Archives: Articles

New rate-sensitive crediting strategy for ING FIAs

To calm fears among fixed-income investors about the potential for interest-rate hikes, ING USA Annuity and Life Insurance Company (ING USA) has introduced a new crediting method called Interest Rate Benchmark Strategy for its indexed annuities. 

During each annuity contract year, any increase in the 3-Month LIBOR Interest Rate will be multiplied by a predetermined factor (the Interest Rate Benchmark Participation Multiplier) and credited to the contract, up to a stated cap. If rates remain the same or fall, there will be a floor of zero crediting.  

 The Interest Rate Benchmark Credit Cap and Interest Rate Benchmark Participation Multiplier are declared in advance, guaranteed for one year, and may change annually for each contract. This strategy tends to credit more interest than other indexed or fixed-rate strategies during a period when interest rates are rising.

“Many consumers are parking their long-term money in short-term savings vehicles because they’re paralyzed by the current rate environment. This new crediting strategy addresses the concerns about low rates and the possibility that they will rise in the near future,” said Chad Tope, president of ING Annuity and Asset Sales at ING.  

With the addition of the ING Interest Rate Benchmark Strategy, the ING Secure Indexed Annuity platform now offers three core ways for consumers to pursue an interest crediting strategy. The new strategy will complement existing indexed strategies and fixed-rate crediting strategy available on the products.

Annuities are issued by ING USA Annuity and Life Insurance Company (Des Moines, IA), member of the ING family of companies. ING Annuity and Asset Sales is a department name within ING’s U.S. operations.

Stock funds lost assets in July; stock ETFs and bond funds grew: Strategic Insight 

U.S mutual fund investors sold about $23 billion in stock mutual fund shares and bought about $8.4 billion worth of bond mutual fund shares in July, for a net outflow of about $16 billion, or 0.2%, from combined US stock and bond mutual funds in July 2011 (in open-end and closed-end mutual funds, excluding ETFs and funds underlying variable annuities) according to Strategic Insight. 

The sharp decline of stock prices in early August incited further redemptions. In the first week of August, SI estimates that stock fund net redemptions equaled about 0.3% of the more than $6 trillion held in equity funds. The dramatic volatility this past week may have resulted in further stock fund net withdrawals of about 0.5% of stock fund assets.

International/global equity funds saw net outflows of nearly $1 billion. Money-market funds saw net outflows of $113 billion in July. This represented a widening of outflows from June, when money funds saw net outflows of $44 billion.

These tiny ratios are reassuring, and are in line with historical redemption patterns studied by SI over the past 20 years and before, according to SI.

 “While some short-term redemptions from equity mutual funds during recent weeks and possibly in coming ones are likely, Strategic Insight’s research has shown that redemption spikes after stock market price declines have historically been limited in scope and short-lived,” said Avi Nachmany, SI’s Director of Research.

July’s bond mutual fund inflows were fueled by demand for global and emerging markets bonds, as investors continued to search for low-risk alternatives to low-yielding cash vehicles.  

Through the first seven months of 2011, bond funds saw net inflows of $77 billion, a healthy pace if off 2010’s pace. Strategic Insight expects demand for select bond funds to persist as long as near-zero yields on cash investments and stock market anxieties continue.

Strategic Insight said U.S. exchange-traded funds (ETFs) in July experienced roughly $15 billion in net inflows. Through the first seven months of 2011, ETFs (including exchange-traded notes, or ETNs) saw net inflows of $68.5 billion. At the end of July 2011, U.S. ETF assets stood at $1.104 trillion.

Insider buying at three-year high: TrimTabs 

TrimTabs Investment Research reports that buying by corporate insiders has picked up dramatically as stock prices have swooned.

Based on the latest filings of Form 4 with the Securities and Exchange Commission, insiders have bought $861 million so far in August. Insider buying this month is running at the fastest pace since May 2008, and insider buying this month is already higher than in any other month this year.

TrimTabs regards the pickup in insider buying as a bullish sign. Since insiders know more about their companies’ prospects than anyone else, it is positive that insiders are putting some of their own cash to work in the market.

But TrimTabs cautions that insiders are not infallible. Insiders were also buying heavily in late 2007 and early 2008, right before the financial crisis intensified.

Great-West Retirement Services establishes fee-disclosure template

Great-West Retirement Services has created a disclosure template that it says provides plan sponsors even more information about its services, fees and expenses than will be mandated by the Department of Labor’s 408(b)(2) disclosure regulation, whose compliance deadline is next year, the company said in a release.   

 “We combined almost all fee disclosure information into a single, comprehensive document, and even disclosed certain fees not required by the new regulation,” said Charlie Nelson, president of Great-West Retirement Services, the fourth largest retirement recordkeeper in the U.S., by number of participant accounts, according to Pensions & Investments.

The company is a subsidiary of Great-West Life and Annuity Insurance Co., which is a unit of Great-West Lifeco Inc., which is part of the Canada-based Power Corp. Great-West Retirement Services provided 401(k), 401(a), 403(b) and 457 retirement plan services to 25,000 plans representing 4.5 million participant accounts and $155 billion in assets at June 30, 2011.

“We surpassed other requirements as well,” Nelson added. For example, the regulation doesn’t require a service provider to show fees in dollars and percentages instead of formulas; however, we provide our disclosure in both dollars and percentages. We also provide a summary of fees as well as a detailed breakdown by category.”  

The template provides third-party certification from DALBAR, Inc., that it complies with the regulation, Nelson said. A sample template is available upon request by emailing [email protected].

Brinker Capital Taps Bill Simon to Head Retirement Plan Services Group

William P. Simon, Jr. has joined Brinker Capital, an investment management firm, in the new position of managing director, Retirement Plan Services. Simon will also serve on Brinker Capital’s Operating Committee. He reports to Brinker Capital President, John Coyne.

