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Jefferson National completes management buyout  

Jefferson National Financial has completed an $83 million management buyout financed by Financial Partners Fund (a unit of Citi Capital Advisors), The Stephens Group and private investor Eric Schwartz. The buyout was led by Mitchell H. Caplan, Jefferson National’s CEO.   

The company, which sells variable annuities to Registered Investment Advisors (RIAs) and fee-based advisors primarily as tax deferral vehicles, charges a flat insurance fee of $20 a month rather than commissions or expense ratios, and has taken advantage of the trend away from commission-based sales by advisors.

In a statement, Caplan said, “Starting in 2005, Jefferson National completely re-engineered the way variable annuities are bought and sold with a singular focus on serving fee-based advisors.

“Transforming the product with a proprietary technology platform, and rebuilding the distribution from the traditional wholesaler-driven model to a unique direct-marketing model, we have been able to dramatically reduce costs, create greater consumer value and become the leading variable annuity provider to the fee-based channel.”  

  A former CEO of E*Trade Financial, Caplan joined Jefferson National in 2010, reuniting with a leadership team that worked on Telebank, the nation’s first direct bank, and E*Trade. The team includes Laurence Greenberg, president of Jefferson National and former COO of Telebank, and David Lau, chief operating officer of Jefferson National. During their tenure, Telebank’s deposits grew from $200 million in 1994 to more than $8 billion in 2000. During Caplan’s tenure as CEO of E*Trade, revenue increased from less than $1 billion in 2003 to approximately $3 billion in 2006.

Donna MacFarland named CMO at Lincoln Financial

Lincoln Financial Group today has named Donna MacFarland chief marketing officer of its Retirement Plan Services business. She will lead marketing initiatives, including the development of integrated business-to-business and business-to-consumer marketing strategies, and will manage Retirement Plan Services Participant Communications and Education offering.

MacFarland joined Lincoln in May 2010 as marketing director. She reports to Chuck Cornelio, president of Retirement Plan Services for Lincoln Financial.

Prior to joining Lincoln, MacFarland was founder and president of Symphonic Marketing, LLC, a marketing strategy consultancy focused on partnering with companies to drive growth through insights generation and marketing planning. Previously, she held senior brand management and marketing positions with The Vanguard Group, Inc., Merrill Lynch, Citibank, and Smith Barney.

Thomas Mann and Laura Dagan join F-Squared board 

Thomas F. Mann and Laura P. Dagan have joined the Board of Directors of F-Squared Investments, which currently has nearly $6 billion in assets under management or model manager agreements, the company said in a release.

Mann is a managing director and senior banker at Société Générale (SocGen) in New York. Dagan retired in 2010 as chairman of Dwight Asset Management Company, a fixed income and stable value asset management firm that invests on behalf of institutional clients including retirement funds and endowments.  

Mann and Dagan are the fourth and fifth members to join F-Squared’s board, which includes the firm’s president and CEO, Howard Present; vice chairman, George McClelland; and outside director Steve Ricci, the co-founder of OneLiberty Ventures and Special Partner at Flagship Ventures.

Mann, a Chartered Financial Analyst, graduated from State University of New York in 1972 and holds an MBA from New York University and a JD from Fordham Law School. He has also completed the Advanced Management Program at Harvard Business School. 

Dagan, a Chartered Financial Analyst, graduated from Bucknell University in 1974 and attended the Women’s Director Development Program at the Kellogg School of Management. She has also completed the Advanced Management program at Harvard Business School.

Jefferson National completes management buyout  

Jefferson National Financial has completed an $83 million management buyout financed by Financial Partners Fund (a unit of Citi Capital Advisors), The Stephens Group and private investor Eric Schwartz. The buyout was led by Mitchell H. Caplan, Jefferson National’s CEO.   

The company, which sells variable annuities to Registered Investment Advisors (RIAs) and fee-based advisors primarily as tax deferral vehicles, charges a flat insurance fee of $20 a month rather than commissions or expense ratios, and has taken advantage of the trend away from commission-based sales by advisors.

In a statement, Caplan said, “Starting in 2005, Jefferson National completely re-engineered the way variable annuities are bought and sold with a singular focus on serving fee-based advisors.

“Transforming the product with a proprietary technology platform, and rebuilding the distribution from the traditional wholesaler-driven model to a unique direct-marketing model, we have been able to dramatically reduce costs, create greater consumer value and become the leading variable annuity provider to the fee-based channel.”  

  A former CEO of E*Trade Financial, Caplan joined Jefferson National in 2010, reuniting with a leadership team that worked on Telebank, the nation’s first direct bank, and E*Trade. The team includes Laurence Greenberg, president of Jefferson National and former COO of Telebank, and David Lau, chief operating officer of Jefferson National. During their tenure, Telebank’s deposits grew from $200 million in 1994 to more than $8 billion in 2000. During Caplan’s tenure as CEO of E*Trade, revenue increased from less than $1 billion in 2003 to approximately $3 billion in 2006.

Donna MacFarland named CMO at Lincoln Financial

Lincoln Financial Group today has named Donna MacFarland chief marketing officer of its Retirement Plan Services business. She will lead marketing initiatives, including the development of integrated business-to-business and business-to-consumer marketing strategies, and will manage Retirement Plan Services Participant Communications and Education offering.

MacFarland joined Lincoln in May 2010 as marketing director. She reports to Chuck Cornelio, president of Retirement Plan Services for Lincoln Financial.

Prior to joining Lincoln, MacFarland was founder and president of Symphonic Marketing, LLC, a marketing strategy consultancy focused on partnering with companies to drive growth through insights generation and marketing planning. Previously, she held senior brand management and marketing positions with The Vanguard Group, Inc., Merrill Lynch, Citibank, and Smith Barney.

Thomas Mann and Laura Dagan join F-Squared board 

Thomas F. Mann and Laura P. Dagan have joined the Board of Directors of F-Squared Investments, which currently has nearly $6 billion in assets under management or model manager agreements, the company said in a release.

