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Quote of the Week

Posted on May 30, 2013 by Editor Test -

Employees still not asking about 401(k) fees: Mesirow

Posted on May 30, 2013 by Editor Test -

Mesirow Financial’s Retirement Plan Advisory practice has released its 2013 Retirement Plan Survey Report. The results outline initiatives plan sponsors are considering to keep their plans competitive while fulfilling their fiduciary duties.

The survey addresses retirement plan design, fiduciary oversight options, employee education and fee disclosure, among other topics.

“The reality is that many participants need assistance through custom guidance or a more paternalistic, automated solution,” said Chris Reagan, Mesirow Financial senior managing director and practice leader.

Key findings in the 2013 report include:

Participant interest in fee disclosure is surprisingly low with more than 83% of plan sponsors indicating that employees had very few questions after receiving 404(a) participant fee notification
Automation solutions continue to play a key role in plan design as approximately 55% of plan sponsors surveyed offer automatic enrollment features – a 5% increase from last year
Interest in step-up deferral rate solutions continues to rise as 44% of respondents offer this as an option
The rapid growth of target-date funds continues as more than 85% of plan sponsors reporting using this type of solution – up 13% from last year
Fee disclosure is top of mind with almost 88% of plan sponsors reviewing implicit and explicit plan fees in the past six months

Mesirow Financial’s Retirement Plan Advisory practice oversees more than $4.1 billion in assets and provides comprehensive, co-fiduciary consulting services to retirement plan sponsors.

86% of 67-year-olds are collecting Social Security: MetLife

Posted on May 30, 2013 by Editor Test -

Despite predictions to the contrary, the oldest Boomers (a vast group of 66- and 67-year-olds that includes Bill Clinton, George W. Bush, Linda Ronstadt, Jimmy Buffett, Liza Minnelli, Donald Trump, Sylvester Stallone, Ben Vereen, Cher, among others) aren’t necessarily “working till they drop.”

According to Healthy, Retirement Rapidly and Collecting Social Security: The MetLife Report on the Oldest Boomers, a new study from the MetLife Mature Market Institute, 52% of Baby Boomers born in 1946 are now fully retired, 21% are still employed full time and 14% are working part-time. Of those who are retired, 38% retired voluntarily while others cited health reasons or job loss.

Most of the members of this cohort plan to retire fully by the time they reach age 71, an average postponement of two years since 2011. In 2007 and 2008, 19% of oldest Boomers were retired and 45% were retired by 2011.

The Institute has studied the oldest boomer cohort on numerous occasions, most recently in 2012 with Transitioning into Retirement: The MetLife Study of Baby Boomers at 65 and The Early Boomers: How America’s Baby Boomers Will Transform Aging, Work & Retirement.

The current study follows the finances, housing status, family lives and views on generational issues of this group as they moved from 62 to 67. Most have less income than when they were working, but only 20% feel that their standard of living has declined.

“They seem to be largely feeling healthy and positive. On the negative side, a good half of this group may not have achieved their retirement savings goals and are not confident about paying for the next phase of their lives,” said Sandra Timmermann, Ed.D., director of the MetLife Mature Market Institute.

Among further findings:

86% are collecting Social Security benefits; 43% began collecting earlier than they had planned.
14% of oldest Boomers are working part-time or seasonally.
4% are self-employed.
Long-term care rose to the top of the list of retirement concerns; 31% reporting concern about providing for themselves or their spouses.
Despite the fact that they are worried about long-term care, just under a quarter owns private long-term care insurance.
82% want to age in place and do not plan any future moves.
Eight percent are “upside down” on their mortgage, owing more than the value of their home
The average number of grandchildren is 4.8.
79% of oldest Boomers have no living parents.
More than 10% provide regular care for a parent or older relative; for many, the level of care has increased.
Oldest Boomers continue to believe they will see themselves as “old” at the age of 78.5.
16% of the oldest Boomers see themselves as being sharpest mentally now, in their 60s, but 30% believes they were sharpest in their 40s.
More than 40% of the oldest Boomers are optimistic. Nearly a quarter of those are optimistic about their health, and two in 10 feel good about their personal finances.
More than half of the oldest Boomers feel their generation is leaving a positive legacy for future generations. Values and morals and good work ethics were the top two items cited.

The nationally representative survey for Healthy, Retiring Rapidly and Collecting Social Security: The MetLife Report on the Oldest Boomers was conducted by GfK Custom Research North America on behalf of the MetLife Mature Market Institute in November and December 2012. A total of 1,003 respondents, including 447 people from the 2011 study, were surveyed by phone. Respondents were all born in 1946. Data were weighted by demographics to reflect the total Boomer population.

The Bucket

Posted on May 30, 2013 by Editorial Staff -

ING Group lowers stake in ING U.S. (Voya) to 71%

The underwriters of the ING U.S. initial public offering have bought about 9.8 million additional shares of ING U.S. from Netherlands-based ING Group at the IPO price of $19.50 per share, thus exercising their overallotment option.

The announcement was made by ING U.S., which is listed on the New York Stock Exchange under its new name, VOYA, and started trading on the big board last May 2.

The exercise will reduce ING Group’s ownership in ING U.S. to about 71%. The exercise of the option has no financial impact to ING U.S. The closing of the overallotment offering is expected to occur on May 31, 2013.

BNY Mellon to increase wealth management sales force by 50%

BNY Mellon, the global leader in investment management and investment services, is rolling out a major two-year recruiting campaign to increase BNY Mellon Wealth Management’s sales force by 50 percent. In addition, the firm intends to add private bankers and mortgage bankers, portfolio managers and wealth strategists as well as additional sales support staff.

The campaign represents a new phase in BNY Mellon Wealth Management’s multi-year growth strategy to continue to build presence and capabilities in the US and globally. Despite the sharp economic downturn of 2008, in the past four years BNY Mellon Wealth Management has grown organically and through acquisitions. During that time, the firm has made acquisitions in Toronto and Chicago, opened new offices in Dallas, Washington and the Cayman Islands, and added two new offices in Florida, where it now has a total of seven locations. With this initiative, the firm plans to strengthen the sales teams in its current locations and establish offices in other key wealth markets.

By the end of last year, BNY Mellon Wealth Management’s total client assets reached a record of more than $188 billion, making it one of the 10 largest US wealth managers in 2012, according to Barron’s.

Lincoln Financial Group hires Paul Narayanan

Paul Narayanan has joined Lincoln Financial Group as vice president and managing director of Portfolio Management Analytics, the company announced. He comes to Lincoln Financial from American International Group, Inc., where he was most recently head of Credit Risk Analytics for AIG Property Casualty.

Narayanan will be responsible for monitoring risk-adjusted performance by asset class to optimize the company’s investment position, modeling of investment strategies and asset classes, and leading its credit risk measurement analytical framework.

Before his tenure at AIG, which began in 2002, Narayanan ran his own consulting firm that provided credit risk and portfolio management solutions to financial institutions worldwide. He co-authored “Managing Credit Risk: The Great Challenge for Global Financial Markets” and “Managing Credit Risk: The Next Great Financial Challenge,” both published by John Wiley.

Narayanan holds a B.S. in mechanical engineering from the University of Poona in India. He also holds a master’s degree in finance from New York University’s Stern School of Business.

