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Aspen Institute to host retirement discussion

Posted on April 13, 2011 by Editor Test -

A roundtable conversation hosted by The Aspen Institute Initiative on Financial Security (Aspen IFS) will hold a roundtable discussion entitled “Savings to Last a Lifetime: The Changing Needs of Retirees” on Friday April 15 from noon to 1:30 p.m. at 1333 New Hampshire Avenue, NW, 10th Floor, Washington Room, Washington D.C.

Participants will include Mark Iwry, Deputy Assistant Secretary for Retirement and Health Policy, U.S. Treasury, Michael Davis, Deputy Assistant Secretary, U.S. Department of Labor Employee Benefits Security Administration, and Lisa Mensah, executive director, Aspen Institute Initiative on Financial Security.

The topic is the transition from defined benefit (DB) to defined contribution (DC) plans and the resulting opportunities and challenges to improve retirement security in today’s changing landscape. The event is hosted in conjunction with the National Retirement Planning Week.

The Aspen Institute Initiative on Financial Security (Aspen IFS) is a leading policy program dedicated to helping bring about the policies and financial products that enable all Americans to save, invest, and own. For more information about Aspen IFS and its work, please visit www.aspenifs.org.

The Aspen Institute mission is twofold: to foster values-based leadership, encouraging individuals to reflect on the ideals and ideas that define a good society, and to provide a neutral and balanced venue for discussing and acting on critical issues. The Aspen Institute does this primarily in four ways: seminars, young-leader fellowships around the globe, policy programs, and public conferences and events. The Institute is based in Washington, D.C.; Aspen, Colorado; and on the Wye River on Maryland’s Eastern Shore. It also has an international network of partners. For more information, visit www.aspeninstitute.org.

America Isn’t a Corporation

Posted on April 11, 2011 by Editor Test -

Wisconsin congressman Paul Ryan, in his “Path to Prosperity” polemic, was correct to point out that the United States is on an unsustainable financial course. No one seriously disagrees with that conclusion. The projections are scary.

And his proposals made sense if you’re inclined to think of the government as a corporation. If taxpayers were like shareholders, if those who pay the most taxes were the biggest shareholders, and if the rest were like employees with fat benefit packages, then it would be perfectly reasonable to act like a corporation and start cutting fast, from the bottom.

Similarly, his proposals about health care made sense if you believe, as some people do, that Medicare and Medicaid payments should be counted as income for the people who receive treatment under those programs.

But framing is everything. If you frame things differently his ideas don’t make as much sense. First, the country isn’t a corporation. Corporations aren’t societies. They aren’t democracies. They aren’t perpetual. The country is all three. Second, entitlement payments aren’t income for the masses. Since 1965, they’ve been a font of income—a moral hazard, a “blank check,” a boondoggle—for the very profitable medical industry.

We have to find a way to deliver good health care to everybody at lower cost, rather than deliver perfect health care to some people at very high cost.

Charlie Baker, a Harvard and Kellogg School graduate, son of a Mayo clinic surgeon, former CEO of Harvard Pilgrim Health Care in Boston, and recent unsuccessful Republican candidate for governor of Massachusetts, was asked at the recent RIIA conference in Chicago how he would reform the medical system if he were its “czar.”

Baker, like Ryan, said that the government should give older people a “basket of money” and let them choose their own insurance plans. The amount in the basket would get bigger as they aged.” But in calling for medical teamwork and a change in Medicare that would reward “cognitive” care rather than encourage costly procedures, he also targeted the costly fragmentation and duplication in the medical care delivery system.

Arnold Relman, the 88-year-old nephrologist and former editor of the New England Journal of Medicine, has argued in print and in speeches for 30 years that the country could afford comprehensive high-quality health care for everyone if medicine were a not-for-profit business, with highly-paid salaried doctors working in groups and no investor-owned hospital chains.

“Health care should not be a playground for investors,” Relman told RIJ last week. “The single payer is the first step. But you have to reform the delivery system, by saying to the medical system, ‘This is what we can afford, this is all we can pay you and you’ve got to do the best you can.’ Some say that will lead to rationing. That’s nonsense. There’s more than enough money in the system. It’s just not being spent on health care. It’s being spent on administration and duplication and fraud.”

Every human being is a million-dollar medical bill waiting to happen, and if nobody stops the growth in health care spending, then BabyBoomers will spend all of their savings on nothing else. But the solution isn’t to shift rising costs away from taxpayers and onto older people. The solution is to reduce costs by taking the profit motive (and the profiteering) out of medicine.

In that regard, Baker was pessimistic. At 18% of GDP, he said, the medical system is too big to let anyone to dictate to it. He believed that health care might account for 30% of the economy by 2035. Relman was more optimistic. He noted that some 200,000 doctors now work in salaried groups like the Mayo Clinic, where costs are lower and outcomes are better. Doctors themselves, he said, can change the system, he said.

Relman thinks the Ryan Medicare proposal is just plain wrong. “It’s a sham. It’s mean-spirited. It’s a reversion to the old ‘devil-take-the-hindmost’ philosophy,” he said. “It guarantees that people would have to pay more and more out of pocket to insurance companies. Doctors would continue to practice fee-for-service. Costs wouldn’t be controlled at all.”

The Bankers Who Control the World

Posted on April 11, 2011 by Edward Jay Epstein -

“A towering citadel housing what is essentially a sovereign state known as the Bank for International Settlements is located in Basel, Switzerland. The bank now controls the financial affairs of planet Earth”—from Crisis by Design: The Untold Story of the Global Financial Coup, John Truman Wolfe (Roberts Ross, 2010).

For many decades the central bank for central bankers, the Bank of International Settlements has been accused of engineering the recent financial crisis in order to weaken the dollar. In the early 1980s, reporter Edward Jay Epstein visited the BIS and wrote about it for Harper’s magazine. Updated for RIJ, his first-hand account remains one of the few independent profiles of the BIS.

Ten times a year—once a mouth except in August and October—a small elite of well-dressed men arrives in Basel, Switzerland. Carrying overnight bags and attaché cases, they discreetly check into the Euler Hotel, across from the railroad station.

They come to this sleepy city from places as disparate as Tokyo, London, and Washington, D.C., for the regular meeting of the most exclusive, secretive, and powerful supranational club in the world. While here, they are fully serviced by chauffeurs, chefs, guards, messengers, translators, stenographers, secretaries, and researchers. For their relaxation, there is a secluded nearby country club with tennis courts and a swimming pool.

The membership of this club is restricted to a handful of powerful men who determine daily the interest rate, the availability of credit, and the money supply of the banks in their own countries. They include the governors of the U.S. Federal Reserve, the Bank of England, the Bank of Japan, the Swiss National Bank, and the German Bundesbank.

The unabashed purpose of this elite society is to make decisions that aim to influence and, if possible, to control all monetary activities in the industrialized world. The place where this club meets in Basel is a unique financial institution called the Bank for International Settlements—or more simply, the BIS (pronounced “biz” in German).

Origins of the BIS

The BIS was established in May 1930 by a small elite of central bankers to collect and settle Germany’s massive World War I reparation payments (hence its name). These lords of finance organized it as a commercial bank with publicly held shares. Their power was such that an international treaty, signed in The Hague in 1930, guaranteed the bank’s immunity from government interference, and even taxation, in both peace and war.

Its depositors, the world’s central banks, also stored much of their gold there. As the central banks provided it with a profit on every transaction, it required no subsidy from any state, making it truly a supra-government of finance. Congress officially refused to allow the U.S. Federal Reserve to participate in the BIS, or to accept shares in it (which instead were held in trust by the First National City Bank). But the chairman of the Fed quietly slipped over to Basel for important meetings to deal with the financial panics that flared up in Austria, Hungary, Yugoslavia, and Germany in the 1930s, and to prevent the collapse of the global financial system.

These central bankers had to coordinate their rescue efforts in secret, and the meeting spot that provided them with the necessary cover was the BIS, where they regularly went anyway to arrange gold swaps and war-damage settlements. World monetary policy was evidently too important to leave to national politicians. Even during World War II, when the nations, if not their central banks, were belligerents, the BIS continued operating in Basel. The monthly meetings were temporarily suspended in 1944, following Czech accusations that the BIS was laundering gold that the Nazis had stolen from occupied Europe.

After the war, the American government backed a resolution calling for the liquidation of the BIS. The naive idea was that the new International Monetary Fund could take over the BIS’ settlement and monetary-clearing functions. What could not be replaced, however, was what existed behind the mask of an international clearing house: a supranational organization for setting and implementing global monetary strategy, which could not be accomplished by a democratic, United Nations-like international agency.

The central bankers, not about to allow anyone to take their club from them, quietly snuffed out the American resolution. Indeed, the BIS grew stronger, and proved particularly useful to the United States in the Cold War years.

When the dollar came under attack in the 1960s, massive swaps of money and gold were arranged at the BIS for the defense of the American currency. It was undeniably ironic that, as the president of the BIS observed, “the United States, which had wanted to kill the BIS, suddenly finds it indispensable.”

Up until the late 1970s, the central bankers sought such complete anonymity for their activities that they maintained their headquarters in an abandoned six-story hotel, the Grand et Savoy Hotel Universe, with an annex above the adjacent Frey’s Chocolate Shop. Since there purposely was no sign over the door to identify the BIS, visiting central bankers and gold dealers used Frey’s, which is across the street from the railroad station, as a convenient landmark.

In the wood-paneled rooms above the shop and hotel, decisions were reached to devalue or defend currencies, to fix the price of gold, to regulate offshore banking, and to raise or lower short-term interest rates. And though the bank shaped a new world order, the public, even in Basel, remained almost totally unaware of its activities.