Mann is a managing director and senior banker at Société Générale (SocGen) in New York. Dagan retired in 2010 as chairman of Dwight Asset Management Company, a fixed income and stable value asset management firm that invests on behalf of institutional clients including retirement funds and endowments.  

Mann and Dagan are the fourth and fifth members to join F-Squared’s board, which includes the firm’s president and CEO, Howard Present; vice chairman, George McClelland; and outside director Steve Ricci, the co-founder of OneLiberty Ventures and Special Partner at Flagship Ventures.

Mann, a Chartered Financial Analyst, graduated from State University of New York in 1972 and holds an MBA from New York University and a JD from Fordham Law School. He has also completed the Advanced Management Program at Harvard Business School. 

Dagan, a Chartered Financial Analyst, graduated from Bucknell University in 1974 and attended the Women’s Director Development Program at the Kellogg School of Management. She has also completed the Advanced Management program at Harvard Business School.

Fund investors withdrew an estimated net $22 billion from stock and bond mutual funds in the US in December. Net outflows from long-term mutual funds were $3 billion in November. The numbers, provided by Strategic Insight, included open-end and closed-end mutual funds, excluding ETFs and funds underlying variable annuities.

 “Investor sentiment remains cautious,” said Avi Nachmany, SI’s director of research. “Although the S&P 500 rose 1% in December, fund shareholders are still suffering from volatility fatigue following the ups and downs of the second half of 2011. Portfolio rebalancing may result in reduced outflows from US equity funds in January, especially if the US stock market continues its 2012 rise.”

For the full-year 2011, long-term mutual funds saw net inflows of just $65 billion (excluding ETFs and VA funds), a dramatic drop from the net inflow of $247 billion in 2010. 

Equity funds

Looking solely at equity funds, net outflows from U.S. funds increased to $24 billion in December from $11 billion in November, while net outflows from international and global equity funds rose to $11 billion in December from $3 billion in November.

For all of 2011, domestic equity funds saw net outflows of $85 billion and international equity funds saw net inflows of $34 billion, for a net outflow of $51 billion from all long-term equity funds.

International equity funds were hurt by the Eurozone debt crisis and by U.S. dollar appreciation. The average international stock fund lost 12% last year, while the average US equity fund was about flat.

Utility funds, long/short funds and multi-alternative funds posted positive flows in December.  “While there is a lack of enthusiasm for US equity funds, investors continue to seek out solutions aimed at lessening portfolio volatility and reducing correlation,” Nachmany said.

Bond funds

Bond funds saw net inflows of $13 billion in December, including $8 billion to taxable bond funds and $5 billion to municipal bond funds. Investors continued to see bond funds as a refuge as well as an income source. 

Intermediate-term, high-yield and short-term municipal funds led the December bond fund flows. Muni bond funds have been enjoying a revival of demand as fears of widespread defaults have faded.

For the full year 2011, bond funds saw $116 billion in net inflows, where strong net inflows of $129 billion to taxable bond funds were slightly offset by net outflows of $13 billion from municipal bond funds.

Money market funds

December was the second consecutive month of positive net flows to money funds, with $39 billion in net inflows following November’s net inflows of $42 billion. For the full year 2011, money market funds saw aggregate net outflows of $135 billion due to near-zero yields.

ETFs

In December, U.S. Exchange-Traded Funds (ETFs) experienced $16 billion in net inflows. Large-cap blend, large-cap growth and large-cap value ETFs led the way with combined net flows of $10.5 billion for the month. The biggest ETF, the SPDR S&P 500 ETF, saw $4.9 billion in net inflows in December. Precious metals ETFs saw net outflows in December.

For full-year 2011, ETFs (including ETNs) saw net inflows of $115 billion. That followed net inflows of $111 billion in 2010. It also marked the fifth consecutive year that US ETFs saw $100 billion or more in net inflows. At the end of 2011, US ETF assets stood at $1.06 trillion.

© 2012 RIJ Publishing LLC. All rights reserved.

From the perspective of customers, who are the best 401(k) providers?

Three service providers stood out in PLANSPONSOR’s annual Defined Contribution Survey this year: Bank of America Merrill Lynch, Diversified Retirement Corporation, and BMO Institutional Trust Services.  Those providers won the greatest number of service “cups” in the survey’s five main asset classes, based on the evaluations of nearly 7,000 employers of all sizes across the United States.

PLANSPONSOR is the nation’s leading source of retirement plan information for employers.

Other standout rankings were earned (in alphabetical order) by American Trust, Ascensus, DailyAccess Corp., J.P. Morgan, MBM Advisors, Milliman Inc., The Newport Group, TIAA-CREF, Transamerica, and Vanguard.

The survey results — and rankings of 47 providers by their plan sponsor clients — were profiled in a recent issue of PLANSPONSOR magazine. The winners will be honored in New York City on March 29th, 2012 at Pier 60 of the Chelsea Piers.

Quinn Keeler, senior vice president and head of Research at Asset International, Inc., parent company of PLANSPONSOR, said providers are awarded “Best in Class” status based on top-quartile performance in five designations defined by plan size. Providers who won the most “cups” in each asset category were designated this year as Gold, Silver, or Bronze Cup winners.

The top providers in each asset category were: 

Other 401(k) providers cited by PLANSPONSOR across 23 categories can be found at http://www.plansponsor.com/2011_DC_Survey.aspx

Guardian Life to hire over 800 financial representatives   

Throughout 2012, the Guardian Life Insurance Company of America will be hiring over 800 financial representatives by targeting and recruiting career-changers as part of its distribution force recruitment strategy, the company said in a release.  

 “Unlike employers with a more traditional view of the job market, we welcome career changers and experienced professionals who may have recently experienced a downsizing or who are working in unfulfilling jobs where their skills are undervalued,” said Meg Skinner, Guardian Life’s chief distribution officer.   

