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Nearly half of all advisors fail to take advantage of the opportunity to manage their clients’ rollover assets, according to a new survey by Cogent Research.

But about a third of advisors, apparently more resourceful or aggressive, said they gained $5 million or more of rollover assets in the previous year. On average, these high performing advisors have an average of $128 million in assets under management.

The Investment Company Institute estimated in May 2010 (Research Fundamentals, Vol. 19, No. 3) that Americans held about $4.2 trillion in traditional or rollover IRAs, exceeding the $4.1 trillion in defined contribution plans. Together, IRAs and DC plans accounted for more than half of the $16.0 trillion in retirement assets at year-end 2009.

 “There is a group of highly focused advisors who not only build the biggest books of business, but also put their mind to winning rollover assets. They are firing on all cylinders,” said David Feltman, Cogent’s managing director for Syndicated Research.  

The highly successful “rollover advisors” convert more retirement accounts and the size of those accounts is 2.4 times larger, at $344,000, than the advisors who fall into the second tier in terms of rollover success.

The Cogent Study revealed a significant opportunity for both asset managers and advisory firms to win both IRA and ESRP (employer sponsored retirement plans) conversions.

“These assets are available to be won and those who work hardest succeed at winning them,” said Feltman. “Given the propensity of retirees to move their employer-sponsored account at retirement, these funds are a ripe opportunity.”

A year ago, Cogent reported that for the first time that it had been tracking investor allocations, wealthy Americans held more assets in IRAs than in workplace-based retirement accounts like 401(k)s and 403(b)s.  The findings were included in the report, 2010 Investor Assets in Motion: IRA & Retirement Marketplace Opportunities.

The report, based on a nationally representative sample of 4,000 affluent and high net-worth Americans, found that while ownership of both types of retirement accounts is down since 2006, ownership of workplace-based retirement accounts have decreased much more dramatically.  Since 2006 IRA ownership has slid by just 5%, meanwhile ownership of workplace-based retirement accounts has decreased by almost one quarter (23%).

It appears that the majority of dollars that investors formerly allocated to ESRPs have been funneled into IRA accounts and, to a lesser extent, bank accounts.  This shift has resulted in the proportion of assets affluent Americans hold in IRAs (31%) to surpass the proportion of assets they hold in 401(k) and other employer-based retirement plans (25%).

Debt of the domestic nonfinancial sectors expanded at a seasonally adjusted annual rate of about 5% in the fourth quarter of 2010, after an increase of 4.25% in the previous quarter, according to the Federal Reserve’s Flow of Funds Accounts of the U.S., Fourth Quarter 2010.

Private debt edged up 1.25% at an annual rate in the fourth quarter, while government debt increased 12.75% percent.

Household debt, which declined 0.5% in the fourth quarter, has contracted each quarter since the first quarter of 2008. Home mortgage debt fell at an annual rate of 1.25% in the fourth quarter, compared to an average decline of more than 2.5% percent during the previous four quarters. Consumer credit rose at an annual rate of 2%, retracing the previous quarter’s decline.

Nonfinancial business debt rose 3.5% in the fourth quarter, on the heels of a 2.25% increase in the third quarter. Corporate bonds outstanding posted strong increases in both the third and fourth quarters, more than offsetting declines in commercial mortgages and commercial paper outstanding.

State and local government debt rose about 8% at an annual rate in the fourth quarter, after a 5.5% increase in the third quarter. Federal government debt increased at an annual rate of 14.5% percent in the fourth quarter. For 2010 as a whole, federal government debt grew a bit more than 20%.

At the end of the fourth quarter of 2010, the level of domestic nonfinancial debt outstanding was $36.3 trillion; household debt was $13.4 trillion, nonfinancial business debt was $11.1 trillion, and total government debt was $11.9 trillion.

Household net worth was an estimated $56.8 trillion at the end of the fourth quarter, up about $2.1 trillion from the end of the previous quarter.

The assets under management of China’s National Council for Social Security Funds (SSF) are expected to reach 1 trillion yuan ($148.70 billion) by the end of 2011, Investment & Pensions Asia reported.

The fund, which was established in 2000 and receives a statutory 10% of the proceeds of all IPOs by Chinese state-owned enterprises (SOEs), is the largest pension fund investor in China.

Its current allocation is made up of 45% fixed-income assets, 30% stocks and 25% private equity. IPOs by SOEs are expected to swell the fund’s coffers by RMB 20 to 30 billion per year until 2015.

The chairman of the fund, Dai Xianglong, said it is looking “to increase its allocation to social housing projects as well as taking an active role in driving development of China’s nascent private equity markets. It is also seeking to improve returns from fixed-income products against an expected backdrop of rate hikes this year.”

China’s government announced this week it will build 10 million social housing units at a cost of RMB 1.3 trillion ($198 billion) in the coming year, and the SSF looks set to play an important role in the welfare spending hikes outlined in the government’s latest five-year economic plan, which runs to 2015.

The fund has an upper limit for overseas assets of 20%, although currently this has remained stable at 7% since last July. The fund has a long-stated aim of fulfilling this quota, but Dai refused to put a time-scale on this expansion.

In December, the fund added seven asset management companies and one securities company to its list of external asset managers. Notably, whereas previously these have almost all been foreign companies, the most recent additions are nearly all Chinese-run: China Universal, Dacheng, Fullgoal, Guangfa, Haitong Fortis, ICBC Credit Suisse, Yinhua and Citic Securities.
Dai said there were unlikely to be more such appointments in 2011.

