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New Kids on the Blocks

Posted on January 3, 2013 by Kerry Pechter -

The landscape and perhaps the culture of the indexed annuity industry continued to evolve last month, when the units of two private equity firms announced deals to buy U.S. life insurers at bargain prices from foreign-domiciled parent companies that were eager to sell them (see chart below).

On December 17, Chicago-based Guggenheim Partners announced that its Delaware Life Holdings unit would pay $1.35 billion for Canada-based Sun Life Financial’s U.S. annuity businesses. The deal adds to Guggenheim’s existing stakes in Security Benefit Life and Equitrust Life.

Four days later, Athene Holdings, a unit of Leon Black’s Apollo Global Management, said it would buy Aviva USA—the number two seller of fixed annuities in the U.S.—from Britain’s Aviva plc for $1.8 billion. Last Friday, Athene completed its purchase of Nyack, N.Y.-based Presidential Life for $414 million.

These deals, when completed sometime in 2013, solidify the somewhat unsettling arrival of opportunistic private equity firms—through their insurance properties—in a staid business previously dominated by unexciting insurance companies. According to Beacon Research, private equity-owned companies’ total market share rose from 2.8% in 2011 to 9% in 2012. Their share of indexed annuity sales grew from 5% in 2011 to 15.4% this year.

Allianz Life, the indexed annuity specialist, remains the top issuer of fixed annuities in the U.S. But Apollo’s purchase of Aviva USA now makes Athene the second largest seller of fixed annuities in the U.S., with over $1 billion in 3Q 2012 sales.

Guggenheim is not far behind. Since acquiring Security Benefit Corp. (including Rydex Funds) in 2010, Guggenheim has used an innovative product (an annuity linked to the Trader VIC Index) and strategic marketing partners to make Security Benefit the fourth largest seller, according to Beacon Research.

The number-five issuer is American Equity, which has reinsurance relationships with both Guggenheim’s EquiTrust Life and Apollo’s Bermuda-based Athene Life Re Ltd. The number three issuer is New York Life, the giant mutual insurer that dominates the income annuity sector.

Though the deals are now concreting, they’ve been in the works for some time. The private equity firms put one foot into the life insurance industry after the financial crisis either as investment advisors to the insurers or as reinsurers. Now, as newbie owners of the operating companies themselves, they have both feet in. However, they’ve hired insurance veterans such as James Belardi, Michael Kiley, Lee Launer and Chris Grady to run the businesses.

The factors that drove the deals—aside from the obvious demographic drivers—were clear. Sun Life Financial and Aviva plc were under pressure by home country (Canada and Britain, respectively) accounting rules to divest their relatively risky U.S. subsidiaries. The low interest rate environment in the U.S. has depressed the revenues and market value of life insurance companies, making them prime targets for takeovers by cash-rich private equity firms.

At these prices, the PE firms can hardly lose. Aviva plc bought Aviva USA (then AmerUs) in July 2006 for $2.9 billion; Athene paid $1.55 billion. Presidential Life had a book value of $28 a share; Athene paid $14. Old Mutual paid $635 million for F&G Life; Harbinger paid $350 million. Sun Life sold its U.S. businesses to Guggenheim for about half their 2007 market value; shares fell another 4% two weeks ago on news of the sale.

But what happens when Wall Street predators who want to make a killing enter an industry where thousands of polite Midwesterners just want to make a living? Annuity industry observers are both positive and apprehensive about the deals (see “Private Equity Confidential,” on today’s RIJ homepage).

On the one hand, they welcome the addition of money, energy and creativity to an otherwise stagnant business. “With other insurers cutting back, it’s generally good for the industry to see some companies actively pursuing growth in the fixed annuity space,” said Judith Alexander, director of sales and marketing at Beacon Research, which gathers data on the fixed annuity industry. “The private equity firms have stepped up to the plate. They’re developing and offering competitive new products, and because of them sales are being sustained.”

On the other hand, they’re apprehensive about the arrival of an alien culture, even one that claims to come in peace. “We’ve seen this movie before,” one observer said. “We know how it ends.”

At the moment, they have many questions but few answers. Questions such as: Will the private equity firms use their savvy to make the indexed annuity industry better—or just riskier? How can they deliver greater value to customers and high returns to their investors, and still satisfy the steep capital requirements of the insurance regulators? Will they pay themselves lavish investment management fees? And what’s their exit strategy? To go public? To flip the companies in five years? Is this an interest rate play, predicated on a reversion of rates to their mean?

In their initial comments on the pending deals, major ratings agencies expressed concern and watchfulness but not alarm. Fitch Ratings placed Athene Annuity & Life Assurance Company (Athene) on Rating Watch Negative. It gives Athene a financial strength rating of BBB+. Athene will need more capital support than the $100 million that Apollo has promised to provide before the deal closes, but Athene will need more, Fitch said in a release.

A.M. Best downgraded Aviva USA a notch, to A- (Excellent) from A (Excellent), and placed the ratings “under review with negative implications.” The actions reflected A.M. Best’s concerns that Aviva USA will feel the loss of support from Aviva plc and “the challenges associated with establishing a new brand identity.” S&P downgraded Sun Life’s U.S. businesses to BBB from BBB+ last month, and revised the outlook to “developing” from “stable.”

**Private Equity Ownership of Life Insurance Companies**
Private equity fund	Guggenheim Partners	Apollo Capital Management	Harbinger Capital Partners
Owner/Senior executives	CEO Mark Walter President Todd Boehly	Leon Black	Philip Falcone
Insurance holding company	Delaware Life Holdings	Athene Holdings	Harbinger Group, Inc.
Major insurance company acquisitions since the financial crisis.	Sun Life Assurance Co. of Canada (U.S.) and Sun Life Insurance & Annuity Co. of New York. Acquisition announced December 2012 for $1.35 billion. IA American Life (American-Amicable Life). Acquired August 2012 from Industrial Alliance Insurance and Financial Services of Quebec. EquiTrust Life. Acquired in January 2012 from FBL Financial Group for $440 million. In 2009, American Equity Investment Life Holding transferred $1.4 billion in policy reserves to EquiTrust in a reinsurance agreement. Security Benefit Corp. Acquired August 2010 for undisclosed sum. (Includes Security Benefit Life, Rydex Funds, se2 business processing firm. Wellmark Community Insurance. Acquired in August 2009 and renamed Guggenheim Life & Annuity.	Aviva USA. Acquisition announced December 2012 for $1.8 billion from Aviva plc. Presidential Life. Acquisition announced December 2012 for $414 million. Liberty Life. April 2011 from Royal Bank of Canada for $628 million, renamed Athene Annuity & Life Assurance. American Equity Investment Life Holding transferred $834 million in policy reserves to Athene Life Re Ltd in a 2009 reinsurance agreement.	Old Mutual U.S. Life Holdings (Fidelity & Guaranty Life, Thomas Jefferson Life). April 2011 completed acquisition from Old Mutual plc for $350 million. Front Street Re (Cayman) Ltd.
Insurance company senior executive(s)	Michael P. Kiley, CEO of Security Benefit Corp., formerly senior managing director, Guggenheim Partners.	James R. Belardi, CEO of Athene Holding Ltd. and Athene Annuity, and Chip Gillis, CEO of Athene Life Re. Belardi was president of SunAmerica Life Insurance Company and EVP and CIO of AIG Retirement Services. Gillis ran Bear Stearns’ Insurance Solutions.	Leland C. Launer Jr., former chief investment officer of MetLife, chairman and CEO of Old Mutual U.S. Life Holdings.