Skinner said Guardian’s need for qualified sales reps reflects the public’s increasing demand for safer financial products. “The same economic issues causing problems in other industries make the secure, reliable products Guardian offers an even more valued commodity,” she said.

Guardian Life also announced it is a founding member of the newly reorganized, not-for-profit SPARK Institute, created from the merger of two leading retirement plan industry associations, SPARK and The SPARK Institute. The resulting association represents a retirement plan service providers and asset managers.

The SPARK Institute will broaden its support of employer-sponsored retirement plans through a more active public policy agenda and increased industry partnerships. Guardian is one of of ten leading retirement plan industry members that funded the transition.

Most middle-income elderly satisfied with Medicare: Bankers Life 

Most (82%)middle-income Americans on Medicare are “extremely” or “very” satisfied with their access to health care and with the quality of the care they receive under the program, according to a study by the Bankers Life Center for a Secure Retirement.

The study, Retirement Healthcare for Middle-Income Americans, surveyed two groups: 400 pre-Medicare Boomers (age 47 to 64) and 400 older adults (age 65 to 75). Both groups had annual household incomes of $25,000 to $75,000.

Medicare recipients tended to be more satisfied with their health care than were people still using private health care. Only 2% of Americans on Medicare were not satisfied with the federal program. By contrast, 24% of Boomers not yet on Medicare said they were dissatisfied with the quality of healthcare they receive. Only 46% were “extremely” or “very” satisfied with their care. 

Medicare’s future was on the minds of most people. More than eight out of ten (87%) of those surveyed were concerned about the future of Medicare; 71% believe Medicare benefits will be reduced. Currently, an estimated 22% of middle-income Boomers are uninsured and consider Medicare their healthcare safety net, the study said. About 85% of Americans over age 65 are expected to rely on Medicare for health insurance.

Regarding healthcare reform, the CSR study showed that more than half of middle-income Americans over the age of 47 don’t know whether or not it will benefit them. A third (36%) don’t expect reform to benefit people in their age group; only 13% believe that reforms, often called Obamacare, will be beneficial. 

The Bankers Life and Casualty Company Center for a Secure Retirement’s study Retirement Healthcare for Middle-Income Americans was conducted in September 2011 by the independent research firm, The Blackstone Group. The complete report can be viewed at www.CenterForASecureRetirement.com.

Professional Testing acquires Society of Certified Senior Advisors

Professional Testing Inc., a credentialing and assessment company with a portfolio of corporate-sponsored credentials, has acquired the Society of Certified Senior Advisors (SCSA), which provides education and credentialing to professionals who serve seniors.  

 SCSA will continue to operate under its current name as a division of Professional Testing and will maintain offices and present staffing near Denver. It “will draw on the credentialing, exam development and accreditation management of Professional Testing’s team headquartered in Orlando, Florida. Ed Pittock, founder of SCSA, will continue to serve as a consultant to SCSA,” the companies said in a release

Four years ago, the Society of Certified Senior Advisors received accreditation of their Certified Senior Advisor (CSA) credential through the National Commission for Certifying Agencies (NCCA), the standards and accrediting division of the Institute for Credentialing Excellence (ICE). 

Professional Testing has been a developer of credentialing and assessment programs serving professional associations, federal and state government agencies and private industry since 1971. It serves more than 50 client organizations representing more than 200 credentials.  

Americans’ family fealty is strong but ‘not unlimited’: MetLife   

Americans’ sense of financial obligation to family members is strong and born out of love and generosity, but does have limits, according to a new study by the MetLife Mature Market Institute.

Multi-Generational Views on Family Financial Obligations: A MetLife Survey of Baby Boomers and Members of Generations X and Y reports that Baby Boomers (b. 1946–1964), Gen Xers (b. 1965–1976) and Gen Yers (b. 1977–1990) agree that parents should support children through their college years, help with tuition (90%) and step in to provide financial assistance during a financial emergency – not of the child’s doing.

They stop short, however, at paying 100% of college tuition if the cost is particularly high, and at bailing their kids out of debt when the debt is from overspending. Fewer feel responsible for contributing to the down payment on a house – just seven percent of those surveyed said they feel an absolute or strong responsibility to do so.

The online survey of 2,123 Americans, ages 21 to 65, was conducted from June 29 to July 20, 2011. Respondents were selected from among Harris Interactive’s online research panel. To qualify, respondents had to have household incomes of at least $40,000 ($30,000 if Gen Y). Boomers and members of Gen X were required to have a dependent—either a spouse or a child; Gen Yers did not necessarily have dependents.

The data was weighted by age, gender, education, and race/ethnicity to best reflect this target population. The online survey was conducted by Mathew Greenwald & Associates.   

The Principal and Edward Jones team up for retirement plan sales  

Principal Financial Group announced a new retirement plan sales alliance relationship with Edward Jones. Effective January 4, 2012, The Principal is approved as a preferred retirement plan product provider for Edward Jones’ clients. The formal agreement allows Edward Jones’ financial advisors to sell defined contribution plans with The Principal.

Of Edward Jones’ 12,000-plus financial advisors, 7,000 currently market 401(k), 403(b) or 457 plans.

“Our relationship with Edward Jones significantly broadens our distribution channels and will help continue the strong sales growth we’ve experienced through national broker-dealers,” said Dan McGee, vice president, managing director of distribution, retirement and investor services, The Principal.

“We believe this relationship with The Principal is a great fit for Edward Jones,” said Edward O’Neal, principal at Edward Jones. “The retirement plan market is a strong focus of Edward Jones and the quality of our strategic alliance is very important to providing a strong menu of products, services and solutions to help our financial advisors serve the needs of plan sponsors in their communities.”

Mutual of Omaha allies with Securities America

Mutual of Omaha Retirement Plans Division has announced a new strategic alliance with Securities America that will make Mutual’s retirement plans available to Securities America’s financial professionals nationwide.