Before joining Brinker Capital, Simon served as Managing Partner at PPB Advisors LLC. Previously, he spent 22 years at American Funds, initially as a mutual fund wholesaler. Between 2003 and 2009, he held a variety of senior positions. He also held positions at Van Kampen Merritt and with Federated Investors, where he began his career.

In June, Brinker Capital, based in Philadelphia, added seven ETF strategies to its Defined Contribution retirement plan offering.

In another personnel move, Brinker Capital announced that Paul Cook has joined the firm as Regional Director in the Retirement Plan Services Group. He will help to build new advisor relationships, expand the scope of existing advisor relationships, and introduce new tools and services to existing advisors.

Cook comes to Brinker Capital with experience in retirement plans from his roles at Vanguard, SEI, USI, Stancorp Equities, Bisys, and Valley Forge Asset Management. He holds a BA in marketing from Penn State.

Downgrade of U.S. debt sparks expansion at compliance consulting firm   

FrontLine Compliance LLC, a regulatory compliance consulting firm, has expanded its customized investment guideline review service for large money managers following the U.S. debt downgrade issued by Standard & Poor’s on August 5.

“Investment advisers will have to conduct an inventory of all advisory accounts invested in U.S. debt,” says Amy Lynch, president and founder of FrontLine Compliance and a former SEC regulator. “This is especially important for institutional managers to large entities that typically have strict investment guidelines regarding the quality of fixed income investments.”

FrontLine Compliance offers experienced trading compliance experts that have conducted numerous investment guideline reviews for many large money managers. This type of review is typically outsourced because it is very labor intensive to review all of the related account level documentation against the transactions and holdings.

“The prudent manager should assess account holdings against investment guidelines as stated in client agreements or policy statements,” says Lynch. “It’s common practice for large pensions, foundations, and endowments to restrict debt holdings to AAA rated only. Unfortunately, due to the recent downgrade, an account with this restriction could be out of compliance if it holds long-term U.S. debt.”

In order to comply with Section 206 of the Investment Advisers Act of 1940 investment advisers must follow client investment objectives and guidelines.

New John Hancock RPS website serves plan sponsors, consultants, et al

John Hancock Retirement Plan Services (RPS) has introduced the John Hancock Education Resource Center, a website and materials ordering portal, designed to help plan sponsors, plan consultants and financial representatives educate and motivate employees about planning for retirement.

“We’ve given all of our 47,000+ plan sponsors, as well as the plan consultants and financial representatives that we work with, an easy and intuitive way to deploy a comprehensive education and communications campaign to help employees get ready for retirement,” said Andrew Ross, senior vice president of marketing, John Hancock RPS.

The site provides:

• A Solution Center which helps the user leverage the appropriate education programs and communications to suit their specific needs
• A wealth of employee paper based and electronic materials and tools on retirement, investing, the elements of retirement plans and planning for retirement
• The ability to easily browse materials by life stage or by communications type
• The option to choose various methods of communication such as brochures, online education tools, seminars, and posters
• Instant access to the materials

The Internal Revenue Service (IRS) has issued Notice 2011-68, which discusses the tax rules that apply to annuity-long term care (LTC) benefits hybrids and exchanges of annuity cash surrender value for qualified LTC insurance, National Underwriter reported. The IRS also asked for public comment on the matter.

Tax experts at the American Council of Life Insurers (ACLI), Washington, asked the IRS put those issues on its 2011-2012 guidance priority list two months ago. 

Section 1035 of the Internal Revenue Code (IRC) has been letting taxpayers trade in life and annuity products for other life and annuity products tax-free for many years. A provision in the Pension Protection Act of 2006 added IRC Section 844, which lets taxpayers get or dispose of LTC policies through tax-free Section 1035 exchanges.

Although taxpayers are allowed to make the exchanges, they have not been sure how to report the exchanges, or how the exchanges might affect their income taxes, the ACLI tax experts told the IRS in a comment on the IRS guidance development priority list. The ACLI asked the IRS to confirm that premiums paid for annuity-LTC combination product are included in the investment in the contract.

The Treasury Department and Internal Revenue Service request comments on the following related issues:

• What issues arise when the owner of an annuity contract with a long-term care insurance feature decides to annuitize the contract? Are the policyholder’s rights under the long-term care insurance feature typically the same or different before and after the annuity starting date? How should long-term care insurance charges be accounted for after the annuity starting date? How should the exclusion ratio be determined?
• For the purpose of determining whether the long-term care features of an annuity contract qualify as an insurance contract and thus as a qualified long-term care insurance contract, what is the appropriate characterization of long-term care payments that cause a reduction in a contract’s cash value? Are there common features or contract designs that would lend themselves to guidance on determining whether enough insurance risk is present for the long-term care features to qualify as an insurance contract?
• Is guidance needed on the partial exchange of the right to some or all of the payments under an immediate annuity contract for a qualified long-term care insurance contract? If so, how is such an exchange effected? Under what circumstances should such an exchange be treated as tax-free under § 1035? How should the basis and investment in the contract be apportioned between the qualified long-term care insurance contract received in the exchange and the rights still held in the exchanged annuity?
• What changes, if any, are needed to existing guidance (including publications, forms, and instructions) on information reporting and record keeping to assist issuers of life insurance, annuity, or qualified long-term care insurance contracts in meeting their obligations with regard to the amendments made by section 844 of the PPA?

Written comments should be submitted by November 9, 2011 and should refer to Notice 2011-68. Submit comments to CC:PA:LPD:PR (Notice 2011-68), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044, or electronically to [email protected]. Include “Notice 2011-68” in the subject line of the email.

The pension made the concept of “retirement” possible, starting in the late 19^th century. Will the decline of the traditional defined benefit pension mean the decline or the compression of retirement?

In a new research brief from the Center for Retirement Research at Boston College, CRR director Alicia Munnell shows that the 100-year trend toward an earlier reversed itself in the mid-1980s. Since then, more older people have been working.