A rare guided tour

The BIS had relaxed some this passion for secrecy and, against the better judgment of some of its members, moved to a more efficient eighteen-story cylindrical skyscraper, when I was invited to its headquarters in 1983 by Karl Otto Pohl, who, as president of the German central bank, belonged to the inner club of the BIS. Earlier, I had interviewed Pohl for Institutional Investor magazine, and he had complained to me, over a bratwurst-and-beer lunch on the top floor of the Bundesbank in Frankfurt, about the repetitiousness of the meetings he had to attend at the BIS.

“First, there is the meeting on the Gold Pool, then, after lunch, the same faces show up at the G-10. The next day there is the board which excludes the U.S., Japan, and Canada, and then the European Community meeting, which excludes Sweden and Switzerland. But these meetings are not where the real business gets done,” he said. That was done at the “inner club” that included Pohl. Since Pohl was telling me about his power, at the end of our leisurely lunch I asked him if he could arrange a visit for me. “Why not,” he answered, “You can interview its President Fritz Leutwiler.”

When I arrived in Basel the following week, there was no mistaking the BIS’ headquarters. Known as the “Tower of Basel” it rose over the medieval city like some misplaced nuclear reactor. I was immediately taken to Dr. Leutwiler’s office, which, despite his power, was modest in size. He began the interview by apologizing for the prominence of the bank’s new venue: “That was the last thing we wanted. If it had been up to me, it never would have been built.”

Despite its irksome visibility, the building has some practical advantages over its predecessor over a chocolate shop, he conceded. For one thing, it is completely air-conditioned and self-contained, with its own nuclear-bomb shelter in the sub-basement, a triply redundant fire-extinguishing system (so outside firemen never have to be called in), a private hospital, and some twenty miles of subterranean archives.

While we talked, his eyes never left the Reuters screen in his office, which signaled currency fluctuations around the globe. He then provided me with a tour of the building. Gunther Schleiminger, the general manager, escorted me around the different levels, and provided a revealing commentary about the layout of one of the financial world’s most secretive institutions.

The top floor, with a panoramic view of three countries, Germany, France, and Switzerland, contained a deluxe restaurant, used only to serve the members a buffet dinner on Sunday evenings when they arrive to begin the “Basel weekends.”

Aside from those ten occasions, this floor remained ghostly empty. The next three floors down were the suites of offices reserved for the central bankers. On the next floor was the BIS computer, which, for 1983, was state of the art. It was directly linked to the computers of the member central banks and provided instantaneous access to data about the global monetary situation.

The gold room

On the floor beneath it was the actual bank, where 18 traders, mainly from England and Switzerland, were busy rolling over short-term loans on the Eurodollar markets. They spoke mainly English. Finally, on the lowest floor, gold was being hectically traded.

Traders were constantly on the telephone arranging loans of the bank’s gold to international arbitragers, thus allowing central banks to earn interest on gold deposits. Indeed, the BIS is prohibited by its statutes from making anything but short-term loans. So almost all the gold-backed trades were for 30 days.

To back their trades, these traders had roughly one-tenth of the world’s gold supply. According to Dr. Leutwiler, the profits the BIS received on this trading had amounted to $162 million the previous year.

But why were the central banks using the BIS to trade their gold? The German Bundesbank, for example, has a superb international trading department and 15,000 employees—at least 20 times as many as the BIS staff. The answer was, of course, secrecy.

By commingling part of their reserves in what amounts to a gigantic mutual fund of short-term investments, the central banks created a convenient screen behind which they can hide their own deposits and withdrawals in financial centers around the world. And the central banks are apparently willing to pay a modest fee to use the cloak of the BIS. They also provided it with a large enough profit to support the other services it provided them.

On paper, the BIS was a small, technical organization with just 86 of its 298 employees ranked as professional staff in 1983. But artfully concealed within this outer shell, like a series of Chinese boxes one inside another, were the operations that truly required the support of the world’s central bankers.

The first box inside the bank is the board of directors, drawn from the eight European central banks (England, Switzerland, Germany, Italy, France, Belgium, Sweden, and the Netherlands), which meets on the Tuesday morning of each “Basel weekend.”

The board also meets twice a year in Basel with the central banks of other nations. It provides a formal apparatus for dealing with European governments and international bureaucracies like the IMF or the European Economic Community. The board defines the rules and territories of the central banks with the goal of preventing governments from meddling in their purview, including setting the ratio of bank reserves to loans.

To deal with the world at large, there is another Chinese box dealing with the “G-10.” This powerful group, which controls most of the transferable money in the world, meets for long sessions on the Monday afternoon of the “Basel weekend.”

It is here that broader policy issues, such as interest rates, money-supply growth, economic stimulation (or suppression), and currency rates are discussed.

Directly under the G-10, and catering to all its special needs, is a small unit called the “Monetary and Economic Development Department,” which serves in effect, as its private think tank. This unit produces the occasional blue-bound “economic papers” that provide central bankers from Singapore to Rio de Janeiro, even though they are not BIS members, with a convenient party line.

‘No use for politicians’

Finally, there is the inner club, made up of the half dozen or so powerful central bankers. Even when the BIS is not holding a meeting, they are in constant contact with each other by phone. And they all speak the same language when it comes to governments, having shared similar experiences. “Some of us are very old friends,” Pohl said, and share the same set of well articulated values about money.

One such value is the firm belief that central banks should act independently of their home governments. A second shared value, according to Pohl, is that politicians should not be trusted to decide the fate of the international monetary system. When Leutwiler became president of the BIS in 1982, he insisted that no government official be allowed to visit during a “Basel weekend.” “To be frank,” he said, “I have no use for politicians. They lack the judgment of central bankers.”

This effectively sums up the common antipathy of the inner club toward “government muddling,” as Pohl termed it at our Bundesbank lunch. The other value shared by the inner club is the conviction that when the bell tolls for any single central bank, it tolls for them all. “We are constantly engaged in a balancing act without a safety net,” Leutwiler explained.

When Mexico faced bankruptcy in the early 1980s, the issue for the inner club was not the welfare of that country but the stability of the entire banking system. It was clearly an emergency for the inner club. Even though the IMF was prepared to step in, it would require months of paperwork to get approval for the loan, and Mexico needed an immediate $1.85 billion.

After speaking to Miguel Mancera, director of the Banco de Mexico, then-Fed Chairman Paul Volcker called Leutwiler, who was vacationing in the Swiss mountain village of Grison. Leutwiler realized that the entire system was confronted by a financial time bomb. In less than 48 hours, Leutwiler had called the members of the inner club and arranged the temporary bridging loan.

While the loan appeared in the financial press to have come from the BIS, virtually all the funds came from the central banks in the inner club. The BIS merely provided a convenient cloak for the central bankers; Volcker and other members would have to take the political heat individually for what appeared to be the rescue of an underdeveloped country.

The BIS has not changed that much since my visit 28 years ago. Although Russia, China and other new players now send observers to meetings in Basel, the inner club still runs it. And that club still remains true to its mission of rescuing the banking system from politicians.

New York Life plans deferred income annuity for July

Posted on April 11, 2011 by Editor Test -

New York Life Insurance Co. expects to release its first longevity insurance product this July, Investment News reported and a New York Life spokesman confirmed this week.

Longevity insurance is a deferred income annuity. A 65-year-old retiree, for instance, might buy such a product to provide life-contingent income from age 85 onward. Since the product would have 20 years to appreciate and, depending on the product design, would only pay out if the owner lived past age 85, it could be purchased at a steep discount. The product can help eliminate the tendency among retirees to hoard their savings against the possibility that they might live five, ten or even 15 years past the average life expectancy.

Recently, PIMCO and MetLife announced a co-marketing plan that coupled PIMCO’s TIPS payout fund, which provides income for a fixed 10 or 20-year period, with a MetLife deferred income annuity that would provide income when the TIPS fund payments expire.

As an insurance product, deferred income annuities have never sold well and have not even been vigorously marketed, for a number of reasons. In its cheapest form, it has no cash value. When purchased with qualified money, it may also conflict with current laws pertaining to required minimum distributions from IRAs and employer-sponsored retirement plans at age 70 1/2. Recently, low interest rates have made it more expensive than it had been only a few years ago.

Polish president signs new pension laws

Posted on April 11, 2011 by Editor Test -

The hotly debated overhaul of the 12-year-old “second pillar” of Poland’s state pensions system was signed into law by president Bronislaw Komorowski April 7, IPE.com reported.

Starting May 1, contributions to open pension funds (OFEs)—mandatory defined contribution accounts—will fall to 2.3% of gross wages from 7.3%. The difference will be transferred to individual accounts managed by the Social Insurance Institution (ZUS), with a return indexed to the average of the previous five years’ nominal GDP growth (not counting falls in GDP). After two years, the OFE portion will rise gradually to 3.5% by 2017.

Over the next two years, growth of pension funds will slow markedly. In the first three months of 2011, contributions alone amounted to PLN6.4bn (€1.6bn), bringing the total net assets of the 15 million-participant plan to some €58bn ($83.8 bn).

The new law also raised the equity limits from 40% to 42.5% in 2011 and 62% by 2020, but it maintained the unpopular 5% cap on foreign investments, which prime minister Donald Tusk described as essential for maintaining the stability and security of the system.

The law introduces a new voluntary savings vehicle, the Individual Pension Insurance Account (IKZE), into which savers can contribute an additional 4% of gross wages tax-free.

Savers can either add these to their existing OFE account or have them managed by banks, insurance companies, brokerages or investment companies.

The new law also bans, as of May, transfer fees levied on savers switching between OFEs and, as of 2012, the use of sales agents by pension companies.

Poland’s deteriorating public finances back in late 2010 drove the changes. The budget deficit is estimated at 7.9% of GDP for 2010. The government – a coalition between the centre-right Civic Platform (PO) and the agrarian Polish Peasants Party (PSL) – wants it down to the 3% level for euro adoption by 2013.

The deficit, in turn, increased the country’s public debt, which in 2010 was approaching the constitutional limit of 55% of GDP, above which the government is legally obliged to institute pension freezes and other public sector cuts.