Insurance mergers and acquisitions in the U.S. picked up momentum in 2010. Sharp increases were seen for insurance service providers and distribution targets, a potential leading indicator of market shift. A prominent theme underlying insurance company transactions was selectively targeted bolt-on acquisitions of specialized units, according to a new study by Conning Research & Consulting.
“Mergers and acquisitions in the U.S. insurance market increased significantly in 2010, with a 35% increase in transactions and a 224% increase in deal values. This represents a reversal of a five-year decline in merger activity in the market,” said Jerry Theodorou, analyst at Conning Research & Consulting. “The increased activity was the result of buyers responding to soft market insurance conditions as well as generally improving conditions for M&A, including a more vibrant economy, more buoyant equity markets, and stronger capital positions at insurers.”
The Conning Research study, “Global Insurance Mergers & Acquisitions in 2010: Moving from Defense to Offense” tracks and analyzes both U.S. and non-U.S. insurance industry M&A activity across property-casualty, life, health and distribution and services sectors.
“Despite the pickup in M&A in 2010, insurers were generally cautious in their plays. Target properties were largely midsized companies offering accretive bolt-on opportunities, in contrast to the large consolidations seen in earlier periods of strong insurance M&A activity,” said Stephan Christiansen, director of research at Conning. “Specialty underwriting units were a strong focus for activity, as were specialty distribution groups. Insurers in 2010 also actively pursued alternatives to outright M&A of risk bearing entities in order to minimize reserve risk and the complexities of integration following a merger. Marquee underwriters or underwriting teams were sought out and hired, and managing general agents were acquisition targets as well.”

Millionaires’ views on the current state of the U.S. economy have improved but remains “very weak.” Regarding their own finances, their outlook became much more positive at the end of 2011, however, according to the fourth annual Fidelity Millionaire Outlook survey.

Using a scale from +100 to -100, Fidelity gauged millionaires’ confidence in the economy at -54, up from -91 less than two years ago. Meanwhile, their personal outlook rose to +37 by the fourth quarter of 2011.

“Millionaires’ outlook could be seen as a leading indicator of the direction of the economy, especially since the last time we conducted this survey in early 2009, they forecasted improvement in all aspects of the U.S. economy at the beginning of 2010,”  Michael R. Durbin, president, Fidelity Institutional Wealth Services.

Sentiment about the stock market is up 92 points (to +1) among millionaires—about one-third of whom say they have made back all the money they lost in the market from the fall of 2008 through the first half of 2009.

Despite the stock market’s positive performance over the past couple of years, the Fidelity survey found that 42% of millionaires, whose age averages 56, still do not feel wealthy, compared to 46% who said they didn’t feel wealthy in 2009. Those who classified themselves as not feeling wealthy said they would need at least $7.5 million to feel wealthy.   

Of the 58% of millionaires who say they do feel wealthy—up slightly from 54% in 2009—they began to feel so at $1.75 million in investable assets, which is consistent with 2009 and up from $1.5 million in 2008.

“The feeling of wealth is relative, based on factors such as the current market environment, a person’s age, lifestyle, and so on,” said Durbin.   

Millionaires’ future outlook has dramatically improved and is at the highest level in the survey’s history (+37). The biggest driver of millionaires’ outlook by the end of 2011 is business spending (+48), this component’s highest level since the survey’s launch in 2006.

Only 17% of millionaires say that the 2008-2009 market downturn shook their investing confidence and 68% do not expect market volatility to become the new norm.

Forty-three percent of millionaires say they are more knowledgeable investors now than before the market downturn, 75% feel financially secure, and 43% indicate they will invest more in the stock market over the next 12 months.

Four in 10 millionaires cite “securing enough resources to support their lifestyle during retirement” as their biggest concern, yet 69% have a well-developed financial plan and 81% are careful about spending.  

Most millionaires (64%) are “extremely or very concerned” about the impact of potential tax changes on their investments and 36% plan to use tax free investments more. Thirty percent say they plan to invest more in IRAs over the next 12 months, up from 20% in 2009. Almost 40% expect to increase their mutual fund holdings over the next 12 months, up from 25% in 2009.

The Fidelity Millionaire Outlook is a study of 1,011 financial decision makers U.S. households with investable assets of at least $1 million, excluding workplace retirement accounts and any real estate holdings. Northstar Research Partners conducted this year’s survey online in October  2010.   

© 2011 RIJ Publishing LLC. All rights reserved.

Among employers who reduced or eliminated matching contributions to employee retirement accounts since the financial crisis, 30% intend to reinstate them in 2011, according to the 7^th annual Retirement Plan Survey by Grant Thornton LLP, Drinker Biddle & Reath LLP, and Plan Sponsor Advisors LLC.

Forty two percent don’t plan to reinstate their match this year.

A year ago, over half (53%) of the employers had not decided whether to return to previous contribution levels and 33% had no plans to do so.  

Despite cutbacks by both plan sponsors and participants, 83% of plan sponsors reported that either very few or none of their employees had expressed concerns about their retirement readiness.

More plan sponsors are focusing on emerging market (EM) equities, with 77% of plans reporting inclusion or consideration for 2011. Last year, EM was included or under consideration by only 46% of plan sponsors. Real estate investment options were second to EM with 53%, followed by global bonds at 48%.