Munnell, co-author with Steven Sass of “Working Longer” (Brookings Institution Press, 2008), believes that retiring later, saving more, and spending fewer years out of the work force may be the only way for some Baby Boomers to avoid running short of money in retirement.

Her new paper, “What Is the Average Retirement Age?” describes the decline in labor force participation among older Americans from about 1880 to 1980. As she explains, it was first brought about by the introduction of a pension for Civil War veterans, then by the creation of industrial pensions as a personnel management tool, then by Social Security.

But, over the past 20 years, labor force participation rates among older people have been rising. The average retirement age for men, which was 65 in 1962, fell to about 62 between 1985 and 1995 but has since risen to 64. The average retirement age for women, which was 55 in the 1960s, has steadily risen to 62 as women’s working habits come to resemble men’s.

She lists the following reasons for the trend toward higher labor force participation among men 55 and older in the last two decades:

• The liberalization, and for some the elimination, of the Social Security earnings test removed an impediment to continued work. The delayed retirement credit, which increases benefits for each year that claiming is delayed between the Full Retirement Age and age 70, provided an incentive to work longer.
• The shift from DB to 401(k) plans eliminated built-in incentives to retire. Studies show that workers covered by 401(k) plans retire a year or two later on average than similarly situated workers covered by a defined benefit plan.
• People with more education work longer. Over the last 30 years, the movement of more men up the educational ladder helps explain the increase in participation rates of older men.
• Life expectancy for men at 65 has increased about 3.5 years since 1980, and – despite greater use of Disability Insurance benefits – evidence suggests that people are healthier. Health and labor force activity go together.
• With the shift away from manufacturing, jobs now involve more knowledge-based activities, which put less strain on older bodies.
• More women are working; wives on average are three years younger than their husbands; and husbands and wives like to coordinate their retirement. If wives retire at age 62 to qualify for Social Security, that would push husbands’ retirement age toward 65.
• Workers have a strong incentive to keep working and maintain their employer’s health coverage until they qualify for Medicare at 65.

 “Will the retirement age continue to increase?” Munnell asks. “The fact that all the incentives associated with the recent reversal will remain in place argues for ‘yes.’ But there are risks—the move away from career employment, the availability of Social Security at 62, and employer resistance to part-time employment.”

© 2011 RIJ Publishing LLC. All rights reserved.

Households headed by people 65 and older make up the largest segment of the population of homeowners in this country, and many of them will continue to make home purchases in or near retirement — in many cases, trading in a larger suburban house for a smaller apartment or town house in a more urban area, the New York Times reported.

While the majority of older homeowners will pay with cash and therefore will not need a mortgage, some may require financing — perhaps because their previous home declined in value, or because they wanted to keep a portion of the money from the sale in income-generating investments.

About a third of the 65-and-older households that owned a home in 2009 had a mortgage, according to the Census Bureau’s American Housing Survey, which also put homeownership in this age group close to 81 percent during the second quarter of this year. By contrast, around 64 percent of people 35 to 44 were homeowners, and only 38 percent of those younger than 35 owned homes, the latest census data found.

American General Life Companies has introduced AG Lifetime Income Builder, a new living benefit rider available on selected fixed index annuity contracts and available to those ages 55 and older.

The guaranteed lifetime income rider features an income base that is guaranteed to grow at no less than six percent compounded annually for up 20 years, and a guaranteed lifetime income stream guaranteed to grow at no less than two percent per year if the income base is allowed to accumulate for at least 10 years and no excess withdrawals are taken.   

Available in twenty-nine states as of July 25, the rider is an option on the following single premium index annuities:

• AG VisionMaximizer
• AG Horizon Index 9 and 12
• AG Global Bonus
• AG VisionAdvantage 7 and 9

 At contract issue, the income base is equal to the annuity value, including any applicable premium bonus. The income base is guaranteed to grow at six percent compounded annually.

This “roll-up rate” increases the income base until the earliest of: the 20^th contract anniversary, the date the client begins the income withdrawal phase, or the contract anniversary on or immediately following the client’s 90^th birthday.

Each anniversary during both the growth and income withdrawal phases, if the annuity value is greater than the income base, the income base is “stepped up” to equal the annuity value.

If the client allows the Income Base to accumulate for 10 years or more, before beginning the income withdrawal phase, the client’s lifetime income withdrawal payments will increase by an additional two percent compounded annually each year.

There is an additional cost for this rider, and the client can turn lifetime income withdrawals on or off at any time, take less than the calculated amount or surrender the contract and receive the guaranteed withdrawal value.

More than half of retirement plan sponsors (63%) say they are “very or somewhat concerned” about their investment, administrative and trustee expenses—a reflection of the federal government’s campaign for fee disclosure and lawsuits against sponsors.

But the percentage of plan sponsors who say they have calculated total plan cost has declined since 2009—to 72% from 84% of plans—according to Aon Hewitt’s 2011 Trends & Experience in Defined Contribution Plans report, published every two years since 1991.

The findings were based on a survey of 546 DC plans, including 30% of the Fortune 500, with a combined total of over 12 million employees and $780 billion in assets.  The median/average number of employees is 6,000/23,286, and the median/average plan size is $384 million/$1.64 billion.

According to the Aon Hewitt report:

“Larger plans, with more than 5,000 employees, were more likely to [calculate fees] than smaller plans. Among those who have not calculated, half (51%) listed complexity as a hurdle, while 23% simply have not made it a priority or have not attempted. “Additionally, three-quarters of employers have made efforts to reduce expenses in the past two years, similar to what was reported in 2009.

“Regarding administrative fees, 73% of plans report that participants pay all recordkeeping fees, either directly or indirectly. Less than one-quarter of companies (22%) share the fees with participants, and 5% of employers pay all fees directly. The percentage of employers paying all administrative costs fell from 11% to 5% in 2011.