Since OFE contributions counted as public spending, the second-pillar system was an easy target for deficit reduction, as has been the case in the Baltic states and, at its most extreme, in Hungary, which effectively nationalised its second pillar system last year.

The government estimates that, by 2020, the reforms will have reduced Poland’s debt obligations by PLN190bn (€48bn).

The Bucket

Posted on April 11, 2011 by Editorial Staff -

Three new fixed income funds from Prudential Investments

Prudential Investments, the mutual fund family of Prudential Financial, has launched three new fixed income funds: the Prudential Floating Rate Income Fund, the Prudential Absolute Return Bond Fund, and the Prudential Emerging Markets Debt Local Currency Fund.

“Today’s historically low interest rates have many investors concerned that if rates start rising, it could have a negative impact on their bond investments,” said Judy Rice, president of Prudential Investments. “Two of our new funds help protect against changing market conditions and may reduce interest rate risk, while the third fund focuses on helping investors take advantage of growing opportunities in developing markets.”

The Prudential Absolute Return Bond Fund seeks to generate positive returns over time regardless of market conditions by investing across a broad range of sectors and securities. Its flexible strategy uses a variety of investment techniques, which may include managing duration and credit quality, yield curve positioning, and currency exposure.
The Prudential Floating Rate Income Fund invests primarily in floating rate loans and other floating rate debt securities. Floating rates loans have historically offered attractive yield and stability in times of rising interest rates.
The Prudential Emerging Markets Debt Local Currency Fund invests primarily in currencies and fixed income securities denominated in the local currencies of emerging market countries. Many of these countries are growing faster, have less debt, and maintain lower national budget deficits than their counterparts in developed countries.

The portfolio managers for all three funds are part of Prudential Fixed Income, which has about $270 billion in assets under management as of December 31, 2010.

Putnam Investments named year’s ‘Retirement Leader’

Putnam Investments was named the inaugural recipient of the “Retirement Leader of the Year” award at recent the 18^th annual Mutual Fund Industry Awards in New York.

The Annual Mutual Fund Industry Awards, presented by Fund Directions and Fund Action recognize the funds, fund leaders, marketers, trustees and independent counsel who stood out for their successes, achievements and contributions in 2010.

“Putnam was recognized for its leadership initiatives and innovative solutions in the workplace savings arena, including its efforts to sharpen the focus on retirement income and encourage the industry and policy makers to further strengthen the workplace savings system,” the company said in a release.

“We are honored to be the first-ever recipient of this award,” said Robert L. Reynolds, president and chief executive officer of Putnam Investments. “There is an increasing need across the retirement savings industry – for plan sponsors, 401(k) participants, advisors and consultants, as well as policy makers, and importantly, plan providers – to define ways to help working Americans prepare financially for a dignified and sustainable high-quality retirement.”

Since Reynolds joined Putnam from Fidelity in July 2008, Putnam has announced a series of actions designed to have positive, long-term impact on the retirement market. Most recently, Putnam shared plans to offer a unique suite of income-oriented mutual funds that shift the focus from asset accumulation to asset distribution, to address changing financial needs throughout an individual’s retirement.

The funds, working in tandem with a retirement income planning tool, will aim to help advisors guide their clients, who are in or near retirement, in developing strategies for monthly income flows, based on varying levels of risk tolerance.

Putnam’s RetirementReady Funds, a suite of 10 target-date/lifecycle retirement funds, which were the industry’s first lifecycle funds to integrate absolute return strategies. Putnam’s Absolute Return Funds seek positive returns of 1%, 3%, 5%, or 7% above inflation over a period of three years with less volatility than has been associated with traditional asset classes that have earned similar rates of return.

New York Life announces record earnings, surplus for 2010

New York Life Insurance Company, the nation’s largest mutual insurance company, announced record 2010 operating earnings and added $1.8 billion to surplus for the year, increasing the company’s reserves to $16.8 billion, an all time high. The company also set records in sales of insurance and investment products, operating revenue and assets under management.

The company reported the following performance highlights:

Surplus and Asset Valuation Reserve increased by $1.8 billion, or 12%, to a record high of $16.8 billion.
Operating earnings of $1.4 billion increased 21% from 2009, exceeding the record result set in 2008.
Operating revenue grew by $1.1 billion, or 7.7% over 2009, to a record high $15.5 billion.
Total insurance sales surpassed $3 billion, an increase of 15% over 2009, setting a new record, with U.S. Life Insurance leading the way with a 26% increase.
Total investment sales exceeded $35 billion, a rise of 6.7% over 2009 and a new record.
Assets under management reached a record of $316 billion, a 10.2% increase from 2009.

Retirement Income Security (RIS), New York Life’s retirement division, manufacturers and markets income annuities, investment annuities, MainStay mutual funds, and long-term care insurance.

In 2010, RIS achieved new sales records in income annuities and new sales records for MainStay mutual funds. The long-term care operation generated a double digit increase in sales.

Ted Mathas, chairman and CEO, said, “The company’s operations continued to generate strong growth in 2010. Our U.S. Life Insurance operations, the core of the New York Life franchise for 166 years, produced life sales growth of 26% at a time when the industry struggled for a modest single-digit increase.

“In fact, over the past four years our insurance sales have grown at a compound annual rate of 13%. Contributing to this strong sales growth has been outstanding growth in our career agency system. Since 2005 the ranks of New York Life active agents have grown 32%, while the number of agents industry wide is declining.”

PulteGroup unit targets Boomers who are relocating, downsizing their homes

The nation’s leading 55+ community builder has launched a comprehensive set of online tools to help people make better informed decisions about their retirement or their next stage in life, which increasingly includes home downsizing, a geographic move and some level of work activity.

“A pre-retiree can compare the tax laws of where they are currently living with laws in states where they are considering moving to. This definitely helps ease the unknown, which is so important in facilitating a move.”

The resource at DelWebb.com/value includes a cost of living calculator and information on home appreciation, taxes by state and even job opportunities for Boomers. It also includes an updated news stream of articles relevant to optimizing an active adult lifestyle. Key components of the data are provided through partnerships with Bestplaces.net and the Retirement Living Information Center, Inc.

Among its retirement planning tools, DelWebb.com/value uses Sperling’s cost of living calculator—a top Google destination providing information on property taxes, income tax, utilities, etc.

Del Webb’s most recent Baby Boomer Survey revealed optimism in the 55+ market with 33% of the respondents saying they are likely to buy a home within the next four years. The likelihood of buying skyrockets to nearly 66% of Baby Boomers purchasing a home in the next two years if economic and financial barriers were removed, said Deborah Meyer, Chief Marketing Officer for Del Webb parent company, PulteGroup.

“The Boomer survey told us that people want more comprehensive information to make smart retirement decisions,” Meyer said. “We created this one-stop shop web tool to help people who want to take that next step in making a life change. Understanding that information seems to be the key to removing what often are only perceived barriers.”

The percentage of Baby Boomers planning to use equity from their current home to help finance retirement has not changed in the past 15 years, according Del Webb Baby Boomer Surveys polled in 1996 and 2010. In both surveys 23% said they plan to use their home equity for retirement.

“With more than 78 million people aged 55 or older by 2014, their interest level and likelihood to purchase a home in the next several years may be a key component in leading the housing industry toward recovery. Many economists and new builders expect people 55+ to capture at least 25% of the total housing market,” Meyer said.

Del Webb consumer research also found that people thinking about a move wanted to hear from “real people” about their experiences, Meyer said. The DelWebb.com/value resource includes testimonials from active adults talking about the home they sold, why they moved and describing the emotional side of a move, she said.

Economy improving amid anxiety about end of QE2: TrimTabs

Posted on April 11, 2011 by Editor Test -

Income and employment are increasing at much stronger rates than the Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS) are reporting, according to TrimTabs Investment Research.

In a research note, TrimTabs’ real-time and near real-time indicators point to a rapid acceleration in economic growth:

The TrimTabs’ real-time measure of wages and salaries posted a huge year-ago increase of 8.6% in March, up markedly from 4.7% in February and the largest increase since 2006. TrimTabs’ data for the first six days in April show the strong growth trend is continuing. Meanwhile the BEA just released their data for February documenting an increase in wages and salaries of 4.1% year-over-year. Data for March will not be available until April 29.
The TrimTabs tax-based employment model shows that the U.S. economy added 293,000 jobs in March, 36% higher than the BLS estimate of 216,000 new jobs.
The TrimTabs Online Job Postings Index is up 11.9% in 2011.
The four-week average of new claims for unemployment insurance sits at 394,250, just above the lowest level since July 2008.

“Our real-time data already shows that wage and salary growth accelerated sharply in March,” said Madeline Schnapp, Director of Macroeconomic Research at TrimTabs. “Meanwhile it took the BEA until last week to release an estimate for February while we are already analyzing growth trends for early April.”

While TrimTabs’ research points to healthy economic growth, the company is concerned about the health of the U.S. economy as government stimulus measures begin to wane in the second half of the year.

“We are happy to finally see stronger economic growth in the wake of trillions of dollars in fiscal and monetary stimulus,” Schnapp noted. “Our biggest fear concerns how the economy will perform after the Feds quit QE2 cold turkey in June. We are far from convinced that the recent surge in economic growth is sustainable.”

Schnapp says that TrimTabs’ real-time analysis of daily tax deposits provides a more reliable measure of income and employment because it is a real-time measure of income from all salaried U.S. employees. Meanwhile the BEA and BLS initial estimates rely on either historical data or surveys and are subject to frequent and at times sizeable revisions.

Additionally, TrimTabs estimates are available immediately after the end of the reporting period, while estimates from the BEA and the BLS are released in lagged fashion. Government statistics reflect critical economic changes only after the fact, not in real time.

After 2010, nowhere to go but up for fixed annuities

Posted on April 11, 2011 by Editor Test -

The Fed’s loose interest rate policy helps the government finance its bailouts and helps banks recover from the financial crisis, but it has next to pure pain for fixed income investors—and for marketers of fixed annuities.