The Fiscal Cliff Has Been Avoided, But at What Cost?

Posted on January 3, 2013 by Editor Test -

Some thoughts on the new fiscal agreement:

The economy needs a stimulus, but under the agreement, taxes will go up in 2013 relative to 2012—not only on high-income households, as widely discussed, but also on every working man and woman in the country, via the end of the payroll tax cut. For most households, the payroll tax takes a far bigger bite than the income tax does, and the payroll tax cut therefore—as CBO and others have shown—was a more effective stimulus than income tax cuts were, because the payroll tax cuts hit lower in the income distribution and hence were more likely to be spent.
The economy faces a long-term budget problem, but the bill substantially reduces future tax revenue relative to current law. Going over the cliff would have put us on a better budget path, but in one fell swoop Congress and the Administration put us right back on the worse budget path, less than 24 hours after we had moved to the new path.
This is another “kick the can down the road” event. It is a huge missed opportunity. Two things about this are worth noting. First, it is a really big can. The bill will cost about $4 trillion, not counting the added interest on the debt that will have to be paid. Second, the can didn’t get kicked very far. The bill did not address the debt ceiling and it pushed the sequester —which neither party wants to see implemented—back to March 1. So, we are back at another cliff-hanger in a couple of months.
The timing of the votes in the Senate and the House—in 2013, rather than in 2012—confirms the notion that the No New Taxes pledge is still a binding commitment on Republicans. Because taxes had already gone up at 12:01 AM on January 1, no Republican violated the NNT pledge by voting for the new agreement. Some of the press has reported the bill as a tax increase on high-income households. It is not a legislated tax increase on high-income households. The tax increase occurred automatically at the beginning of the year, due to the expiration of previous cuts.

William Gale is the Arjay and Frances Miller Chair in Federal Economic Policy in the Economic Studies Program at Brookings. He is also co-director of the Tax Policy Center and director of the Retirement Security Project.

Japanese firms withdrawing from occupational pension funds

Posted on January 3, 2013 by Editor Test -

A growing number of publicly traded companies in Japan are withdrawing from industry-wide employee pension funds, citing a lack of control over their portfolios and the insufficient disclosure of retirement benefit obligations, according to a report by IPE.com.

Both factors make it difficult for listed companies to provide accurate financial information to shareholders. The firms also complain of large annual premium debt, and worry that their earnings and finances could be adversely affected by the maturation of the funds in the future or by poor portfolio performance.

The board of Sato Shoji, a metals trading firm, voted in November to quit the Tokyo Metal Industry Employees Pension Fund and introduce a defined contribution pension system. Fujikyu, a major craft shop, similarly decided that it would leave the Naori Employee Pension Fund. Both companies plan to seek approval at shareholders meetings in February and permission from the Welfare Ministry.

The board of Tokai Electronics, a trading company specializing in electronic materials and devices, voted in September to leave the Naori EPF. In October, Kyoto-based Kaneshita Construction decided to depart from the Kyoto Prefecture Construction Industry Pension Fund, and clothing and accessories trader Kawabe is pulling out of the Tokyo Jitsugyo EPF.

Kawabe announced a fund shortage at Tokyo Jitsugyo EPF of ¥64.6bn ($769m), which represents the difference between pension assets and benefit obligations as of end-March 2012. Its pension obligations were ¥184.8bn. The shortfall was 5% higher than the amount disclosed in its securities report of late June.

OMAM divests five affiliates

Posted on January 3, 2013 by Editor Test -

Old Mutual Asset Management, the U.S.-based global asset management business of Old Mutual plc, has closed the previously announced transactions to sell five of its U.S. affiliates to their respective senior management teams.

The five affiliate asset managers are 2100 Xenon Group, 300 North Capital, Analytic Investors, Ashfield Capital Partners and Larch Lane Advisors. These businesses had combined assets under management of $12 billion as of September 30, 2012. Terms of the five transactions were not disclosed. Old Mutual entered into definitive agreements with the affiliate firms in October.

Old Mutual Asset Management (OMAM), a U.S. unit of London-based Old Mutual plc, is a global multi-boutique investment organization whose affiliated investment firms managed $216.7 billion as of September 30, 2012.

MassMutual completes purchase of The Hartford’s retirement plans business

Posted on January 3, 2013 by Editor Test -

Massachusetts Mutual Life Insurance Company has completed its previously announced acquisition of The Hartford’s Retirement Plans business. The transaction will nearly double the number of retirement plan participants MassMutual serves, to about three million.

Elaine Sarsnyski, executive vice president at MassMutual, will lead the combined retirement services business. She is head of MassMutual’s Retirement Services Division and chairman and CEO of MassMutual International LLC.

MassMutual’s full-service retirement plans business focuses on the mid-size market and serves corporate, union, nonprofit and governmental employers’ defined benefit, defined contribution and nonqualified deferred compensation plans.

The newly acquired Retirement Plans business from The Hartford focuses on the small- to mid-size and tax-exempt retirement markets and also provides administrative services for defined benefit programs. The combined business now has approximately 40,000 retirement plans, three million participants, and $120 billion in retirement assets under management.

Envestnet | Tamarac announces technology integration with Salentica

Posted on January 3, 2013 by Editor Test -

Envestnet | Tamarac, a provider of web-based portfolio and client management software for independent advisors and wealth managers, has entered into a strategic alliance with Salentica Inc., a provider of Client Relationship Management (CRM) and Client Reporting technology solutions for wealth managers.

Under the terms of the alliance, Salentica Advisor Desk, a CRM solution, will integrate with Envestnet | Tamarac’s Advisor Rebalancing solution.

At the financial account level, advisors will be able to respond quickly to cash requests and other client inquiries using the integrated Tamarac Advisor Rebalancing functionality from Salentica Advisor Desk. Advisors can also adjust their clients’ portfolios and account settings and access other rebalancing features from within the CRM platform.

The integration will be completed in the second quarter of 2013. Envestnet | Tamarac will continue to use other CRM technology and refine its own integrated CRM solution, Advisor CRM, the company said in a release.

EBRI and ICI publish study of 401(k) participant investments for 2011

Posted on January 3, 2013 by Editor Test -

Sixty-one percent of 401(k) participants’ assets were invested in equity securities and 34% in fixed-income securities in 2011, on average, according to the annual update of a joint study released today by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI).

