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A Case of Election Psychosis

Posted on October 27, 2010 by Editor Test -

Election Day was less than a week away. The Undecided Voter was stressed. He made an appointment with a dually-licensed psychiatrist who practiced behavioral finance and annuity framing on the side.

“Doc, I can’t sleep. I stay up all night, trying to figure out who I should vote for,” said the Undecided Voter as he reclined on the leather longue.

“How does that make you feel?” said the psychiatrist.

“Indecisive,” said the U.V. “And anxious.”

“I see,” the psychiatrist said, tapping a note into his Blackberry. “And what is it about not knowing who to vote for that makes you anxious?”

“If I vote Democratic, then Barack Obama, Nancy Pelosi and Harry Reid will raise my marginal tax rates and over-regulate me. They’ll confiscate my 401(k) savings and use it to fund outrageous pensions for policemen and school teachers.”

“Then perhaps you should vote Republican,” the doctor said.

“If I vote Republican, Christine O’Donnell and Rand Paul will take charge, and that knucklehead Gingrich will pull their strings. They’ll lower my taxes and de-regulate me, but they’ll destroy Social Security and gut Medicare.”

“Let me pose a question,” said the psychiatrist. “Would you rather have a 50% chance of gaining $100, or a 100% chance of gaining $50?”

“Who cares?” said the Undecided Voter. “Bonds are overpriced. Gold is overpriced. The Fed is propping up the stock market and there’s a 50/50 chance of a Double Dip. Some days I think I should be long on small-caps. Other days I think I should load up on TIPS.”

“Ah. Have you considered a variable annuity with a lifetime income rider?” asked the doctor. “Or perhaps a SPIA with a side-fund in equities?”

“I don’t like annuities,” said the U.V. “They’re a terrible investment.”

“You’re looking at them through ‘investment’ glasses,” the psychiatrist empathized. “Try looking at them as insurance. Guarantees aren’t cheap, you know.”

“I don’t know what’s real anymore,” said the Undecided Voter. “Is global warming a serious threat to civilization, or is it a left-wing hoax? Do poor people ride in the cart while rich people pull, or is it the reverse? When we die, are we called to account for our fiduciary lapses, or do we just crumble into dust?”

A complex psychosis, the doctor noted on his PDA. Might call for an equity-indexed annuity. “Looks like we’ve got a lot of work ahead of us,” he said, turning to his appointment book. “Same time next week?”

“At this rate, I’m not sure there will be a next week,” muttered the Undecided Voter. “Doc, how do you deal with the pressure? How do you decide who to vote for?”

“Each one of us has to make his own decisions,” the psychiatrist instructed. “But, in my case I get all the information I need from Fox News. Bill. Glen. Sean. Even that blonde lawyer, what’s-her-name.”

“Ann Coulter?”

“Right. I listen to their arguments, and then I do the opposite of whatever they say,” the doctor said.

“That’s all I need to do?”

“Well, you might also buy a fixed annuity/long-term-care insurance hybrid,” suggested the psychiatrist. “It’s like buying LTC with a big deductible. And if you never need nursing home care, you keep your money. Put a couple of hundred thousand into one of those babies and, I promise, you’ll sleep like a tenured professor.”

Almost Four in 10 U.S. Households Hit By ‘Great Recession’

Posted on October 27, 2010 by Editor Test -

A recent research paper shows that between November 2008 and April 2010 about 39% of U.S. households had either been unemployed, had negative equity in their house or had been in arrears in their house payments. Reductions in spending were common especially following unemployment.

“Effects of the Financial Crisis and Great Recession on American Households,”written by Michael D. Hurd and Susann Rohwedder of the Rand Corporation and published by the National Bureau of Economic Research, suggested that U.S. households generally are “not optimistic about their economic futures.”

“On average expectations about stock market prices and housing prices are pessimistic, particularly long-run expectations. Among workers, expectations about becoming unemployed have recovered somewhat from their low point in May 2009 but still remain high,” the paper said.

These data come from Internet surveys run by RAND Labor and Population in the beginning of November 2008, in February 2009 and every month since May 2009.

Three Ways to Rein in the Runaway Deficit

Posted on October 27, 2010 by Editor Test -

In a new analysis, “Preventing a National Debt Explosion,” the economist Martin S. Feldstein discusses three strategies that, if combined, could reverse the rapid growth of the U.S. national debt and reduce the ratio of debt to Gross Domestic Product (GDP) to less than 50%.