Estimated fixed annuity sales by banks and other depository institutions were $3.17 billion in fourth quarter 2010, down 48% from fourth quarter 2009, according to the American Bankers Insurance Association.

Quarter-to-quarter sales declined 20%. Sales in calendar year 2010 fell 53% to an about $15.53 billion. Falling sales of fixed rate annuities without market-value adjustments (MVAs)drove overall results relative to all three periods, according to data from the Beacon Research Fixed Annuity Premium Study.

“The current interest rate environment suggests that fixed annuity sales in banks will gradually increase in 2011,” said Jeremy Alexander, president and CEO of Beacon Research. “However, fixed annuities may not do as well as expected if banks raise certificate of deposit rates aggressively to attract deposits as the economy improves. Consumers’ inflationary expectations may also limit sales.”

The bank channel, where Western National Life was the sales leader, was an isolated bright spot. One-third of the bank channel carriers tracked by Beacon’s study reported improved fourth quarter sales, and about 22% did better quarter-to-quarter.

Two fixed annuity issuers dropped out of the top ten from third to fourth quarter 2010, and were replaced by Midland National and Genworth. Fourth quarter 2010 bank channel results for the ten leading companies were as follows:

Fixed annuity issuer	Bank sales (000)
Western National Life		$1,055,552
New York Life		453,393
Great American Financial Resources Inc.		235,476
Lincoln Financial Group Distributors		219,337
W&S Financial Group Distributors		128,577
American National		121,206
Protective Life		97,213
Midland National		96,502
Pacific Life		90,853
Genworth		66,374

The New York Life Preferred Fixed Annuity moved up one place to become fourth quarter’s bestselling fixed annuity in banks. Like eight of the top ten, it is a fixed rate non-MVA product. Lincoln Financial Group’s Lincoln New Directions remained the only indexed annuity among the top ten sellers.

The New York Life Income Annuity continued as the bank channel’s only top-selling income annuity, moving up two notches to come in seventh. Once again, half of the quarter’s bank bestsellers were fixed rate non-MVA products issued by Western National. Fourth quarter’s leading bank-sold annuities were as follows:

Company	Product	Product type
New York Life	NYL Preferred Fixed Annuity	Fixed Rate Non-MVA
Lincoln Financial Group	Lincoln New Directions	Indexed
Western National Life	Flex 7	Fixed Rate Non-MVA
Western National Life	Flex 5	Fixed Rate Non-MVA
Great American Financial	AssurancePlus 7	Fixed Rate Non-MVA
Western National Life	Proprietary Bank Product A	Fixed Rate Non-MVA
New York Life	NYL Lifetime Income Annuity	Income
Western National Life	Proprietary Bank Product F	Fixed Rate Non-MVA
Western & Southern Life	MultiRate Annuity	Fixed Rate Non-MVA
Western National Life	Proprietary Bank Product B	Fixed Rate Non-MVA

The American Bankers Insurance Association (ABIA) is the separately chartered insurance affiliate of the American Bankers Association (ABA) and is the only Washington, D.C.-based full service association for bank insurance interests. Additional information on the ABIA can be found on the Internet at www.theabia.com.

Beacon Research is an independent research company and application service provider founded in 1997 and based in Evanston, IL. Beacon tracks fixed and variable annuity features, rates and sales. Financial institutions use its systems at www.annuitynexus.com for compliance review of 1035 exchanges, sales support, conservation and product research.

What Advisors Say About Wholesalers, Etc.

Posted on April 10, 2011 by Editor Test -

Financial advisors will make many of the decisions that determine how Boomer retirees and pre-retirees invest hundreds of billions of dollars in savings. So they’ve always been a critical market for fund companies and variable annuity manufacturers. But what does this market want?

Well, listen for yourself.

Besides collecting survey data on advisor sentiment every year (see this week’s cover story), Howard Schneider of GDC Research and Dennis Gallant of Practical Perspectives have also gleaned candid, anonymous comments from hundreds of advisors—comments that annuity wholesalers might find useful.

“Advisors don’t think about retirement income in the same way that the retirement industry does,” Schneider told RIJ. “For advisors, retirement isn’t only about generating income. Clients come into the office and say they want to retire and play golf or visit the grandchildren. The advisor asks, ‘And what will you do with the other 10 months?’ Or the client comes in an asks, ‘Do I have enough money?’ ‘To do what,’ says the advisor? It’s like being asked, is there enough gas in my car? To do what? Drive to the 7-11? Yes. Drive to Florida? No. An advisor has to touch on all of these issues.”

With regard to the economy, advisors “are very concerned about interest rates,” Schneider said. “Their big challenge in building portfolios is deal with risking. They’re looking over their shoulders and wondering when the other economic shoe will drop. They’re saying, There still seems to be a lot of risk. How do I manage that, especially when fixed income investments have nowhere to go but down in value and don’t provide enough income to live on. That’s why variable annuities with income riders are something they say they’ll use more of.”

Schneider continued, “Advisors say one of their biggest problems is managing expectations. One manager created a portfolio that could deliver an income of $4,000 a month, but the client said he needed $6,000. The manager said, but your money will probably only last 15 years that way. The client said, ‘You’ll figure something out.’ Advisors say that one of the differences between first-stage Boomers and the Silent Generation is that the Silent Generation was willing to live more conservatively in retirement. Boomers don’t want to make any sacrifices.”

Below are some of the direct comments from advisors that Schneider and Gallant compiled during their most recent survey, Trends in Retirement Income Delivery: Advisor Portfolio Construction, Product Usage and Sales Support:

“Annuity dealers are not always right in suggesting an annuity for every account or occasion—it seems they forget the annuities are only as good as the worth of the company behind them as we saw with AIG—they seem to be the only ones really looking and asking for retirement business.”
“Income from short term liquid assets is very challenging. CD and money market rates are horrible.”
“Wholesalers should keep the golf balls, umbrellas, coffee mugs, etc., and provide as much info, training and current ideas as possible. The wholesalers who get Moshe Milevsky and Nick Murray in front of me will get a large part of my attention and the attention of my clients.”
“Our broker back-office doesn’t understand annuities and they are making it impossible to do business. They don’t know how to handle annuities and the annuity companies are being bullied by them into handling annuities in ways good for firm but not for client!!!! Very scary.”
“Nothing is guaranteed, therefore [I] can never use that word with clients.”
“I am more interested in receiving information and training than in getting meaningless designations.”
“Challenging at best, client expectations are far too high; [we] need to do away with 401(k)s and go back to a form of pensions.”
“Crucial topic. Very underserved.”
“Most of my clients are already retired and I provide risk management and manage the portfolios to provide low volatility and a better than average gain by active management techniques.”
“Less concern of suppliers on competitive edge and MORE consistency in support of the available products.”
“We have to continue to re-evaluate.”
“I view retirement income as simply one very important component of the overall financial planning process.”
“Conservative or risk-mitigating retirement income related investment products continue to lag in innovation and flexibility and higher yield possibilities, overall.”
“A comprehensive web site that compares all annuity companies and products would be helpful.”

How To Market to Advisors

Posted on April 10, 2011 by Kerry Pechter -

Are we there yet?

The years have been slipping by, the oldest Boomers are edging into retirement, and manufacturers of income products are still waiting for the so-called tipping point when they feel the tug of serious demand for their wares from retirees and their advisors.

Howard Schneider of GDC Research sees evidence that we’ve reached that point. While most advisors are still fence-sitting with regard to retirement income, he told RIJ, the inexorable aging of their clients is pushing more of them to act.

“It’s here,” Schneider said. “We’re in the early stages of a marketplace that will see tremendous growth. It’s not well developed yet, but retirement income is becoming part of the base of all advisors. Advisors say it’s real.”

Schneider and colleague Dennis Gallant of Practical Perspectives have periodically surveyed advisors in recent years on their attitudes toward retirement income planning. Their latest report, “Trends in Retirement Income Delivery: Advisor Portfolio Construction, Product Usage and Sales Support,” is just out.

One big takeaway: when marketing to advisors, don’t focus entirely on whether they’re in the wirehouse, independent, RIA or bank channel. Focus instead on the number of retired clients they have, which of the three major types of retirement income strategies they practice, and whether they’ve just begun to think about income planning as distinct from accumulation-stage planning.

For instance, one way that Schneider and Gallant segment advisors is by their “Retirement Income Client Quotient,” a ratio they’ve invented that refers to the percentage of an advisor’s clients who are within three years of retirement or retired. There are five levels of RICQ:

Fledgling, with a RICQ of 20% or less.
Emergent, with a RICQ of 21% to 40%.
Transitional, with a RICQ of 41% to 60%.
Committed, with a RICQ of 60% to 80%.
Elite, with a RICQ over 80%.

Schneider noted that the Fledging group has shrunk to 7% from 15% of the advisor universe in one year, while the Committed group (include Elites) has grown to 20% from 18% in a year. While the Elite group, which Schneider estimates at about 5,000 advisors across all channels, is already receptive to retirement income messages, the bigger opportunity for product marketers may lie with the transitional and emergent groups, which include some 68% of advisors.

Schneider and Gallant also divide advisors by the retirement income philosophy they follow. Advisors tend to use one of three core approaches:

Risk-adjusted total return approach, with a focus on optimizing total return of the client portfolio. Also known as the systematic withdrawal method.
Pooled or bucket approach, with an emphasis on managing assets across duration- based short, intermediate and long-term pools.
Hybrid or income floor approach, with a goal of providing assured income for client needs while managing risky assets for ongoing growth. It often combines risky and insured products.

“[Retirement] is unlike the accumulation phase, where all the advisors do some version of Modern Portfolio Theory,” Schneider said. “For retirement income, 40% to 45% of advisors do the risk-adjusted total return method. They’ll use income vehicles for diversification. not income. About a quarter of the market uses either the pool or bucket approach. And about 30% use the income floor or hybrid approach, which combines the other two.”