“These asset classes share a lack of correlation with the equity markets. Commodities, real estate, emerging markets and global bonds can be valuable when incorporated into a diverse portfolio,” said Erica O’Malley, Grant Thornton’s national Employee Benefit Plan practice leader.

• Fifty-nine percent of plan sponsors responded that they have conducted one or more tax/legal compliance reviews on their plan in the past three years, an increase from 46% in last year’s survey.
• Fifty-seven percent of plan sponsors surveyed had frozen their defined benefit plans to new entrants. Of those who froze plans, 58% had also frozen the accrued benefits to existing participants, while 42% continued to accumulate accrued benefits for the current population.
• Over 80% of 403(b) sponsors surveyed believe they have established adequate internal controls over ongoing operations.
• Fifty-eight percent of plan sponsors stated that they were not considering a Roth feature in their plan at this time, slightly lower than the trend in the marketplace.

© 2011 RIJ Publishing LLC. All rights reserved.

With a mountain of household debt and a molehill of retirement savings, most Americans would be delusional if they were confident about retiring securely. The results of two new national surveys suggest that most Americans are perfectly sound of mind in that respect.

The 2011 Retirement Confidence Survey, a project of the Employee Benefit Research Institute (EBRI) and Principal Financial Group, found that only 13% (tying an all-time low) of American workers are “very confident” about having enough money to live comfortably in retirement and 27% (an all-time high) are “not at all confident.”    

Simultaneously, a new Country Financial survey showed that only 28% of Americans surveyed believe a middle-income family can save enough for a secure retirement. That’s two points lower than last year and nine points less than 2007.  

“High unemployment rates; government fiscal crises; rising health care costs; lower investment returns; a surging older population putting pressure on Social Security and Medicare; and longer life expectancies” are all sapping confidence, the EBRI/Principal survey showed.

Just 19% of Americans think they will need $1 million or more for retirement, while 64% think they’ll need less, according to Country Financial. Another 18% are unsure.

Among other key findings in the 2011 Retirement Confidence Survey, available on the EBRI website at www.ebri.org:

• Roughly a third of both workers and retirees dipped into savings last year to pay for basic expenses. Those with 401(k) or an individual retirement accounts (IRA) were far less likely than those without these accounts to tap into savings.
• More than four in ten  (42%) say they guesstimate their retirement savings needs, while 70% say they are a little or a lot behind schedule in planning and saving for retirement.
• More than half of workers say they have less than $25,000 in total savings and investments, excluding their homes.
• A significant number of workers (20%) say they now intend to retire later (at an older age) than they had planned. But almost half of current retirees (45%) say they retired earlier than they planned, mainly because of a health problem or disability.

© 2011 RIJ Publishing LLC. All rights reserved.

RIA optimism up sharply: Schwab 

Independent registered investment advisor (RIA) optimism has risen significantly since July 2010, according to Charles Schwab’s latest survey of more than 1,300 RIAs representing $284 billion in assets under management.

Independent advisors also display optimism across a number of economic indicators and consumer behavior metrics. “They clearly think we are turning the corner economically,” said Bernie Clark, executive vice president and head of Schwab Advisor Services.

When asked about current economic issues, advisors say:

• S&P 500:77% expect the S&P 500 to rise in the next six months, up from 63% last July. 
• Bull/Bear ratio: 56% classify themselves as bulls; 10% are bears.  
• Consumer spending: 68% expect consumer spending to rise, up from 42%.
• Unemployment: 17% believe unemployment will rise, down from 32%.   
• Housing: 38% say housing will soften, down from 53%.
• ETFs:
  • 84% currently use ETFs; 31% say they will invest more in ETFs, the most of any investment vehicle.
  • 78% currently invest in equity ETFs and 28% plan to invest more in them over the next six months.
  • 70% currently invest in international ETFs for their clients, with 23% planning to invest more.
  • More than 60% are currently using fixed income ETFs.
• Treasury yields: 64% think U.S. Treasury yields will increase in the next six months; 8% think they will go down.
• Bush tax cuts: 85% believe the extension of the Bush tax cuts will help the stock market and economy overall.
• Quantitative easing: 55% say the Fed’s quantitative easing activities will help the stock market and economy.
• Inflation: 64% expect inflation to rise over the next six months, up from 28%. 
• Cost basis reporting changes: 48% don’t know how recent changes to cost basis reporting will affect their tax situation.

Advisors’ Clients Also More Upbeat

According to the advisors surveyed, their clients are more upbeat entering 2011 as well. Over the past six months, the number of advisors’ clients that needed reassurance that they will achieve their investment goals declined, falling to 23%, down from 30% in July 2010 and down from a high of 49% in January 2009.

Specifically, more than half of advisors’ clients (53%) feel more optimistic about the economy than they did in July 2010, and 56% of clients feel more positive about their investment performance than they did six months ago, up from just 14% in July 2010. However, clients remain cautious about retirement with only 23% percent more optimistic that they will be able to retire on time. According to advisors, 34% of their clients are reducing expenses, down from 47% in July 2010, and 22% are spending more money on discretionary items, up from just eight percent last summer.

Charles Schwab is a leading provider of custodial, operational and trading support for more than 6,000 independent RIAs. The Independent Advisor Outlook Study, conducted for Schwab Advisor Services by Koski Research in January 2011, has a 2.74% margin of error.  