 The relationship is part of Mutual’s strategic goal of doubling its retirement plans product distribution and advisor support programs to producers affiliated with key broker-dealers across the nation, said Chuck Lombardo, president and CEO of Retirement Marketing Solutions, Inc. (RMS), a Mutual of Omaha subsidiary.

Securities America has recently increased its commitment to the retirement plans market and has chosen Mutual of Omaha as one of its select group of retirement plan providers. In turn, this alliance is part of Mutual’s commitment to develop long-term relationships with producers that are dedicated to retirement plans, Lombardo said.

Securities America advisors will also have access to educational tools and resources through Mutual of Omaha. This includes The 401k Coach Program, fiduciary support programs as well as third-party investment comparisons from FiRM to help demonstrate a commitment to fair and competitive fees.

SPARK releases template for retirement plan disclosures

The SPARK Institute has released spreadsheet templates of its Data Layouts for Non-Registered Investment Product Disclosures to Retirement Plan Participants that were published in September, said Larry Goldbrum, General Counsel.  “We received feedback from our membership and others in the retirement plan community that spreadsheet templates of the Data Layouts would make it easier for, and increase the likelihood that, non-registered investment product providers would adopt the standards,” Goldbrum said.  The availability of the spreadsheet templates adds another level of standardization to this process and makes it easier for companies who do not want to program for transmitting ASCII files to adopt the standards,  Goldbrum said. 

The Data Layouts are designed for use by non-registered investment product providers (e.g., bank collective investment funds, non-registered “fund of funds,” separately managed accounts and annuities) and record keepers to share information that retirement plan administrators must disclose to participants under the Department of Labor’s participant disclosure regulations, Goldbrum said.  There are two templates, one for variable rate of return investments, employer securities and annuities, and another for fixed rate of return investment products.  The spreadsheet templates are substantively the same as the original narrative version of the layouts and are posted, along with instructions for their use, on The SPARK Institute website at http://www.sparkinstitute.org/comments-and-materials.php.  They are available at no charge for use by anyone.

A newly six-member team dedicated to building “an understanding of the end-consumer’s decision-making process as it relates to their financial future” has been formed by Lincoln Financial Group.

Emily Pachuta will lead the team, as head of Consumer Insights group within Lincoln’s Insurance Solutions/Retirement Solutions division. She reports to Kristen Phillips, head of IS/RS Marketing and Strategy.

“The Consumer Insights team is charged with capturing quantitative and qualitative information about consumers that can better inform product design and distribution decisions across Lincoln’s four core businesses of Annuities, Life Insurance, Group Protection, and Retirement Plan Services,” the company said in a release.

“Industry studies and reports typically focus on why consumers don’t adopt solutions,” said Pachuta in a statement. “Lincoln takes a different approach, focusing on why people do adopt solutions. Basically, 90% of decision-making is irrational and subconscious, so a deeper understanding of decision-making drivers will help us, as well as financial advisors, better understand the actions that will improve one’s financial life.”

Pachuta joined Lincoln in September of 2007. She has served as Retirement Income Marketing Director and vice president and head of Strategic and Product Marketing.  Prior to Lincoln, she was Director of Field Marketing at Merrill Lynch’s Global Private Client Group. She earned a B.A. from Yale and an MFA from New York University.

Lincoln also announced that Daniel P. Gangemi has joined the Consumer Insights team, reporting to Pachuta, as a Director focusing on the Retirement Plan Services business. He will focus on understanding retirement plan participants, plan sponsors, retirement-focused intermediaries, and the broad retirement plan marketplace. He will also have responsibility for generating insights on exploratory consumer segments, including Mass Market, Mass Affluent, and Gen X & Y.

Gangemi has a background in both market research and the retirement plan market. He has held positions at Prudential Investments, OppenheimerFunds, and AllianceBernstein. He has a B.A. and M.A. in English from the City University of New York.

© 2012 RIJ Publishing LLC. All rights reserved.

Aria Retirement Solutions (Aria) has announced the first of a series of RetireOne guaranteed income solutions that serve independent registered investment advisors (RIAs) operating fee-only practices.    

RetireOne Transamerica, the initial product, is a stand-alone living benefit (SALB). It wraps a fixed contingent annuity of the type usually found in variable annuities with guaranteed living benefits around a portfolio of mutual funds and ETFs offered by American Funds, iShares, PIMCO, Vanguard, and Dimensional Fund Advisors. Transamerica Advisors Life provides the income guarantee. The broker-dealer is Protected Investors of America.

The RetireOne Transamerica solution is the first of what Aria CEO David Stone said will be several RetireOne income solutions provided by Aria in partnership with major insurance carriers.  

“RetireOne’s income solutions will provide latitude for investment allocation by RIAs to employ a wide spectrum of strategies and adjust exposure to risk for their clients,” said Neil Wilding, Aria executive vice president and national sales director in a release.

Headquartered in San Francisco, Aria was founded by executives who had been at Charles Schwab, Fidelity and other firms. Aria’s Retirement Solutions Advisor Center in Louisville, Ky., will support the new products.  

Lockwood Advisors introduced the first stand-alone living benefit in late 2007, in a partnership with the Phoenix Companies. It was a way to let money managers add a guaranteed lifetime income guarantee to whatever portfolios they happened to be managing. The cost of the rider varied according to the risk profile of the underlying portfolio.   

In August 2009, Nationwide Life Insurance announced a deal to add a guaranteed lifetime withdrawal benefit (GLWB) rider to certain unified managed accounts (UMAs) at Morgan Stanley Smith Barney (MSSB). Select Retirement, as Nationwide’s GLWB was called, could be applied to assets in MSSB’s Select UMA, a product launched by Smith Barney in April 2008.  

In August 2010, Investors Capital Corporation (ICC), a broker-dealer and investment advisory unit of Investors Capital Holdings, Ltd., launched the Investor Protector series: a managed investment account paired with a stand-alone income benefit. The account combined Investors Capital Advisory Services’ (ICA) series of asset allocation models with a stand-alone lifetime benefit that offered the investor a 5% lifetime income stream, regardless of market conditions.  