“In terms of how fees are assessed to participants, 94% do so across plan assets— including 66% through revenue sharing (only), 11% through add-ons (accruals) to funds, and 17% that combine these approaches. Additionally, 14% of plans charge a periodic line-item fee to participants (including 2% that also charge fees over assets). Add-ons as well as line-item charges have been increasingly used to help more equitably share costs with participants on a consistent basis, especially among larger employers.

“Disclosure of fees has become a priority during the past two years, as employers are increasingly using vehicles to illustrate fees, and many are using multiple methods. About half (51%) of plan sponsors say they disclose administration fees in fund fact sheets and/or prospectus information (up from 28%), and now 43% include it with participant account statements (up from 23%). For investment management fees, 85% of plan sponsors note they disclose fees in fund fact sheets and/or prospectus information, up from 60%.

© 2011 RIJ Publishing LLC. All rights reserved.

The Federal Reserve said yesterday that it would hold short-term interest rates near zero through mid-2013 to support the faltering economy, but it announced no new measures to further reduce long-term interest rates or otherwise stimulate renewed growth, the New York Times reported.

The Fed’s policy-making board said in a statement that growth “has been considerably slower” than it had expected, and that it saw little prospect for rapid improvement, prompting the change in policy. It had previously said that it would maintain rates near zero “for an extended period.”

“The committee now expects a somewhat slower pace of recovery over the coming quarters,” the Fed’s statement said. “The unemployment rate will decline only gradually.”

Many economists and outside analysts argue that the Fed should act more aggressively in response to rising unemployment and faltering growth. But internal divisions are limiting the central bank’s ability to pursue additional steps.

Even the modest commitment announced Tuesday was passed only by a vote of 7 to 3. The central bank prefers to act unanimously whenever possible.

The dissenters included Richard W. Fisher, president of the Federal Reserve Bank of Dallas; Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis; and Charles Plosser, president of the Federal Reserve Bank of Philadelphia.

The three men regard inflation as a more serious threat to the economy than unemployment.  

When Greek bonds were downgraded last year, their prices crumbled like ancient marbles in the Athens smog, only faster. But when U.S. bonds were downgraded last week, their prices rose. Meanwhile, the whole world dumped equities.  

Maybe the bond market, unlike Congress or the odds makers at Standard & Poor’s, doesn’t equate the U.S. and Greece. Maybe it knows that the United States, unlike Greece, can and will always pay its debts in its own currency, with interest.

But here’s my question: Was “the market” angry because last week’s debt-ceiling deal didn’t include a more aggressive debt-reduction plan? Or because it didn’t include an economic stimulus?   

It’s the latter, in my opinion. If Obama and Bernanke had announced that they will spend whatever they can to jump-start the economy, I think the market would have rallied. (Indeed, the Fed announced at 2 p.m. yesterday that it would keep rates “exceptionally low” through 2013. The Dow rose more than 400 points.)

I speak as a recent convert to Modern Monetary Theory. MMT holds that unemployment is more destructive than inflation and that the government should spend whatever it has to in the short run and clean up any subsequent inflation—which is currently nowhere in sight—as the private economy improves. In other words, MMT holds that people are more valuable than money. Especially when that money can come from a central bank with a printing press.

You may not agree. Congress clearly doesn’t agree. According to an article by Robert Pear in the New York Times a few days ago, Congress believes that the market is telling it to cut spending and balance the budget. That’s like an anorexic person looking in a mirror and concluding, ‘I’m so fat.’ Or like the voice in Freddie Kreuger’s head that says, ‘Kill, kill!’

The deficit hawks, the hard-money men, apparently believe that people are dumping stocks because they’re afraid that the threat of a Greek-like debt meltdown will destroy the U.S. economy. But a Greek tragedy isn’t what’s playing out here. The U.S. isn’t like Greece. If it were, the smart money would sell Treasuries, not buy them.

People much wiser than me were blogging away on this issue yesterday and this morning. At Moslereconomics.com, a pro-MMT site, Warren Mosler wrote:

“Looks to me like the recent sell off in stocks was mainly technical, as the initial knee jerk sell off from the debt ceiling and downgrade uncertainties triggered further selling by those with short options positions, much like the crash of 1987…

“Like then, and unlike early 2008, the current federal deficit seems more than large to me to keep things chugging along at muddle through levels of modest growth, continued too high unemployment, and decent corporate profits and investment.

“Yes, risks remain. Europe is a continuous risk, but the ECB, once again, stepped in and wrote the check. China looks to be slipping but the lower commodity prices will help US consumers maybe about as much as they hurt the earnings of some corps. So for now, with the options related stock selling over, it looks like we’re back to calmer waters for a while.”

At Zerohedge, a site that some people respect, Tyler Durden suggested that investors dumped equities because they’ve recognized that the equities market, shorn of quantitative easing and rock-bottom rates, is an emperor without clothes:   

“For Treasuries to rally in a flight to quality as a market reaction to their own downgrade is a flight to the relative safety that remains. Anticipation of the deflationary political discipline of an S&P downgrade is the rational reaction of capital flight away from securities propped up by the reflationary status quo…

“Policy choices are clearly between a deflationary deleveraging/purging of mal-investment or a reflationary protection of the status quo international money center banking system to the detriment of wage earner and pensioner standards of living.” 

Durden believes that the expectation of deficit-cutting—i.e., “deflationary political discipline”—triggered the equities sell-off. He seems to oppose any further monetary stimulus—like the low rates the Fed promised today—that merely keep stock and bond prices inflated above their true value and prevent the recognition of bad debt. Is there a safe way to let asset prices correct while raising employment?   