The 6.2 million workers over age 65 have big portfolios

The 6.2 million American adults over the age of 65 who are employed full-time or part-time are financially sound and have robust investment portfolios, according to a new study from Scarborough. This is consistent with a recent report of a correlation between higher education and  working after age 55.

According to the Employee Benefit Research Institute (EBRI), the higher the educational attainment, the higher the labor-force participation rate. For example, in 2009, 63.1% of Americans ages 55 or older with a graduate or professional degree were in the labor force, compared with 22.4% of those without a high school diploma.

The “Retired for Hire” consumers are slightly more likely than the average adult to have an annual household income of $150,000 and are 51% more likely to live in a home valued at $500,000 or more.

Members of this group are also more likely than the average American to have:

• Stocks or stock options as a household investment (23% more likely)
• Second home or real estate property (36% more likely)
• Mutual funds (27% more likely)
• Money market funds (46% more likely)

Additional survey results are available for free download at www.scarborough.com/freestudies.php.

Symetra expands life and retirement sales force

Symetra Life Insurance Company announced a new sales leader for its western division and six new regional vice presidents to represent the company’s portfolio of annuity and life insurance products.

Wes Severin has been named western divisional sales manager of Life and Retirement Sales, with responsibility for sales planning and day-to-day management and training of 12 external wholesalers covering the western United States. Most recently, Severin was national sales director of financial institution markets at Great-West Life & Annuity Insurance Company in Denver, Colo.  Before Great-West, he was a financial advisor with Simmers Capital Management.

Symetra also announced six new regional vice presidents in its Life and Retirement Sales organization:   

Christopher Grubbs (Maryland, Washington, D.C., Virginia) most recently served as a regional vice president at New York Life, managing relationships with major financial institutions and independent broker-dealers in southern Virginia and West Virginia. He also has held sales positions with ING and GE Financial (now Genworth Financial).

Lydia Hopper (Los Angeles, Central California) joins Symetra from Michel Financial Group, where she was an annuity specialist. She previously held regional sales roles at MassMutual Financial Group and AIG SunAmerica, focusing on variable and fixed annuity sales through independent and bank registered representatives.

Brad Kiesling (North Texas, Oklahoma) is an experienced annuity and life insurance sales professional, having held external wholesaling roles at Great-West Life & Annuity Insurance Company, AXA Equitable and Genworth Financial. He also was a regional director for Cherry Financial Partners, helping expand the financial services firm’s national network.

Matthew O’Neil (Maine, New York, Vermont) comes to Symetra from Genworth Financial, where he was a regional vice president responsible for annuity sales in upstate New York. He previously held regional sales roles at Phoenix Life and Liberty Funds Distributors, concentrating on variable and fixed annuity sales through independent, bank and regional wirehouse registered representatives.

Matthew Sennet (Florida, excluding Panhandle) joins Symetra from ING Financial Solutions, where he was a regional vice president in north Florida. He also has served as a regional marketing director for Lincoln Financial Distributors and a Florida district retirement planning advisor for Merrill Lynch. He has extensive wholesaling experience with mutual funds and fixed, variable and immediate annuities through multiple distribution channels.

Tammy Viccari (Georgia, East Tennessee and Florida Panhandle) brings to Symetra 13 years of experience as a successful external and internal wholesaler at ING Financial Services and Wachovia. Her financial services background also includes work as a stockbroker at Morgan Stanley Dean Witter.

Gender gap exists in retirement confidence: MassMutual

Economic uncertainty and market volatility have contributed to lower levels of investing confidence and generally more conservative investing behavior among participants.

Confidence in investment decisions and the stock market is much lower for women than men, and the gap is widening, according to a survey of 1,517 plan participants using MassMutual’s Retirement Services last November, December, and January.    

MassMutual’s data indicates that men are twice as likely as women to believe the stock market will improve over the next year. Only 37.3% of all participants are confident in making their own investment decisions (vs. 42.5% last year). However, women were significantly less confident in making their own investment decisions.

At the same time last year, the percentages were 32.8% for women and 47.8% for men.

More men enjoy learning about investments (71.7%) than do women (54.4%), and more women (53.1%) than men (35.1%) also prefer to spend as little time as possible on investment decisions.

The survey indicates that a rise in anxiety about having adequate savings to retire. Overall, 67% are concerned they won’t have enough saved for retirement vs. 64.9% last year. In this year’s survey, the percentage of women concerned increased by 4.4 percentage points to 74.7%, while the percentage of men declined by 1.3 percentage points to 61.9%.

Participants of both genders are also becoming more conservative in terms of their investing behavior. Among participants who made a change in their approach to investing in the last 12 months, 61.7% became more conservative compared to 38.3% who became more aggressive.

Among all participants, 39.8% identified being able to retire as their greatest concern, up from 37.3% last year. Significantly, 74.3% agree they have more responsibility for achieving retirement income objectives than their employer. Managing debt is the greatest financial concern for participants under age 40, while being able to retire is by far the greatest concern for people 40 years old or above.

MassMutual’s Retirement Services Division serves approximately 1.2 million participants.  

Lincoln Financial bolsters DC team

Lincoln Financial Group announced the appointment of Michael Conte as vice president, Small Market Business Leader for the company’s Defined Contribution Products team. Conte will report to Eric Levy, senior vice president, Head of Defined Contribution Products, and will oversee cross-functional initiatives to help grow Lincoln’s revenue and earnings in the small market space.