The initial investment account value established the client’s Retirement Income Base (RIB). The investor was able to lock in a higher RIB if the account value was higher on the anniversary date for an additional fee. At age 65, the client could draw a 5% stream of income based on the highest, locked-in RIB. A spousal benefit was also available.

© 2012 RIJ Publishing LLC. All rights reserved.

Yesterday, my friend and fellow journalist Bob Powell at Marketwatch published an interview with Ward Pfau, a retirement specialist whose articles I’ve cited in RIJ. “Variable-annuity guarantees disappoint over time,” the headline read.

Perhaps you read the interview online. If you’re in PR at one of the big VA issuers, perhaps your day was spoiled. Or perhaps you felt, when you finished reading, that the content didn’t really make the headline stick.

A young Japan-based academic and CFA who has published papers in the Journal of Financial Planning, Pfau voiced criticisms that were both valid and familiar. Yes, insurance can be expensive. No, it’s not for everybody.

But the story didn’t contain the sockdolager I expected.*

On the contrary, the interviewee praised variable annuities with faint damns. At one point, he even seemed to make a persuasive case for variable annuities for the mass-affuent.

One sentence in particular stuck out: “If you have saved enough that you can meet your retirement spending goals with a low enough withdrawal rate (such as 2% or 3%), then you probably do not have any need to pay the rider fee for the GLWB,” Pfau told Powell.

True. And by that formula, a household would need $1 million after taxes to generate a mere $30,000 a year in retirement. Not very many Americans are on track to retire with a nest egg of that size.  

If Pfau meant that anyone with less than $1 million in savings and no pension should consider a variable annuity with a guaranteed lifetime withdrawal benefit, that’s an endorsement, not a condemnation.  

Pfau had other benign words for VAs. Asked to name the “pros” of variable annuities, he conceded that they “could help risk-averse retirees to sleep better at night and help them to stay the course with their asset allocation and not engage in panic selling after market declines. GLWBs could also be more helpful for retirees who have limited access to other guaranteed income sources, such as a corporate defined-benefit pension.”

You could find identical language in a pro-VA story.

But, as I said above, Pfau pointed out valid VA weaknesses. “The guaranteed withdrawals are not inflation-adjusted and the fee structures can be quite complicated and expensive,” he told Powell.

Point taken. To get inflation protection from a GLWB, your account value typically has to post new highs. When the contract owner is withdrawing 5% a year and the issuer is taking another 3% or more, the account value will have a hard time reaching new highs during the life of the contract, no matter how much risk the owner is allowed to take with his or her subaccounts.

In fairness to VAs, however, Pfau might also have mentioned the deferral bonuses that accompany many GLWBs, which can protect people from sequence-of-returns risk—the risk that ill-timed market losses will permanently hobble a retirement portfolio.

Whether people understand sequence risk or not, I’m convinced that they think this value proposition is compelling: Put in $100,000 today, and after 10 years you can pull out at least $10,000 for life, regardless of market performance. 

Coincidentally, a friend of mine happened to call me the other night on exactly this topic.

He and his wife are considering a VA that offered such a deal. My friends are successful, fit, PhD-level, self-employed people in their mid-50s who are financially risk-averse. In today’s market, they like the sound of a product that yields a 10% payout from age 65 to whenever. From that angle, fees don’t look so important to them. (My friends are also considering a deferred income annuity;  they don’t especially need the liquidity of a VA.)

In the end, Pfau was on irreproachable ground when he told Powell, “You must really decide on a personal level whether you value that protection more than the fees you must pay for that protection.” Many rational people do. Others, equally rational, do not. Go figure.

So, returning to the original question: Do variable-annuity guarantees disappoint over time? Call me in 20 years. I’ll have a definitive answer.

*Sockdolager: Something that settles a matter; a decisive blow or answer; finisher.  

© 2012 RIJ Publishing LLC. All rights reserved.

Yesterday, my friend and fellow journalist Bob Powell at Marketwatch published an interview with Ward Pfau, a retirement specialist whose articles I’ve cited in RIJ. “Variable-annuity guarantees disappoint over time,” the headline read.

Perhaps you read the interview online. If you’re in PR at one of the big VA issuers, perhaps your day was spoiled. Or perhaps you felt, when you finished reading, that the content didn’t really make the headline stick.

A young academic and CFP who has published papers in the Journal of Financial Planning, Pfau voiced criticisms that were valid and familiar. Yes, insurance is expensive. No, it’s not for everybody.

But the story didn’t contain the sockdolager it seemed to promise.*

On the contrary, the interviewee praised variable annuities with faint damns. At one point, he seemed to make a case for variable annuities for the mass-affuent.

One sentence in particular stuck out: “If you have saved enough that you can meet your retirement spending goals with a low enough withdrawal rate (such as 2% or 3%), then you probably do not have any need to pay the rider fee for the GLWB,” Pfau told Powell.

By that formula, a household would need $1 million after taxes to generate a mere $30,000 a year in retirement on top of Social Security. Not many Americans will retire that much liquid wealth.  

Did Pfau mean that anyone with less than $1 million in savings and no pension should consider a variable annuity with a guaranteed lifetime withdrawal benefit? If so, that’s an endorsement, not a put-down.  

That wasn’t Pfau’s only non-discouraging word. Asked to name the “pros” of variable annuities, he conceded that they “could help risk-averse retirees to sleep better at night and help them to stay the course with their asset allocation and not engage in panic selling after market declines. GLWBs could also be more helpful for retirees who have limited access to other guaranteed income sources, such as a corporate defined-benefit pension.”

You could find identical language in a pro-VA story.

But, as I said above, Pfau pointed out valid VA weaknesses. “The guaranteed withdrawals are not inflation-adjusted and the fee structures can be quite complicated and expensive,” he told Powell.