Advisors want more ‘value-add’ support: Practical Perspectives

Posted on May 30, 2013 by Editor Test -

The heavy investment that broker-dealers, asset managers, and insurance companies make on value-add support is impacting financial advisor attitudes and behaviors, but there is significant room to enhance these programs and tools to make them more helpful to practitioners.

So says a new report from Practical Perspectives, an independent consulting, competitive intelligence, and research firm working with wealth management providers and distributors.

The 76-page report, “Value Add Support to Financial Advisors – Insights and Opportunities 2013,” examines the types of value add support currently provided to financial advisors by product manufacturers and distributors. BlackRock/iShares is by far the most frequently listed provider of useful value-add support, followed by American Funds, JP Morgan, MFS, Jackson, and Fidelity.

The report is based on input from over 600 financial advisors gathered through an on-line survey conducted in May 2013. Those surveyed include full service brokers, independent brokers, financial planners, Registered Investment Advisors (RIAs), and bank representatives.

Scant advisor interest in social media

The analysis reviews what influence these programs have on advisor perceptions and behaviors, which firms offer the most useful value add support, and what enhancements advisors desire for value add support. It also examines the topics for support that are of most interest to advisors in the next 12 to 24 months.

Most advisors use value-add support in some form and find it helpful to running a practice. Yet satisfaction with these value add programs is modest, at best, and advisors desire more programs and tools that can be used directly with investors and which are implementation oriented rather than theoretical or academic.

“Product providers are spending tens of millions of dollars on these programs each year to build awareness, loyalty, and sales. Many advisors indicate these programs do influence key factors such as their willingness to consider a particular provider or their loyalty to a provider. The challenge for firms is to differentiate and evolve their programs so advisors will take advantage of the support offered,” said Howard Schneider, president of Practical Perspectives and author of the report, in a release.

Highlights

Other findings of the report include:

Most advisors perceive value-add programs and tools to be useful and rate these programs highly, relative to other forms of sales support.
Nearly 1 in 3 advisors (31%) find value-add support to be very useful and roughly 1 in 2 advisors (46%) find it to be somewhat useful.
At least 3 in 4 advisors indicate that these programs and tools impact their practice, including 28% who believe it has a significant impact.
More than 2 in 3 advisors (69%) perceive value add programs as influencing their overall impression of a provider, including 1 in 4 who rate the impact as significant.
Advisors are divided on the type of value-add support that is most critical in the next 12 to 24 months. Investment, economic, and product issues (32%) and client engagement and development (30%) are of greatest interest.
Most advisors do not perceive receiving help using social media to be important.

The report is available for purchase by contacting: [email protected]

Solvency Isn’t Social Security’s Only Problem

Posted on May 30, 2013 by Eugene Steuerle -

Social Security has morphed into a middle-age retirement system. Despite its great success, its growth in lifetime benefits over time has been decreasingly targeted at its major goals. Even while programs for children and working families are being cut, combined lifetime benefits for couples turning 65 rise by an average of about $20,000 every year.

Couples in their mid-40s today are scheduled to get about $1.4 million in lifetime benefits, of which $700,000 is in Social Security and the rest in Medicare. Typical couples are receiving close to three decades of benefits. Smaller and smaller shares of Social Security benefits are being devoted to people in their last years of life.

If people were to retire for the same number of years as they did when benefits were first paid in 1940, a person would on average retire at age 76 today rather than 64. Soon close to a third of adults will be on Social Security, retiring on average for a third of their adult lives.

While Social Security did a good job reducing poverty in its early years, it has made only modest progress recently, despite spending hundreds of billions of dollars more. The program discourages work among older Americans at the very time they have become a highly underused source of human capital in the economy.

The failure to provide equal justice permeates the system. The existing structure discriminates against the working single head of household and the couple with relatively equal earnings between spouses. At the same time, private retirement policy leaves most elderly households quite vulnerable.

Out of the box thinking needed
Unfortunately, the Social Security debate has largely proceeded on the basis of being “for the box” or “against the box.” The contents themselves deserve scrutiny.

While I applaud the efforts of the Simpson/Bowles Commission and the Bipartisan Policy Commission I believe we can go much further to address the problems I just raised. How? We should start with a basic set of principles and see where they lead us.

Consider. Inevitably, we will pay for balancing the system mainly through benefit cuts or tax increases on higher income individuals, who have most of the resources. That debate need not derail other needed reforms. I suggest the following reforms aimed at meeting Social Security’s primary purposes:

Provide greater protections for those truly old or with limited resources
Support the work and saving base that undergird the system
Provide more equal justice for those suffering needless discrimination in the system, like single heads of household and longer-term workers.

Second, further adjust minimum benefits and the rate schedule and indexing of that schedule over time to achieve final cost and distributional goals. The extent of these adjustments will also depend upon the tax rate and base structure agreed upon.
Some of those fixes cost money, and some raise money. We don’t have to address trust fund and distributional consequences in each and every change.

Eugene Steuerle, an Institute fellow and the Richard B. Fisher Chair at the nonpartisan Urban Institute, is a former deputy assistant secretary of the Treasury.

Gradual versus Lump-Sum Annuitization: The Jury is Still Out

Posted on May 30, 2013 by Editor Test -

What if participants could contribute to deferred income annuities (DIAs) through their defined contribution plans? Would this option give them a safe way to lock in retirement income in advance, while diversifying their interest rate risk and leveraging the time value of money? In terms of maximizing future income, would this strategy outperform the purchase of a single-premium immediate annuity (SPIA) with a lump sum at retirement?

Analysts in the R&D section of Strategic Advisors, Inc., the registered investment advisor of Fidelity Investments, recently compared the hypothetical outcomes of two parallel strategies: Using small percentages of the bond or cash portions of a balanced retirement savings account to make incremental purchases of a DIA for several years before retirement and saving to buy a SPIA at retirement.

Their conclusion after exhaustive calculations: It depends. The experiment showed them what they had probably already guessed: that the outcome depends to a significant degree on when the annuity purchases (incremental or lump-sum) were made. In other words, it depends on luck.

In their study, Fidelity’s Steven Feinschreiber, a senior vice president, Prazenjit Mazumdar, specialist, and Andrew Lyalko, director of R&D, tested the two strategies under thousands of conditions. They used deferral periods of five, 10 and 15 years. They tried the two strategies over a myriad of historical periods, starting in 1926. They used two target equity allocations: a constant level of 50% equity exposure in the total portfolio at retirement or a constant 50% exposure within only the risky (non-DIA) portion of the portfolio.

In one hypothetical, for instance, a 50-year-old man making $55,000 a year dripped 0.33% of his tax-deferred account assets (starting balance: $225,000; contribution rate: 12%) into a DIA each month. In a second hypothetical, a 55-year-old man dripped 0.5% per month. In a third, a 60-year-old man dripped 1% per month. Each intended to retire at age 65. (See Fidelity chart below.)

Meanwhile, in a parallel universe, three similar men with similar assets were letting their accounts grow, without making contributions to a DIA. Three equity allocations during the accumulation period were also tested: 20%, 50% and 70%.

The results, in terms of accumulated wealth at retirement (present value of annuity plus excess accumulation) and percentage replacement of pre-retirement income, were inconclusive. The DIA strategy modestly outperformed the lump-sum strategy when the equity allocation of the entire portfolio was held constant, but the lump-sum strategy modestly outperformed the DIA strategy when the equity allocation of only the non-DIA portion of the portfolio was constant. Longer deferral periods delivered slightly better results than shorter deferral periods. Higher equity exposure was associated with better outcomes.