Without changes in tax and spending rules, Feldstein finds, the national debt will rise from 62% of GDP now to more than 100% of GDP by the end of the decade and nearly twice that level within 25 years.

The first strategy, which focuses on the current decade, would “reduce the Administration’s proposed spending increases and tax reductions that would otherwise add $3.8 trillion to the national debt in 2020.”

The second strategy would “augment the tax-financed benefits for Social Security, Medicare and Medicaid with investment-based accounts would permit the higher future spending on health care and pensions with a relatively small increase in saving for such accounts.”

The third strategy focuses on tax exemptions and other subsidies that result in an annual revenue loss of about $1 trillion. “Reducing them could permanently reduce future deficits without increasing marginal tax rates or reducing the rewards for saving, investment, and risk taking,” the paper said.

Feldstein’s paper concludes with a discussion of how the high debt-to-GDP ratio after World War II was reversed and how the last four presidents ended their terms with small primary deficits or primary budget surpluses.

If More Retirees Buy Annuities, Fewer Will Be ‘At Risk’

Posted on October 27, 2010 by Editor Test -

It should come as no surprise: Buying an income annuity can make retirement more financially secure. But an additional discovery in a recent analysis of the National Retirement Risk Index (NRRI) was a slight surprise: High-income households have as much or more to gain from buying an income annuity than other income groups.

The analysis, conducted by the Center for Retirement Research at Boston College, and sponsored by Nationwide Mutual Insurance, shows overall that it’s riskier to try to live off the interest of your savings or to use a 4% drawdown than to buy an inflation-indexed income annuity.

In the aggregate, the percent of U.S. households likely to be ‘at risk’ of not maintaining their standard of living in retirement is 60% without an annuity and 51% with an interest-only retirement income strategy. The at-risk percentage is 53% if households use a four-percent-per year drawdown method in retirement. The NRRI assumes that people work to age 65, receive income from reverse mortgages on their homes and annuitize all of their financial assets. It also assumes that the real rate of interest on savings is 1.9%.

The study also found, when examining households by income level, that high-net worth individuals had the most to gain by annuitizing their assets; they had the most to annuitize. The percent of this group ‘at risk’ was 47% for those who drew down their assets at four percent a year and 57% for those who lived off the interest of their assets (estimated at 1.9 percent annually), compared to only 42% with the annuity.

Morningstar Buys VA Data Business for $14 million

Posted on October 27, 2010 by Editor Test -

Morningstar, Inc., the well-known Chicago-based provider of independent investment research, has agreed to buy the variable annuity product information business Advanced Sales and Marketing Corp., based in Oakbrook Terrace, Ill., for $14.1 million.

The Annuity Intelligence Report (AI Report), one of Advanced Sales’ two product lines, is a web-based service that helps render variable annuity products more understandable to broker-dealers, insurers, advisers and clients.

The AI Report service leverages a proprietary database of more than 1,000 variable annuities that includes “plain-English” translations of prospectuses and other public filings. It helps advisors meet suitability review requirements and properly structuring annuity contracts. The AI Report includes FINRA-reviewed single annuity and side-by-side comparison reports as well as annuity flow data, a contract and benefit selector tool, historical contract data, and optional subaccount data.

The annuity intelligence business serves 170 firms, including broker-dealers, banks, advisory firms, and insurance companies. More than 150,000 financial advisors have access to the AI Report through these firms. Advanced Sales also offers the MaxPlan wholesaler productivity system, a business planning and territory management tool for mutual fund and annuity distributors, which Morningstar is not acquiring.

The purchase will combine “Morningstar’s strength in variable annuity subaccount data and modeling tools with AI Report’s product-level data, and proprietary methodologies,” said Chris Boruff, president of Morningstar’s software division.

After the acquisition is completed, the annuity intelligence business will become part of Morningstar’s advisor software unit. The company plans to keep the Annuity Intelligence Report product name for the foreseeable future and will market it under the Morningstar brand.

Kevin Loffredi, senior vice president and co-founder of ASMC, will continue to manage the annuity intelligence business. Morningstar expects to retain the majority of the business’s employees. Karen (Falat) Larson, president and founder, and Advanced Sales’ chief executive officer, Perry Moore, will continue to run the firms wholesaler productivity business under the new name MaxPlan Solutions, Inc.