An articulate champion of MMT, the Australian economist Bill Mitchell, who believes that everyone who needs work should be able to find work, recommended this yesterday:

“The first thing the US government should do today when they wake up is enact legislation to outlaw the ratings agencies. The second thing they should do is increase their deficits and introduce a Job Guarantee. The third thing they should do is enjoy the political credit that will flow from reducing unemployment.”

Finally, at the end of the day, I turned to AdvisorPerspectives, a newsletter that publishes market commentary. John Hussman, a mutual fund manager I met last spring at a Morningstar conference, wrote this: 

“Another round of policies geared to creating an even larger sea of zero-interest liquidity, re-igniting asset bubbles, or further lowering already depressed Treasury yields, would be a signal of panic and incompetence from the Fed.

“If policy makers instead push to facilitate debt restructuring, coupled with pro-growth fiscal responses (e.g. R&D investment incentives, full funding of the National Institutes of Health, productive infrastructure investment, etc.), yet another drawn-out cycle of distortion and crash might be avoided.”

Now, that’s a policy I could support. Unfortunately, the House of Representatives has removed all hope of fiscal stimulus as long as the Tea Party holds power. That loss of hope, in my humble opinion, and not the faraway threat of big deficits or a meaningless S&P downgrade, is what shocked the markets.

© 2011 RIJ Publishing LLC. All rights reserved.

Two retirement plan providers, Securian Retirement and BlackRock, recently announced new fund options. In doing so, both cited the trend toward greater fiduciary responsibility and lower costs in employer-sponsored retirement plans as a motivating factor.

In naming a dozen new investment options, Securian noted that its

“Actual Allocation Method (SA2M) process for crediting revenue sharing to participant accounts, recently was cited in a paper by Fred Reish and Bruce Ashton. [Reish and Ashton] noted “Securian’s method of allocating revenue sharing effectively solves the fiduciary issues by following the actual allocation approach considered by the DoL to be most equitable.”     

The latest of Securian’s 120 or so options (and their underlying investments) are:   

• Long-Term Bond I2—PIMCO Long Duration Total Return Fund, Institutional Class (primarily for defined benefit plans)   
• Global Allocation I1,2—BlackRock Global Allocation Fund, Institutional Shares   
• Large Growth Equity XIV—BlackRock Capital Appreciation Fund, Institutional Shares   
• Mid-Cap Value Equity V3—American Century Mid Cap Value Fund, Institutional Class   
• Small-Mid Equity I3—Eaton Vance Atlanta Capital SMID-Cap Fund, Class A  
• Small Value Equity XVI3—AllianceBernstein US Small Cap Value   
• Small Value Equity XVII3—DePrince, Race & Zollo Small-Cap Value   
• International Core V1—Manning & Napier Fund, Inc. Overseas Series   
• Health Care Equity III4—T. Rowe Price Health Sciences Fund   
• Natural Resources II1,3,4,5—Nuveen Tradewinds Global Resources Fund, Class I   
• Social Equity III1,3,6—Pax World Global Green Fund, Institutional       Class   
• International Growth IV1,5—Invesco International Growth Fund, Institutional Class 

Securian Retirement’s qualified plan products are offered through a group variable annuity contract issued by Minnesota Life Insurance Company.

Similarly, BlackRock’s Chip Castille cited the Department of Labor in announcing his firm’s expansion of its menu of index funds for retirement plans.

“The growing indexing trend in this market is partly in response to regulatory focus on fees and the desire for increased transparency,” Castille said in a release. “Sponsors like the publicly available pricing offered by mutual funds, as well as the detailed, standardized disclosures for prospectuses and other communications.”

With the June launch of nine BlackRock LifePath Index Portfolios, and the All Country World Index ex-U.S. Fund, the firm now features 16 core index mutual funds.

The newest funds, available on most major recordkeeping platforms, complement the existing product suite that includes BlackRock’s S&P 500 Stock Fund; Small Cap Index Fund (tracking the Russell 2000 Index); International Index Fund (tracking the MSCI EAFE Index); Bond Index Fund (tracking the Barclay’s U.S. Aggregate Index); and the Russell 1000 Index Fund.

As of June 30 2011, BlackRock managed over $2 trillion in index based products spanning equity, fixed income, multi asset and alternative investment strategies.

Industry wide, it’s expected that the share of DC assets in index solutions will nearly have doubled from 11% in 2005 to 20% by 2015 – bringing the allocation into closer alignment with the percentage of indexing seen in defined benefit plans, the BlackRock release said.

© 2011 RIJ Publishing LLC. All rights reserved.

Security Benefit names Michael Kiley as new CEO

Security Benefit Corporation, a Guggenheim Partners Company, has announced that Michael Kiley will become chief executive officer on September 30, 2011. Kiley succeeds Howard Fricke, the interim president and CEO since February 2010 and previously Security Benefit president and CEO from 1988 to 2000 and chairman from 1996 to 2006.

Kiley currently serves as a senior managing director for Guggenheim Partners. He originally joined Guggenheim in a consulting capacity to advise management on the acquisition of Security Benefit, which was completed on August 2, 2010. He will currently remain on the board of directors of Security Benefit Corp.

Prior to joining Guggenheim Partners, Kiley served as president and CEO of Van Kampen Investments, a division of Morgan Stanley. During his tenure at Morgan Stanley he also served as president and CEO of Morgan Stanley Funds Distributors, head of the U.S. Intermediary Group and as a principal in the institutional asset management group. Prior to that Kiley was president of the Travelers Portfolio Group, a division of Citigroup. He also held executive positions at AXA and Guardian Life.

Allianz Life reports 14% increase in year-to-date 2011 sales

Minneapolis-based Allianz Life Insurance Company of North America posted premium of $5.6 billion through the first half of 2011, an increase of 14% from $4.9 billion in the first half of 2010.

Fixed index annuity premium increased 8% over the first half of last year to $3.3 billion from $3.05 billion. Variable annuity sales were up 27% from $1.5 billion in 2010 to $1.9 billion year-to-date.