So it’s too soon to say that gradual purchase of retirement income is better than lump-sum purchase. Just as important, the results revealed a wide historical variation in the outcomes of DIA incremental purchase strategies. That suggests that it would be difficult to recommend this strategy to retirement plan participants, because they would all have different outcomes based on luck.

Feinschreiber et al suggest further avenues of research, such as testing the effectiveness of buying the same amount of future income each month, contributing equal dollar amounts to the DIA each month, and aiming for a target income replacement rate.

Fidelity doesn’t offer its own DIA. But it does support a web-based platform where advisors and consumers can buy DIAs directly from a number of insurance companies. And it owns a life insurance company. As the largest retirement plan provider in the U.S., it also presumably has more than a casual interest in the potential use of DIAs as in-plan annuity options.

A DIA with Dividends

Posted on May 30, 2013 by Kerry Pechter -

Many financial services companies believe themselves to be, or claim to be, the retirement company. One of them is Northwestern Mutual, although the Milwaukee-based firm ranked just 18^th in variable annuity sales in 2012, with $1.43 billion in premium.

But as a mutual insurer, the 155-year-old concern, which once called itself the “Quiet Company,” doesn’t need to impress Wall Street with top line numbers. It worries more about how well its career agents satisfy their clients’ needs. And, increasingly, those clients say they need guaranteed income.

Consequently, the firm is now one of the eight or nine life insurers that offer deferred income annuities (DIAs), a new class of product that enjoyed a 147% increase in sales in 1Q 2013 year-over-year. (Another eight companies are building DIAs, according to a recent LIMRA-CANNEX survey.)

Northwestern Mutual introduced its Select Portfolio Deferred Income Annuity last October exclusively through its 7,000-member career force. Its initial sales were strong for this category: $63 million in the final quarter of 2012 and $94 million in the first quarter of this year. Total industry sales in 1Q 2013 among six reporting carriers were $395 million, LIMRA said. The sales leaders are MassMutual, New York Life and Northwestern Mutual, another source said.

Dividends are the difference

The distinctive aspect of the Select Portfolio is that, while the basic income under the contract is fixed, the contract owner earns annual dividends over the entire life of the contract. The guarantee is 2%. They start low and gradually scale up. After the 10^th contract year, they equal the dividend that Northwestern Mutual declares for the contract.

“If somebody gives us $100,000 at age 55, we might start the dividend at 3.5% and grade up by 20 basis points each year to 5.5% after 10 years,” Greg Jaeck, Director, Life and Annuity Product Development, told RIJ.

In today’s yield-starved environment, he expects that kind of sweetener to attract attention. The dividend strategy is designed to give the contract owner more income, an opportunity for cash out, or inflation protection. At the time of purchase, the company assumes a 2% account growth rate in order to calculate the monthly payment the contract owner will receive on the income start date.

As dividends accrue, the contract owner can apply any excess (above the 2% guaranteed accrual) to enhance the income stream or receive it as cash during retirement. The dividend rate for DIA owners starts below the regular policyholder dividend rate, Jaeck said, to reflect the dilutive effect of new premia on the general account assets and to protect the interests of existing policyholders.

Exactly how the dividends for each contract owner are calculated and how they translate into income payments is not entirely transparent. Independent advisors might call it a black box. But independent advisors don’t distribute the product, so that particular marketing/communication problem never arises. (Career agents don’t need to worry about “annuicide” either.)

Unlike DIAs from other big mutual insurers like Guardian, New York Life and MassMutual, Select Portfolio DIA isn’t offered on the Fidelity DIA platform, where consumers can buy direct. The Select Portfolio DIA differs from most other DIAs in other ways. It has a deferral period of up to 60 years. It is a single-premium product. Like others, it offers a death benefit during the deferral period, a joint-and-survivor option, and period certain options. (Northwestern Mutual introduced a less flexible DIA, without dividend accrual, in May 2011, and still offers it.)

Two illustrations

How does Northwestern Mutual’s Select Portfolio DIA work under hypothetical conditions? The product brochure offers two examples.

Scott, age 50, $250,000 premium, 15-year deferral

In the first hypothetical, 50-year-old “Scott” uses $250,000 from a 401(k) account at a former employer to buy a single life contract with a 10-year period certain and a death benefit during the deferral period. (The death benefit entitles him to delay his start date if he wishes.) The premium allows him to lock in a fixed floor income of $14,805 starting at age 65. But because he applies all of his dividends to his income during the 15-year deferral period to future income, his guaranteed floor income at age 65 climbs to about $21,000.

Wait, there’s more. Starting at age 65, Scott uses 20% of his annual dividends to enhance his income payments and takes the remaining 80% in cash, in the amount of about $12,000. So, according to the illustration, his starting income at age 65 on the $250,000 initial purchase premium is $33,190. He maintains that strategy, and his income plateaus at about $35,000 for the next 35 years—perhaps because his dividend payout shrinks as his original premium is paid out.

Chris and Jennifer, both age 60, $350,000 premium, 5-year deferral

In the second hypothetical, a 60-year-old married couple, Chris and Jennifer, want their income payments to begin when they reach age 65. Jennifer uses the $350,000 in her rollover IRA to buy a joint-and-survivor contract with a deferral period death benefit. Like Scott, she applies 100% of her dividends to the income payments during the five-year deferral period and takes 80% of the dividends in cash during the income period.

Their income floor during retirement will be $15,159. The dividend enhancement brings it to $21,855 at the start date when both are 65. Dividends will raise their income to a peak of about $28,000 at age 75, and then subside slightly to a plateau of about $25,000 after age 90.

The average premium so far for the product has been about $200,000, Jaeck said. That’s about double what some other DIA issuers report receiving. The fact that the Select Portfolio DIA is a single-premium product and others are flexible-premium may be a factor, but it’s impossible at this point to say for sure. About half of the contracts are joint-and-survivor, the average age of purchase is 59. Clients are deferring income for an average of 8.3 years; 87% of deferral periods are less than 15 years.

DIAs are safer

With sales of virtually all other types of annuities declining in the first quarter of 2013, relative to the first quarter of 2012, the rising sales of DIAs and the increasing number of insurers, both publicly owned and mutually owned, that offer DIAs, has given the annuity industry something to cheer about this winter.

Behavioral economists have long maintained that many people view annuities favorably when annuities are presented or “framed” in terms of the absolute monthly income they can deliver and not in terms of their internal rate of return on the purchase premium (usually based on the assumption that the contract owner lives to his or her average life expectancy). DIAs don’t necessarily frame annuities any differently from the way single-premium immediate annuities frame them.

Annuity marketers have long noted how difficult it is for people to sacrifice liquidity by exchanging up to hundreds of thousands of dollars in growable savings all at once for a fixed monthly income from a single-premium immediate annuity. From a behavioral perspective, the key features of the newest DIAs may be that they separate the purchase date from the income date and offer growth potential during the deferral period.

The growing supply of DIAs may also reflect the fact that they’re safer for life insurers to manufacture than variable annuities with guaranteed lifetime withdrawal benefits—while satisfying a similar hunger among Boomers for delayed retirement income with downside protection and (in some DIAs) upside potential. As Jaeck explained, Northwestern Mutual can decide to lower or raise its annual dividend as markets allow and as it sees fit.