The study, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2011, also finds that target-date funds play an increasingly important role in portfolio diversification, with 72% of 401(k) plans offering TDFs in their investment lineup at year-end 2011, up from 57% at year-end 2006.

At year-end 2011, 13% of the assets in the EBRI/ICI 401(k) database was invested in TDFs, up from 11% in 2010 and 5% in 2006. In addition, 39% of 401(k) participants held target-date funds at year-end 2011, compared with 36% in 2010 and 19% in 2006.

The study finds that more new or recent hires invested their 401(k) assets in balanced funds, including TDFs. For example, 51% of the account balances of recently hired participants in their 20s was invested in balanced funds at year-end 2011, up from 44% in 2010 and 24% in 2006. At year-end 2011, 40% of the account balances of recently hired participants in their 20s was invested in TDFs compared with 35% in 2010 and 16% in 2006.

The study shows at year-end 2011 that 21% of all 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts, unchanged from the prior two years. Loans outstanding amounted to 14% of the remaining 401(k) account balance, on average, at year-end 2011, unchanged from year-end 2010, though loan amounts outstanding increased slightly from those at year-end 2010.

Age, tenure, and a number of other factors affect an individual’s account balance at any point in time. Among 401(k) participants in their 50s or 60s, the average account balance of the longest-tenured participants was more than eight times larger than that of those who are new to their jobs.

At year-end 2011, the average 401(k) participant account balance was $58,991 and the median (mid-point) account balance was $16,649, with the wide variation reflecting differences in participant age, tenure, salary, contribution behavior, rollovers from other plans, asset allocation, withdrawals, loan activity, and employer contribution rates.

The 2011 EBRI/ICI database includes statistical information on about 24 million 401(k) plan participants, in 64,141 plans, holding $1.415 trillion in assets, covering nearly half of the universe of 401(k) participants.

IRI Issues a ‘State of the Insured Retirement Industry’ Address

Posted on December 20, 2012 by Editor Test -

Life insurers are adapting to the prolonged low interest rate environment and staying positioned to take advantage of the Boomer retirement opportunity, according to a new “State of the Insured Retirement Industry” report from the Insured Retirement Institute.

Billed as a “2012 Recap and a 2013 Outlook,” the 14-page report asserted variable annuities are the “dominant product sold today” and predicted that deferred income annuities, now manufactured or planned by six insurers, will sell well again in 2013.

The Washington, D.C.-based IRI, which was the National Association for Variable Annuities until 2008, advocates for the interests of manufacturers and distributors of annuities and other guaranteed products. Its members include the major life insurers, fund companies and broker-dealers.

The biggest question for the coming year, and the report covers this briefly, is whether the administration or Congress will try to generate revenue by reducing the tax incentives for savings. Defusing that threat will probably be the IRI’s number-one task in 2013.

The low interest rate environment, of course, poses an equally big problem. It’s as good for annuity manufacturers as global warming is for the world’s glaciers. But Fed policy, unlike regulatory or legislative matters, lies beyond the reach of lobbying organizations.

Among IRI’s predictions for 2013:

More marketing of fixed indexed annuities outside the independent insurance agent channel. “FIA companies are entering outside broker-dealers and should continue to grow their business through registered financial professionals.”

SPIA sales spilling into new channels. “Like FIAs, SPIAs were traditionally sold via life insurance agents. However, several new players have captured significant market share, partly due to their expanding into outside channels.”

Less emphasis on hard-to-hedge living benefits in variable annuities. “Companies are now aggressively developing new VAs that do not include a living benefit. Additional companies are expected to develop VAs without living benefits to address those interested in tax deferral, or to diversify into different asset classes.”

Lobbying action over the tax-favored status of retirement savings products. “Two potential changes could have a large negative impact on the insured retirement (income delete?) industry: 1) The modification of the preferential tax treatment of retirement savings; 2) Tax increases and their impact on retirement savings behavior.”

Lobbying action over the fiduciary requirement for retirement plan advisors. “With the elections over and the Obama administration remaining in place, the DOL will issue a modified proposal of the rule in the next several months and the industry will be focused on preserving middle class Americans’ access to affordable retirement planning services.”

Purchases of defined benefit pension obligation by insurers. “There is a trend toward companies with large defined benefit pension plans transferring the risk to an insurance company.”

Movement of private equity firms into the fixed annuity business. “Several private equity firms have purchased interests in a number of FIA companies and their presence may continue to drive sales in 2013.”

Expanding sales of deferred income annuities. “With a rough estimate of $1 billion in sales for DIAs, 2012 marked the first year of any significant sales in the industry.”

Management of risks of in-force contracts by repurchasing deep in-the-money living benefits. “Three companies have filed or launched buyback programs on certain optional variable annuity benefits.”

Dogs that didn’t bark in 2012

The report only briefly mentioned two product categories that some expected to play more prominent roles in 2012. One was contingent deferred annuities, formerly known as stand-alone-living-benefits. CDAs have been on the market since 2008, but sales have not taken off as of yet,” according to the IRI report. “A number of companies are exploring this market segment. Several new entrants are expected in this space over the next year or two.”

The other product was in-plan income guarantees, which are contracts that qualified plan participants can purchase before retirement to add some “defined benefit” certainty to defined contribution plans.

This product has been tough to sell, IRI said, because it requires a “’two-tiered’ sale. Companies need to first have the plan sponsor agree to have the option on their plan, and then the client needs to be ‘sold’ the benefit of electing this option.”

RIJ will not publish next week

Posted on December 19, 2012 by Editor Test -

The Bucket

Posted on December 19, 2012 by Editorial Staff -

MetLife Announces Expected 2012 Results and Guidance for 2013

MetLife, Inc. today announced its expected results for the full year and fourth quarter 2012 as well as financial guidance for 2013.

Full Year 2012

MetLife expects to earn between $5.5 and $5.6 billion from operations in full year 2012, up 19% from $4.7 billion in 2011. The company also expects a 2012 operating return on equity of 11.0% to 11.1%, up from 10.1% at year-end 2011.

MetLife estimates full year 2012 operating premiums, fees & other revenues of between $47.3 billion and $47.7 billion, up 5% from $45.4 billion in 2011.

Fourth Quarter 2012

Included in the full year 2012 operating earnings estimate are expected fourth quarter 2012 operating earnings of between $1.2 billion and $1.3 billion ($1.12 per share and $1.22 per share), compared with $1.2 billion, or $1.17 per share in the fourth quarter of 2011.

Book value per share, excluding accumulated other comprehensive income, at year-end 2012 is expected to be between $46.97 and $47.41, up from $46.69 at year-end 2011.

2013 Guidance

MetLife expects 2013 operating earnings to be between $5.5 billion and $5.9 billion ($4.95 to $5.35 per share).