Point taken. To get inflation protection from a GLWB, your account value typically has to post new highs. When the contract owner is withdrawing 5% a year and the issuer is taking another 3%, the account value will have a hard time hitting new highs during the life of the contract, no matter how much risk the owner can take with his or her subaccounts.

In the interest of balance, however, Pfau might have referred (or the interview might have included) to the optional deferral bonuses in VAs that can legitimately protect people from sequence risk—the risk that ill-time market losses will permanently cripple a portfolio.

I’m convinced that advisors and clients love the VA value proposition that says if they put in $100,000 today, they can start pulling out $10,000 for life in 10 years. Friends of mine out West called me the other night to say they were considering a VA that offered that kind of deal. They are successful, fit, PhD-level, self-employed people in their mid-50s who are financially risk-averse. They like the sound of a product that can give them a minimum 10% payout from age 65 to whenever. With that assurance, they’re relatively unconcerned about fees. (They’re also considering a deferred income annuity.)

In the end, Pfau was perfectly right to tell Powell, “You must really decide on a personal level whether you value that protection more than the fees you must pay for that protection.” Many rational people do. Others, equally rational, do not. Go figure.

So, do variable-annuity guarantees disappoint over time? Call me in 20 years. I’ll have a definitive answer.   

*Sockdolager: Something that settles a matter; a decisive blow or answer; finisher.

© 2012 RIJ Publishing LLC. All rights reserved.

The “Fiscal Year (FY) 2011 Financial Report of the U.S. Government” was made public just before Christmas last month. On a positive note, it showed that the government’s net operating cost shrank 37% from 2010, from a negative $2.1 trillion to a negative $1.3 trillion.

The findings of the report were summarized in a 16-page Citizen’s Guide. Among the details:

• The retirement of the baby boom generations over the next 25 years is projected to increase the Social Security, Medicare, and Medicaid spending shares of GDP by about 1.4 percentage points, 1.3 percentage points, and 1.0 percentage points, respectively.

• It is estimated that preventing the debt-to-GDP ratio from rising over the next 75 years would require running primary surpluses over the period that average 1.1 percent of GDP. This compares with an average primary deficit of 0.7 percent of GDP under current policy.

• The projections for the ratio of debt held by the public to GDP was 68 percent at the end of fiscal year 2011, and under current policy is projected to exceed 76 percent in 2022, 125 percent in 2042, and 287 percent in 2086. The continuous rise of the debt-to-GDP ratio illustrates that current policy is unsustainable.

• As of September 30, 2011, the Government held about $2.7 trillion in assets, comprised mostly of net property, plant, and equipment ($852.8 billion) and a combined total of $985.2 billion in net loans receivable, mortgage-backed securities, and investments.

• The Government’s largest liabilities are: Federal debt held by the public and accrued interest, the balance of which increased from $9.1 trillion to $10.2 trillion during FY 2011, and Federal employee postemployment and veteran benefits payable, which increased slightly during FY 2011, from $5.7 trillion to $5.8 trillion. In addition to debt held by the public, the Government reports about $4.7 trillion of intra-governmental debt outstanding. 

• Total Government revenues increased slightly from $2.2 trillion to $2.4 trillion in FY 2011. Chart 3 shows that a $133 billion or 7.7 percent increase in personal income and payroll tax revenues during FY 2011 was partially offset by a $5 billion or 2.5 percent decrease in corporate tax revenues. Since 2007, corporate tax revenues have fallen by more than 50%, to $175 billion from $367 billion.

In a move that recalls Alan Greenspan’s policy of telegraphing his Treasury rate hikes in the middle of the last decade, the Federal Reserve board revealed yesterday that it would be “incorporating information about participants’ projections of appropriate future monetary policy into the Summary of Economic Projections (SEP), which the FOMC releases four times each year.”

The new position was announced in the minutes of the December 13, 2011, meeting of the Federal Open Market Committee, which were released January 3, 2012.

While the step toward greater transparency seemed consistent with Fed chairman Ben Bernanke’s established policy of keeping the target range of the federal funds rate at zero to 0.25% until mid-2013—a policy that was reconfirmed in the Dec. 13 minutes—the Governors’ approval of a change in communication strategy wasn’t unanimous.

“A number of members noted their dissatisfaction with the Committee’s current approach for communicating its views regarding the appropriate path for monetary policy,” the FOMC minutes said. “Some participants expressed concern that publishing information about participants’ individual policy projections could confuse the public.”

“They saw an appreciable risk that the public could mistakenly interpret participants’ projections of the target federal funds rate as signaling the Committee’s intention to follow a specific policy path rather than as indicating members’ conditional projections for the federal funds rate given their expectations regarding future economic developments.”

In new comments on the Fed’s popularly-called “Operation Twist,” the FOMC minutes said, “The Committee directs the Desk to continue the maturity extension program it began in September to purchase, by the end of June 2012, Treasury securities with remaining maturities of approximately 6 years to 30 years with a total face value of $400 billion, and to sell Treasury securities with remaining maturities of 3 years or less with a total face value of $400 billion.”

The minutes continued, “The Committee also directs the Desk to maintain its existing policies of rolling over maturing Treasury securities into new issues and of reinvesting principal payments on all agency debt and agency mortgage-backed securities in the System Open Market Account in agency mortgage-backed securities in order to maintain the total face value of domestic securities at approximately $2.6 trillion.”

© 2012 RIJ Publishing LLC. All rights reserved.

LPL to buy Fortigent

LPL Investment Holdings Inc., the parent of LPL Financial, the nation’s largest independent broker-dealer, intends to acquire Fortigent, LLC, a provider of high-net-worth solutions and consulting services to RIAs, banks, and trust companies.  

The transaction is expected to close in the first quarter of 2012. Financial terms were not disclosed.

Following the transaction, Fortigent will be “solely focused on supporting sophisticated practices and those serving high-net-worth clients,” LPL said in a release. Fortigent will retain its brand, its existing management team and its Rockville, Md., headquarters. Andrew Putterman will continue to lead Fortigent, reporting directly to Robert Moore, chief financial officer of LPL Financial.