Crump, MetLife form brokerage tie

Posted on May 28, 2013 by Editor Test -

In a new brokerage relationship between Crump Life Insurance Services and MetLife, Crump will provide sales support, underwriting, technology and brokerage services to MetLife’s financial professionals, Crump announced in a release.

Representatives from MetLife and its affiliates “will have access to a broad portfolio of non-proprietary products that offer a full spectrum of life-related insurance solutions for their clients, leveraging Crump’s tools, services and technology,” the release said.

The new partnership is effective immediately.

What the rich think about money

Posted on May 28, 2013 by Editor Test -

Long-term care and out-of-pocket healthcare costs, combined with financial support for extended-family members pose a significant risk to retirees who are trying to protect accumulated wealth, according to the U.S. Trust 2013 Insights on Wealth and Worth study of 711 American adults with $3 million or more in investable assets.

The U.S. Trust findings support previous academic studies that found that protection products such as long-term care insurance and life annuities can help prevent the exhaustion of savings or potential legacies by a parents’ or one’s own unanticipated, open-ended health care costs or extreme longevity.

“The majority of people we surveyed grew up in middle-class families and created their own wealth. They don’t see themselves as wealthy, and many are unaware of risks and circumstances that grow increasingly complex as wealth accumulates,” said Keith Banks, president of U.S. Trust. “The wealthy have been disciplined about protecting their assets from market loss, but may have a false sense of financial security. They are not adequately planning for family health concerns or for the retirement that they want.”

The wealthy have largely shifted their investment priorities from asset protection to asset growth, the Insights on Wealth and Worth study found. Yet fear still trumps greed in their investment practices. The survey found that:

47% of all respondents have created a financial plan to address long-term care needs that they and their spouse or partner might need, but only 18% have a financial plan that accounts for parents’ long-term care costs.
Only 27% of baby boomers and 16% of those over age 68 say they ever expected their parents might ask for financial assistance. Yet, one-third of Generation X and 46% of Generation Y expect their parents or in-laws to rely on them for financial assistance eventually.
63% of wealthy people feel obligated to support their parents or in-laws if needed, even if it jeopardizes their own financial security, and 55% feel a responsibility to provide financial assistance for siblings if necessary.
56% of wealthy parents say they provide financial support to their adult children.
46% of respondents have supported (not a loan) to adult family members other than their own spouse or partner
69% do not have a financial plan that accounts for the financial needs of any of these other adult family members.
88% of people surveyed say they feel financially secure right now, and 48% feel even more financially secure today than they did five years ago. Women, members of Gen X (adults aged 33 to 48) and the wealthiest of the wealthy feel less confident, and worry about income in retirement.
60% of HNW investors say asset growth is a higher priority than asset preservation, a reversal of goals from a year ago when 58% rated asset protection higher.
63% say however that reducing risk and achieving a lower rate of return is more important than pursuing higher returns by increasing risk.
56% of HNW investors have a large amount of funds still sitting in cash accounts. Only 12% are content leaving their cash on the sidelines, yet only 16% have immediate plans to move it. Two in five plan to gradually invest cash holdings over the next two years, and 35% have no plans to invest it.
57% of respondents say that pursuing higher returns regardless of the tax impact is a higher priority than minimizing taxes. Only 34% feel very well-informed about the impact of recent tax law changes on the total return of their investment portfolio.
37% of respondents (42% of men and 30% of women) feel very well-informed about how the tax law changes affect their income. And two in three respondents do not feel well-informed about strategies available to them to help minimize the impact of taxes on income, investments or their estate.
69% of high net worth investors aren’t changing investment strategy in order to minimize taxes.
86% of wealthy investors agree that a long-term buy-and-hold approach still is the best growth strategy, with 35% strongly agreeing with this.
62% of high net worth households, including 52% of those still working, are very confident they will have sufficient income in retirement, in contrast to the rest of the U.S. population.
60% of non-retirees have been calculating their retirement income by reviewing expected distributions from retirement savings accounts. Yet a large number have not adequately accounted for inflation (47%), taxes on investment income (52%), life expectancy (56%), the cost of long-term care (62%), or financial support their children (80%) or parents (82%) might need.
75% of respondents have not adequately factored into their retirement planning any increase or decrease in real estate values. Yet 23% of retirees and 52% of non-retirees (including 39% of baby boomers) say primary residential real estate is important to funding their retirement.
33% of high net worth adults under the age of 49 envisions working beyond age 65. Meanwhile, 60% of Boomers, many already in retirement, now have plans to work beyond age 65.
Once retired from their current occupation, 11% of respondents say they are likely to continue working full-time in a new endeavor and 41% expect to continue working on a part-time basis. More than half (54%) of the wealthy would like to spend time volunteering.
About 25% of survey respondents attribute the majority of their wealth to an inheritance. Those who have inherited wealth are more likely to want to leave an inheritance themselves.
77% of people who inherited the majority of their wealth, and 63% of those who earned it, consider it an important goal to leave a financial inheritance to the next generation.
Two in three baby boomers do not expect to receive an inheritance; 57% of adults under the age of 32 do expect an inheritance.
64% of baby boomers, compared to 78% of adults younger than age 32 and 72% of those over age 68, think it’s important to leave an inheritance.
Only 42% of wealthy parents agree strongly that their children are/will be well-prepared to handle their inheritance. Few wealthy parents believe their children will be mature enough to handle their wealth before the age of 25.
Just 39% of parents whose children already are age 25 or older have fully disclosed their wealth to children, while 53% have disclosed just a little and 8% have disclosed nothing at all.
88% of parents agreed that their children would benefit from discussions with a financial professional. One in three (31%) respondents received formal financial training themselves from a professional advisor. Yet only 16% of parents have provided, or have plans to provide, their children with access to formal financial skills training.
Two-thirds of wealthy parents say they would rather have their children grow up to be charitable than to be wealthy.
89% of wealthy parents believe their children appreciate the value of a dollar and the privileges of growing up in a family with good fortune. However, half of parents (51%), particularly those with young children, think their children feel entitled to a lifestyle that was worked hard for, and 47% worry that, by growing up without knowing what it’s like to go without, their children may not attain the same level of success.

Despite awareness of the importance of estate planning, Insights on Wealth and Worth found:

72% of respondents do not have a comprehensive estate plan, including 84% of those under the age of 49, and 65% age 49 or older.
55% have never established a trust of any kind, primarily for two reasons: procrastination and the mistaken notion that outlining wishes in one’s will precludes the need for a trust.
60% of respondents have named, or intend to name, their spouse or partner as executor of their estate. Only 32% consider the financial knowledge and skills of the person they name as their executor. Having sufficient legal and financial knowledge was cited as the top difficulty in serving as an executor by those who already have served, particularly by women.
67% of respondents say they have organized their personal, financial, medical and legal records and information in one place, but 46% have not informed the executor of their estate about how to access the records.
55% of respondents say they have organized passwords for accessing digital records or accounts, but 63% have not specified their wishes authorizing access to the passwords or to any online assets.
65% of wealthy households surveyed own investments in some type of tangible asset, ranging from real estate to oil and gas properties to farmland, a trend particularly evident among younger investors. One-third (35%) of investors under the age of 32 say that tangible investments are important to their overall wealth strategy given the current tax, political and economic environment.
60% of wealthy individuals feel that they can have some influence on society by how they invest, and 45% agree that it’s a way to express their social, political and environmental values.
Nearly half (46%) of respondents feel so strongly about the impact of their investment decisions that they would be willing to accept a lower return from investments in companies that have a greater positive impact; 44% would be willing to take on higher risk.
51% of those surveyed, including 65% of women and 67% of investors under age 49, think it is important to consider the impact of investment decisions on society and the environment. Yet only one in four investors has reviewed their investment portfolio to evaluate its impact on these concerns.
59% of high net worth individuals dedicate a portion of their wealth to the collection of valuable assets such as such as fine art, watches and jewelry, antiques, fine wines and rare coins and books or classic and high-performance cars. Only about half of those with collections have insurance. Only 19% of collectors have discussed or outlined their wishes for the collection with future heirs.