“While our operating earnings per share are expected to be lower in 2013 than in 2012, they are broadly consistent with what we predicted a year ago for an extended low interest rate environment,” said Steven Kandarian, MetLife’s CEO.

Per share calculations for full year and fourth quarter 2012 are based on 1,073.9 million and 1,085.4 million shares outstanding, respectively. Per share calculations for 2013 are based on 1,110.4 million average shares outstanding.

Extreme Makeover: Thrivent Edition

Thrivent Financial for Lutherans, the largest non-governmental supporter of Habitat for Humanity International, has committed $6.8 million in 2013 for the construction of 113 Habitat for Humanity houses across the United States.

Thrivent and its members have committed more than $180 million and more than 3.5 million volunteer hours to the home-building organization since 2005.

Thrivent maintains three programs with Habitat for Humanity: Thrivent Builds Homes, Thrivent Builds Worldwide and Thrivent Builds Repairs. These programs allow Thrivent Financial to partner with Habitat and low-income families in the construction, repair and rehabilitation of affordable housing in communities in the U.S. and abroad. More than 2,900 homes have been built in the United States and around the world with the Thrivent Builds program.

The programs also allow volunteers to pick the level of commitment they’re comfortable with, from week(s)-long international builds to simply a few hours with a Thrivent Builds Repairs project in their own community.

Advisors of unmarried couples need better planning software: FPA

The Financial Planning AssociationDiversity Committee has released the Diversity Software Functionality for Financial Planners Executive Summary, which focuses on the ability of current financial planning software to support the needs of America’s changing demographics.

The report cites U.S. Census data that shows increases in the numbers of unmarried couples sharing a residence. The number of opposite-sex couples who share the same residence jumped 13% and the number of same-sex couples living together increased 30% over two years time.

Financial planners say that traditional financial planning software doesn’t meet the needs of the unmarried couples they work with. The majority of FPA survey respondents said that they would switch to a targeted software package to help them best assist this population. The survey showed:

71% of advisors currently provide financial planning services to couples that are unmarried and/or in same-sex relationships and most financial planners expect an increase in same-sex couples.

55% of advisors want software that will give them accurate calculation of benefits for non-spouse beneficiaries for qualified plans and IRAs.

52% of advisors want software to allow for different drawdown percentages on a couple’s aggregated portfolio.

50% of advisors want software that models the tax impact for asset transfer (estate equalization with a new couple or in the event of separation) or estate planning for unmarried and same-sex couples.

‘Stark contrast’ between 1^st and 2^nd wave Boomers: Cogent Research

Not all Boomers are alike, according to Cogent Research.

According to Cogent’s latest Investor Brandscape report, based on a survey of over 4,000 affluent Americans, Second Wave Boomers (ages 48-56) are more aligned with younger investors in attitudes, beliefs, and behaviors than with First Wave Boomers (ages 57-66).

Over half of first-wave Boomers are fully (48%) or semi-retired (9%), while only 9% of second-wave Boomers are retired and 3% are semi-retired. As a result, 81% of second-wave Boomers still own an employer-sponsored retirement plan (ESRP) (up significantly from one year ago), compared to just 57% of older Boomers.

With more emphasis still being placed on retirement savings, fewer second-wave Boomers report having an advisor (63% v. 66% for first-wave Boomers) with a smaller share of their assets being managed by advisors (46% vs. 52%). If they work with an advisor, second-wave Boomers are less satisfied (58% vs. 69%) with them.

Mutual fund companies have higher brand recognition among older first-wave Boomers, who also maintain a significantly higher number of mutual fund relationships than second-wave Boomers, on average.

“The financial services industry has spent the better part of a decade treating Boomers as a single and cohesive group,” said Meredith Lloyd Rice, Cogent Research senior project director and author of the study. “These new findings suggest companies need to take another look.”

Towers Watson’s mortality study covers experience at 21 life insurers

Towers Watson has the released The Older Age Mortality Study 3 (TOAMS 3), the company’s third study of U.S. life insurance industry mortality and the longest-running study of older age mortality experience in the market.

TOAMS 3 spans the five-year experience period from 2006 to 2010 for insureds attained ages of 50 and above. The 21 participating companies provided $8.2 trillion of face amount for 48 million policy years.

Over 700,000 deaths in the study represent $40 billion of death claims. The study was performed on an issue age and duration basis, using a 25-year select period, consistent with the Society of Actuaries 2001 and 2008 Valuation Basic Table (VBT).

“The low interest rate environment has placed downward pressure on life insurers’ profitability. Insurers have had to reprice many products with profit streams vulnerable to low interest rates, heightening the need for greater pricing accuracy. Our study gives insurers the tools to address trends in life expectancy and fine-tune their pricing assumptions,” said Elinor Friedman, director, Life practice, Towers Watson.

Key findings of the study include:

Overall, mortality is 62% of the 2001 VBT by face amount and 75% of the 2001 VBT by policy count. Experience as a percentage of the 2008 VBT showed higher percentages (83% by face amount, 90% by policy count).
Male nonsmokers have considerably more exposure and a higher average face amount than the other gender/smoking status combinations.
76% of the exposure by face amount was in the two highest bands ($250,000 and higher), while 81% of the exposure by policy count was in the four lowest bands (up to $250,000).
The predictive model analysis shows that expected mortality levels by plan are not as large as the traditional analysis would suggest, indicating that other correlated variables explain the difference.

Security Benefit expands advisor support in DC Channel

George M. Beale and Jeffrey D. Kayajanian have joined Security Benefit Corporation’s Defined Contribution team. As field vice presidents serving the western United States, they will work closely with advisors who sell and service defined contribution plans in the ERISA marketplace with a focus on 401(k) plans.

The move is part of Security Benefit’s ongoing initiative building an independent distribution structure focused on advisor business models and affiliations, the company said in a release.

Beale, based in Denver, has more than 20 years’ experience in sales and regional sales management of 403(b), 457 and 401(k) plans, working previously at Securities America, MetLife, ING and Security First Group.

He has a Bachelor of Science in Finance from Arizona State University.

Kayajanian, based in Solana Beach, Calif., was formerly a divisional vice president of Hartford Retirement Plans Group. He has also served as National Sales Manager at State Street Research and was a Regional Vice President for ReliaStar Retirement Plans. Earlier, he was affiliated with AXA/Equitable Annuities and Guardian Life.

Kayajanian holds a degree in business administration from California State University, Fresno, and a Master of Business Administration from Pepperdine University.

Morgan Stanley expects fiscal cliff to be hardly a speed bump

Posted on December 19, 2012 by Editor Test -

Morgan Stanley Wealth Management’s Global Investment Committee has issued its monthly markets, economics and asset allocation overview for December. The asset manager is overweighting emerging market and U.S. equities. According to the report:

Markets

We expect Washington to mitigate and delay the looming fiscal cliff and make progress on a credible multiyear deficit-reduction plan.
We remain underweight cash, inflation-linked securities and global real estate investment trusts, as well as short duration and developed-market sovereign and high yield debt.
We are overweight equities, commodities and investment grade and emerging market bonds, as well as managed futures.
We continue to overweight both emerging market and US equities. We are market weight in European equities and underweight in Japanese equities. Within the US, our capitalization preference is large caps and our style preference is growth.