How does a marketer find out which strategy an advisor uses? “You have to know the advisor and how the advisor provides income for their client. You’ve got to say, “If you’re trying to manage a portfolio this way, here’s how you can use our solution.’”

A third way that the researchers segment advisors is by their stage of evolution toward the retirement opportunity. “If you could know only one thing about an advisor, you want to know what their management philosophy is. But you also need to know the stage they’re in,” Schneider said.

He and Gallant identify four stages of familiarity:

Unbelievers. This group, which includes many older advisors, doesn’t recognize retirement income planning as a distinct discipline.
Uneducated. This group, which includes many younger advisors with younger clients, understands the retirement income challenge but isn’t engaged with it.
Aware. This group includes “advisors who understand the potential of the market and are in various stages of transitioning a practice to retirement income.”
Best Practice. Members of this group have been serving the retirement income market for many years, and have developed a “deep, well-honed” process that they aren’t going to change.

The greatest opportunity for manufacturers lies among the Aware advisors, Schneider said. “Someone in the aware group may be more receptive [to wholesalers] than someone who is already got things in place, and knows what he or she is doing. The best- practice group won’t be as receptive to new solutions. They’ve already figured out the puzzle and built a business around it.”

How do manufacturers figure out which segments an advisor falls into? “It requires a lot of pick and shovel work to do that,” Schneider said.

In emphasizing these other forms of advisor market segmentation, it would probably be a mistake to say that channel doesn’t matter for retirement income marketers. The Trends in Retirement Income Delivery study show clear differences between channels in adoption of or interest in annuities.

For instance, 12% of advisors at regional broker-dealers and 11% of bank/insurance channel advisors are big users of variable annuities, while RIAs—the fastest-growing category—rarely use them. Only about 7% of wirehouse and independent advisors are frequent users of variable annuities.

Francois Gadenne, executive director of the Retirement Income Industry Association, which has been promoting its retirement management designation, the RMA, to advisors, said he was encouraged to see Schneider’s estimate of 5,000 to 6,000 adherents to the retirement paradigm among advisors. “If you think of it as a plant, the growth does not take place on the old wood,” he said. “The question is, where are the green tips of growth?”

The way to find retirement-oriented advisors, he said, is to look for those with “constrained” older clients who have considerable savings but not quite enough to cover all their needs and wants. “This isn’t a top-down movement. What drives the advisors are the clients. So you want to look for advisors with a book of business that is tilted to older clients, and to older clients who are constrained rather than overfunded,” he said.

At independent broker-dealer LPL, “We’re definitely hearing more from advisors in the field that they would like help in developing retirement income solutions,” said Stephen Langlois, LPL’s executive vice president for strategic planning. “It’s mostly anecdotal at this point. They’re not looking for a product, they’re looking for guidance in putting all the pieces together.”

Kevin Seibert, CFP, director of InFre, which provides retirement income planning education and a related certification, says, “I’m having more conversations with advisors who have been proactively seeking information on retirement income management. With the economy turning around, the first Boomers turning 65 and clients becoming better informed and asking the right questions—partly because of all the TV commercials they’re seeing related to retirement—all of a sudden there’s been a renewed positive interest that enables us to tell our story to more advisors.”

“The Ultimate Ponzi Scheme”

Posted on April 10, 2011 by Editor Test -

The following excerpt from “Guaranteed to Fail” is reprinted with permission from Princeton University Press and from the authors, Viral Acharya, Matthew Richardson, Stijn van Nieuwerburgh and Lawrence J. White, all of the New York University Stern School of Business.

In a November 3, 2009, report “An Overview of Federal Support for Housing”, the Congressional Budget Office (CBO) estimated that the federal government provided approximately $300 billion in subsidies to housing and mortgage markets in 2009.

As a comparison, the much maligned farm subsidies and support for energy initiatives each receive approximately $20 billion per year. The degree of support for home ownership is staggering.

In the U.S., home ownership in particular is stimulated by four main government policies: the home-mortgage interest rate and property tax deductibility, the tax exemption of rental income enjoyed implicitly from homeownership, the exemption from income tax of capital gains on the sale of owner-occupied houses, and the lower interest rates that are enjoyed thanks to government support of the GSEs. In addition, there is a myriad of other programs.

“Too much is never enough” is a reasonable summary of this array of housing policies.

As the CBO report outlined, these programs are expensive: The current home mortgage interest rate deductibility, for example, will cost $105 billion in lost federal tax revenue in fiscal year 2011. Property tax exemption, exclusion of rental income, and exclusion of capital gains taxes upon sale of the house will cost an additional $92 billion in 2011.

These programs come at a cost that is overlooked in the public debate: They make housing relatively cheaper and other goods relatively more expensive. This, in turn, leads to more consumption of housing, more investment in housing and construction, but less business investment and less consumption of non-housing goods and services.

The consensus among economists is that investment in residential real estate is substantially less productive (at the margin) than is capital investment by businesses outside the real estate sector (e.g., plant, equipment, inventories), investment in social infrastructure capital (e.g., highways, bridges, airports, water and sewage systems), or human capital (e.g., more and better education and training).

In other words, every additional dollar that is spent on residential construction instead of on business or other investment reduces economic growth. Careful research has found that all of the incentives for more house has led to a housing stock that is 30% (!) larger than would be the case if all of the incentives were absent, and that U.S. GDP is 10% smaller than it could be. The U.S. simply has too much house!

Many politicians on the left and on the right equate reducing these housing subsidies to political suicide. After all, many believe that these policies are at the heart of the social contract with America and that they are therefore untouchable. Conventional wisdom has it that home ownership confers such benefits as good citizens, stable neighborhoods, strong communities, and – of course — personal wealth accumulation.

This “conventional wisdom” has met not only with a massive destruction of home equity in recent years, but also with mixed reviews in academic research. Nevertheless, housing subsidies have been and still are the policy tool of choice for combating income inequality, which has been on the rise in the United States since the 1970s.

However, research has shown that these policies predominantly benefit middle- to upper-income groups rather than the low-income group. One recent research paper specifically on the GSE subsidy by Jeske, Krueger, and Mitman (2010) finds that their effect is a loss in overall welfare and an increase in inequality.

Their model indicates that low-income households would be willing to pay 0.3% of lifetime consumption to live in a world without the GSE subsidy. The wealthy, instead, benefit from the subsidy.

In earlier research, academics have reached a similar conclusion regarding the home mortgage interest deduction. It too is regressive, benefiting high-income, high-asset households the most.

Upper-income households are more likely to itemize on their income tax returns and to have higher marginal tax rates (which is what makes the mortgage interest and property tax deductions more valuable), and they are more likely to buy higher priced houses (which would involve larger mortgages and hence more benefits).

Gervais (2001) calculates that abolishing the deduction would benefit the bottom 20% nearly 6 times more than the top 20% of the income distribution. Abolishing the tax advantage from owning would benefit everyone somewhat (in the long-run) because it would lead to a larger business capital stock (and possibly more social infrastructure and more human capital) and a smaller housing capital stock, which would positively affect economic growth.

More recent work by Poterba and Sinai (2008) estimates that the benefits from the home mortgage interest deduction for the average home-owning household that earns between $40,000 and $75,000 are one-tenth of the benefits that accrue to the average home-owning household earning more than $250,000.

The current policies do not discriminate between first-time home purchasers and households simply wanting to buy larger houses or (for the GSE subsidies) even second homes. Rather, the policies promote larger home purchases. Census data show that the square footage of new houses grew by about 50% between the mid 1970s and the mid 2000s. Although some of this increase surely reflected growing household incomes, some of the increase also surely reflected the growing value of the subsidy advantages for buying larger houses.

Finally, the deduction encourages people to borrow as much as possible. Encouraging household leverage does not strike us as the best possible policy. Thus, ironically, although one of the motives for encouraging home ownership was to provide households with a means of building wealth, the process of making borrowing cheap and easy encouraged these households to borrow excessively, and then to borrow again if interest rates declined and/or their house value increased.

In the process, they reduce the amount of net equity that they might otherwise build in their home. The metaphor of the refinancing household’s using their home as an ATM to finance consumption was a strong one in the mid 2000s.

And, of course, the excessive leverage and the cashing out of equity meant that the declines in housing prices after mid 2006 caused more houses to be “underwater”, where the value of the house was less than the outstanding principal on the enlarged mortgages. And, in turn, this meant more instances where households defaulted on their mortgages.

There is no social purpose that is served by such “more house” investments – a fifth bedroom rather than four, a fourth bathroom rather than three, a half acre of land rather than a third of an acre – and no social purpose that is served by excessive leverage.

Clearly, the housing policy of the past is misguided, and there is an urgent need to think of more effective ways to halt the increase in income inequality.

It should be clear, however, what purpose is served by the household leverage that is provided in the form of off-budget guarantees through Fannie and Freddie. This is what so far allowed successive presidential administrations to encourage ever-larger short-term consumption and spending during their tenures.

It might seem odd that in a game between two political parties to get to the seat, both would agree on a strategy to promote housing finance at successively higher levels over time. The game, however, is not between the two parties, but between each current administration and the future ones (and ultimately current and future taxpayers).

No President would want to shut down or bring onto the federal budget Fannie and Freddie’s debt or guarantees – until they have to be honored. Doing so would seriously alter the shape of that administration’s fiscal budget and force them to make hard choices that would produce long-term gains that would accrue only to future administrations. Instead, as long as possible, it would be better to let households spend more on housing, passing on the problem of dealing with housing guarantees to the next government, and so on.

And while each presidential administration is working its way through its term, aided by Fannie and Freddie’s balance sheets and off-balance sheet guarantees, the competitive landscape of the financial sector is altered as they enter more mortgage markets, contributing to a downward spiral of lending standards, excess leverage, and an unsustainable bubble in housing prices and construction.