Additional survey findings from the 2013 U.S. Trust Insights on Wealth and Worth can be found at www.ustrust.com/survey.
Findings are based on a nationwide survey of 711 high net worth and ultra high net worth adults with at least $3 million in investable assets, not including the value of their primary residence. Respondents were equally divided among those with $3 million to $5 million, $5 million to $10 million, and $10 million or more in investable assets. The survey was conducted online by Phoenix Marketing International in February and March of 2013.

Eight more insurers to issue DIAs: LIMRA

Posted on May 28, 2013 by Editor Test -

Eight insurance companies plan to introduce their own deferred income annuities (DIA) in addition to the nine who already do, according to a recent LIMRA-CANNEX study of seven DIA products. In its release about the study, LIMRA and CANNEX did not name the eight new entrants.

Also referred to as a longevity annuity, deferred payout annuity, or advanced life-delayed annuity (ALDA), a DIA pays income to the policyholder starting at least 13 months from the policy date. The traditional single-premium immediate income annuity (SPIA) provides income beginning within 13 months after purchase.

The deferred income annuity is designed to help jump-start the long-awaited annuity boom by appealing to the millions of soon-to-retire Baby Boomers in the U.S. who anticipate needing guaranteed income five to 10 years or more from now.

The LIMRA-CANNEX study, Features in Income Annuities—Immediate and Deferred Income Annuity Designs, noted these differences and similarities of immediate and deferred income annuities.

Multiple contributions: Current designs of deferred income annuities differ from immediate income annuities in several ways. One key difference with a DIA is the ability to make multiple contributions before the income start date. Most (four out of seven) of the current products allow you to make multiple contributions into the contract.
Income commencement date flexibility: Another difference between the immediate and the deferred income annuity is the ability to choose a wider range of income commencement dates. With the DIA the income can be deferred for as short as 13 months to as long as 45 years. Most (six out of seven) of the current products allow you to change that commencement date. Five of those six companies allow the date to be deferred up to five years after the original payout date.
Liquidity features: Many of the immediate income annuity liquidity features are also available in a DIA. In fact most (five out of seven) DIAs have at least one liquidity feature. Three of the six companies offer the accelerated payment option. Two of the six offer some access to a commuted value of the guaranteed payments. One company offers 100% liquidity (life included) within 60 days of starting income payments.
Income flexibility: Most (five out of seven) of the DIAs have a cost-of-living adjustment option. No carriers differentiate the range of COLA rates offered based upon contract types such as life only or period-certain contracts. One insurance company offers a lower maximum COLA rate for deferred income annuities funded by qualified funds. Currently there are no DIA companies that link the payments to the consumer Price Index.

While still a small percentage of the overall income annuity market, the study also showed that deferred income annuity sales reached more than one billion dollars in 2012.

Wealth2k Introduces Social Security Wise™

Posted on May 28, 2013 by Editor Test -

Aggressive financial advisors are always looking for ideas to pitch to their clients—either to generate revenue, to justify their asset-based fee, or merely to stay in touch.

Sometimes these ideas hide in plain sight—like strategies or software to optimize Social Security benefits—until someone identifies their value. Then everyone else picks up on it.

Wealth2k has introduced Social Security Wise, a “turnkey prospecting solution” or content-marketing solution that can “help advisors build a bridge to consumers who need assistance in crafting retirement income plans,” according to a release from Wealth2k. The monthly subscription cost is $45/month. There is no term commitment.

According to Wealth2k Founder & CEO, David Macchia, “Software programs have made it easy for advisors to analyze the results of different Social Security claiming strategies. This has been an important development. But the major challenge facing advisors today isn’t analysis, it’s prospecting. Social Security Wise fills a gaping need in the marketplace for a compliant, consumer-facing solution that generates new prospects for retirement income planning.”

Social Security Wise aims to provide these benefits for financial advisors:

Advisor-branded Social Security Learning Center
Prospecting tool
Lead-generation strategies
Compliant content (FINRA comment letters covering Social Security Wise content are available on request.)
iPad, iPhone and Android device compatibility
Income planning discussion openers
Google AdWords marketing module
“Drip” mailing campaign tools to drive traffic to the advisor’s website
Integration with social networking sites

Wealth2k, Inc., based in suburban Boston, provides The Income for Life Model, an advisor-centric retirement income solution for mass-affluent investors, among other products and services.

Top Annuity Issuers of 1Q 2013: LIMRA

Posted on May 27, 2013 by Editor Test -

(Click on chart to download full-size pdf.)

How to See ‘Unknown Knowns’

Posted on May 27, 2013 by Editor Test -

The likelihood of “black swan” events and our ability to foresee them or not has been a focus of debate among academics since the financial crisis. It’s not clear if hedge fund managers or other market mischief-makers pay much attention to what academics say about this issue, but maybe they should.

At two conferences this spring, one sponsored by the Wharton School’s Pension Research Council and the other at a Society of Actuaries gathering in Toronto, two specialists in risk-assessment weighed in with their thoughts on the matter. Their presentations were among the most entertaining at their respective conferences.

Guntram Werther, Ph.D., professor of strategic management at Temple University’s Fox School of Business, told actuaries that forecasters who missed the approach of the financial crisis just weren’t very good forecasters. They were blinkered by overspecialization and a fixation on inadequate models.

“Just because an event was broadly missed, that doesn’t make it unpredictable,” Werther said. “In many cases, someone, or many people, foresaw it and were ignored.” That was the case in the 2008 financial crisis, where many writers pointed to the dangerous over-expansion of leveraged lending years before the actual crash.

Werther (at right) quoted former Secretary of Defense Donald Rumsfeld’s famous remark about “known knowns, known unknowns, and unknown unknowns.” But he added that there are also what Irish commentator Fintan O’Toole less famously called “unknown knowns”—information that was available at the time but that an analyst or an economic model simply missed, for a variety of reasons.

Overspecialized education is one of Werther’s bogeymen. Many of history’s best prognosticators have been people who, however well-trained in a specific field, also have a knowledge of comparative history, philosophy, religion, psychology, as well as different legal, political and economic systems. He came close to advocating a revival of liberal education, at least at the undergraduate level.

Dicey

At the Pension Research Council’s annual gathering in Philadelphia, Tim Hodgson, senior investment consultant and head of the Thinking Ahead Group at TowersWatson, explained that our tendency to focus on averages blinds us to the risk of rare but catastrophic events.