Silver Lane Advisors LLC served as financial advisor to Fortigent, with Patton Boggs LLP as legal advisor to the company. Optima Group, Inc., served as financial advisor to LPL Financial, with Skadden, Arps, Slate, Meagher & Flom LLP serving as LPL’s legal advisor. 

IRI offers discounts on 2011 publications 

The Insured Retirement Institute (IRI) is discounting the prices of its 2011 publications for its members until Monday, January 9.  There’s a 40% discount on a package that includes the 2011 IRI Fact Book, the “Building Your Future” retirement income guide and the “Retirement Income Strategies & Products at a Glance” supplemental matrix, the IRI said in a press release this week.   

There’s also a 50% discount on “Boomers and Retirement Income 2011: An Analysis of Retirement Confidence, Planning Strategies and the Opportunities for Advisors” report.

MassMutual announces executive promotions

Massachusetts Mutual Life (MassMutual) has promoted the following three people to senior vice president: 

Michael R. McKenzie, Retirement Services Operations.  He is responsible for all recordkeeping processes and delivery of services for MassMutual’s Retirement Services division, which offers products and services for corporate, union, nonprofit and governmental employers’ defined benefit, defined contribution and nonqualified deferred compensation plans.

McKenzie has oversight of the division’s new business implementation, ongoing account management, plan change processing, ERISA consulting services, and its Participant Information Center (PIC). He joined MassMutual in 2007.    

Scott Reed, U.S. Insurance Group Business and Technology Solutions.  He is responsible for the business and technology solutions team in the company’s U.S. Insurance Group, which provides and operates all technology and systems for MassMutual’s protection and accumulation products, including life insurance, disability income insurance, executive benefits, long term care insurance and annuities, and its distribution systems, broker/dealer and trust company. He has been in his current role since 2008 and joined MassMutual in 2000.   

Heather Smiley, Retirement Services Marketing.  She is head of Strategic Marketing for MassMutual’s Retirement Services division, which includes plan sponsor communication consulting services, advertising and public relations, web portals and tools, market research, competitive intelligence and employee communications.  She joined MassMutual in 2009.   

Great-West Retirement announces website upgrades

Great-West Retirement Services has enhanced its websites that serve the company’s plan sponsor clients and the advisor and third party administrator (TPA) partners who sell its retirement plan products and services, the company said in a release. 

Enhancements to the plan sponsor site include:

• More intuitive, tab-based navigation
• Participant search capabilities on every screen
• Daily balance summaries updated after each market close
• Expanded plan provision data
• A repository to store fee disclosure and plan documents 
• Access to defined benefit plan data (when applicable)
• The ability to submit bank account information online
• Improved file upload validation

The new partner site features include:

• Easier access to the latest commission and fee-for-service payment information
• Multiplan access and search capabilities for users with multiple plans
• Consolidated daily balance summaries for the user’s entire block of business, including total assets updated as of the most recent market close

Both sites also include a new Resource Center – a dedicated area for the information and reference materials that plan sponsors and partners use the most. Demonstration videos outline the new design features and enhancements to help familiarize plan sponsors and partners with the new sites.

Great-West Retirement Services, a unit of Great-West Life & Annuity Insurance Company, provided 401(k), 401(a), 403(b) and 457 retirement plan services to 25,000 plans representing 4.5 million participant accounts and $142 billion in assets at Sept. 30, 2011.

Securian acquires two more insurers in financial institution market

Securian Financial Group on January 1 closed its purchase of American Modern Life Insurance Company (AMLIC) and its subsidiary, Southern Pioneer Life Insurance Company (SPLIC), from American Modern Insurance Group, Cincinnati, OH.

The acquisition increases the scale of Securian’s credit protection business by 25%. Securian will integrate the acquired business into its credit protection operations by June 30.

American Modern will provide transition services until integration is complete.

AMLIC and SPLIC’s products are similar to those offered by Securian, including credit life and disability insurance and debt protection programs provided to customers of financial institutions.

Securian is the third largest underwriter of credit life and disability insurance in the United States measured in direct written premium, according to the Consumer Credit Industry Association.

In October 2011, Securian completed the acquisition of Balboa Life Insurance Company and Balboa Life Insurance Company of New York.

Americans unresolved about financial planning: Allianz Life  

Eighty percent of Americans said that they wouldn’t focus on financial planning in their resolutions for 2012, according to a recent survey from Allianz Life Insurance Company of North America.

“This lack of financial focus is at the highest level in the survey’s three-year history, exceeding the 67 percent of Americans who ignored financial planning when making resolutions in both 2009 and 2010,” Allianz Life said in a release.

Thirty-five percent of respondents said they “don’t make enough to worry about” financial planning, while 23% said that they already “have a solid financial plan” and 17% said they haven’t planned because they “don’t have an advisor/financial professional.”

When asked to rank five life focus areas —“health/wellness,” “financial stability,” “employment,” “education” and “leisure” — 45% of Americans said that “health/wellness” was their most important focus area for 2012. “Financial stability” trailed with 30%.

In a list of five economic events —“unemployment,” the “U.S. budget fiasco,” “home prices/sales,” “volatile stock market” and the “European debt crisis” — 48% of Americans ranked “unemployment” as the most worrisome of 2011. The “U.S. budget fiasco” followed with 23%, with “home prices/sales,” “volatile stock market” and “European debt crisis” drawing less attention with 15%, 10%, and 5% percent, respectively.

 When asked, “Given 2011’s economic conditions and your current financial situation, are you more or less likely to seek the advice of a financial advisor/professional,” 31% said that they are “less likely” to look for help with financial planning. Only 20% indicated that they were “more likely” to seek financial advice with 49% saying they’re “unsure” about focusing on their finances.
 

© 2012 RIJ Publishing LLC. All rights reserved.