BlackRock, SunGard to Ease Administration of In-Plan Annuity

Posted on October 27, 2010 by Editor Test -

BlackRock, which collaborates with MetLife on a program that allows 401(k) plan participants to invest in target-date funds and buy chunks of future guaranteed income, has formed an alliance with SunGard, provider of administrative systems for DC plan sponsors.

The alliance should make it technically easier for DC plan sponsors to adopt the BlackRock-MetLife program, which was once called SponsorMatch but has been rebranded, LifePath Retirement Income. BlackRock provides the target-date mutual funds and MetLife provides the deferred income annuity for the program.

When the program was first launched in 2008, it allowed plan participants to invest their own plan contributions in target-date mutual funds and to use their employer’s matching contribution to purchase future income, a little at a time. Employees could opt out of the program if they changed their mind and the accumulations were portable.

But uptake of the program has been slow. Part of the problem was that funds with an income annuity component add to the administrative complexities and recordkeeping process of DC plans.

“Many plan sponsors have found it challenging to add funds specifically designed to help employees transform their accumulated retirement assets into secure retirement income,” said Chip Castille, managing director and head of BlackRock’s US and Canada defined contribution group. “Now that barrier is being removed.”

SunGard is providing “a technological advancement that will help make retirement income options more readily available to DC plan participants,” said Bob Ward, Chief Operating Officer of SunGard’s Wealth Management Business.

Through the SunGard Global Network (SGN), the BlackRock-SunGard solution will create what the companies call an “income window” for DC plan recordkeeping firms. In short, the SGN will integrate LifePath’s retirement income-generating funds into a plan’s existing administrative and transaction processes.

“The income window, which can be used by any recordkeeping firm, including third-party administrators and advisors using SunGard’s Omni and Relius platforms, will provide access and the ability to trade lifetime retirement income funds through an integrated link to the SGN,” he added.

The SPARK Institute, whose members include a broad cross-section of retirement plan professionals, is also playing a role in the deal. BlackRock and SunGard will be using SPARK’s open architecture information-sharing standards for annuity based, lifetime income funds in retirement plans.

Currently there are about 50 million workers nationwide participating in about 484,000 401(k) plans representing 75% of eligible workers with about $2.6 trillion in assets, or about 30% of all retirement assets. BlackRock is the largest investment-only DC plan provider and the fourth largest U.S. DC provider overall, with $270 billion in assets under management.

A New Brand of VA Conference

Posted on October 27, 2010 by Kerry Pechter -

“Life is good, but we could always use more volume,” said Hal R. Harris, the national sales vice president for individual annuities at Securian, the mutual insurer, as he sipped a cup of Starbucks at the Insured Retirement Institute’s conference in Chicago Monday morning.

The affable Mr. Harris, clad in a sport jacket instead of the more prevalent charcoal suit, noted however that his St. Paul-based company puts limits on its exposure to the risks inherent in its rider-rich VA contracts. “We’ve got a very high rating and we’re very protective of it,” he said.

Conversations with Harris and others attendees at the IRI annual conference suggested that VA issuers are now roughly divided into those that are fully committed to the product (e.g., Prudential, Jackson Life and MetLife), those purposely scaling back since the financial crisis, and those, like Securian, that quietly continue to till modest patches of the VA landscape.

The VA industry as a whole remains a niche business, to the frustration of its boosters. While the industry has total assets of more than $1.3 trillion, net cash flows into VAs in the first half of 2010 were just $9.8 billion, according to Morningstar. The entire VA industry fits into the fund industry’s vest pocket.

Cathy Weatherford, IRI’s president, has, with a reportedly steel grip, thoroughly made over the 20-year-old trade association formerly known as NAVA, the National Association of Variable Annuities. Over the past two years, she has changed the group’s name, relocated its headquarters, replaced its entire staff and refocused IRI as a Washington lobbying force.

Weatherford has not visibly moved the net flow-dial for VAs, however—perhaps because of circumstances beyond her control. The financial crisis, which at one point in 2009 dragged the product’s income guarantees an estimated $250 billion under water and toppled insurance company share prices, unfolded just as she took charge in October 2008.

It’s universally agreed that the organization and its conferences have changed markedly. “That’s exactly what we’re trying to do,” said Bill Loehning of Fidelity, the chair of the conference. Lowell Aronoff, CEO of Cannex, the income annuity data provider, said he enjoyed the speakers and the new agenda. “It’s strategic rather than tactical,” he said.