More intriguingly, he suggested our analytic tools make a faulty implicit assumption about the nature of time and the existence of parallel universes. They assume that “we have infinite lives all running in parallel,” rather than a single life, he wrote in a paper submitted to the conference.

Hodgson (left), whose Thinking Ahead Group has published annual rankings of systemic threats to civilization, explained that we often, and foolishly, rely on averages of alternate outcomes in order to evaluate a decision—as though we could experience all of those outcomes and arrive at a net gain or loss.

He gave the example of rolling a die six times: If you roll numbers one through five, you win an amount equal to 50% of your wealth. If you roll a six, you lose all your wealth. The average of these outcomes—the “expected return”—is a 25% gain, he said, which suggests that you should roll the die.

But that average masks the fact that you have a one-in-six (16.7%) risk of losing everything you have. Which explains why most people instinctively shy away from an offer like that, Hodgson says. He also points out that catastrophic, irrecoverable losses might be rare in the stock market, they can easily occur if a pension fund becomes insolvent.

Regarding the retirement savings crisis, Hodgson noted that it’s not hard to imagine an individual socking away 10% of pay for 45 years, earning a real return of 3.5% and funding a 21-year retirement with savings equal to about 10 times final earnings. Any single person might have a good chance of accomplishing that, all things being equal.

But the likelihood that everyone can accomplish this feat is much lower, he points out. Americans are always accused of under-saving. But the current average savings level of about 3.3%, he said, might represent an equilibrium. Additional saving might trigger Keynes’ paradox of thrift, where over-saving leads to under-consumption and an economic slowdown.

If we’re already saving as much as we can without creating unintended consequences, he adds, then the idea that, collectively, we can all afford the kind of retirement we imagine (based on our experiences during the singular post-World War II boom) is mathematically unlikely. There will be winners and losers—perhaps more losers than winners—but most Americans seem to accept that.

Do Annuities Reduce Bequest Values?

Posted on May 27, 2013 by Joseph A. Tomlinson, CFP -

The widely held view that annuities reduce bequest values is too narrow. Adjustments can be made in retirement portfolios to reduce retirement risk without sacrificing the value of one’s bequest. Here’s how retirees can purchase annuities, adjust allocations in remaining assets and achieve improved retirement outcomes.

An example
Let’s take a 65-year-old retired female with retirement savings of $1 million, who requires $30,000 each year with annual inflation increases. I assume that she has a 22-year average life expectancy and treat longevity as variable in the analysis. I use Monte Carlo simulations of investment performance with stocks assumed to earn an average annual return after inflation of 4.8% with a standard deviation of 20.3%, and bonds assumed to earn a 0% real return with a 5.7% standard deviation.

I assume investment expenses of 0.15%. These returns are significantly lower than historical averages and reflect the reasoning in my February 2013 Advisor Perspectives article on asset class returns. Because I’ve assumed lower-than-historical returns, I’ve reduced the withdrawal assumption to 3%, from the more typical 4% used in retirement planning research. (Photo of Joe Tomlinson. This article originally appeared in Advisor Perspectives.)

To measure retirement success, I use the probability of running out of money and expected bequest values. In order to facilitate comparisons in today’s terms, I calculate bequests as present values and use a discount rate of 2.97% after inflation, which is the estimated return for a 65/35 stock/bond portfolio. All the analysis is pre-tax.

If the woman in this example invests in a 65/35 portfolio, the modeling indicates that she will leave an average bequest with a present value of $524,000 and face a 9% probability of depleting her savings during retirement. If she were concerned about the risk of running out of money, an option would be to be to purchase an inflation-adjusted single-premium immediate annuity (SPIA) to provide an income to meet the withdrawal needs.

Based on rates from Income Solutions®, the current payout rate for a 65-year-old female with such an annuity is 4.19%. An annuity generating an initial annual income of $30,000 would cost $716,000, leaving $284,000 to invest. By purchasing the SPIA, she could completely eliminate the risk of depleting her savings, but the present value of her expected bequest would be reduced to $284,000, down from $524,000.

Therefore, purchasing the SPIA would be the equivalent of paying a $240,000 fee today to eliminate the retirement shortfall risk. Given this cost, her reluctance to purchase a SPIA would certainly be understandable. But something is missing from this analysis.

Adjusting for risk
Not only does the SPIA purchase reduce the risk of running out of money, but also it dramatically reduces overall investment volatility. A SPIA is essentially a fixed income investment with the additional benefit of pooled longevity. In effect, the SPIA purchase converts a 65/35 stock/bond portfolio to an 18/82 portfolio, if the $284,000 that is left over is invested 65/35. The reduction in bequest values reflects the shift to fixed income. It does not reflect an inadequate return or other deficiency in the SPIA product.

Conceptually, the stock allocation could be increased for the remaining $284,000 above 65/35 in order to bring overall allocations more in line with the original systematic withdrawal strategy. To analyze the impact, we can compare expected bequest values, but we also need to measure how changes in stock allocations affect the volatility of bequests.

For this analysis, I measure bequest volatility as the change in the present value of bequests from a 1% reduction in average assumed stock returns. I run Monte Carlo simulations with reduced stock returns, and my risk measure is the difference in the expected present value of bequests before and after the return reduction. Strategies with heavier allocations to stocks will show more bequest volatility. The chart below presents outcomes based on this type of analysis.

Comparison of strategies
Based on this volatility measure, the purchase of the SPIA without changing the allocation of remaining assets reduces risk by almost two-thirds. Even going to 100% stocks with remaining assets is not sufficient to bring the expected bequest back to the systematic withdrawal level, but there is room remaining to increase volatility. One way would be to invest in a higher beta stock portfolio. I tested a portfolio with a beta of 1.25, which raises the real return to 5.85% and volatility to 25.40%.

It brings the expected bequest present value up to $512,000, but it overshoots on the volatility measure, raising it to $102,000. So we are not able to get all the way to the original bequest with the same or lower volatility, but we are able to move substantially in that direction.

Alternate strategies

I also tested strategies using SPIAs somewhat differently and using other annuity products. I’ll briefly describe various strategies and provide a chart comparing outcomes.

Reduced SPIA purchase – If the SPIA rate is greater than the required withdrawal rate (4.19% versus 3% in this example), purchasing a SPIA to cover a portion of withdrawals will lower the percentage withdrawal requirement on the remainder. For example, it would cost $609,000 to purchase a SPIA to provide an inflation-adjusted income of $25,500 (85% of the required $30,000). That would leave $391,000 to provide withdrawals of $4,500 to complete the $30,000 – a withdrawal rate of only 1.15%. So it may be feasible to reduce SPIA purchases slightly and invest more in stocks, without much risk of depleting savings.

SPIAs with fixed annual increases – It’s expensive to purchase SPIAs that provide increases based on actual inflation, as I demonstrated. An alternative is to purchase an annuity with fixed annual step-ups targeting expected inflation. For example, if expected inflation based on Treasury and Treasury inflation-protected securities spreads is 2.30%, the payout rate for a SPIA with 2.30% annual step-ups is 4.91% This beats the 4.19% payout for a true inflation-adjusted SPIA.

