close by mid-2016, and is subject to certain closing conditions, including regulatory approval.
  • The purchase price is not material to MassMutual’s capital and surplus.
  • Sandler O’Neill + Partners, LP served as financial advisor and Willkie Farr & Gallagher LLP served as legal counsel to MetLife. Barclays Capital, Inc. served as financial advisor and Sutherland Asbill & Brennan LLP served as legal counsel to MassMutual.

© 2016 RIJ Publishing LLC. All rights reserved.

Job anemia puts interest rate hikes into doubt: TrimTabs

Based on real-time income tax withholdings, the U.S. economy added between 55,000 and 85,000 jobs in February, the lowest monthly job growth since July 2013, TrimTabs Investment Research estimates.

“The labor market is not nearly as robust as the conventional wisdom believes,” said David Santschi, chief executive officer of TrimTabs. “Employment growth has been below 200,000 for six consecutive months. Given the weakness in real-time tax data as well as the market volatility early this year, the Fed isn’t likely to raise interest rates again anytime soon.”

TrimTabs reported last week that real growth in withholdings has been decelerating since last autumn and turned negative in February on a year-over-year basis.

TrimTabs’ employment estimates are based on analysis of real-time daily income tax deposits to the U.S. Treasury from the paychecks of the 141 million U.S. workers subject to withholding.  Unlike the monthly estimates from the BLS, TrimTabs figures are not subject to revision long after their initial release. TrimTabs uses a range rather than a single figure for its February estimate because the timing of year-end bonus payments can skew the data at this time of year.

© 2016 RIJ Publishing LLC. All rights reserved.

Honorable Mention

Vanguard introduces two high dividend-focused international funds

Vanguard this week introduced its first two dividend-oriented international equity index funds: the Vanguard International High Dividend Yield Index Fund and Vanguard International Dividend Appreciation Index Fund.

The International High Dividend Yield Index Fund will seek to track the FTSE All-World ex-US High Dividend Yield Index, a benchmark of more than 800 of the highest yielding large- and mid-cap developed and emerging markets securities. 

Vanguard International Dividend Appreciation Index Fund seeks to track the Nasdaq International Dividend Achievers Select Index, which comprises more than 200 all-cap developed and emerging markets stocks with a track record of increasing annual dividend payments. 

The expense ratio of Investor-class shares ($3,000 minimum) for the International High Dividend Yield Index Fund is 40 basis points and 35 basis points for the International Dividend Appreciation Index Fund. Expense ratios for Admiral-class shares ($10,000 minimum) is 30 basis points and 25 basis points, respectively. Expenses for ETFs (no minimum investment) are the same as for Admiral-class shares.

The two new funds complement Vanguard’s existing domestic dividend-oriented index funds: The $16 billion Vanguard High Dividend Yield Index Fund and the $23 billion Vanguard Dividend Appreciation Index Fund.

Of Vanguard’s record $236 billion in cash flow in 2015, more than 90% was directed to an index product, according to a Vanguard release. Vanguard introduced its first ETF in 2001 and now manages more than $507 billion in global ETF assets. Investors invested more than $82 billion to Vanguard ETFs in 2015. The firm’s ETFs include the $54 billion Vanguard Total Stock Market ETF, $40 billion Vanguard S&P 500 ETF and $32 billion Vanguard FTSE Emerging Markets ETF.

Morningstar to hold free webcast on range of financial topics

In a free webcast, Morningstar will hold an Individual Investor Conference at the company’s individual investor on April 2, 2016 at 9 a.m. Central Time. 

The company’s analysts and investment specialists will discuss the current economic landscape; retirement security (including the ‘bucket approach’ to retirement income); fixed-income; and tax-efficient investing.