Topline Flatline

The VA industry’s ongoing frustrations are no secret. In his welcoming address, IRI chairman Jamie Shepherdson, president of Retirement Savings at AXA Equitable (the sixth-ranked seller of VAs in the first half of 2010, with sales of $3.15 billion) gave the industry “fairly terrible grades.”

“Every industry can screw up a good idea,” he said, referring to the VA industry’s use of the guaranteed minimum income benefit, invented in the late 1990s. That innovation was the “best thing that happened to us and the worst thing,” he said. The GMIB offered a new, more flexible payout option for VAs. But it also launched the VA “arms race,” which by 2007 had produced an array of complicated lifetime income riders that were simultaneously expensive and underpriced.

Sales “basically flat-lined between 1998 and 2008,” Shepherdson said, even as the sales of mutual funds and ETFs boomed. Despite the industry’s advantages—tax-deferral, great investment options, generous guarantees, and “an army of wholesalers and attractive compensation,” VA business simply churned out exchanges without generating much new business.

Shepherdson’s call for reform was emphatic but short of specifics. “Our industry has to change,” he said. “We need to change our culture and our operating models. We can come up with simple solutions. On the institutional side, we can come up with IRA solution and 401(k) in plan solutions.”

Almost no specific discussion of VA products followed. In a break with tradition, the lightly attended one-and-one-half-day conference didn’t include any breakout sessions. In years past, small groups discussed specific new products or sales challenges. This year, the one-and-a-half day conference consisted entirely of general sessions where participation was limited to question-and-answer periods.

Even the general sessions were not very specific to VAs, and had an inside-the-Beltway flavor. In his address, Anthony W. Ryan, a Fidelity executive who was a Treasury official under George W. Bush, gave an eyewitness account of a pivotal West Wing meeting in 2008 where President Bush, Treasury Secretary Henry Paulsen and Fed Chairman Ben Bernanke decided to ask Congress for $700 billion to refloat the banks. Ryan’s tale put those officials in a flattering light, but had little to do with annuities.

The next speaker, Prudential Financial’s chairman and CEO, John Strangfeld, was somewhat closer to the point. Of anyone at the conference, he had reason to be optimistic. Prudential Financial is the dominant seller of VAs, with $10.2 billion in sales in the first half of 2010, a 16% market share, and a unique product design with built-in automatic buffers against equity market risk.

Yet even Prudential sees no reason for complacency. Its senior managers have said they would rather see the whole VA market growing rather than merely see their slice grow, and Strangfeld’s overall outlook was muted. “The financial crisis isn’t really over,” he said. “Market volatility will be with us for some time to come.” The retirement income crisis is likely to get worse, he added, and trust in the financial services industry “is at a low point.”

The mea culpas kept coming during a panel discussion on the distribution end of the VA business. “We’re good at serving the high-end customers, not very good at servicing the middle, and terrible at the low end,” said Paul Hatch, head of Investment Strategy and Solutions, Morgan Stanley Smith Barney.

“I’m embarrassed at the quality of some of the advice our industry is giving. We have inexperienced, undereducated advisors selling complex products. We have got to move from the broker-dealer model to the planning model,” he said.

His fellow panelists, Derek Bruton of LPL Financial and David Carroll of Wells Fargo, several times mentioned the weak financial literacy of most Americans. This was also borne out during a session dedicated to the voice of the consumer, where attendees could hear how little even high-net worth investors know about finance.

Indeed, the absence of bottom-up demand by the wider population for retirement income solutions may help explain many of the frustrations of the VA industry and of the decumulation industry (including income annuities, payout mutual funds, etc.) as a whole.

Despite the potential financial catastrophe that they face in retirement, like boaters unaware of the cataract they’re drifting toward, millions of Americans—both as individuals and as plan participants—aren’t actively demanding the kinds of solutions they will eventually need in the post DB (and perhaps post-Social Security) future.

That’s a big problem. Until more Americans (and their advisors) recognize their predicament, educate themselves, and start initiating the retirement income discussion, the retirement industry may have to keep guessing where to concentrate its efforts, and exactly what products and services it should offer.

The Bucket

Posted on October 21, 2010 by Editorial Staff -

Forty-Somethings Are Worried About Retirement: Allianz Life

Younger boomers in their 40s worry more about financial control and stability in retirement than older boomers, according to a survey of Americans aged 44-75 by Allianz Life Insurance Company of North America.