Deferred income annuities (DIA) – These products are like SPIAs, but with long deferrals before annuity payments begin. For example, a client could purchases a DIA at age 65 with payments beginning at 85. The product is offered with level payments and with step- ups. There are choices to be made about how to invest funds to support withdrawals during the deferral period. One approach, similar to the SPIA strategy, involves using a bond ladder. Performance will depend on both DIA pricing and yields earned on the bonds.

Variable Annuities with Guaranteed Lifetime Withdrawal Benefits (VA/GLWB) – There are low-cost versions with annual charges on the order of 1.5% (for the annuity, investment expenses and the guarantee), including a directly-offered Vanguard product and institutional products beginning to be offered in 401(k) plans. There are also commission- based higher-priced versions with charges averaging about 3.5%.

The chart below shows outcomes for these strategies, with the systematic withdrawal outcomes repeated at the top for comparison. All of these alternative strategies, except for the VA/GLWB, assume excess funds not needed for annuity product purchases or bond ladders are 100% invested in stocks.

Alternative strategies
Reducing the SPIA purchase to cover 85% of required withdrawals moves further toward the systematic withdrawal bequest outcome, compared to purchasing an SPIA and investing the remainder entirely in stocks (see first chart, $415,000). The probability of failure is not zero, but it is substantially reduced from pure systematic withdrawal, and the bequest volatility measure is about equivalent.

The SPIA with fixed step-ups exceeds the systematic withdrawal expected bequest with similar bequest volatility. The probability of failure is shown as greater than zero because it cannot be precisely measured. Payments will continue for life, but there may be some positive or negative mismatch depending on how actual inflation turns out in relation to the step-ups.

For the DIA strategy, I’ve tested a bond ladder with a nominal yield of 2.35%, as well as a bond ladder with an assumed 1% corporate bond spread. The DIA strategy with a higher- yielding bond ladder gets close to the systematic withdrawal bequest numbers. An advantage the DIA has over the SPIA is that the up-front commitment is much less, and there is more liquidity. Fixed step-ups of 2.30% are assumed for the DIA, so the failure probability is similar to the SPIA with fixed step-ups.

Bringing a VA/GLWB into this comparison presents complications because, for a 65-year- old, these products typically allow 5% withdrawals with potential increases based on investment performance, but those increases are usually less than actual inflation. I analyzed these examples assuming the purchase of a large enough VA to provide some overpayment in the early retirement years to compensate for expected underpayments later.

Because the VA/GLWB product itself involves a mix of stocks and bonds (with a typical maximum stock allocation of 65%), allocating remaining funds 100% to stocks no longer works – it overshoots on volatility. I found that allocating 75% to 80% of the remaining funds to stocks keeps volatility within reasonable bounds. I show examples based on a low-cost product and a high-cost product. The low-cost product does very well on the bequest versus volatility tradeoff – perhaps the best of all the strategies – although this result is uncertain because of all the assumptions and approximations. The higher cost VA/GLWB shows the give-up in bequest value resulting from the higher charges.

Except for the higher cost VA/GLWB, all annuity products used in the examples are low- cost versions, which explains the rough similarity of results for the various strategies. One might be tempted to fine-tune these strategies to determine which is optimal, but the outcomes are results of the particular structure of this example and of the underlying investment assumptions, so I do not believe such fine-tuning is warranted.

When evaluating annuity products, take a holistic view of combinations of products and investment strategies and avoid a narrow focus on only part of the picture.

Conclusion

It is feasible to use a portion of one’s retirement assets to purchase annuities, while aggressively allocating remaining assets in ways that dramatically reduce the risk of depleting savings without sacrificing bequest values. This approach gives advisors more flexibility in choosing which annuity products to recommend. Rather than favoring a particular product, I recommend choosing a low-cost annuity product and making portfolio adjustments to meet objectives. Client characteristics are always important in determining which strategy works best.

Joe Tomlinson, an actuary and financial planner, is managing director of Tomlinson Financial Planning, LLC in Greenville, Maine. His practice focuses on retirement planning. He also does research and writing on financial planning and investment topics.

Lower VA reserves on guarantees boosted life insurer income in 2012: Fitch

Posted on May 23, 2013 by Editor Test -

Statutory capital growth among life insurers in 2013 will be moderate given the expectation of modest operating earnings growth due to the ongoing effects of low interest rates, according to a new report from Fitch Ratings that reviews statutory trends for U.S. life insurers for 2012 and implications for 2013.

U.S. life insurers reported strong growth in statutory capital and net income in 2012, which will lead to improved statutory dividend capacity in 2013 for parent company debt service and other funding needs, a Fitch release said.

Statutory net income for the Fitch universe of life insurers increased to $34 billion in 2012 compared to $9 billion in 2011, the highest level in five years. The majority of the 2012 net income change came from large variable annuity companies who reported lower reserves on guarantee benefits, which more than offset the negative impact associated with low interest rates. Fitch notes that reporting of hedge-related derivatives performance as a non-operating item can significantly affect the reported levels of net income.

Statutory capital improved 10% in 2012 for the Fitch universe of life insurers, largely driven by retained statutory earnings. As a result, Fitch estimates that the aggregate NAIC risk-based capital improved to 486% at year-end 2012 compared to 465% for 2011. Fitch believes that many insurers will be careful to maintain their RBC levels through 2013 to mitigate perceived risks in the capital markets and low interest rate environment.

Results in 2012 continued to benefit from modest realized investment gains. Overall investment losses are expected to remain low and within Fitch’s expectation of losses over the next 18 months. The source of realized capital losses/impairments appears to be returning to the more traditional sectors of corporate bonds, although structured bonds continue to contribute more than their long-term historic norm largely driven by commercial mortgage-backed securities.

Fitch does not expect a significant improvement in portfolio credit quality or liquidity in 2013 due to the pressure for investment income. Insurers will continue to move more of their portfolios to bonds rated ‘BBB’, discounted structured securities, commercial mortgages loans or limited partnership investments.

Insurance now a riskier business: State Street

Posted on May 23, 2013 by Editor Test -

A “perfect storm of shifting variables” is pushing insurers to change the way it does business, according to a survey of 300 insurance leaders by State Street Corporation and The Economist Intelligence Unit that is to be released next month.

The study, “Facing the Future: Blueprint for Growth,” highlights three main insurer challenges: risk, regulation and the restructuring of product offerings. Among the findings:

80% of respondents say they are actively considering increasing their allocation to alternative strategies to increase yield, which may add additional, more unfamiliar risk.
More than 80% of insurers feel represents a challenge. Only 17% view the regulatory environment as not a challenge.
93% see restructuring product offerings to bring new, innovative products to market quickly as a challenge.
82% of insurance leaders say that effectively allocating capital to the most business critical priorities presents a challenge for them today. Seeking additional capital, however, is creating additional risk for insurance companies that they may not be able to handle.
49% are prioritizing allocations to alternative strategies for action within the next 12 months.
79% of insurers report that investing in more complex asset classes is a challenge for their firm.
55% say that they are looking at re-pricing new business to adapt to market conditions, including low interest rates, within the next 12 months.
82% are concerned about their ability to expand into the Asia-Pacific region successfully but 18% see no difficulty related to expansion.
42% say that insurers’ profitability will increase over the next five years.

“Ultra low interest rates [are] putting pressure on margins and evolving regulation is having a fundamental impact on operating models,” said Joe Antonellis, vice chairman of State Street, in a release. “Many insurance companies are left with operational roadblocks and dependencies — partly as a legacy of… mergers and acquisitions.”