Economies

We expect another year of positive but subpar global growth in 2013, even with Europe in recession and slower growth in the US and Japan. In aggregate, developed market (DM) economies should post 1% growth while emerging market (EM) economies advance by 5%, yielding global growth of 3%. DM inflation should remain quiescent, whereas EM inflation will remain close to 5%.

Profits

We expect consensus S&P 500 earnings-per-share (EPS) growth of 9% in 2013, up from 6% this year. Profit-margin expansion has likely peaked, but EPS should grow slightly faster than sales given still positive productivity growth and share buybacks. Profit growth will likely reaccelerate in 2014 on better global growth.

Interest rates

DM central-bank policy rates are likely to remain low into 2015. The Federal Reserve has embarked on an open-ended third round of Quantitative Ease. The European Central Bank has committed open-ended support to EU sovereign debt markets. Finally, several EM central banks are still easing to offset slower global growth.

Currencies

In the short term, we expect US-dollar strength versus the euro. Longer term, major developed market currencies will likely decline against several emerging market currencies.

That Which Does Not Kill You Makes You Stronger

Posted on December 19, 2012 by Knowledge@Wharton -

The day before a big game, regardless of the sport, a team’s coach or star player is often asked, “How will you stop the opposing team tomorrow?” The answer typically goes something like this: “We can’t worry about the other team. We just have to play our game.”

That, in a very simplified nutshell, is the essence of Nassim Nicholas Taleb’s highly polemical, always thought-provoking new book, Antifragile: Things That Gain from Disorder (Random House, 2012).

Here, though, the opponent is not another team’s slugger, quarterback or point guard, but the future and change. The defining characteristic of future change, according to Taleb (who continues a line of argument developed in previous books like Fooled by Randomness and The Black Swan, is that it is impossible, and foolhardy, to try to predict it. Instead, the author argues, it is essential to make peace with uncertainty, randomness and volatility. Those who do not—who insist not only on trying to predict the future, but also on somehow trying to manage it—he disparagingly calls “fragilistas.”

Antifragile is divided into seven sections that Taleb calls “books.” In a prologue, he explains that each is, in a sense, a long personal essay, “mixing autobiographical musings and parables with more philosophical and scientific investigations.” The author introduces fictional characters such as Fat Tony, who epitomizes the straight-talking “street” knowledge of the practitioner as opposed to the fragilista.

In addition to “fragilista,” he coins or adopts a number of other terms; delves into extended asides on Greek philosophy and mythology; and in general fashions a thoroughly idiosyncratic approach to his subject matter. The result is a work that is readable and entertaining, if at times a bit unwieldy.

A future we can’t predict

Taleb advocates what he calls “nonpredictive decision making” focused on the ability of the unit in question (whether that be an individual, institution, industry or society) to withstand unexpected change. Yet to simply survive is not enough. Taleb is interested in things that actually thrive on uncertainty. To merely avoid harm is, in his terms, to be robust—and at times this is an acceptable result. Robustness falls in the middle of a continuum he calls The Triad. At the far left is fragility—that which requires tranquility, certainty and predictability—and at the far right, in the absence of a better word for it, is antifragility.

Antifragility, it should be pointed out, doesn’t mean that volatility will always be experienced positively. It simply means that the antifragile has more of an upside than downside from random events. As Taleb notes, “Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk, and uncertainty.”

Another sports analogy, one Taleb himself uses, effectively illustrates the idea of benefiting from shock. When we go the gym and lift heavy weights (barbells later become a key image in the book), we intentionally apply stress to our body. Muscle tissue is strained and even broken down. The body’s response is to overcompensate to the trauma and emerge stronger than before.

The cat and the washing machine

Nature and natural systems are an ongoing reference for Taleb—not just as illustrative analogies, but as part of the very fabric of his worldview. For him, nature is the ultimate model for how to deal with uncertainty. Nature does not need to predict the future in order to deal with its unexpected turns. The information volatility provides is digested and adapted as part of the evolutionary process. In this sense, nature “loves small errors.”

Nature is also not “safe.” It accepts short-term loss for long-term gain. For example, Taleb cites the natural cycle of forest fires that clear the forest of highly flammable material and weed out weak and vulnerable growth. Suppressing these fires artificially (i.e., suppressing volatility) imposes a false short-term stability while increasing long-term risk. We get fewer fires but more devastating ones. This basic principle can be applied to human systems as well. Government bailouts that prevent certain businesses from going under, for example, only increase the possibility of system-wide collapse.

Medicine and barbells

The practice of modern Western medicine is a topic of great interest to Taleb in its own right. But it also provides him with a set of clear examples of the perils of the fragilista’s tendency toward what he terms “naïve interventionism.” This is a category of intervention that produces small (or no) visible gains, while creating the possibility of large (but often not immediately visible) harm. Examples include statin drugs to treat high cholesterol (where fifty patients have to be treated, at uncertain cost, to prevent a single cardiovascular event) and annual mammograms for women (which actually increase all-cause mortality for the test group).

In opposition to this approach, the author cites the part of the Hippocratic Oath that cautions, “First, do no harm.” Unfortunately, the pervasiveness of professionalization in our society creates a bias toward intervention—in other words, the restraint of inaction is not likely to be rewarded. Nonetheless, in medicine and other areas, he asserts that the first rule should be to “avoid interference with things we don’t understand,” which, in Taleb’s view, covers a lot of ground.

Taleb is a fan of barbells as an exercise tool. But he also uses the image to convey the “bimodal” approach he suggests is the best way to deal with uncertainty and cultivate antifragility. In keeping with the image of the barbell, the idea is to avoid the wishy-washiness of the supposed “Golden Middle” and instead concentrate on two contrasting but complementary strategies: extreme risk aversion on one side, and extreme risk loving on the other.

For example, in the area of personal investment, you might invest 90% of your funds in something as radically safe as cash, while putting 10% toward extremely high-risk, high-reward investments. Your maximum loss would be capped at 10% of your assets, whereas putting 100% of your assets in so-called “medium” risk securities carries a danger of losing everything. Strive to be 90% accountant, 10% rock star, Taleb cheekily suggests.

Skin in the game

Taleb has nothing but disdain for policymakers or pundits who enter the fray of public policy without any personal stake in the issue at hand. They have no “skin in the game,” as he likes to put it.

In a final section devoted to the ethics of fragility and antifragility, Taleb laments that this kind of disconnect between influence and personal risk is only growing: “At no point in history have so many non-risk-takers, that is, those with no personal exposure, exerted so much control.”