Conference schedule:

  • 9 a.m. “Taking the Market’s Temperature.” Robert Johnson, CFA, Morningstar’s director of economic analysis, Michael Fredericks, managing director, portfolio manager, and head of U.S. retail asset allocation for BlackRock’s Portfolio Strategies group, and Northern Trust Chief Economist Carl Tannenbaum will discuss the current economic and market environment.
  • 10 a.m. “Securing Your Retirement.” Christine Benz, director of personal finance, Morningstar, and Harold Evensky, financial planner and chairman, Evensky & Katz Wealth Management, will discuss the key pillars of retirement security for investors at every life stage—from early-career savers to those already in retirement.
  • 11 a.m. “What’s Next for My Bonds?” Sarah Bush, Morningstar’s director of manager research for fixed-income strategies, Dario Castagna, CFA, associate portfolio manager for Morningstar’s Investment Management group, and Mary Ellen Stanek, CFA, managing director and chief investment officer for Baird Advisors and president of Baird Funds, will discuss the effect of rising interest rates on core bonds, the outlook for high-yield and international bonds, and the merits of active and passive fixed-income funds.
  • 12 p.m. “What It Takes to Make Our Picks List.” In this video, viewers can learn how Morningstar vets stocks and funds before recommending them and how Morningstar’s proprietary ratings and research can help investors identify the best of the best.
  • 12:30 p.m. “The Picks Panel: Best Ideas from Morningstar Analysts.” Morningstar’s Elizabeth Collins, director of equity research, North America; Ben Johnson, director of global ETF research and editor of Morningstar ETFInvestor; and Russ Kinnel, director of manager research and editor of Morningstar FundInvestor will discuss some of Morningstar’s best stock and fund ideas for long-term investors.
  • 1:30 p.m. “Portfolio Planning: Make a Lean, Mean, Tax-Efficient Machine.”Benz will offer guidance on crafting a tax efficient portfolio tax, including how to maximize tax shelters, optimize taxable portfolios, find the best tax-smart investments, and build a tax-savvy retirement-drawdown plan.

Register for the free Morningstar Individual Investor Conference at http://www.morningstar.com/conference. Follow the conference conversation on Twitter or with the hashtag #MIIC2016. Speakers will answer questions from participants live during the conference; to submit questions in advance, email [email protected]. Replays of conference sessions will be available on Morningstar.com in the weeks following the event.

PIMCO Tactical Balanced Index Allocation added to two Allianz Life FIAs

The PIMCO Tactical Balanced Index is now an allocation option on the Allianz 360 and Allianz 222 fixed indexed annuity contracts, Allianz Life Insurance Co. of North America reported this week.

The new index manages volatility by dynamically allocating daily between the S&P 500 Index, a bond component comprised of the PIMCO Synthetic Bond Index with a duration overlay, and cash. It is available with annual point-to-point crediting with either a cap on index gains or a spread (index gains beyond a fixed fee spread). 

During volatile markets, the PIMCO Tactical Balanced Index reallocates to less-volatile assets. Generally, when equity volatility is low, the balance will shift to equities; when equity volatility is high, the balance will shift to bonds. If the volatility is high in both of those markets, the balance will shift a portion to cash.

To mitigate interest rate risk, the bond component of the PIMCO Tactical Balanced Index uses a “duration overlay.” It adjusts its interest rate exposure based on underlying trends in the bond markets, potentially benefiting as interest rates rise.

Retirement Clearinghouse owner praises Clinton position on auto-portability

In a press release, Robert L. Johnson, founder and chairman of The RLJ Companies and majority investor in Retirement Clearinghouse, LLC applauded Democratic Presidential candidate Hillary Clinton’s policy statement, Breaking Barriers for African American Financial Health

“In America today, we have a racial wealth gap – really more like a wealth gulf, when it comes to African Americans,” the Clinton document said. To address that gap, she called for measures including the automatic transfer of small 401(k) accounts to participants’ new 401(k) plans, a business that Retirement Clearinghouse has pioneered.

Johnson said in the release:

“Secretary Clinton has shown to the African American community and to working class Americans, in general, that she is committed to closing the income gap and the wealth gap. She understands the fact that most African Americans drastically lack retirement savings.