A majority (54%) of 44-49 year olds) reported feeling “totally unprepared” for retirement, and were more likely than older Boomers to say they needed to take more control of their financial future (47% to 35%). cent), to attain more certainty and financial security (41 % to 30%), and reduce their financial vulnerability (26% to 22%). Over eighty percent (84%) agreed that the safety of their money mattered more to them now than it had a few years ago.

“The economic downturn woke up many Americans to the challenges of securing retirement income, but this younger boomer segment seems to have taken the lesson even more seriously,” said Gary C. Bhojwani, president and CEO of Allianz Life. “Our Reclaiming the Future study told us that security and guarantees with retirement-income products are now very important to Americans.”

Only 19% of younger Boomers reported working with a financial planner, but 47% percent were receptive to working with one. Ninety-five percent of younger boomers said it was “important” or “extremely important” that their financial professional help protect a portion of their nest egg. A similar number (87%) want their financial professional to help them get guaranteed income in retirement.

Of younger Boomers who own an annuity, 83% were satisfied with their purchase, compared to 66% who were satisfied with their mutual funds, 63% satisfied with their stocks, 51% satisfied with U.S. savings bonds and 43% satisfied with certificates of deposit.

MetLife Asks, ‘What’s Your “Retirement Income Mindset?

MetLife has created an online tool to help consumers determine their “retirement income mindset.” Through the tool, the Retirement Income Selector, visitors to the firm’s website are asked a series of questions designed to elicit and reveal their attitudes towards traditional investments and guaranteed sources of income so they can pick the right retirement strategy.

“The Retirement Income Selector takes into account behavioral economic principles and acknowledges the unique personal, and sometimes, emotionally driven factors that influence the decision many of us make around retirement income needs,” said Julia Lennox, vice president, Retirement Products, MetLife, in a release.

The heuristic tool guides investors through nine questions about their attitudes toward longevity, liquidity and market volatility. At the end of the questionnaire, users are told their “income mindset.”

Each income mindset suggests the balance between guaranteed and risky products that’s probably right for each person. There are five income mindsets that indicate a range of risk appetite and a range of receptivity to guaranteed products, from no guarantees to full annuitization.

Nationwide Adds Flexibility to SPIA

Nationwide Financial Services, Inc. now gives owners of its INCOME Promise single premium immediate annuity the option to take lump-sum withdrawals if they need cash for an emergency. But there are restrictions and penalties.

New contract options include:

Owners of term-certain or installment refund payment versions of INCOME Promise can take lump-sum withdrawals after payments begin if they pay a fee.

A joint-life as well as single-life payout option is now available.

A 1-3% COLA is available but will reduce the initial income amount.

Nationwide said that a survey it sponsored by the Oechsli Institute found that 76% of affluent investors expect their advisor to provide them with guaranteed income in retirement.

Prudential’s Global Outlook for Q4 2010

In the October 2010 edition of his Global Investment Strategy newsletter, John Praveen, chief investment strategist for Prudential International Investments, predicts that 2010 equity rally will continue toward the end of the year.

“A new round of monetary stimulus should support the flagging recovery, while providing additional liquidity for financial markets. In addition, the earnings outlook remains solid while valuations remain attractive giving scope for multiple expansion,” Praveen wrote.

In other forecasts:

Global macro uncertainties continue to ease with a fresh round of monetary stimulus. “These reflation measures should ease fears of double-dip and deflation, while providing additional liquidity for financial markets.”

While growth momentum remains weak in the developed economies, Q3 GDP is expected to rebound in the U.S. and Japan after the weak Q2.

Eurozone & U.K. expected to slow in Q3 after the Q2 rebound. GDP growth remains solid in the emerging economies. The earnings outlook for the second half of 2010 in the major markets remains solid although slower than the strong pace in the first half.

Equity valuations remain attractive, which combined with low interest rates are likely to lead to multiple expansion in coming months.

The U.S. mid-term election cycle is positive for stocks as historically the U.S. equity market posted solid gains following mid-term elections.

Bond yields are likely to remain supported by the second round of asset purchases by the Bank of Japan and the Fed (expected in November).

GDP growth in the developed economies remains below trend in the first half and inflation remains uncomfortably low. However, a double-dip is increasingly unlikely in 2010 with growth expected to improve in Q3 & Q4.

Deflation is not a risk in the near-term and prices are unlikely to remain depressed if central banks keep the spigot of monetary stimulus open well into 2011.