Taleb characterizes this as essentially a “transfer of antifragility,” with certain individuals exerting influence without cost (remaining antifragile) while others bear the consequences (increased fragility). Such a transfer is, he asserts, a kind of theft, and it raises a profound ethical question, perhaps the dominant one of our time. Somehow, he writes, we have to “make talk less cheap.”

Sun Life downgrade follows Guggenheim deal

Posted on December 19, 2012 by Editor Test -

A.M. Best Co. has downgraded the financial strength rating (FSR) to A- (Excellent) from A (Excellent) and issuer credit ratings (ICR) to “a-” from “a” of Sun Life Assurance Company of Canada (U.S.) and Sun Life Insurance and Annuity Company of New York. The ratings are under review with negative implications.

The ratings of Sun Life Financial Inc. and Sun Life Assurance Company of Canada remain unchanged.

The rating actions follow the December 17, 2012 announcement by SLF of its agreement to sell its U.S. annuity and certain life insurance business lines to a Guggenheim Partners-led investor group for approximately $1.35 billion. This business will be transferred through the legal entities listed above (SLUS and SLNY). The transaction is expected to close in the second quarter of 2013.

The regulatory solvency ratio of Sun Life Assurance Company of Canada, SLF’s flagship insurance company, is not expected to be impacted, but the transaction will reduce SLF’s book value by about $950 million.

SLF has indicated its commitment to a “Four Pillar” growth strategy, which in the U.S. is focused on the employee benefits market and the company’s asset management businesses globally through MFS and its other asset management operations.

The revised ratings reflect SLUS and SLNY’s adequate stand-alone capitalization as well as an elevated risk profile that is reflected in high levels of volatility in its reported earnings. Their ratings will remain under review pending discussions with the new ownership group.

Morningstar reports U.S. mutual fund asset flows through November

Posted on December 19, 2012 by Editor Test -

Outflows from U.S. stock funds this year could surpass 2008’s record outflow of $96.7 billion, according to Morningstar’s latest fund flows report.

The asset class shed $14.1 billion in November, with growth-oriented funds hit hardest. Open-end taxable-bond funds and municipal-bond funds collected $17.9 billion and $5.2 billion, respectively.

Active equity funds with lower expenses have experienced slower outflows than higher-fee funds. Within the U.S.-stock broad asset class, funds with a Morningstar analyst rating of gold, silver, or bronze suffered slower rates of decline than neutral- or negative-rated funds.

The Morningstar’s report on November mutual fund flow also showed:

Intermediate-term bond funds gained $8.3 billion in new assets, to lead all Morningstar categories in terms of inflows for the sixth consecutive month.

Investors redeemed $3.6 billion from high-yield bond funds, a category that has seen inflows of $24.4 billion year to date. Bank-loan funds took in a net $1.8 billion in November to bring the year-to-date total to $9.2 billion.

Inflows to emerging-markets bond funds slowed to $882 million in November, but the category has taken in $20.0 billion for the year to date in 2012; it began the year with assets of just $46.3 billion.

Diversified emerging-markets were the only bright spot in the international-stock asset class, collecting inflows of more than $1.1 billion in November.

PIMCO took in $6.7 billion to lead all fund families in terms of November inflows. Year to date, Vanguard leads with net inflows of $86.2 billion.

Morningstar reports U.S. mutual fund asset flows through November

Posted on December 19, 2012 by Editor Test -

Outflows from U.S. stock funds this year could surpass 2008’s record outflow of $96.7 billion, according to Morningstar’s latest fund flows report.

The asset class shed $14.1 billion in November, with growth-oriented funds hit hardest. Open-end taxable-bond funds and municipal-bond funds collected $17.9 billion and $5.2 billion, respectively.

The Morningstar’s report on November mutual fund flow also showed:

Intermediate-term bond funds gained $8.3 billion in new assets, to lead all Morningstar categories in terms of inflows for the sixth consecutive month.

Diversified emerging-markets were the only bright spot in the international-stock asset class, collecting inflows of more than $1.1 billion in November.

PIMCO took in $6.7 billion to lead all fund families in terms of November inflows. Year to date, Vanguard leads with net inflows of $86.2 billion.

England’s Search for a DC/DB Hybrid

Posted on December 19, 2012 by Kerry Pechter -

Morrisons is the U.K.’s fourth-largest grocery chain, with 475 supermarkets and 131,000 employees across England. In 2002, the company closed its final-salary pension plan in favor of a defined contribution plan. But participation in the DC plan has been lackluster.

This past October 1, all British DC plans had to institute auto-enrollment. But Morrisons chose a third way. Dropping its DC plan, it created a cash balance plan that sets aside 16% of employee pay per year (5% from employees) and guarantees that it will grow at the rate of inflation.

“We want our colleagues to be able to retire at a time of their own choosing,” Julian Bradley, a Morrisons spokesman, told RIJ this week. “We’re known for friendly service and helpful people. That requires strong morale. So we want them to be here because they want to be here, not because they have to be here.”

Between DB and DC

In some ways, the U.K.’s retirement financing situation is not at all like America’s. British workers can’t access their DC savings between jobs, for instance. With some exceptions, retirees are required to buy life annuities with their qualified savings.

But in other ways England’s retirement challenges resemble our own. Their Boomers are aging in droves. Their interest rates are low. They’ve seen their private pension system swing from like a pendulum from almost entirely DB toward almost entirely DC.

And now, like some of us, some of them would like to see the pension pendulum swing back to somewhere between DB and DC. One of the buzz-phrases of the moment in U.K. pension circles in the U.K. is “defined ambition.”

The term, borrowed from the Dutch pension industry, refers to pension designs where the risk and responsibility around retirement income provision doesn’t fall entirely on individuals or on their employers.

“Defined ambition is pitched somewhere between DB and DC—less risky for the employee than DC, less onerous for the employer than DB,” said Andrew Sheen, who works on NEST, the government-sponsored, risk-managed, auto-enrolled collective DC plan that started this fall and which represents a kind of default plan, especially for small companies that don’t offer their own.

“Pensions are now very polarized, particularly in the private sector, with older ‘final salary’ pensions at one end, and the newer ‘defined contribution’ system at the other,” said Joanne Segars, chief executive of NAPF, the trade association of British pension funds, in a statement issued in November.

“Either the business bears the risk of paying a final salary deal, or the saver carries the risk of not knowing exactly how much they will get. There could be room for a middle way where that risk is shared. It is certainly worth exploring and the NAPF has been involved in the debate,” she said. NAPF is so far not opposed to defined ambition.

Last spring, the British pension minister Steve Webb began championing defined ambition. His efforts were not uniformly well received by the media, which thought it sounded too much like a failed concept called “with-profits” funds. These were largely unsuccessful pooled retirement savings funds that offered downside protection, “smoothing” of returns during periods of volatility, and some upside potential.