“Her call for auto-portability cures the twin issues of leakage and loss/missing accounts that plague the small balance segment of the mobile workforce, particularly the younger and lower income workers.

“The Secretary clearly recognizes as outlined in her policy statement that ‘Our country’s current savings system has too many barriers that disproportionately hold African American families back.’

“By embracing auto portability, as an innovative solution to help minority employees plan for future retirement, the Secretary has put forward a policy proposal that I hope will encourage the U.S. Department of Labor, as President Obama did recently, to evaluate and hopefully implement 401(k) auto portability, as soon as possible.”

© 2016 RIJ Publishing LLC. All rights reserved.

 

What Social Media Can Teach Retirement Marketers

Understanding your audience is essential to effective communications, including all manner of marketing. But the retirement industry doesn’t understand its audience nearly as well as it could, according to the young Canadians at a research startup called MotivIndex.

For example, most Americans don’t respond well to the word “retirement;” it makes them anxious, says Ujwal Arkalgud, an MBA and self-described cultural anthropologist who co-founded MotivIndex eight months ago with adman Jason Partridge. The concept itself is a burden or an unwelcome buzzkill.

“That word is associated with stress and debt and the end of all the fun,” Arkalgud (right) told RIJ in a recent call from his Toronto office. “Imagine that you’re running a marathon and halfway through, when you’re feeling beaten up, someone says, ‘Let’s talk about how you’ll feel at the finish line!’ Financial institutions need to talk about retirement differently.Ujwal Arkalgud

“When you tell people to focus on tomorrow, it doesn’t speak to their main emotional trigger, which is to feel in control today,” he added. “Everybody knows they should save. So if you ask most parents if they’re saving, they won’t admit that they’re not being responsible. It makes them feel like they’re not good parents. It’s a scary question.”

MotivIndex’ broader lesson for the field of market research is its founders’ belief that traditional surveys, with their scripted and sometimes leading questions, fall short. “What became clear to us is that people say one thing [to pollsters] and do another. That’s why there’s so much confusion. Telephone research is okay when people are already engaged with you, and when you just want to know how to serve them better. But it doesn’t help you understand their intent.”

If you want to understand intent and motivation in a compressed span of time, he said, you have to listen in to personal, self-revelatory conversations. With the explosion in social media, where MotivIndex focuses its attention, the opportunity to do that has been growing exponentially. To find out what people really think about money and retirement, they study Facebook threads, Instagram posts, and LinkedIn group comments.

“In most projects we’re looking at between six and 12 social media platforms,” Partridge told RIJ. “We use technology to grab the data, but teams of Ph.D.-level researchers do the analysis.” Because of the rising volume of social media, their projects run faster than ever. “Five years ago, it took six months to get rock solid results using this methodology. We can do that in four weeks now.”

Three types of consumers

“On Instagram, for instance, you might see a photo of a woman with a Coach bag visible in the background,” Arkalgud said. “Then you notice that there’s a luxury item in almost one of her photos, and that every other post mentions a purchase decision. Luxury brands define this person. But, when you look to see where she lives, you find that she isn’t rich.” Such contradictions lead to questions, which can lead to productive answers.  

MotivIndex believes that most American adults fall into one of three “belief-based segments.” In a recently release, “Why People Won’t Save in 2016,” they report the results of their December 2015 study of attitudes toward retirement and long-term savings. The three segments are:

  • Life Planners. This group, representing about 19% of the adult population under age 60, is the most receptive to messages about saving for retirement. Believers in delayed gratification, they “attain financial independence as early as possible, through the right choices and sacrifices made today. They “maximize return on investments so ‘retired’ life can be highly fulfilling and rewarding.” They’re financially motivated, knowledgeable; they trust themselves and their advisors. On social and political issues, they tend to be conservative.
  • Competing Priorities. An estimated 43% of American adults, mainly ages 30 to 60, are harried middle-aged parents with less time and money than their hectic lives require. They are “motivated by emotional gains in the short-term.” They “have a vision for their lives and loved ones and want to make ‘it’ happen.” They want to save for retirement and they do—but pre-retirement needs come first.
  • Procrastinators. Members of the remaining 39% of adults, primarily under 40 and urban-dwelling, know they should save for retirement but prefer “living life in the now.” They are in denial about the future. Their financial knowledge is low. They often take refuge in magical thinking, believing that “it will all work out somehow.” They’re more socially progressive than the other two groups.