During his 13-year tenure at Lincoln Financial Group, Conte has held numerous leadership positions across a variety of functional areas including Sales, Internal Sales and Compliance, and Retirement Plan Administration for Delaware Investments. Most recently Conte served as DC Product and Relationship Manager for Lincoln Financial Distributors. He holds Series 6 and 63 designations and earned a bachelor’s degree in business administration from Rider University.

Lincoln also appointed seasoned senior-level employees John Weber in a new role as vice president, Multi-Fund Business Leader and Bob Melia as vice president, Defined Contribution Product Development. Both positions report to Levy.  

Fidelity debunks myths about 401(k)s and IRAs

“Despite the myths out there, [the 401(k)] is helping millions of Americans of all income levels save for their futures,” said James M. MacDonald, president, Workplace Investing, Fidelity Investments, in a recent release.

“Employers are committed to offering a compelling program with a company match as well as lifetime investment guidance to help their employees reach their goals.”

MacDonald pointed to several healthy signs. The average 401(k) account balance rose to $71,500 at the end of 2010, reaching a 10- year high since Fidelity began tracking the data based on the industry’s largest participant base of 11 million 401(k) accounts.  

For participants who were continuously active for the past 10 years3, their average balance increased to $183,100 at the end of last year from $59,100 at the end of the fourth quarter 2000.

Average participant deferrals remained at 8.2 percent for an eighth straight quarter. For a seventh straight quarter, more participants increased their total deferral rate than decreased (6.1% vs. 3.0% respectively).

Despite its wide usage as a primary savings vehicle for many working Americans, the following myths about 401(k) plans persists, Fidelity says:

 Myth 1: The majority of lower-income employees don’t participate in their 401(k) plan.

·            On the contrary, the majority (53%) of participants in 401(k) plans recordkept by Fidelity earning between $20,000 and $40,000 do participate, and 71 percent of participants earning $40,000 and $60,000 participate.

Myth 2: 401(k) participants don’t take an interest in their retirement plans.

·            In reality, Fidelity found workplace participants are increasingly more engaged in their plans. In 2010, approximately three out of four active participants contacted Fidelity via the phone or over the Web. More than 1.1 million workplace participants took advantage of Fidelity’s online guidance tools.

·            Of those who used the savings tools, nearly half (47%) increased contributions to their 401(k)s by an average of three percentage points (from 4% to 7%)5.

·            When employees sought Fidelity’s comprehensive guidance with their investment strategy, one in five made adjustments to their portfolio from suggestions based on their age and target retirement date6.

Myth 3: Most employers suspended their company match during the recession and have not reinstated it.

·            Only 8% of Fidelity plan sponsors reduced or eliminated their employer contributions during the height of recession in 2008 and 2009. Since then, more than half (55%) have already or indicated they plan to reinstate this benefit within the next 12 months.

·            Larger companies (5,000+ employees) are at the forefront of this trend with 71% having already reinstated or planning to reinstate their employer contribution.

·            Overall, 80% of active participants within corporate defined contribution plans recordkept by Fidelity received employer contributions in 2010.

Myth 4: Most people take loans or cash out of their 401(k)s.

·            A loan from a 401(k)s is sometimes a necessity for a participant, however, nearly four out of five participants have rejected the urge to take out a loan.

·            Seven out of 10 participants opt not to cash out of their 401(k)s in the months following a separation from an employer, instead wisely electing to stay in-plan or rolling over into another qualified retirement account such as an IRA.

Myth 5: Roth 401(k)s are only for older, wealthy employees.

·            Not true. More than twice as many active participants in their 20s contribute to Roth 401(k)s than do those aged 50 and older (9% vs. 4% respectively).

·            About half of Roth 401(k) contributors earn less than $75,000, and one in four earns less than $50,000.

·            One out of five Fidelity plan sponsors offers eligible employees a Roth 401(k). Fidelity’s largest plans (more than 250,000 participants) have adopted at the greatest rate with half offering the feature.

Jackson announces record sales and operating income in 2010

During 2010, Jackson National Life Insurance Company achieved record sales and deposits of $19.8 billion and record IFRS pretax operating income of $1.3 billion.2 Total sales and deposits climbed 30 percent over 2009, driven by a 47-percent increase in variable annuity (VA) sales to nearly $14.7 billion.

IFRS pretax operating income increased 33% over 2009, due primarily to higher spread and fee income. Jackson’s 2010 IFRS net income of $509 million was lower than the $670 million reported in the prior year due largely to the benefit from the reversal of a $319 million tax valuation allowance in 2009.

Total IFRS assets increased to $107 billion at the end of 2010, up from $88 billion at the end of 2009.

“In 2010, Jackson extended its track record of generating sustainable, profitable growth,” said Mike Wells, Jackson’s president and chief executive officer. “Jackson earned more than a half-billion dollars in IFRS net income, which the company achieved in six out of the past seven years.”

Jackson, an indirect wholly owned subsidiary of the United Kingdom’s Prudential plc, finished 2010 with record retail sales and deposits in the fourth quarter of nearly $5.5 billion. Annuity net flows (total premium minus surrenders, death benefits and annuitizations) of $10.9 billion in 2010 were 38 percent higher than 2009. During 2010, Jackson ranked second in variable annuity net flow, according to reporting by SimFund VA. At December 31, 2010,Jackson had $4.6 billion of regulatory adjusted capital, more than nine times the regulatory requirement5, up from $4.0 billion at the end of 2009.