“[Defined ambition] in essence amounts to one thing: the conversion of workplace pensions into giant with-profits funds,” sniffed a columnist in The Independent, a British newspaper. “With-profits as a concept has been a busted flush for a decade—the legendary smoothing of returns so often doesn’t happen—and here we have the pensions minister recommending we port over this concept for workplace plans. The world has also moved on. Having spent the past decade closing final salary [DB] plans, how are employers going to be persuaded to enter an even more complex arrangement?”

Competing agendas

Others questioned the timing of Webb’s defined ambition campaign, which began only months before the October 2012 launch of NEST and auto-enrollment, which represents a national commitment to a modified defined contribution model.

“With automatic enrolment coming into force in less than two weeks, this idea is dead in the water,” NEST’s Sheen told RIJ in early October. “Employers don’t have the inclination to put in something that increases their own risk, especially since they can sign up with a DC scheme and essentially wash their hands of the situation.

“Plus, the types of companies this is likely to appeal to will already have put something in place, or have wheels in motion, to meet the requirements for automatic enrolment. It was a good idea in theory but too late to the party to make any difference.

“The right time for this would have been years ago when the decline in defined benefit was possibly reversible. I also think that the announcement was poorly timed – it got a lot of mainstream press and TV coverage at a time when the rest of the industry was trying to get the message about auto-enrollment across.”

But a spokesman for England’s pension fund industry is more sanguine about defined ambition. “Steve Webb has been seeking industry views and getting people talking about how to do things better or differently. He’s talking about finding a middle ground between the two,” said Paul Platt of NAPF.

Platt downplayed accusations that defined ambition represents a digression or distraction from the trend toward DC in the U.K. “Some people are saying that, but they’re selling DC. The situation at the moment is up for discussion. The government has laid out a few broad ideas and they’ll be working on it next year.”

The best sources for information on defined ambition are two reports that were issued this fall, one by NAPF and the other by the U.K. Department of Work and Pensions, Britain’s Labor Department.

Ongoing search for solutions

In August, the DWP formed a Defined Ambition Industry Working Group, chairing by the Association of Consulting Actuaries. In November, DWP issued a 64-page report, “Reinvigorating workplace pensions,” that lays out a number of possible retirement savings models that might meet the criteria of “defined ambition”.

The NAPF report, called “Defining Ambition,” includes a collection of essays written by a diverse sampling of government, trade association and private industry pension experts. Rather than advocate any particular course of action, it represents multiple perspectives on the need for retirement saving solutions that are neither extreme DB or extreme DC.

Although British pensions minister Webb borrowed the term “defined ambition” from the Dutch, the DWP’s report makes clear that, for cultural and legislative reasons, the U.K. won’t be adopting the Netherlands’ approach to pensions, which requires semi-mandatory participation in collective investment trusts. The trusts pay out an income based on average career pay and on each individual’s retirement age, which can range from 55 to 75.

Is there a downside to “defined ambition”? That’s difficult to say without more specifics. But there’s definitely mistrust of it. Reports in the British media reflect a fear that defined ambition plans can be black boxes, with non-transparent risk management methods and potentially volatile payouts.

Some British observers seem to prefer DC, warts and all. They portray a balanced investment in a DC plan as entailing more acceptable risks—or at least more familiar ones—than a notional interest in a centrally-run, risk-managed fund. But DC solutions, even with the advent of auto-enrollment and NEST, clearly won’t satisfy all of Britain’s retirement savings cravings. Hence the government’s pursuit of other strategies, which it chooses to call “defined ambition.”

Key habits of ‘valued’ advisors

Posted on December 17, 2012 by Editor Test -

Only 57% of investors surveyed said their financial advisors “proved their worth navigating recent market conditions,” according to the third report in Fidelity Investments’ Insights on Advice series.

The report, “Proving Your Worth: Uncovering the Traits of the Valued Advisor,” is based on two recent Fidelity studies of millionaire clients and advisors. It explores how investors viewed their financial advisors’ performance and identifies ways for advisors to enhance their perceived value.

At least two benefits seem to accrue to “valued advisors.” According to the report, financial advisors who proved their worth benefited from clients who were more engaged, trusting and loyal, with 66% saying they would likely stay with their advisors if they switched firms (compared to 37% for investors without a “Valued Advisor”).

Valued advisors also benefited from three times the number of referrals, a significantly higher share of client assets (71% vs. 49%) and more clients who wanted to consolidate assets with them (39% vs. 24%).

The report showed that clients value advisors who:

Focus on long-term planning. When working with Valued Advisors, investors were more focused on long-term investment returns (84% vs. 74% for other investors) than short-term fluctuations in the market. Regarding the most important benefits of working with an advisor, those with Valued Advisors said they “help me reach my financial goals” (72%), “help me achieve financial independence” (65%) and “provide peace of mind” (61%).
Provide comprehensive guidance. More investors with Valued Advisors (29%) were interested in receiving holistic financial guidance than their counterparts without Valued Advisors (18%) and 63% of investors with Valued Advisors wanted their advisor to know everything about their personal and financial lives.
Use technology to enhance client relationships and promote collaboration. Forty-two percent of investors with Valued Advisors felt technology had enhanced the relationship versus 20% of those without Valued Advisors. Moreover, 45% of investors with Valued Advisors agreed that they collaborate more effectively with their advisor through the use of technology.

The study, based on interviews with 1,000 wealthy clients and 1,000 advisors from all channels, implied that 43% of clients don’t value their advisors. “We were surprised it was that low,” said Alexandra Taussig, a senior vice president at Fidelity’s National Financial unit, which works with hundreds of broker-dealers who employ thousands of advisors. “It’s so important for advisors to be on the right side of that equation. It was interesting that advisors considered technology to be important. Advisors used to see technology as a disintermediator. Now they see it as an enabler.”

“Some of it could be explained by the match between client and advisor. Forty-three percent might not be with the right clients and vice-versa,” Taussig added. “The advisor needs to find the right client. It could be that one advisor is incredibly valued by one person, and not by another. For instance, many clients say their advisors give them ‘peace of mind.’ There’s no black or white formula for providing peace of mind. That may explain why we see advisors specializing in niches. We’ve seen advisors build practices around dentists, for example, or families with special-needs children. We may see more of that going forward.”

Gen X/Y investors seek simplicity and technology
The report found that relationships between Gen X/Y investors and Valued Advisors were stronger than for other investors, even other investors with Valued Advisors. Gen X/Y investor referrals were close to 80% higher, and 70% of Gen X/Y investors with Valued Advisors depended more on their financial advisor in the past year (compared to 49% of all investors).

Sixty-five percent of Gen X/Y investors felt “it takes a lot to manage all the different aspects of their financial lives”, and 70% were looking to “simplify their finances”. Fifty-nine percent of Gen X/Y investors expecting their advisors to contact them if the stock market changed a lot in one day.
More Gen X/Y investors said that technology enhanced their relationship with their advisors (55% vs. 28% for older investors) and that it enabled more effective collaboration (62% vs. 33%).