Lincoln Financial expands VA fund options

Posted on May 23, 2013 by Editor Test -

Lincoln Financial Group today introduced several new investment options for its variable annuity product lines. The new options expand Lincoln’s investment choices for advisors who prefer to work with clients in constructing a customized portfolio.

The new investment options, which seek to reduce exposure to market risks, include seven new options for Lincoln ChoicePlus Assurance products and four new options for American Legacy products.

The new options for ChoicePlus Assurance invest in underlying funds that are managed by BlackRock, Dimensional, Fidelity, MFS and SSgA.

The new American Legacy funds now allow advisors and their clients to build their own portfolios with Lincoln’s primary living benefit riders. These selections can be combined with a fixed income option, in accordance with Lincoln’s investment guidelines, to create a diversified portfolio.

The ChoicePlus Assuranceand American Legacy risk-managed fund lineups are made up of asset allocation options, as well as individual asset class options, including large, mid and small-cap funds, as well as domestic and international market exposure.

The new funds are available to Lincoln’s national network of distribution partners.

Are ‘multi-asset income funds’ for real?

Posted on May 23, 2013 by Editor Test -

Are “multi-asset income” funds the more-effective successor to “equity income” funds? Or are they an old concept dressed in new clothes, a marketing gimmick aimed at yield-starved, risk-averse investors?

In Europe, established multi-asset income funds enjoyed record inflows in calendar 2012, according to the May issue of The Cerulli Edge-European Monthly Product Trends. Miton, Schroders, BlackRock, Old Mutual, and Deutsche Bank all launched multi-asset income funds in the past year.

“As talk of a gravy train gains currency, however, now is a good time to consider what lies beneath the multi-asset income label,” said Barbara Wall, a director at Cerulli Associates, in a release. “Multi-asset income funds are not easily categorized but a key selection criterion for advisors and end users is the number and range of assets that funds have exposure to. A multi-asset income fund that restricts exposure to equities, cash, and bonds does not cut the mustard.”

“If this strategy is to gather momentum and knock equity income off its perch, managers will need to diversify more, delve into specialist areas, and take risks,” said Yoon Ng, a Cerulli associate director. “A snappy fund label will spark interest but a sustainable high yield and a commitment to capital preservation will keep that interest alive.”

Other Cerulli findings:

As part of its growth strategy, La Francaise Asset Management has decided to launch a new incubation vehicle for distributors following a successful year for international fund sales (which represented 31% of the group’s total inflows
in 2012). The manager also plans to launch a new distribution platform in France, CD Partenaires, with an asset pool of €2.1 billion (US$2.7 billion). Meanwhile boutique Mandarine Gestion, in an effort to grow its business domestically and internationally, will be split into two specialist units: asset allocation and stock-picking.
Italian investors appear to be increasingly adventurous: asset allocation, dynamic mixed assets, global high-yield bonds, emerging market, and euro corporate high-yield bonds were the top five best-selling sectors in the market during the first quarter, gathering net inflows of €5.8 billion. Franklin Templeton funds attracted €1 billion of NNF from retail and institutional investors in March, topping the month’s sales chart.
Following in PIMCO’s footsteps, more U.S. managers are approaching the European market by launching European versions of successful funds in their home markets. Lately, Matthews Asia has rolled out a UCITS version of its Asia Small Companies funds, while Polen Capital Management is targeting U.K., Swiss, and Scandinavian investors by launching a UCITS version of its U.S. growth fund.

Can’t win for losing

Posted on May 23, 2013 by Editor Test -

Prudential Financial’s newly released 2013-2014 African American Financial Experience study shows that many African Americans are experiencing financial pain. The results of the study suggest the old expression, “can’t win for losing,” describes the predicament of many in the black community.

African Americans are significantly more likely to have debt (94%) than the general population (82%). Credit card debt, student loan debt, and personal loans are all significantly higher in the African American community. College-educated African Americans report student loan debt at a ratio of nearly 2:1 compared with all college-educated Americans.

If the Social Security claiming age were raised, African Americans would be disproportionately hurt, the findings suggest. The average retirement age for African Americans is 56, or three years lower than the U.S. average.

Averages can be misleading, of course, and they undoubtedly obscure the successes of many black Americans. “Approximately 4 in 10 households surveyed have annual incomes of at least $75,000, and nearly a quarter earn $100,000 or more. Half of African Americans surveyed said they feel better off financially than a year ago, while only 19% say they feel worse,” said Charles Lowrey, Prudential’s chief operating officer, U.S. businesses.

Defensive, not aggressive

The African-American financial stance is more defensive than aggressive, the study showed. The U.S. economy has disproportionately enriched owners of stocks, bonds and mutual funds over the past 30 years, while reducing opportunities for blue-collar workers, but relatively few African Americans own IRAs, mutual funds, stocks or bonds, according to the study.

The study indicated that the African American financial experience is largely defined by

Family-oriented priorities and goals
Greater ownership of protection-oriented financial products
Greater reliance on faith-based organizations for financial education
Financial decisions driven by women
Earlier retirement

Across all levels of affluence, African Americans are 13% less likely than the general population to have been contacted by a financial advisor. Half of African Americans surveyed say an advisor could improve their financial decisions, only 19% say they have a financial advisor.

“While the general population’s financial confidence is driven largely by level of asset accumulation and macroeconomic factors, African Americans’ financial confidence is shaped by a broader and balanced array of factors, including life insurance protection, level of debt and expenses, and health care costs,” Prudential said. The study also found that:

African Americans own insurance products, such as life and disability, at equal or greater rates compared to the general population, but are about half as likely as the general population to own investment products, such as IRAs, mutual funds, stocks and bonds.
African Americans’ priorities are “adequately protecting loved ones, leaving an inheritance and funding education,” said Sharon Taylor, senior vice president and head of human resources at Prudential.
African Americans are more likely to live in multi-generational and female-headed households, and to be financially responsible for supporting other family members. Of those surveyed, 57% provide financial support to another family member. African Americans are twice as likely as the general population to be providing financial support to unemployed friends and family.
Student loan debt also was reported as a significant obstacle to wealth building for African Americans. College-educated African Americans are twice as likely to have student loan debt.
While nearly half of African Americans say they have a 401(k) or other workplace retirement plan, and 8 in 10 of those currently eligible are contributing, African Americans’ balances within employer plans are less than half those of the general population’s, in part due to loans and withdrawals. Three in 10 have taken loans from their plan, citing the need to repay other debt.

The study is based on a March 2013 poll of 1,153 Americans who identify as African American or Black and 471 general population Americans on a broad range of financial topics. Respondents are age 25-70, with a household income of $25,000 or more and some involvement in household financial decisions.

Among those meeting the survey criterion of $25,000 or more in household income, the median household income was $61,000. The overall margin of sampling error is +/- 5% for African Americans and +/- 6% for the general population.

The 2013-14 African American Financial Experience is Prudential’s second assessment of financial trends and attitudes in the African American community. As in the inaugural survey, only about a quarter of African Americans feel any financial services company has effectively shown support to the community.

ING Group lowers stake in ING U.S. (Voya) to 71%

BNY Mellon to increase wealth management sales force by 50%

Lincoln Financial Group hires Paul Narayanan

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