In many ways, this is the ultimate Ponzi scheme of all.

Republican budget manifesto released

Posted on April 6, 2011 by Editor Test -

Congressman Paul Ryan, chairman of the House Committee on the Budget, released a Fiscal Year 2012 Budget Resolution entitled, “Path to Prosperity: Restoring America’s Promise,” at his website yesterday.

The resolution, much of which is based on the “supply-side” economics principle that lower taxes will lead to economic expansion, outlines a plan to cut federal spending by $6.2 trillion relative to the Obama administration projections over the next decade.

Under the proposal, the top individual and corporate tax rate would drop to 25% from 35%. The proposal also repeatedly calls for repeal of the Affordable Health Care Act passed by Democrats on a near-party line vote in 2010.

The resolution, a polemic that characterizes Democratic policies as “reckless” but blames both parties for helping to create the country’s huge debts and fiscal imbalances, also calls on the government to:

Reduce the federal workforce by 10% over the next three years attrition, coupled with a pay freeze for the next five years and reforms to government workers’ benefit packages.

Reduce inefficient spending by $178 billion, following guidance from Defense Secretary Robert Gates. Reinvest $100 billion of these savings into key combat capabilities, and put the rest toward deficit reduction.

Privatize the business of government-owned housing giants, Fannie Mae and Freddie Mac, so that they no longer expose taxpayers to trillions of dollars’ worth of risk.

Convert the federal share of Medicaid spending into a block grant tailored to meet each state’s needs, indexed for inflation and population growth.
Provide younger workers, when they reach eligibility, with a Medicare payment and a list of guaranteed coverage options from which they can choose a plan that best suits their needs.

Hedge fund managers bearish on U.S. equities and Treasuries

Posted on April 6, 2011 by Editor Test -

Hedge fund managers remain bearish on U.S. equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for March.

About 36% of the 77 hedge fund managers the firms surveyed in the past week are bearish on the S&P 500, down from 40% in February, while 28% are bullish, up from 26%.

“While hedge fund managers remain bearish, hedge fund investors are showering them with fresh cash,” said Sol Waksman, founder and President of BarclayHedge. “Hedge funds posted the heaviest inflow on record in February, which probably owes in part to superior performance. The Barclay Hedge Fund Index has posted a positive return for seven straight months.”

About 33% of hedge fund managers are bearish on the 10-year Treasury note, while 16% are bullish. These figures have remained largely unchanged for three months. In contrast, hedge fund managers have turned extremely bearish on the U.S. Dollar Index. Bearish sentiment vaulted to 43% in March from 31% in February, while bullish sentiment sank to 22% from 31%.

“Poor Japan sports a disaster of biblical proportions, a gargantuan debt burden, and deflation—and yet managers would rather own yen than dollars,” notes Vincent Deluard, Executive Vice President at TrimTabs. “Additionally, hedge fund managers strongly prefer the Canadian dollar to its American counterpart. In fact, the futures positions of speculative traders reveal that the loonie is much more of a safe haven than the greenback.”

About 18% of hedge fund managers aim to lever up in the near term, while 14% plan to decrease leverage. Meanwhile, most managers cite Portugal as the next victim of the European debt crisis. About 78% expect the country to need a sovereign bailout in 2011, while 37% of respondents feel Spain will also earn the honor.

“Managers reported an interest in adding leverage in each of our past 10 surveys, and margin debt stands at the highest level since July 2008,” notes Deluard. “Gambling with borrowed cash will prove popular until the Fed makes money more expensive. As to Portugal and Spain, hedge fund managers feel strongly that these are the next debt-crisis dominoes to fall. Seasoned investors might consider using the credit-default swaps market to bet against the Iberian Peninsula.”

The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The Survey of Hedge Fund Managers appears monthly in the TrimTabs/BarclayHedge Hedge Fund Flow Report, which provides detailed analysis of hedge fund flows, assets, and returns alongside topical studies.

Retirement confidence low, survey shows

Posted on April 6, 2011 by Editor Test -

The 21st wave of the Retirement Confidence Survey (RCS), sponsored by the Employee Benefit Research Institute and conducted by Mathew Greenwald & Associates, finds that Americans’ confidence in their ability to afford a comfortable retirement has plunged to a new low at the same time that the recent declines in other retirement confidence indicators appear to be stabilizing.

Instead of making fundamental adjustments to their spending and saving patterns in response to the decline in confidence, workers continue to change their expectations about how they will transition from work to retirement in what has been called an age of “the new normal.”

Workers not confident: The percentage of workers not at all confident about having enough money for a comfortable retirement grew from 22% in 2010 to 27% this year, the highest level measured in the 21 years of the RCS. At the same time, the percentage very confident shrank to the low of 13% that was first measured in 2009.

Income breaks: The increase in the percentage of workers not at all confident about having enough money for a comfortable retirement appears to be largely due to a loss of confidence among those who have less than $100,000 in savings. This percentage increased sharply among those with savings less than $25,000 (up from 19% in 2007 to 43% in 2011) and between $25,000–$99,999 (up from 7% in 2007 to 22% in 2011).

Retirees: Retiree confidence in having a financially secure retirement is stable, with 17% saying they are not at all confident and 24% very confident (statistically equivalent to 2010 levels).

Saved for retirement? Sixty-eight percent of workers report they and/or their spouse have saved for retirement (down from 75% in 2009, but statistically equivalent to the 2010 level). Fifty-nine percent say they and/or their spouse are currently saving (down from 65% in 2009, but statistically equivalent to earlier years).

Little or no savings: A sizable percentage of workers report they have virtually no savings or investments. Among RCS workers providing this type of information, 29% say they have less than $1,000. In total, more than half of workers (56%) report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000.

No retirement savings goal: Many workers continue to be unaware of how much they need to save for retirement. Only 42% report they and/or their spouse have tried to calculate how much money they will need to have saved by the time they retire so that they can live comfortably in retirement.

Expected retirement age rising: The age at which workers expect to retire continues its slow, upward trend. In particular, the percentage of workers who expect to retire after age 65 has increased over time, from 11% in 1991 and 1996 to 20% in 2001, 25% in 2006, and 36% in 2011.

More expecting to work in retirement: More workers now expect to work for pay in retirement. Seventy-four percent report they plan to work in retirement (up from 70% in 2010), three times the percentage of retirees who say they actually worked for pay in retirement (23%).

Here are the reasons workers say are causing them to delay retirement:

Poor economy: 36%.
Lack of faith in Social Security/government: 16%.
Change in employment situation: 15%.
Finances, can’t afford to retire: 13%.
Cost of living in retirement will be higher than expected: 10%.
Want to be sure you have enough money to retire comfortably: 10%.
Need to pay current expenses first: 9%.
Health care costs: 7%.
Need to make up for losses in the stock market: 6%.
Law changed minimum retirement age: 5%
Poor health or disability: 1%.

According to the survey, the age at which workers expect to retire is gradually rising. In 1991, half of workers planned to retire before age 65 (50%), compared with 23% in 2011.

How to solve Social Security’s solvency problem

Posted on April 6, 2011 by Editor Test -

To restore Social Security to long-term solvency, a leading authority on retirement financing recommends four measures:

Indexing the full retirement age (after it reaches 67) to improvements in longevity;
Switching to a measure of inflation that grows more slowly than the one now used to calculate Social Security’s cost-of-living adjustment;
Gradually increasing the earnings subject to the payroll tax (and the basis for benefits) to about $180,000 from $106,800 today; and
Gradually subjecting both employer and employee premiums for group health insurance to payroll and income taxes.

So wrote Alicia H. Munnell, director of the Center for Retirement Research at Boston College, in an op-ed piece published in the New York Times yesterday. Such measures would brighten the long-term fiscal outlook in the U.S., she added.

“Scheduled Social Security benefits and current payroll taxes are included in long-term deficit projections by the Congressional Budget Office, the Office of Management and Budget and the Government Accountability Office,” she wrote.

“These projections matter: policymakers, investors and the bond markets use them to gauge the nation’s fiscal health. Since a shortfall in Social Security is embedded in these projections, eliminating that shortfall would substantially improve the long-term budget outlook and the nation’s creditworthiness.”

Fear of Social Security insolvency compels many people to claim benefits at age 62, thus locking themselves into the system’s lowest payout rate for life. Restoring solvency to the system would give them the confidence to delay claiming and maximize their benefit.

The Bucket

Posted on April 6, 2011 by Editorial Staff -

Jason D. Nicoloff Joins Lincoln’s Advisor Recruitment Team

Lincoln Financial Network, the retail distribution division of Lincoln Financial Group, today announced that Jason D. Nicoloff has joined its Advisor Recruitment team as field recruitment director.

Nicoloff will report to John DiMonda, managing director for the Defined Metro New York/New Jersey and North Central Ohio regions. Nicoloff will be responsible for overseeing the recruitment of qualified financial representatives in the Cleveland, Columbus and Akron, Ohio, areas as well as Fort Wayne, Ind.

Prior to joining LFN, Nicoloff was an investment consultant for TIAA-CREF in West Lafayette, Ind., where he focused on growing defined and supplemental plan assets, as well as individual money management services. He has worked at Allstate Financial Distributors, LLC, in Chicago, Hillyard Lyons in Lafayette, Ind., and Fifth Third Securities in Indianapolis. He received a bachelor of science degree in economics from Purdue University in West Lafayette, Ind., and holds FINRA registrations 7, 24, 63 and 66.

New episode in AXA Equitable’s “Retirement Reality Show” series

AXA Equitable Life has released the latest episode in its “Retirement Reality Show” video series exploring the attitudes, behaviors and experiences of soon-to-retire and retired Americans.

“Life, Liberty and the Pursuit of Financial Freedom,” is set against the backdrop of the Statue of Liberty. On the occasion of National Retirement Planning Week, AXA Equitable went to Liberty Island to ask people how much time they spend planning their vacations versus planning for financial freedom in retirement.