Stocks still remain attractive relative to bonds with P/E ratios depressed and bond yields low. Among global stock markets, Praveen remains overweight in emerging markets and Eurozone; among global sectors, it is overweight on industrials and information technology; it remains underweight in healthcare, telecom, and utilities.

Among global government bond markets, Praveen remains overweight in emerging markets and U.S. Treasuries and underweight in U.K. gilts.

Genworth Financial Acquires Wealth Management Firm

Genworth Financial, Inc., has agreed to acquire the Altegris companies, which manages $2 billion in hedge funds and managed futures products and provides clearing services, for $35 million at closing and future payments contingent on performance. The deal is expected to close at the end of the year.

The move enhances Genworth’s presence in the competitive high-net worth client market by giving it a new suite of investment products and new relationships with registered investment advisors and broker-dealers. Together, Genworth Financial Wealth Management (GFWM) and Altegris will manage approximately $23 billion.

“The addition of Altegris will provide independent financial advisors an expanded set of offerings that are integral to serving the needs of their clients,” said Gurinder Ahluwalia, President & CEO of GFWM.

Quote of the Week

Posted on October 21, 2010 by Editor Test -

Final Rule on 401(k) Fee Disclosure Issued

Posted on October 21, 2010 by Editor Test -

The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued a final rule giving the 72 million participants covered by 401(k)-type retirement plans in the U.S. more information about the fees and expenses of their plans.

“Current law does not require that all workers be given the information they need to make informed investment decisions or, when information is given, that it is furnished in a user-friendly format,” said an EBSA announcement.

“This rule will ensure that all workers who direct their plan investments have access to the information they need to make informed decisions regarding the investment of their retirement savings, including fee and expense information.”

The final regulation requires plan fiduciaries to:

Give workers quarterly statements of plan fees and expenses deducted from their accounts.
Give workers core information about investments available under their plan including the cost of these investments.
Use standard methodologies when calculating and disclosing expense and return information to achieve uniformity across the plan investment options.
Present the information in a format that makes it easy to compare the plan’s investment options.
Give workers access to supplemental investment information in addition to the basic information required under the final rule.

U.S. Retirement System Rates a ‘Low C’: Mercer

Posted on October 21, 2010 by Editor Test -

The October 2010 edition of the Melbourne Mercer Global Pension Index, produced by Mercer and the Australian Centre for Financial Studies, ranks the U.S. retirement income system, including Social Security and private pensions, tenth among the retirement systems of major countries

The index gave the U.S. system a score of 57.3 on a scale of 100, with 61 being the average among 14 countries. It described the U.S. system as having “a progressive benefit formula based on lifetime earnings, adjusted to a current dollar basis, together with a means-tested top-up benefit; and voluntary private pensions, which may be occupational or personal.”

No country’ system got an ‘A’ in the survey, which would have required a score of over 80. Five countries scored a ‘B,’ including the Netherlands (the highest, with a 78.3), Switzerland, Sweden, Australia and Canada.

The ‘C’ group included the U.K., Brazil, Chile, Singapore, the U.S., France and Germany.

The following table shows the position of the United States when compared to the thirteen other countries and some of the indicators that either scored relatively well or poorly.

According to Mercer, the overall index value for the American system could be increased by:

Raising the minimum pension for low-income pensioners.

Adjusting the level of mandatory contributions to increase the net replacement for median-income earners.

Improving the vesting of benefits for all plan members and maintaining the real value of retained benefits through to retirement.

Reducing pre-retirement leakage by further limiting the access to funds before retirement.

Introducing a requirement that part of the retirement benefit must be taken as an income stream.

U.K. To Raise Retirement Age, Implement National DC Plan

Posted on October 21, 2010 by Editor Test -

The British government apparently intends to proceed with the foundation of the National Employment Savings Trust (NEST), as well as plans to increase the retirement age to 66 ahead of schedule, IPE.com reported.

The new proposals mean the state pension age will increase from to 66 from 65 between 2018 and 2020, six years earlier than at first proposed. NEST is a national defined contribution plan that resembles the U.S. Department of Labor’s proposed “auto-IRA” for employees of U.S. firms that don’t offer retirement plans. is intended to increase savings among lower-income workers not served by other plans, will begin in 2011. Auto-enrollment in NEST will begin in 2012.

In December 2006, The U.K. government first proposed NEST—then called Personal Accounts—as a simple, low-cost way to increase individual workers’ savings for retirement. The expenses would be two percent of the value of each contribution to NEST, and an annual management charge equal to 0.3% of the total amount in the plan.