“We continue to maintain our strong annuity market share and increase sales by strengthening relationships with distribution,” said Allianz Life President & CEO Gary C. Bhojwani.   

Operating profit was $315 million for the first half of the year, and reflects the strong profit margin on the company’s inforce portfolio. This is down slightly from prior year results of $348 million, which were boosted by a positive one-off effect on the investment portfolio.

Total assets under management reached $92 billion, an increase of 5% from December 31, 2010. Growing customer balances and positive sales drove this change.

Lincoln Financial adds Dimensional Funds and Vanguard ETFs to variable insurance products

Lincoln Investment Advisors Corporation, a unit of Lincoln Financial Group, has added the introduction of Lincoln Variable Insurance Product (LVIP) Dimensional Funds and Vanguard® ETF Funds, new fund-of-funds investment options available through select Lincoln variable life, annuity and defined contribution products.

With input from Dimensional Fund Advisors about Dimensional’s family of funds, the LVIP Dimensional Funds offer exposure to the Dimensional Institutional Funds used by advisors, and were developed to achieve long-term capital appreciation and provide access to a risk-managed asset allocation strategy.

Through a fund-of-funds structure, LVIP Dimensional Equity Funds provide a broad, cost-effective exposure to the market. By spreading the investment gradually across the entire market, the funds can hold stocks for maximum indexing expertise. The Funds are designed to help investors track indices and gain equity and fixed income exposure through a diversified approach.

The three new strategies available are the LVIP Vanguard Domestic Equity ETF Fund and LVIP Vanguard International Equity ETF Fund – both designed to achieve long-term capital appreciation – and the LVIP Dimensional/Vanguard Total Bond Fund, designed with a total return consistent with preservation of capital.

efficiency and minimize counterproductive trading.

The new fund options include the LVIP Dimensional U.S. Equity Fund, LVIP Dimensional Non-U.S. Equity Fund and the LVIP Dimensional/Vanguard Total Bond Fund.

The LVIP Vanguard® ETF Funds provide exposure to domestic and international exchange-traded funds (ETFs) and Vanguard’s at-cost

MassMutual Retirement Services adds two sales directors

Garrett Carlough and Andrew Hanlon have joined MassMutual as sales directors in its Retirement Services sales and client management organization led by Hugh O’Toole, increasing support for the under-$5 million retirement plan business.

Carlough joined MassMutual on May 16 from Principal Financial Group. He will cover New York City, Long Island, Westchester County, Rockland County and northern New Jersey.   

Hanlon was appointed sales director effective July 1. He covers eastern Massachusetts, Rhode Island, New Hampshire and Maine. He most recently served as a key account manager in MassMutual’s distribution support organization. With MassMutual since 2006, he spent 10 years with Putnam Investments in operations, implementation and sales.  

Both men will report to Jonathan Shuman, national sales leader, MassMutual’s Retirement Services Division.  

Prudential Retirement offers mobile communication apps

Prudential Retirement, a unit of Prudential Financial, has launched its Experience Prudential Retirement custom website building solution, and introduced new mobile applications.

The apps let mobile participants review their savings portfolios and calculate retirement income, and help business partners provide customer service. Experience Prudential Retirement will allow financial advisors and plan consultants to create customized marketing websites for prospects and clients.

 “Compared to 2010, our research indicates that respondents who are very interested in mobile media grew by 85% in 2011 and those very interested in social media grew by 57%. Our investments in mobile technology, customer experience upgrades and digital engagement will help our stakeholders transform how they engage retirement plans and ultimately achieve retirement security goals,” said Eric Feige, Prudential Retirement’s vice president of E-strategy since March.

Prudential Retirement has enabled mobile account access for its 2.5 million retirement plan participants and is making its Retirement Income Calculator available to all Americans through mobile devices.

Participants will be able to view account information including balances, personal rates of return, and year-to-date contributions, as well as link to Prudential’s website on their mobile device.

The Retirement Income Calculator app is now available for download from the Apple Store, Google’s Android Market and BlackBerry’s App World free of charge. The app allows users to input information like their age, salary, current retirement savings, etc. calculate their estimated monthly retirement income and estimated monthly retirement income need.

The calculator also available through the business’ participant website then provides specific guidance on steps users can take to achieve their financial goals including the impact of increasing contribution rates, taking early or delaying retirement.

“Financial freedom,” not “traditional retirement,” is the main reason why affluent investors between the ages of 40 and 60 strive to accumulate money, according to a new study by Hearts & Wallets, a Boston-area research firm that specializes in retirement and savings.

The study ratifies the concept that was popularized a few years ago in Ameriprise TV commercials where the late Dennis Hopper—co-star of Easy Rider—stood on a beach and declared that Boomers would use retirement to re-connect with their circa-1969 craziness. In the background, the Spencer Davis Group blasted ‘Gimme Some Lovin’.

“The financial services industry needs to start executing on the reality that many investors don’t plan to retire,” said Laura Varas, Hearts & Wallets principal. “Affluent accumulators told us they are saving for ‘freedom money.’ This is a polite version of the term they used to describe the pot of money that will let them walk off the job if someone treats them unreasonably, or if they simply get sick of that job and want to do something else.

“That day may never come. Knowing they have the option to say ‘bug off’ if they want to, gives them tremendous peace of mind that is invigorating, reassuring and even energizing.”

The study, Acquiring Mid-Career Accumulators: Positioning Advice and Disclosing Fees with Upshifting and Downshifting Investors, found that few providers have been able to change the dialogue from “a singular focus on retirement to multi-dimensional freedom money.”

‘Muddled’ advice models and pricing

The new study also found that, going forward, investors will scrutinize the costs and benefits of the investment guidance they’re getting. As a result, advice providers won’t be able to get away with “muddled value propositions.”