“People told us they spend three to six months, and in some cases up to a year, planning a one-week vacation but not nearly as much time planning for a retirement that could last hopefully for decades,” said Chris Winans, senior vice president, External Affairs at AXA Equitable.

AXA Equitable’s “Retirement Reality Show” video series complements the company’s ongoing research and thought leadership programs on the issues surrounding retirement and serves as a platform for taking the public’s pulse on financial risks and preparedness. The purpose of the series is to learn firsthand what real retirement savers and retirees are thinking and doing.

To access the video, go to The Source, AXA Equitable’s multi-media Web page that provides information and thought leadership on a wide array of financial protection and retirement planning topics.

Retirement advisors ignore middle-income market: Bankers Life

The tendency of the financial services industry to cater to wealthy Americans could leave many middle income Americans without adequate plans for retirement, according to the Bankers Life and Casualty Company’s Center for a Secure Retirement (CSR).

The CSR’s Middle-Income Retirement Preparedness Study, which focused on pre-retirees and retirees with incomes from $25,000 to $75,000, found that 51% had not been contacted by any kind of retirement professional in the past 12 months. Further, 84% of the study participants who work with a retirement professional said that they initiated contact with the advisor.

The study showed that two in three (68%) middle-income Americans who work with a professional feel better prepared for retirement than their peers, and 76% said they were extremely or very satisfied with their retirement professional.

The CSR says that retirement professionals are not just portfolio managers for the wealthiest retirees. Many products and services exist for people with virtually any level of income and assets that can help make your income last.

To locate a professional retirement advisor and learn more about retirement planning, visit your local library, senior center, or search online.

The Bankers Life and Casualty Company Center for a Secure Retirement Middle-Income Retirement Preparedness Study was conducted in August of 2010 by the independent research firm The Blackstone Group. The complete report may be viewed at www.CenterForASecureRetirement.com

FundQuest announces milestones for its ActivePassive Funds

FundQuest, a provider of wealth management solutions and investment research, announced that its ActivePassive Funds have reached their 3-year track record as of December 31, 2010.

The funds, available through major custodial platforms, are the building blocks for the ActivePassive Portfolios, a suite of FundQuest-managed solutions designed for investors across the risk spectrum.

FundQuest now offers advisors direct access to the portfolios through the ActivePassive Portfolio Console, an exclusive portal that allows financial advisors swift access to active/passive products. The console includes a complete proposal system, fund data and robust reporting capabilities, along with the firm’s extensive global research and analysis.

Visit these links to learn more about FundQuest distribution channels for the ActivePassive Funds or for information on ActivePassive construction and philosophy.

New website from The Principal explains Tax Relief Act

The Principal Financial Grouphas developed a website to help advisors and their clients navigate the changes created by the passage of the Tax Relief Act of 2010.

The website offers step-by-step guidance on the law including who it impacts and how to work with clients on new planning techniques. Some of the new and updated tools include:

TRA 2010 White Paper
TRA 2010 Planning Guide
Updated Estate Protection Calculator
Client profiles and sales ideas

Securian Retirement and Securian Life make announcements

Securian Retirement added six American Funds to the separate account investment options available through its qualified retirement plans.

Effective March 1, these six Class R-5 investment options became available through Securian retirement plans:

· American Funds The Growth Fund of America

· American Funds The Investment Company of America

· American Funds New Perspective Fund

· American Funds New World Fund

· American Funds Capital World Bond Fund

· American Funds US Government Securities Fund

With these latest additions, employers can select from 110 investment options and 37 fund managers.

Meanwhile, Securian Life Insurance Company has introduced its first annuity product in New York. IncomeToday!is a single payment immediate annuity that offers clients the security of a guaranteed retirement paycheck and the flexibility of a unique feature called the Advance Withdrawal Benefit.

IncomeToday! was introduced two years ago elsewhere in the US by Securian Life affiliate Minnesota Life Insurance Company.

Find a complete description of IncomeToday! online. Features include:

a range of income choices and guarantees to meet client needs
competitive income payouts
protection from the ups and downs of the markets

More information about IncomeToday! is available on the CANNEX Financial Exchange.

Have Investment Managers Earned Their Fees?

Posted on April 6, 2011 by Ron Surz -

Despite the continuing global financial crisis, the uprisings in the Middle East and the Japanese disaster, global stock markets delivered very good results in the first quarter of 2011.

These upheavals test the mettle of investment managers, so you need the proper perspective to evaluate investment performance. The question, “Is performance good?” requires an answer to yet another question: “Relative to what?”

As usual, some styles, sectors and countries performed better than others in this first quarter. Have your managers seized upon the better segments and/or selected exceptional securities? Where have they succeeded and failed?

Bottom line: Have they earned their fees?

Of course, one quarter is too short a timeframe to get excited about winners and losers, but we should get excited about the emerging importance of real due diligence, which is about to become a fiduciary obligation.

In October of 2010, the Department of Labor issued a recommendation to remove a 35-year old fiduciary exclusion for advisors who select investment managers. If adopted, many advisors who prefer to not be held to a fiduciary status will have a decision to make: stop providing manager recommendations or get serious about manager research.

Those of you who accept this responsibility will want to tighten up your due diligence processes. You will need to conduct manager research like it’s never been done before. When you do, you will discover something you’ve never had before, namely good active management performance versus passive alternatives. Clients will finally get what they deserve.

Insights into the first quarter of 2011

U.S. markets in the first quarter of 2011 delivered three consecutive positive monthly returns, although March was a squeaker, eking out a modest 0.2% gain. As the chart on the right shows, every US style posted a positive return for the first quarter of 2011, continuing the recovery that began in March of 2009.

This quarter’s 6.2% market return brings the 25-month return from March 2009 to March 2011 to a whopping 100%. Consequently we’ve turned the corner in recovering from 2008 losses; the 39-month return for January 2008 through March 2011 is a positive 1.4% un-annualized, or about 0.4% per year. It’s taken all the running we can do to stay in the same place.

As the optimist plummeting off a skyscraper said, “so far, so good.” We might not continue this recent recovery. A look at what has been working, and what has not, offers some clues. Mid-sized companies fared best, while value and growth styles fared about the same in aggregate, although core lagged.

This was one of those time periods where the stuff in the middle surprised by not performing in between the stuff on the ends—mid-cap outperformed large and small while core underperformed value and growth. I use Surz Style Pure^® style and country definitions throughout this commentary, as described here.

Performance by sector

On the sector front, energy stocks fared best, earning 15% in the quarter, as concerns about the Middle East drove up oil prices. Industrials and healthcare were the next best performers, earning 9% and 7% respectively. Rounding out the range of sector results, the remaining sectors returned around 3.5%, far less than the leaders.

Looking outside the US, foreign markets earned less than half as much as the US in US dollars, delivering a 2.7% return, led by Canada and Europe ex-UK, each with 8.5% returns. Europe ex-UK benefitted from a weakening dollar, so currency effects added 5% in the quarter.

Several regions lost value in the quarter: Japan, Emerging Markets and Latin America. For Japan, which lost 3.5%, it was a continuation of a decade-long sequence of disappointing returns, in this case caused by the earthquake and nuclear reactor problems. For Emerging Markets and Latin America, this quarter marked a reversal because these regions had been leading foreign markets. As a result, the EAFE index, which had been lagging the total foreign market for some time, was in line with the total market for the quarter.

Now you have several frameworks for evaluating investment manager performance in the first quarter of 2011. But this is only one small aspect of the overall due diligence process – a process which should be forward looking, focused on developing confidence in managers’ abilities to add value. After all, clients always have the choice between active and passive management. Your recommendations of active managers are very important, which is good, and they are likely to become much more important.

One Reason the Crisis Got So Bad

Posted on April 6, 2011 by Editor Test -

With the deregulation of the mortgage finance market, the decade of the 1980s was a period of substantial growth for Fannie and Freddie. At the end of the decade, Fannie and Freddie were fundamentally entrenched as parallel GSEs, with similar structures, privileges, responsibilities, and limitations.

The last major legislation to impact the GSEs until the financial crisis of 2007-2009 was the Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA) of 1992. It produced a number of important rules, one in particular related to capital requirements.

In particular, a risk-based capital regulatory regime was specified for Fannie and Freddie and their two main functions: (i) securitizing and guaranteeing the credit risk of MBS, and (ii) investing in MBS or other similar portfolios of mortgages.

With respect to (i), the capital buffer that the GSEs were required to hold against these guarantees was 0.45% (i.e., 45 cents per $100 of guaranteed mortgages), which implied that the Congress believed that residential mortgages were quite safe instruments to guarantee against credit risk – or that the Congress meant to subsidize these guarantees and was (if push came to shove) prepared to cover any losses.

With respect to (ii), the GSEs were to hold 2.50% capital against their balance sheet assets (of which mortgages are by far the largest category). Thus, for every $100 in mortgages held, they could (in principle) fund those mortgages with $97.50 in debt and only $2.50 in equity.

In comparison to any other financial institution, Fannie and Freddie were afforded extraordinarily light capital requirements. For example, the capital requirement for federally insured banks and thrifts to hold residential mortgages was substantially greater: 4%. As a result, Fannie and Freddie had much higher leverage ratios – total assets to shareholder equity – than did comparable banking institutions.

To many fixed-income practitioners and analysts, the GSEs’ growth and the expansion of securitization markets for mortgage finance should be considered a success story. But there was a darker side to the interaction between the GSEs and the banking sector: While banks were charged a 4% capital requirement for holding a portfolio of mortgage loans, they were charged only 40% of this, or 1.60%, if they held GSE MBS instead. Within the financial sector, this creates perverse incentives for banks to load up on GSE MBS, thereby increasing leverage all the way around the sector.