Compared with older investors, Gen X/Y investors were likelier to use social media (by 23 percentage points), phones (by 23 percentage points) and tablets (by 21 percentage points) as tools for their financial activities.

Direct b/ds, third-party vendors hold most managed account assets

Posted on December 17, 2012 by Editor Test -

Direct broker/dealers and third-party vendors hold most managed account assets, according to new research by Cerulli Associates, the Boston-based research firm. The 4Q issue of the Managed Accounts Edition of The Cerulli Edge reviews which channels have the best distribution opportunities for centrally managed, fee-based portfolios.

“Direct providers and third-party vendors (TPVs) have the highest percentage of assets in packaged programs with 77% and 66% respectively,” said Patrick Newcomb, senior analyst at Cerulli, in a release. “This translates to almost $350 billion in packaged assets between the two channels, nearly three-quarters of the $500 billion managed accounts industry.”

“These two channels fall outside of the traditional brokerage firms, but, we see the high concentration of decision-making by a central group a perfect opportunity for a manager to pursue platform placement,” the release said.

“We have found that many of the firms in these channels, specifically in the direct channel, typically use more proprietary products than other distribution channels,” Newcomb continues. “Asset managers should evaluate the product menu at these firms to determine the percentage of the assets outsourced to third-party managers.”

The wirehouse and independent broker/dealer channels have the lowest percentage of assets in centrally managed portfolios, with 6% and 15%, respectively. This is likely due to the higher use of rep-driven programs and flexible mutual fund advisory programs within these two channels.

Cerulli recommends that asset managers properly segment managed account programs into two groups: those that are controlled by the advisor and those that are controlled by a centrally managed group. Managers should target specific firms within each channel to maximize new flows.

Advisors optimistic about 2013 ROA: Russell

Posted on December 17, 2012 by Editor Test -

Financial advisors predict stronger growth in return on assets (ratio of a firm’s revenue to assets under management) in 2013, despite a generally disappointing 2012, according to Russell Investments’ latest Financial Professional Outlook (FPO) survey.

Nearly half (49%) of the respondents said they didn’t see the kind of ROA growth in 2012 they anticipated. Only 21% reported that their ROA grew more than expected.

On average, survey respondents expected to see 7.6% ROA growth in ROA in 2012 and only realized 7.2%. For 2013, respondents are more optimistic, expecting 8.4% growth in ROA on average. Two-thirds (67%) of respondents said the current ROA on their books of business is 80 basis points or less.

“A reasonable aspirational ROA level is around 70–90 basis points on the overall business. If an advisor is earning less, it may indicate that they are still using a transactional business model,” said Sam Ushio, practice management consultant for Russell’s U.S. advisor-sold business. “At a deeper level, a lower ROA may reflect an advisor’s tendency to discount the value they deliver to clients, which often correlates with confusion on the competitive landscape.”

To grow ROA, 62% of survey respondents are focusing on deepening client relationships, 58% are seeking out new clients, 53% are asking for referrals, 43% are moving clients into fee-based relationships and 32% are moving client cash off the “sidelines.”

When asked which of their client segments they expect to see the most ROA growth from in 2013, 64% of advisors pointed to clients nearing or very near retirement.

Among those advisors expecting the most growth from clients 5–20 years from retirement, 53% are asking for referrals, while 52% plan to move clients to advisory-based relationships. For advisors expecting most of their growth from clients who are less than five years from retirement, 60% are focusing on client service and deepening relationships.

In the latest survey, taxes were the top subject of advisor-initiated conversations (36% of advisors) while 23% say clients are bringing up the topic. Advisors also pointed to generating income from portfolios (30%) and running out of money in retirement (30%) as issues they raise most often with clients.

Hedge funds still suffer negative cash flow

Posted on December 17, 2012 by Editor Test -

Hedge fund investors redeemed a net $10.8 billion (0.6% of assets) in October, reversing a combined $9.8 billion inflow for August and September, according to BarclayHedge and TrimTabs Investment Research.

Based on data from 3,040 funds, the TrimTabs/BarclayHedge Hedge Fund Flow Report estimated industry assets at $1.8 trillion in October, down 26.1% from the June 2008 peak of $2.4 trillion.

“From a cash-flow standpoint, the hedge fund industry has been losing ground for the past year,” said Sol Waksman, founder and president of BarclayHedge. “October’s redemptions pushed year-to-date outflows to $13.7 billion and 12-month outflows to $22.9 billion.”

The November 2012 TrimTabs/BarclayHedge Survey of Hedge Fund Managers found that fund managers’ bearish sentiment on the S&P 500 had reached a 12-month high, just a month after bearishness dipped to a 12-month low.

Conducted in mid-November, the survey of 89 hedge fund managers also sought their views on the impending “fiscal cliff.” About three-quarters recommend a combination of lower spending and higher taxes, and the largest segment, 43.8%, urged some tax increases coupled with larger spending cuts.

Though the flow picture worsened in October, hedge fund investors reaped a net 0.21% gain in October while the S&P 500 Index fell 1.98%, TrimTabs and BarclayHedge reported.

During the past 12 months, the top 10% performing funds took in $4.8 billion and posted a median gain of 23.5%, beating a 15.9% increase in the S&P 500. The worst 10% performing hedge funds experienced outflows of $6.3 billion with a median 11.2% loss, underperforming the industry by 1,543 basis points. The top 40% of hedge fund performers had outflows of $3.0 billion while the bottom 40% saw outflows of $25.2 billion.

TrimTabs and BarclayHedge reported that the hedge fund industry gained 6.1% year-to-date while the S&P 500 Index rose 12.3%, and earned 4.2% over the past 12 months while the S&P rose 15.9%

The Hedge Fund Flow Report noted that over the past 12 months, the top three hedge fund strategies (Fixed Income, Multi-Strategy, and Macro) took in $43.6 billion while the bottom 10 strategies gave up $64.8 billion, yielding a net outflow of $21.1 billion.

Equity-related hedge funds continued to underperform the S&P 500 over the past 12 months, Mirochnik said. Equity Long Bias, the best-performing stock-based strategy of the bunch, returned 4.8% from November 2011 through October 2012, lagging the S&P 500 by 1,112 basis points in the same time.

Of the eight global categories tracked by BarclayHedge and TrimTabs, funds based in China/Hong Kong topped the October performance list at 1.6% while Japan-based funds fared worst at -0.6%. Latin America funds had the worst outflows at 17.1% of assets in October, 26.4% y-t-d, and 29.1% over the past year, despite posting gains in all three time horizons.

MetLife Announces Expected 2012 Results and Guidance for 2013

Extreme Makeover: Thrivent Edition

Advisors of unmarried couples need better planning software: FPA

‘Stark contrast’ between 1st and 2nd wave Boomers: Cogent Research

Towers Watson’s mortality study covers experience at 21 life insurers

Security Benefit expands advisor support in DC Channel

Data Connection

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‘Stark contrast’ between 1^st and 2^nd wave Boomers: Cogent Research