MotivIndex believes that the members of these groups will maintain their attitudes toward money throughout their lives. Despite the apparent progression in age and wealth from one group to the next, Arkalgud doesn’t think that the three categories represent stages of development. In any case, the current members of these groups have three distinct hot buttons, MotivIndex thinks, that marketers should understand: 

  • Safety nets. In the realm of financial products, Procrastinators are looking for “short-term safety-nets” that will “allow them to continue living life on their own terms, in the pursuit of inspiration and experiences that last a lifetime.”
  • Validation. Members of the fiscally conservative Competing Priorities group “need someone to help them simplify and prioritize.” They want less clutter in their lives, and they need validation that they are “good providers.” Owning life insurance, for instance, would appeal them.     
  • Freedom. Life Planners already own investments; the challenge is to convince them to switch products or providers. They need to be engaged in product or strategy discussions. Ultimately, they want the freedom to pursue what will give them joy in the years they have left.

 “That middle 40% is made up of people who define themselves as being good mothers, fathers, friends or partners,” Arkalgud told RIJ. They think, ‘If I save I should be able to reap the rewards and validate my role as an amazing parent or son or daughter.’

“We call them ‘the overwhelmed.’ They tend to lead busy lives and have competing priorities. They feel overwhelmed by conversations about finance and money. They want financial institutions to take their stress away. Education only adds to the stress. It doesn’t take it away. Financial institutions don’t understand this. That’s why they’re struggling to get their attention.

“The other 40% thinks that money will somehow work out in their lives. They’ll have a business success, an inheritance, or make a killing on the house. The mindset is such that they are not stressed about money and they spend a lot. The ‘future self’ concept doesn’t work for them, unless you’re talking about saving to start a business in six months.”

The three groups share two traits, MotivIndex found. First, they want to feel accepted, not judged. To lower the barrier to engagement, financial institutions need to show that they “understand people and their priorities.” They need to tell platforms need to tell consumers that “there’s still time,” and that “there is no one way of doing things and no one way to save.”

Second, people want to feel that they’re being “enabled” and not being asked to change. It’s “important to make audiences feel that financial institutions are not looking to get them to change their way of life, but rather enable it and make it sustainable, by providing incremental advice and value,” the report said.

“Consumers consider the messages used by financial institutions to be more like finger wagging,” said Partridge. “To truly resonate with individuals, the financial community should start with programs that provides individuals with a reason to save short term by connecting it to important events in their lives. The bottom line is that financial institutions must build trust before trying to get people to think about the future.”

Mining social media

The explosion in the usage rate and volume of social media has provided MotivIndex with the raw material to create a field of study that it calls Digital Motivation Research. MotivIndex was founded on the premise that the presence of human interviewers and the use of prepared questions inevitably corrupt the responses.

“The net result is that you miss out on the depth that we can get with observational research,” said Arkalgud, who has degrees in engineering and business (his MBA is from York University in Toronto. A few years ago, when he was working in market research, he noticed that ethnographers had begun to study the social media phenomenon. An informal student of sociology and anthropology himself, he saw the potential application to marketing.    

“The first test of our methodology was five years ago, in a project for Hewlett-Packard and Microsoft. The coding method is the magic behind our formula, and that took five years to build,” he said. Eight months ago, he teamed up with Partridge to start MotivIndex. They brought on Boston-based political consultant Beth Lindstrom to develop new business and Ph.D. sociologist Elinor Bray-Collins to oversee research.