To see this, note that if a bank originated $100 worth of mortgage loans, they would have to hold a minimum $4 of capital to be considered adequately capitalized. If the bank sold these loans to the GSEs and the GSEs securitized them into MBS, however, the banks could buy back the GSE MBS and hold only $1.60 in capital, even though their portfolio holdings are identical.

Because the GSEs are only required to hold $.45, this means that, for the same level of risk, the capital requirement for the financial sector as a whole now is just $2.05, or 51% of what it used to be. There is little doubt that the growth in securitization is related to this type of regulatory arbitrage.

* * *

The mortgage credit risk of Fannie Mae and Freddie Mac combined grew at an astonishing 16% (11%) annual growth rate from 1980 (1992) through 2007. We saw that this growth was financed using borrowed money and levels of leverage far in excess of other financial institutions.

Why would debt investors finance such growth? Because of the special status and treatment of the GSEs, the financial markets have historically treated them specially: The financial markets believed (correctly, as it turned out, or as a self-fulfilling prophesy) that if either company ever experienced financial difficulties, the federal government would likely intercede to make sure that the company’s creditors did not suffer any losses.

This belief persisted despite the explicit statement on all GSE securities that these securities were not full-faith-and-credit obligations of the U.S. Government. The belief seems largely rational given that for most practical purposes, GSE debt is on par with Treasuries as “liquidity” or “risk-free securities” and therefore is held in hoards by financial firms much like Treasuries (in fact, 50% of GSE debt was held by financial firms in 2008). The “halo” effect of all of the special features of the GSEs was just too strong for them not to be deemed as too-big-to-fail.

With an implicit guarantee on their debt, Fannie and Freddie were able to borrow at interest rates that were below what the financial markets otherwise would have demanded. This meant that it was quite profitable for the GSEs to purchase mortgages and offer credit default guarantees below fundamental rates, allowing them to vanquish any competition and grow unfettered.

Because fixed income investors – either those holding Fannie and Freddie debt or MBS guaranteed by Fannie and Freddie – believed that there was a government backstop, market discipline went out the window, and there was no one left to restrain Fannie and Freddie.

As described above, adding to this subsidy was the fact that Fannie and Freddie had much lower capital requirements than did commercial banks and investment banks, for guaranteeing as well as holding MBS. With such a lack of a level-playing field, there was really no free market. Instead of capital flowing to its most efficient use, as the deregulation of mortgage markets in 1980’s had anticipated, capital was in fact flowing to its most levered use.

There was no one left to restrain Fannie and Freddie, of course other than the federal government, but in the pursuit of myopic goals of boosting home ownership at all costs, each successive presidential administration turned a blind eye.

Plan Sponsor Group Joins Hueler SPIA Platform

Posted on April 6, 2011 by Kerry Pechter -

Big news in the still-small world of single-premium income annuities: Hueler Companies and the Profit-Sharing Council of America have entered into a relationship.

The deal, announced late Tuesday after a year of negotiations, is significant. It allows the 1,200 defined contribution plan sponsors who are members of the PSCA to give their six million plan participants access to the Hueler’s Income Solutions, an online platform where 401(k) participants and fee-only advisors can get competitive, no-load bids on SPIAs.

To put it another way, Kelli Hueler, the purposeful Minneapolis entrepreneur behind Income Solutions, has apparently persuaded David Wray, the president of PSCA, and his board of directors that her platform can give retiring plan participants a transparently-priced, multi-insurer, “out of plan” income option that—and this is key—won’t expose plan sponsors to fiduciary liability.

The PSCA board includes representatives of plan sponsors or providers such as McDonald’s, Playboy Enterprises, Procter & Gamble, New York Life, MGM Resorts International, and The Hartford, as well as small and mid-sized firms.

“Plan sponsors want to help but they don’t want to be directive,” Wray told RIJ. “They’re concerned with the liability that directive means and they don’t want to be wrong.” With the Hueler option, ‘if a participant comes to them and says, ‘I need an income solution,’ they can accommodate them by saying, ‘Here’s access to a transparent, low-cost annuity platform that has educational material.’ There are no endorsements or recommendations.”

The agreement doesn’t compel PSCA members to do anything; it simply allows them to offer an access code to the platform to ready-to-retire participants who are interested in converting some of their qualified savings to a guaranteed lifetime income stream. Under the agreement, PSCA plan sponsors won’t have to pay the $5,000 fee that Hueler usually charges for setting up an interface between a plan and the platform.

Income Solutions, for those unfamiliar with it, is a website where members of certain 401(k) plans and certain financial advisors can log on and request competitive real-time quotes on single-premium immediate annuities from eight or nine different highly-rated insurance companies who’ve been vetted by Hueler and who agree to offer special prices with no embedded distribution expenses.

Hueler, a successful provider of stable value fund data, created Income Solutions in 2004 after four years of research. She has spent the past six years talking about it and promoting it at conferences, hearings, roundtables and executive suites all over the country. She has formed partnerships with plan providers Wells Fargo, ING, T. Rowe Price and Hewitt Associates.

In 2007, Hueler and the National Association of Personal Financial Advisors entered into an agreement that would give NAPFA’s fee-only advisors access to Income Solutions for their clients. In 2010, Hueler and Vanguard agreed that Vanguard’s 401(k) participants could have access to the platform. The deal with PSCA marks an new milestone in the ongoing growth of Income Solutions.

While SPIA sales are currently tiny—low interest rates aren’t helping—Hueler doesn’t think they will necessarily stay that way. “There’s an appetite out there that hasn’t been reflected in the sales numbers,” Hueler told RIJ. “Our volume has dramatically increased. And if every plan sponsor communicated this to employees and employees had a chance to consider this option, you would see substantially higher usage of [SPIAs].”

In essence, Income Solutions is using the Internet to do for SPIA transactions what it has done for books, cars and other products: drive prices down, make transactions more transparent, and put more control in the hands of the consumer.

Just as consumers can compare car prices on cars.com, they can compare the prices of annuities at Income Solutions. Hueler isn’t the first to venture into that territory; for years, New Jersey-based insurance general agent Hersh Stern has been offering competitive annuity quotes through his site, immediateannuities.com. Others use a similar formula.

Both types of sites allow shoppers to see the highest available SPIA payout. That alone is important, because a client who sees only one annuity quote at a time is as helpless as someone who visits one car dealer and sees one isolated offer at a time. On any given day, the spread between the highest and lowest annuity prices can be as wide as 10%. For example, a couple might pay anywhere from $190,000 to $210,000, depending on the issuer, for $1,000-a-month in retirement.

But Hueler’s platform is different in a couple of crucial ways. Most importantly, it eliminates the commissioned salesperson. That makes the transaction cheaper and more transparent. Hueler discloses a flat two percent fee (one percent to finance the Income Solutions platform; the other one percent is paid to the plan provider or charged by the fee-only advisor who mediates the transaction for the participant or investor). In a typical agent-mediated transaction, the buyer pays up to five percent and doesn’t know exactly what the underlying cost structure looks like.

For plan sponsors, these differences matter a lot. The combination of lower, transparent pricing and a choice of bids from a screened selection of multiple high-quality annuity issuers—plus the fact that the SPIA purchase on Income Solutions involves a rollover to an IRA outside of the plan—makes Income Solutions acceptable to the many plan sponsors who are afraid that income options that involve in-plan purchases of annuities from single issuers would expose them to immeasurable liability should the issuer fail.

“The key for us was the transparency,” Wray said. “In the world we live in today, anything that has to do with our system has to be transparent. This platform provides the kind of thing that plan sponsors should be comfortable informing their participants about.” Nineteen percent of his member companies still have programs where they refer participants to a single insurance company for purchasing an income annuity inside the plan, he noted. But the Hueler concept is emerging as a successor to that practice.

Income Solutions also claims to offer “institutional pricing.” Hueler says that participating carriers have agreed to offer SPIAs to her clients at the “same prices they offer to their best institutional clients.” That pricing remains something of a black box at the carrier end, but it is said to be the stripped-down price with no distribution fees layered on.

SPIA pricing is the subject of an upcoming article in Retirement Income Journal. So far, comparisons of SPIA prices at Income Solutions, Immediateannuities.com, AARP, Fidelity’s SPIA platform, and Cannex, the independent data provider, show a small but consistent advantage at Income Solutions.

The insurers currently listed as participants in the Income Solutions platform are American General Life, Integrity Life, Lincoln National Life, Mutual of Omaha, Pacific Life, Principal Life and Western National. The largest seller of SPIAs, New York Life, is not listed. Its products are primarily sold through career agents. It also has an exclusive marketing relationship with AARP. MetLife also offers quotes for participants in certain plans.

Events that may interest you

Posted on March 30, 2011 by Editor Test -

Events on retirement income and related issues this spring and early summer include:

April 5-6. CFA Institute Conference: 2011 Asset and Risk Allocation. Spertus Institute, Chicago, IL.

April 11-12. Investment Symposium, hosted by the Society of Actuaries. Millenium Broadway Hotel, New York, NY.

April 13-15. The Retirement Industry Conference, hosted by LIMRA, LOMA and the Society of Actuaries. Caesar’s Palace, Las Vegas, NV.

May 16-17. Life and Annuity Symposium, hosted by the Society of Actuaries. Sheraton New Orleans, New Orleans, LA.

May 18-20. NAPFA National 2011, the annual conference of the National Association of Personal Financial Planners. Grand America, Salt Lake City, UT.

June 26-28. The Insured Retirement Institute’s 2011 Government, Legal and Regulatory Conference. Omni Shoreham, Washington, DC.

June 26-28. The Boulder Summer Conference on Financial Decision Making. St. Julien Hotel, Boulder, CO.

Three new fixed income funds from Prudential Investments

Putnam Investments named year’s ‘Retirement Leader’

New York Life announces record earnings, surplus for 2010

Jason D. Nicoloff Joins Lincoln’s Advisor Recruitment Team

New episode in AXA Equitable’s “Retirement Reality Show” series

New website from The Principal explains Tax Relief Act

Data Connection

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