Starting in 2012, British workers participating in NEST will be automatically enrolled into a default investment fund. They will also have a choice of investments, including options such as social, environmental and ethical investments. The initial contribution limit is £3,600 ($5,700).

Employers must automatically enroll their eligible workers into a qualifying pension scheme and make contributions to it. Workers will be able to opt-out of their employer’s scheme if they choose not to participate.

NEST is portable. Anyone who joins it can continue to save in it even after they stop working or if they move to an employer that does not use NEST. The self-employed and sole proprietors are not subject to auto-enrolment can join NEST.

Which Firms Connect Best with Advisors?

Posted on October 21, 2010 by Editor Test -

American Funds, iShares, and Prudential Financial lead other providers in “creating strong connections with individual advisors,” according to Advisor Touchpoints 2010, a report issued by Cogent Research this week.

“Prudential has strengthened its grip on advisors in the variable annuity space over the past year, [but]American Funds and iShares face increasing challenges from other mutual fund and ETF providers,” said the report, which is based on a survey of 1,500 registered advisors.

The proportion of advisors who named Prudential as the variable annuity provider doing the best job keeping them feeling “personally connected to the company, its products, and services,” increased since 2009 to 18% from 14%.

Twelve percent of advisors, the same number as in 2009, said Jackson National was the VA issuer they felt most connected to, while 9% of advisors chose Sun Life Financial, up from only two percent in 2009.

Among mutual fund producers, 19% of advisors this year indicated that “American Funds does the best job making them feeling connected,” compared to 23% of advisors who felt this way one year ago. Franklin Templeton Funds was chosen by 14% of advisors, up from seven percent. BlackRock and Fidelity Advisor funds experienced similar substantial proportional increases.

While iShares was the most popular ETF provider (32% of advisors felt a strong connection), PowerShares, ProShares, and Vanguard are gaining.

Singapore Mandates Annuities

Posted on October 21, 2010 by Editor Test -

At the ASPPA conference in Washington this week, Treasury Department advisor J. Mark Iwry emphatically assured the pension professionals who filled the vast ballroom at the Gaylord National Resort & Spa that the government isn’t plotting to mandate the purchase of annuities.

“We’re not talking about a ‘Let’s force everyone into a one-size-fits-all solution,’” said Iwry, the co-creator of the auto-IRA concept. “We’re not trying to force all employees into annuities. We’re all about creating more opportunities for people.”

Ever since the Departments of Labor and Treasury first solicited public comment last spring on the feasibility of offering optional or default lifetime income solutions in defined contribution plans, conservative bloggers have insisted that the Obama administration intends to force Americans to buy government annuities with their 401(k) and 403(b) savings.

That’s arguably a remote possibility in the U.S., except perhaps in the minds of Tea Party activists. But it’s not a farfetched idea everywhere. Singapore’s government, in a dramatic thrust at the nation’s collective longevity risk, will soon begin requiring its 55-year-olds to buy annuities with at least part of their accumulations in the Central Providence Fund (CPF)—the state-run defined contribution plan.

Though mandatory participation in the program, called CFP Life, doesn’t start until 2013, it has effectively already begun. A pilot was launched more than a year ago; so far about 30,000 Singaporeans have bought about S$1.5 billion worth of government-issued annuities. And the government itself sells contracts at prices that private insurance companies have given up trying to compete with.

Desperate times call for desperate measures, apparently. Singapore is one of the world’s most rapidly aging societies, with a fertility rate of just 1.29 per female and a life expectancy at birth of 80.6 years. After a period when, with little effect, it merely urged people to buy retail annuities, with little effect, the government in early 2008 moved to make annuitization compulsory.

The mandated income product is designed to overcome the usual objections to life annuities by offering payouts that are relatively undiminished by adverse selection, distribution costs or corporate profit margins, and that offer return-of-premium guarantees. (Mandatory participation, in Singapore as in, for instance, the Obama health care plan, helps eliminate adverse selection.)

Here’s how the program works, as explained in a recent paper by Olivia Mitchell, director of the Pension Research Council at the University of Pennsylvania’s Wharton School of Business, her colleague Joelle H.Y. Fong, and Benedict S.K. Koh of the finance department of Singapore Management University.