People who are eligible for employer-subsidized health benefits in retirement tend to retire earlier than people whose retirement health benefits (i.e., Medicare) don’t start until age 65, according to a new paper by economic researchers from Harvard, Towers Watson and elsewhere.

The research was undertaken to help policymakers predict the possible impact of the Patient Protection and Affordable Care Act of 2010 on labor market participation by older, pre-Medicare workers. The PPACA allows Americans under age 65 to buy group health insurance at below-market rates.   

The findings suggested that the PPACA might encourage or facilitate earlier retirement. Using data on employees at 64 Towers Watson client firms, the researchers found that the probably of retirement at age 62 rose by 3.7 percentage points (an increase of 21.2%) at age 62 and by 5.1 percentage points (an increase of 32.2%) at age 63 when employers contributed toward health insurance premiums.

The effect was more pronounced if the employer paid half or more of the cost of insurance. Turnover rates rose by one to three percentage points at ages 56-61, by 5.9 percentage points (a 33.7% increase) at age 62, and by 6.9 percentage points (a 43.7% increase) at age 63.

“Overall, an employer contribution of 50% or more reduces the total number of person-years worked between ages 56 and 64 by 9.6% relative to no coverage,” wrote Stephen Nyce and Sylvester Schieber of Towers Watson, John B. Shoven of Stanford, Sita Slavov of Occidental College and David A. Wise of Harvard and the National Bureau of Economic Research (NBER).

Only 28% of firms with 200 or more employees and three percent of smaller firms offer employee health coverage that also extend benefits to retirees, according to a 2010 Kaiser Family Foundation report. The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 enables workers to retire at 63½ and stay on their employers’ health plans for 18 months at their own expense. 

© 2012 RIJ Publishing LLC. All rights reserved.

A Consumer Reports survey of its readers, published in the February issue of the magazine and posted on its website, showed those readers to be “very satisfied” with 10 of 13 major brokerage organizations. 

The brokerage arm of USAA, a members-owned insurance company that mainly serves current and former servicemen and women, led in overall satisfaction. Scottrade, an online broker, and Vanguard, tied for second place.   

The broker satisfaction ratings were based on a 2011 Consumer Reports National Research Center online survey of 7,327 ConsumerReports.org subscribers reporting on their experiences with brokerage firms between October 2010 and October 2011.

Besides surveying its online subscribers about their experiences with their brokers, the organization sent staff members into brokerage offices in New York and Washington State to experience how clients seeking advice were served. And the organization asked major financial-services companies to prepare investment plans based on the profiles of five of those staff members.

Two independent financial planners and their teams evaluated the appropriateness of the advice in the companies’ plans. They analyzed 20 investment plans created for the Consumer Reports staffers by Citibank, Fidelity, Schwab, and T. Rowe Price, and judged them about equally good. Citi and T. Rowe Price earned somewhat higher marks for the appropriateness of investment recommendations. Citibank’s approach toward planning was deemed more comprehensive than the others’ approach.

But Consumer Reports’ financial advice judges found “inappropriate advice in several plans. They also found most of the documents to be filled with boilerplate language and short on real, actionable advice,” according to a press release.

In a Consumer Reports field test, participants encountered some questionable sales tactics, the company said. “One CR staff member was shown a chart on a portfolio’s performance that omitted the significant impact of fees. Another tester was pitched a complicated annuity product though the adviser knew little about her,” the release said.

© 2012 RIJ Publishing LLC. All rights reserved.

No matter how sophisticated it might be, no retirement income planning software program can replace the instincts, intellect and mental intangibles of a good financial advisor. This much we know.

But that’s not to say that software can’t help brighten advisors’ presentations, or streamline their methodology, or add new capabilities to their repertoire. So the search for a useful decumulation tool goes on.

Last fall, in an email, an advisor asked us if we knew of any good income planning tools for independent advisors. He was a relative newcomer to the world of decumulation, and he wanted a few suggestions on selecting the right technology.     

We felt his pain; there are no easy answers to that question. He also inspired us to devote much of this month’s editorial space to an informal review of the available software. Today’s cover story, by Joel Bruckenstein, CFP, looks at a few tools you may never have heard of.       

You might have avoided software until now—because of the expense, or the initial learning curve, or even because you’re computer-phobic—but there are good reasons for incorporating it into your practice. Offhand, I can easily think of three:

Your clients may learn better with their eyes than with their ears. A multi-hued chart that enables clients to visualize the elements of their income plan is a basic requirement (not sufficient, but necessary) of any good retirement software program. Obviously, a well-designed visual aid can educate and impress clients and cement their buy-in. An income planning tool needs to be part illustration/sales tool, part algorithmic tool, and part heuristic tool (because there are no “right” answers).     

To serve mass-affluent clients cost-effectively, you need automation. Every retiree’s finances are unique, but most Boomers won’t be able to afford a time-intensive, fully customized income plans. Therefore you need a scalable system, whether it be DIY or off-the-shelf, that automates and accelerates the more routine parts of the process so that you can serve more people in less time. A tool that demands a lot of your time will simply go unused.

You may be new to the decumulation process and don’t have a preferred planning method. Many advisors who read RIJ are already experts at creating retirement income. Some of you have even created and marketed your own software. But for other advisors, especially those still wired for risk (as opposed to risk-mitigation), decumulation may represent a strange new landscape. They may need a structure—a financial GPS, so to speak—in order to orient themselves in it.    

Researching, evaluating, and ultimately choosing an income-planning tool can be, by most accounts, a trial-and-error process. One software specialist warned us that trying to compare tools is a bit of a fool’s errand, since they’re “all over the map” in terms of price and capabilities. “To make it more difficult, every producer you talk to likes his or her software best,” he said.

All the more reason for us to try to shed some well-deserved light on the subject. There’s really no alternative. The Boomers are streaming into retirement, and they’ll need effective, affordable and mass-customized guidance from independent advisors.       

© 2012 RIJ Publishing LLC. All rights reserved.