“It’s critical to address these issues prior to the 401(k) fee disclosure in 2012,” said Chris Brown, Hearts & Wallet principal. “By clarifying the value proposition now, the financial services industry can get ahead of questions that will arise when fees are printed on 401(k) statements.

“Investors want to understand what they are getting and paying for, and this will improve trust overall. It may take some time, but seeing what they’re paying in their employer-sponsored retirement accounts will give investors the framework to start asking questions about price and value in their own retail relationships, questions that are already very much on their minds.”

The study, which is available for a fee, is designed to help providers:

• Understand “pain points” or questions that will motivate investors to seek advice or solutions.
• Assess how key segments of Accumulators want to access and evaluate advice.
• Test concepts that offer service model choices in terms of advice and pricing, including bundled, unbundled, fiduciary, lump sum, hourly rates and more—a key strategic issue in advance of 2012 fee disclosure requirements.
• Obtain insights into attitudes on retirement and retirement messaging by evaluating actual advertisements for retirement advice currently in the marketplace.
• Unlock secrets of trial and acquisition of those investors who are “in play,” whether Upshifters or Downshifters.

The findings are based on a series of nationwide focus groups with investors with at least $100,000 in assets (most with $250,000 to $1 million in assets) who were actively thinking about advice service model pricing, breaking down into the following psychographic segments:

• Upshifters – Recently consolidated, switched or seriously evaluating to obtain more advice
• Downshifters – Recently increased business or seriously considering doing so with a provider for more empowerment and cost-effectiveness
• Engaged & Staying Put – Actively using services and reasonably satisfied

“If your offering is positioned as a service, be a service,” Varas said. “Service companies can describe the services they offer on key dimensions, teach the customer how to evaluate how well those services are delivered, and offer choices in pricing to go up or down depending on the customer’s chosen service level.

“Since holding an investment ‘product’ involves using it for a long period of time, checking in on it occasionally, and hoping for an outcome, this principle of ‘being a service’ applies to product manufacturers, such as insurers or asset managers who distribute through intermediaries, as well as the more obvious case of brokerage firms, banks and others who offer investment services directly to investors.”

The full report includes:

• Five Reasons Accumulators Are Not Saving Enough for Retirement and Five Ways to Engage Them
• What’s Working & What’s Not: Insight into the Advice Service Models of the Future
• Reactions to Alternative Service/Pricing Concepts
• Attitudes & Experiences of Upshifters
• Attitudes & Experiences of Downshifters
• Appendix: Evaluation of Retirement Advertisements

© 2011 RIJ Publishing LLC. All rights reserved

A tactical investment process that AllianceBernstein created four years ago to provide less volatile returns for wealthy investors has been adopted by several variable annuity issuers who are using it to control investment risk and protect their lifetime guarantee riders.

Last week, the asset management firm announced that its Dynamic Asset Allocation services and/or Dynamic Asset Allocation fund portfolio had been chosen during the past year by these insurance companies to provide a safer investment option in their variable annuities: 

• AXA Equitable, which is applying the DAA strategy in a new subadvised portfolio to further enhance investment choices in its variable annuity products with guaranteed living benefits.
• MetLife, through its affiliate MetLife Advisers, LLC, which created a customized portfolio incorporating DAA for its recent GMIB/EDB max rider launch.
• Ohio National and SunLife, each of which in the last several months committed to the firm’s new DAA Variable Insurance Trust (VIT), where we apply the Dynamic Asset Allocation tool set to an equity-tilted globally diversified portfolio.  
• Transamerica, which launched its partnership with the DAA service just under a year ago, making it available across a number of their variable annuity products.

According to a two-page product profile, the DAA fund managers, co-CIOs Seth Master and Dan Loewy, have a wide range of latitude. They can put zero to 80% of assets in equities (except emerging market) and 20% to 80% of assets in fixed income instruments. They limit themselves to 15% in emerging market stocks or global real estate and no more than 10% in commodities, emerging market debt or high-yield bonds. During “favorable” stock market conditions, the fund overweights global equities, and during “unfavorable” conditions, it overweights global bonds, the handout said.

Mark Hamilton, AllianceBernstein’s investment director, told RIJ this week that DAA doesn’t use Constant Proportion Portfolio Insurance, a modified version of which is used in Prudential’s HD variable annuity income rider and which offered relatively better protection of the firm’s guarantees during the financial crisis. 

Not CPPI

“No, it’s definitely not a form of CPPI,” Hamilton said. “Those strategies are typically a form of portfolio insurance that tends to reduce exposure to the market as the market is falling, with the idea of setting a floor. This is not that. We monitor risk across the marketplace and adjust the fund very actively in terms of its asset exposures.

“I wouldn’t think of it as a hedge fund either, because it doesn’t use leverage or follow a short-long strategy. This is much more of a flexible approach to balancing risk and return.” The investments vary widely across the globe, he said, and may include high-yield bonds, REITs and emerging market equities.   

“Post-2008,” Hamilton added, “we’ve seen a number of significant changes both in terms of how insurers think about variable annuities, and what investors are looking for in investment options. Among insurers, 2008 exposed a lot of the potential costs involved during periods of high volatility. They’re looking for volatility solutions so that they can offer more generous guarantees.

“On the investor side, people are less interested in fixed-allocation balanced funds, which they know can entail a great deal of risk. They’re looking for more flexibility, for funds that will respond automatically to the overall risk and return environment.

“This fund and this strategy are designed to meet those objectives. We’re trying to give insurers a fund that manages volatility, and to let them offer the guarantee. We look at both risk and return, and forecast volatility and correlation across markets.

“If you were only looking at risk side, you’d look at VIX triggers. But you can get whipsawed that way. There’s no guidance in the VIX about what the future compensation or expected return might be. If you compare September 2008 and March 2009, volatility was high during both periods. But there was a big difference in what followed. We’re trying to balance those two competing inputs, risk and return. That’s something that you won’t get if you’re just tracking the VIX.