“We grew from there,” Arkalgud added. “We didn’t use seed capital; we’re self-funded in that sense. The market is responding. Companies tell us, ‘We already know what our customers do and how they do it. We want to know why.’ And we find out. Every company wants to build better bridges and connections with their customers today.”

© 2016 RIJ Publishing LLC. All rights reserved.

Mobile Imperative Drives TIAA Re-Branding

Opting for brevity and simplicity in a world driven by small-screen mobile devices, the $854 billion non-profit provider of 403(b) savings plans and other services to employees of colleges and universities, research facilities, hospitals and other non-profits has shortened its name and simplified its website.

The originator of the group variable annuity is eliminating the half of its acronymic name that stood for “College Retirement Equities Fund.” Its new website use the big blocks of color, minimal verbiage, and the kind of simplified navigational structure that robo-advisors like Betterment and other businesses have had success with. 

Henceforth the company will call itself TIAA—short for Teachers Insurance and Annuity Association). “The name leverages TIAA’s esteemed heritage as a mission-driven organization while becoming easier to say, type and remember,” the organization said in a release this week.

“We approached the design challenge as if the only interface we had was the mobile phone, and then we worked back to design the other channels,” said Ed Moslander, head of TIAA institutional relationship management, who is communicating the changes to the 403(b) market.

TIAA’s design partners were the Martin Agency, Frog, Weber Shandwick and Firstborn. A national advertising campaign will launch Feb. 29 across print, radio, television and digital media, according to a TIAA release. The campaign introduces the redesigned “window” logo, a metaphor for “endless possibilities.”

TIAA was the group’s first acronym—the one it acquired in 1918 when it was created by the Carnegie Foundation for the Advancement of Teaching, which had provided free pensions for professors. The Foundation was created in 1905 with a grant from Pittsburgh steel magnate Andrew Carnegie, who had sold his company to J.P. Morgan in 1900 for $480 million, according to the Columbia University library.

The “CREF” moniker was added in 1952, after the organization’s actuaries created the world’s first variable annuity, a group insurance contract for employees of colleges and universities.

The rebranding and new website, said to be years in the planning, is accompanied by the launch of a new logo and a marketing blitz. The new blue logo adds flair to the old logo, and is leveraged on the site as a template for topical icons.    

According to the release:

“The redesigned TIAA.org is easier to use, with faster access to information, and simple, direct language complemented by clear, illustrative images. Content and tools geared toward different life stages are front and center, so visitors are quickly directed to the information they need the most and encouraged to learn more.” There’s also a new emphasis on customer stories.  

Although many other companies followed TIAA-CREF in issuing variable annuities, few if any have imitated its guaranteed annuity fund, which Moshe Milevsky compared to a “tontine” in his recent book, King William’s Tontine (Cambridge, 2015).

“Annuitants in TIAA-CREF are part of a large co-operative pool… If these annuitants end up living longer than planned or expected, TIAA-CREF can protect itself and future generations by reducing income from one year to the next. It calls this a participant annuity and again is one of the very few companies in the U.S. to offer them,” wrote Milevsky, a retirement income expert, financial historian and York University professor.

“Also, this company has the highest of credit ratings from agencies such as Moody’s and Standard and Poor’s, precisely because it takes so little risk on its corporate balance sheet. To me, this is tontine thinking in practice.”

© 2016 RIJ Publishing LLC. All rights reserved.

Genworth’s “Medically Underwritten” SPIA Offers Higher Payouts

Life-contingent annuities are typically sought by healthy people who expect to live longer than average. So the idea of a life annuity for people who don’t expect to live very long is a bit counterintuitive, even if you account for the higher payout rates that people with higher mortality risk could expect to receive.

But Genworth, the Richmond-based, publicly-traded life insurer, sees a substantial market for just such a product among older Baby Boomers who become ill and face an open-ended period of elevated medical expenses but who do not own long-term care insurance.