A European Court of Justice decision has apparently made it illegal for insurers to use gender as a factor in calculating premium rates for insurance policies, the Financial Times reported. But experts studying the judgment said it did not cover savers buying an annuity through an employer-sponsored retirement plan.

Their annual premiums of female drivers ages 17 to 25, who had been deemed a lower risk than young men, are expected to rise 25% when unisex rates are imposed in December 2012.

Men approaching retirement will also suffer, with their annuity rates brought down to match those for women, who are usually offered lower rates as they tend to live longer. Male pension income could fall by up to 8%, or £8,000-£10,000 over a 20-year period for a 65-year-old man with a £100,000 pension fund, according to some estimates.

 “The directive clearly states that it should apply only to insurance and pensions that are private, voluntary and separate from the employment relationship,” said Phil Carroll, financial planning specialist with Skandia, the investment group.

“Our initial interpretation is that this could potentially create a disparity between workplace schemes and private pension schemes which would be a poor outcome for pension savers.”

Towers Watson, the consulting group, said: “The judgement itself appears to have direct effect only on the provision of goods and   services…  this includes individual private pension but not necessarily pensions provided in the employment arena.”

There are currently 3.5 million people in defined contribution (or money purchase) plans in the UK, with the bulk of annuities purchased by men.

However, advisers say that any loophole is likely to be temporary. “You can see a situation where men will annuitize with the workplace scheme because the rates are better, while female colleagues go to the market for a better unisex rate,” said Nigel Cooke at the accountancy firm Grant Thornton.

“Any loophole will be quickly closed because we are dealing with the law of unintended consequences.”

© 2011 RIJ Publishing LLC. All rights reserved.

Fixed indexed and income annuities broke sales records in 2010, according to the Beacon Research Fixed Annuity Premium Study.  Annual indexed annuity results climbed 6% to an estimated $31.4 billion, accounting for a record 48% share of fixed annuity sales. Income annuity sales grew 2% to $8 billion, for a record 11% share. 

“Both product types benefitted from growing interest in guaranteed lifetime retirement income and protection from downside risk,” said Jeremy Alexander, CEO of Beacon Research, whose study doesn’t include fixed annuities in structured settlements or employer-sponsored retirement plans.

Fourth quarter indexed annuity sales were an estimated $8 billion, up 16% from fourth quarter 2009.  Income annuity sales of $1.9 billion advanced 4% from the year-ago quarter. But indexed and income annuity sales fell from the third quarter of 2010 by 7% and 11%, respectively.

Allianz Life was the overall fixed annuity leader in the fourth quarter, with sales of $2.003 billion. It had the top selling product, the MasterDex X indexed annuity, which dominated the independent producer channel.

Total U.S. sales of fixed annuities fell year-over-year, however, to an estimated $71.7 billion in 2010. That was 31% below 2009, the second-strongest year in the study’s eight-year history. Estimated fourth quarter sales of $16.7 billion slipped about 14% compared to both the year-ago and prior quarters.

Fixed rate annuity results were negatively affected by 2010’s interest rate environment. Annual book value sales dropped 49% from 2009 to an estimated $26.5 billion, while market value-adjusted products slid 61% to $5.8 billion. Fourth quarter’s book value sales were $5.6 billion, down 38% and 19% from the year-ago and prior quarters, respectively.  MVAs fell 29% relative to both periods, to $1.3 billion.

Although rates increased, the fixed annuity rate advantage diminished, and rising rate expectations were a disincentive to buy. Those who did purchase fixed annuities chose shorter rate terms to avoid locking in fourth quarter’s rates for longer periods.  

“Consumer demand for conservative investments with guarantees continues to be strong,” Alexander said. “We expect fixed annuity sales growth to resume when the rate environment becomes more favorable.”

Allianz led sales for the second consecutive quarter. American Equity (NYSE: AEL) moved up two notches to come in second, replacing Aviva, which came in fourth. New York Life continued in third place. Western National rejoined the top five in fifth place. Fourth quarter results for the top five study participants were as follows:

Total Fixed Annuity Sales (in thousands)

Allianz Life                                                                             2,003,961

American Equity Investment Life Insurance Co            1,554,401

New York Life                                                                        1,340,157

Aviva USA                                                                               1,334,859

Western National Life                                                          1,095,346           

Western National once again traded places with New York Life to become the quarter’s top company in book value annuity sales. Allianz continued as the dominant issuer of indexed annuities, and New York Life remained the long-time leader in income annuity sales.

Three of these companies also were distribution channel leaders.  Allianz had top sales through independent agents.  New York Life was the dominant company in the career agent and large/regional broker-dealer channels. Western National led in bank channel sales.  The remaining channel leaders were:  MassMutual, independent broker-dealers; Pacific Life, wirehouses, and; USAA, direct/third party.

Of the 500 products tracked by the Study, both Allianz and American Equity had two indexed annuities in the top five.  The Allianz MasterDex X was the quarter’s bestseller again, while Endurance Plus came in fifth.  American Equity’s Retirement Gold moved up a notch to take second place and its Bonus Gold placed fourth.  The New York Life Lifetime Income Annuity advanced one notch to come in third.

Rank     Company Name                    Product Name                                      Product Type

1            Allianz Life                                       MasterDex X                                            Indexed

2            American Equity                            Retirement Gold                                       Indexed                                               

3            New York Life                                 NYL Lifetime Income Annuity               Income

4            American Equity                            Bonus Gold                                                 Indexed

5            Allianz Life                                       Endurance Plus                                         Indexed

The New York Life Preferred Fixed Annuity was the new bank channel bestseller. In the large/regional B-D channel, The New York Life Secure Term Fixed Annuity replaced another New York Life product.  The other channel-leading products were repeat performers.