“Typically when we see risk in the marketplace rising, and see credible evidence that it’s not just a blip, we will typically move to reduce risk in the portfolio. That’s part of the process. But we don’t do it in a simple knee jerk fashion the way you would if you were using CPPI or a VIX trigger, which don’t take compensation into account.

“At some point you need to get into the market, and another component of this guides us on getting back in. Sometimes the return perspective provides the early warning signal. When valuations are high, you’re more vulnerable—even when the market isn’t showing high volatility.

“We’re not simply building in some form of tail risk protection. It’s a fund whose strategic allocation over the long run will be comparable to a 60/40 fund, but which also has a lot of flexibility to move around. We could be much below that, or higher than that. Historically, tactical funds have focused more on return than on risk, but we’ve found that the risk component is the key to providing smoother experiences over time for investors. The risk side, in fact, has a better degree of predictability.”

DAA started as a research project in 2007 at AllianceBernstein, Hamilton said. It was first offered to private clients and other high net worth investors, and later was used in target date funds for the defined contribution plan market. About $25 billion of the $70 billion in AllianceBernstein’s private client practice is managed with the DAA method, he said.

AllianceBernstein is part owned by AXA. At June 30, 2011, AllianceBernstein Holding L.P. owned approximately 37.8% of the issued and outstanding AllianceBernstein units and AXA owned an approximate 62.4% economic interest.

© 2011 RIJ Publishing LLC. All rights reserved.

A hearing in Washington last week pitted Labor Department. officials against financial services industry groups and a Republican committee chairman, in a classic debate over the costs and benefits of new regulations.   

The DoL’s effort to apply the fiduciary standard to providers of advice to workplace retirement plans appears to be tasting the impact of last fall’s Republican capture of the House of Representatives, a victory that includes control of committee chairmanships.

But the DoL isn’t giving up, apparently, on its effort to purge conflicts of interest from the 401(k) world, where it believes direct or indirect investment advice from investment providers often helps the providers more than it helps the participants.

“The [current fiduciary] regulation is broken,” Phyllis Borzi, an assistant Labor secretary, told the Wall Street Journal. “We have a responsibility to protect beneficiaries and participants.”

During the July 26 hearing on the DoL plan, Phil Roe (R-TN), chairman of the House Subcommittee on Health, Employment, Labor, and Pensions described the department’s proposal to change the fiduciary standard as “ill-conceived” and advised Assistant Labor Secretary Phyllis Borzi to “take a step back and start over.”

“While we support looking at ways to enhance this important definition, the current proposal is an ill-conceived expansion of the fiduciary standard,” said Phil Roe (R-TN). “It will undermine efforts by employers and service providers to educate workers on the importance of responsible retirement planning. Regrettably, the proposal may deny investment opportunities and drive up costs for the individuals it is intended to protect.”

“With all due respect, Assistant Secretary, if this proposal is so disruptive to our system of retirement saving, then the department needs to take a step back and start over,” Roe added. “I would like to join my Republican and Democrat colleagues in urging the administration to do just that.” 

A number of witnesses from the financial industry made the customary arguments against new regulations—that they would raise the cost of providing advice and perhaps discourage the provision of any advice at all. 

Companies that are fighting the rule proposal include Morgan Stanley, Bank of America Corp., Wells Fargo & Co., Blackrock Inc. and MetLife, the Wall Street Journal reported.    

Kenneth E. Bentsen of the Securities Industry and Financial Markets Association (SIFMA), said:

“The real question is the cost to plans and their participants and the impact on their retirement savings. And while the department’s cost analysis leaves alarming gaps in what it does appear to understand or be certain about, its list of uncertainties does not even once mention IRAs.”  

Kent Mason, of the law firm of Davis & Harmon, said, “There is great concern that the proposed regulation would sharply decrease the provision of investment education… providers of needed education will likely restrict the information that they provide due to the chance that they might become fiduciaries for providing what they consider to be educational materials.” The proposed rule is “actually severely counterproductive for exactly the kind of persons that you want to protect.”

Jeffrey Tarbell, of the investment bank Houlihan Lokey, testified, “As you know, earlier this year, the White House issued an Executive Order directing federal agencies to use ‘the least burdensome tools for achieving regulatory ends,’ and to ‘select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits.’ However, the DOL has provided no meaningful cost-benefit analysis that would satisfy the Administration’s directive.”

According to the Wall Street Journal:

Under proposed rules, the agency would apply what is known as the fiduciary-duty standard among a wider pool of brokers and financial advisers who provide investment advice for a fee to retirement plans and IRA holders. The Labor Department’s current powers are far narrower using the fiduciary standard, which requires brokers and others to act in the best interests of the retirement-plan client.

The department’s main concern is that current rules make it easy for various financial participants to give advice that may hurt the investor but generates high fees for the middleman.

Labor Department officials said it makes sense for the agency to flex its muscle because of its history regulating corporate retirement plans. At securities firms, though, the pending rules are seen as another threat to profits.

At the House hearing Tuesday, industry officials and some lawmakers called for the proposed rules to be overhauled or shelved. Ms. Borzi said the Labor Department isn’t backing down.

“We’ve had nearly 40 years of experience in our own enforcement activities to identify the problem,” Ms. Borzi said. Final rules set for completion later this year will respond to concerns without watering down changes needed to protect workers and retirees, she added.

The Labor Department traditionally isn’t known as a financial cop. But the agency is more concerned about potential abuses now that assets in pension plans, 401(k)s, IRAs and other retirement accounts have swelled to $18 trillion. IRAs hold about $4.9 trillion and are an important nest egg for roughly 50 million U.S. households.

“The IRA market is like the Wild West,” said Brian Graff, chief executive of the American Society of Pension Professionals and Actuaries, a trade group. “Things go on that would make people wince.”

© 2011 RIJ Publishing LLC. All rights reserved.