Genworth calls its new product, announced this week, the IncomeAssurance Immediate Need Annuity.

“Medically underwritten” annuities, as this type of product is called, are fairly rare in the United States. A few years ago in England, at a time when most Britons were still required to annuitize at least part of their tax-deferred savings by age 75, medically underwritten or “impaired” annuities were fairly heavily advertised. They offered less healthy Britons, who needed to comply with the annuitization requirement, the consolation of higher annuity payments.

Such products have not been widely offered or used in the U.S.  The market for medically underwritten annuities “is very small right now,” independent actuary Tim Pfeiffer, who did not work with Genworth on the design of this product, told RIJ this week. “Only a few carriers have played in that space over the past five years. The key is making the determination of impairment non-invasive, but yet accurate and able to translate to a meaningful benefit pick-up. It is a product probably best suited to an insurer who is not writing a lot of standard SPIAs/DIAs right now.

“That’s because an impaired product could bifurcate the risk pool, sending those in poor health to the impaired product, and leaving more healthy lives in the standard product—resulting in lower profitability or the need to reduce payouts on the standard product,” Pfeiffer added. “Personally, I like the concept, but it needs to be positioned very carefully.”

The new Genworth product is aimed at people over ages 70 to 95 who probably wish they’d purchased long-term care insurance, but who now, given their impaired health, could not qualify for it. According to a Genworth release this week: 

“This is a strong solution for what Genworth calls “the other half” of the retiree market, referring to those who may not qualify for long-term care but are still in need of care.  Notably, the product allows those who are sicker to pay an equal or in some cases lower premium for the same amount of coverage, creating a stronger stream of retirement income.”

The product also fits Genworth’s corporate-level decision to focus providing insurance for the medical expenses associated with old age.

“During our fourth quarter earnings call [earlier this month], we announced that we’re going to focus our U.S. life insurance division on long-term care insurance and other aging products” and this product reflects that strategy, said Kristi McGivern, director of product marketing for the life division.

“This is a medically underwritten single premium immediate annuity that allows us to write contracts for people who are over age 70, who are in immediate need of care,” she told RIJ. “There are no lab tests, no blood or urine samples taken. It’s not like life or long-term care insurance underwriting. We send out a nurse, review the medical records, and we determine a custom income stream. There’s a one-time assessment of health. No one is denied this product because of a health condition.”

The typical payout for the Genworth product will be 20% to 50% higher than that of a non-underwritten SPIA, McGivern said. So, if a conventional SPIA purchased with $100,000 paid out $7,000, the new Genworth product might pay out $8,400 to $10,500 a year for life. 

The ideal client for this product would be someone who has a serious medical condition but is not terminally ill. “They’re at risk of outliving their savings while they still need care,” McGivern said. “You don’t need to be on your way to the hospital to use this product.”

This product, unlike long-term care insurance, provides income that can be used for any purpose, medical or non-medical. The annuitant receives regular income and pay for health-related services without having to file claims for reimbursement.

“We’re positioning it as a new way to pay for care medical care that’s not covered by Medicare for people whose families are going through the process of how they’re going to pay for someone’s care,” she told RIJ.

“Our market research uncovered the fact that rising medical costs was a concern, so we built in a cost-of-living adjustment that ranges from zero to eight percent, compounded annually, that increases the guaranteed monthly income,” she added.

“A second concern was, ‘What if my mother passes away shortly after she purchases this?’ So we include a six-month death benefit in the basic product and an optional enhanced benefit that can protect a portion of the premium for up to five years.”

McGivern said that this product isn’t as hard to price as long-term care insurance. LTCI is often purchased decades before a claim is submitted. By contrast, there’s a relatively brief period—sometimes only two or three years—between the purchase of the medically underwritten annuity and the death of the insured, so the issuer has a much smaller window of exposure to changes in interest rates or mortality rates.  

© 2016 RIJ Publishing LLC. All rights reserved.