Channel                                    Company                        Product                                    Product Type

Banks and S&Ls                       New York Life            NYL Preferred Fixed Annuity             Book Value

Captive Agents                          New York Life            NYL Lifetime Income Annuity            Income           

Direct/Third Party                   USAA                          Flexible Retirement Annuity              Book Value                                                           

Independent BDs                     MassMutual              RetireEase                                                Income           

Indep. Producers                      Allianz Life                MasterDex X                                            Indexed

Large/Regional BDs                 New York Life           NYL Secure Term Fixed Annuity        Book Value

Wirehouses                                Pacific Life                 Pacific Frontiers II                                  MVA

About the Beacon Research Fixed Annuity Premium Study

The quarterly Study is the first and only source to track and analyze product-level fixed annuity sales on an ongoing basis. Providing timely market intelligence of the highest quality, it’s designed to report what’s moving in each channel and why. 

About Beacon Research

Beacon Research tracks fixed, indexed and variable annuity sales, rates and features, and provides web-based systems at www.annuitynexus.com for distributors and insurance companies. Beacon also licenses information and software tools to other platforms, including EbixExchange’s AnnuityNet annuity automation platform. Beacon’s fixed annuity benchmark series — the industry’s first – is available through Ibbotson Associates. Directly and through strategic alliances, Beacon information can be accessed by hundreds of financial institutions and distributors.

Security Benefit Life Insurance Company, in a co-venture with Advisors Excel and Innovation Design Group, has launched Secure Income Annuity, a new FIA.

The move signals the Topeka-based insurer’s return to retail annuity market place, said Doug Wolff, president of Retail Retirement at Security Benefit. The company and its ratings were hurt by exposure of half its capital to subprime mortgage-backed securities in 2008. Guggenheim Partners purchased and recapitalized the insurer with $400 million in early 2010.  

The new FIA contract offers two typical crediting strategies. The first, a fixed account, pays a guaranteed amount of interest each year. The second type is two strategies, linked to the growth of the S&P 500 Index (excluding dividends), that credit interest to the contract based on increases in the index, up to a cap.

The contract’s maximum purchase age is 80. It can be purchased through a traditional, Roth, or rollover IRA, or with after-tax dollars. The minimum purchase premium is $25,000.

Additional purchase payments made in the first year are credited to the account value. There is an additional 8% bonus (it may be lower in some states) upon purchase of the base product and 10% when the guaranteed lifetime withdrawal benefit rider (GLWB) is selected. There is a surrender period.

The optional GLWB provides a compounded roll-up in the benefit base of 8.2% for each year the client defers taking income, for 10 years or until age 85, whichever comes first. (On the 10th and 20th Contract Anniversaries, for a total of 30 years, the 8.2% Roll-up may be renewed.) For each year the policyholder defers income, his/her lifetime withdrawal percentage payout rate increases by 0.10%. As in similar riders, excess withdrawals can reduce future income.

The rider also offers a Home Healthcare Doubler that, after a two-year waiting period, doubles the payout rate for a maximum of five years if the contract owner is disabled. A physician must certify that the policyholder cannot perform at least two of six basic activities of daily living.

© 2011 RIJ Publishing. All rights reserved.

Barclays Capital has launched the Barclays Capital iCRYSTAL Index, which aims to extract value from both consistent and divergent monetary policy cycles in the U.S. and Europe.

Monetary policy cycles in the US and Europe have historically exhibited extended periods of synchronous and asynchronous behavior. For instance, in the early part of the 2007 to 2009 slowdown, US monetary policy clearly preceded European policy, causing a divergence in short-term interest rates. As the full impact of the recession hit in the second half of 2009, US and European policy became unified in cutting rates, reducing this divergence.

“The spread between European and US short-term rates has demonstrated trending behavior, reflecting the differences in monetary cycles which present the possibility of extracting value provided we identify the direction in a timely fashion,” said Jose Mazoy, Director, Index Portfolio and Risk Solutions at Barclays Capital. “The Barclays Capital iCRYSTAL Index is designed to make the most of such phenomena.”

Other Barclays Capital indices include the Fixed Income Alpha Indices, which aim to provide systematic alpha from interest rate markets, the Capital Global Target Exceed Index and the PRISM Index.

© 2011 RIJ Publishing LLC. All rights reserved.

In the February 27 issue of The New York Times, Professors Henry Hu and Terrance Odean published an op-ed entitled “Paying for Old Age.” After reading it, I concluded that it needs a response.

First, let me say that I am a big fan of Odean’s academic work, including that which uses proprietary brokerage data to provide insights into individual investor behavior. And Hu is also a highly respected law and finance scholar who is well known for his work on financial risk.

But I am afraid that the authors have misdiagnosed the main problem.

In essence, Hu and Odean are suggesting that the U.S. government should issue inflation-indexed life annuities directly to the public. They are not the first to propose this—the Aspen Institute had a similar proposal several years ago.

I understand the motivation of their proposal. After all, we know that counter-party risk is one reason that individuals may be concerned about entering into long-term annuity contracts with insurers, and this is especially true after the recent financial crisis that witnessed the disappearance of venerable financial institutions. 

Perhaps even more importantly, we know that many 401(k) plan sponsors have concerns about fiduciary liability when it comes to choosing an annuity provider. Having the government provide the annuities directly is meant to address this concern. So it is fairly straightforward to write down a simple economic model in which I can show that optimally structured government intervention appears to make people better off.

Even so, I think the proposal is off base, for several reasons.

First, I think they have misdiagnosed the reason people do not buy annuities. While concerns about counter-party risk are certainly heightened today, the demand for annuities was ridiculously low even a decade ago when most consumers were not even thinking about the issue. Nor is there much evidence that lack of inflation protection or high prices are the primary reasons for limited demand.

While these probably contribute a bit on the margin, they are only three items on a very long list of reasons that demand for annuities is limited, which I have discussed at length elsewhere.

Second, I have no confidence in the government’s ability to run this program effectively. The same holds true for the idea of the government providing a government backstop for private annuity providers. Last year I published a book (a collection of papers from an AEI conference that I organized two years ago) that includes analyses of six major government insurance or reinsurance programs, including programs to insure DB pensions (PBGC), bank deposits (FDIC), crops, terrorism, floods and natural catastrophes. 

One of the themes that came out of these analyses is that the U.S. government simply does not seem to be capable of structuring insurance programs in a manner consistent with basic economic principles. They almost universally fail to charge appropriate prices for the insurance (premiums are too low on average, and they are not properly risk-adjusted), which distorts incentives and leads in some cases to excessive risk-taking (a form of moral hazard). They tend to create large unfunded liabilities that put taxpayer funds at risk. There are other problems as well (which you can read about if you read the book!)

So while an optimally designed government backstop would have real value, the U.S. government has an abysmal record of optimally designing such systems. So we are immediately thrust into the world of “second best” policies where it becomes difficult to ascertain whether a poorly designed program is really better than none at all. I am extremely reluctant to run the “experiment” because, to paraphrase Milton Friedman, “there is nothing so permanent as a temporary government program.”

Third, despite the authors’ attempt to sell this as an “everybody wins” idea, I think it is pretty clear that this would crowd-out private annuity provision, and all the future innovation that may come out of it. (Disclosure: I am a trustee for TIAA, one of the world’s largest annuity providers. I have also done work over the years for many other life insurance companies. )

Finally, I believe that other market-based solutions are emerging. There has recently been a lot of discussion, and some activity, of “multi-insurer solutions,” in which a plan sponsor enters into an agreement with multiple insurers who essentially each agree to kick in to cover one another in the event that one provider experiences financial distress. (Of course, this does not help if the whole industry goes down.) The idea is still young and new, and I would hate to kill the innovation by starting yet another government program.

In essence, I do not think that direct government provision of annuities is necessary or desirable. The problem in the private market is not that the products do not exist, it is that people do not buy them. Nothing in this proposal will change that. We would be better off focusing our efforts on policies such as reducing fiduciary risk to plan sponsors that would like to provide annuity options to employees, or reforming our minimum distribution requirements so that they no longer discourage annuities.

Bottomline: Rather than having the government provide annuities, I would like to see the government stop discouraging the use of annuities that private providers would be happy to make available.

Jeffrey Brown, Ph.D., is a finance professor and well-known retirement researcher at the University of Illinois at Urbana-Champaign. Read more of his and others’ comments at this blog.

© 2011 RIJ Publishing LLC. All rights reserved.

Hedge fund managers turned more bearish on the S&P500 in February. Only 26% said they were bullish, down from 37% in January, while the bearish segment rose to 40% from 26%, according to the TrimTabs/BarclayHedge Survey.

 “Bullish sentiment less bearish sentiment is negative for the first time since November,” said Sol Waksman, founder and president of BarclayHedge.  “Increased caution might owe in part to excellent recent performance. Our Hedge Fund Index has posted a positive return for six straight months.”

About 37% of hedge fund managers are bearish on the 10-year Treasury note; only 15% are bullish.  On the U.S. dollar index, bears and bulls are balanced at 31%.

Nonetheless, 18% of managers aim to lever up in the near term, while only 15% plan to lever down. 

“Managers still have a large incentive to gamble with borrowed money because short rates round to nil.  If one of the Fed’s goals was to ignite speculation and greed then it has succeeded famously,” said Vincent Deluard, executive vice president at TrimTabs. 

The equity rally owes a lot to QE2, about 52% of hedge fund managers believe; 35% say the end of quantitative easing in June will hurt the rally. The level of the S&P 500 and the size of the Fed’s balance sheet have exhibited a positive correlation of 88.4% since the start of QE1 in March 2009, according to TrimTabs.   

Managers also fret about oil prices. About 24% believe oil is likelier to hit $150 per barrel than the S&P 500 is to reach 1,600.

Deluard disagrees. “We’ll take the other side of that action,” he said. “Oil spiking to $150 from here represents a move of nearly seven standard deviations, while the S&P 500 climbing to 1,600 represents a move of less than three standard deviations. [Those] who agree with us might consider selling long-dated out-of-the-money call options on oil futures.”

The TrimTabs/BarclayHedge database tracks hedge fund flows monthly. The Survey of Hedge Fund Managers appears monthly in the TrimTabs/BarclayHedge Hedge Fund Flow Report, which records hedge fund flows, assets, and returns alongside topical studies. For more, click here. 

© 2011 RIJ Publishing LLC. All rights reserved.