At age 55, participants in the CPF must purchase an annuity that begins making level payments for life at age 62. Participants may invest up to the “Minimum Sum,” the amount of their accumulated defined contribution savings that Singaporeans must set aside for funding their retirement. (In the past, they had to decumulate that amount in a phased withdrawal over 20 years. Any excess savings could be taken as a lump sum.

“Participants may either purchase a private annuity or select from a menu of government-offered annuity products called the CPF LIFE plans. Initially the intention was to provide a dozen different payout options outlined in 2008, but the menu was later pared back to four plans in 2009 after public feedback suggested that too much choice was confusing,” the paper said.

The four plans are known as CPF LIFE Basic, LIFE Balanced, LIFE Plus, and LIFE Income, which differ in the balance they offer between payout rate and bequest potential. Based on an annuity premium of half the estimated Minimum Sum or S$67,000 in 2013, the promised monthly payouts would be between S$524-636 for men and S$500-553 for women. One Singaporean dollar currently equals $0.77.

The government made the annuities attractive by offering better-than-retail payouts and by offering “a guaranteed amount if the death of the insured occurs in a specified time frame,” the paper said. “Specifically, when the insured dies, the beneficiary receives the guaranteed amount of the single premium plus accrued interest (if any) less total amount of annuity payouts already made (if positive). The refund, which is a lump-sum payment to the beneficiary, provides an element of capital protection.”

Mitchell and her co-authors were interested in finding out if the Singaporean government’s entry into the annuity market was a good or bad thing—good because it helped the impact of adverse selection and helped solve the country’s longevity risk problem or bad because it preempted the private market competition that stimulates innovation and drives down prices.

They decided that they like what Singapore had done. “We conclude that Singapore’s recent move to mandate annuities under the national defined contribution pension system represents a logical step toward national longevity risk management. By establishing the government as an annuity provider, the CPF Board may have taken advantage of scale economies and reduced the pricing impact of adverse selection, given that the latter was found to be quite a substantial proportion of total loadings,” they wrote.

“Furthermore, the aggressive annuity pricing is creating public buy-in for the new mandate, while indirectly working to compensate less risk-averse individuals in terms of foregone equity premium,” they concluded.

“One offset may be that private insurers have been crowded out, in part because the CPF-designed product pays participants more than what commercial insurance companies had offered. Without competition, it is unclear whether annuity pricing will continue to be attractive and whether product innovation will continue in Singapore. Related questions, as yet unsettled, have to do with whether favoring annuity payments over payments to survivors is politically sustainable, and how long the government will be able to continue subsidizing payouts.”

AXA Equitable Introduces Structured VA Product

Posted on October 21, 2010 by Editor Test -

AXA Equitable Life has introduced Structured Capital Strategies, a variable annuity offering exposure to potentially volatile indexes for assets like small-cap or international equities, gold and oil while putting a cap on gains and buffers on losses.

The minimum purchase premium is $25,000. The contract is available in a Series B share with a surrender charge (1.25% annual contract fee) and a Series ADV share with no surrender schedule for registered investment advisors (0.65% annual contract fee). For details, see prospectus.

Contract owners can put money in one of 15 Structured Investment Options, which vary by maturity (one, three and five years), loss limits, and underlying index exposure. The variability of the performance of these options is limited by:

A downside buffer that limits volatility to the first 10%, 20, or 30% of loss in index value by the maturity date—not for each year—depending on the option chosen. Investors can be exposed to net losses that exceed those limits.

Performance cap rates. For example, a cap on an investment exposed to the S&P 500 with 10% loss buffer is currently set at 12%.

Contract owners can get exposure in these indices:

S&P 500 Price Return Index
Russell 2000 Price Return Index
MSCI EAFE Price Return Index
London Gold Market Fixing Ltd. PM Fix Price/USD (Gold Index)
NYMEX West Texas Intermediate Crude Oil Generic Front Month Futures (Oil Index)

Investors can build a portfolios out of 15 equity and commodity index-linked segment types with upside caps and downside buffers customized to one, three or five-year time horizons Segments are generally made available for new investment on the 15th of the month. Gold and oil exposure is available only in tax-favored IRA (individual retirement annuity) contracts. Portfolio operating expenses range from 64 to 74 basis points per year. Three holding accounts are also available outside the segments—a bond index fund, an S&P 500 Index Fund and a money market fund.

AXA Equitable will absorb the first -10%, -20% or -30% of any loss in the event of negative index performance, depending on the selected segment index, duration and buffer. Withdrawals prior to maturity are subject to market adjustments, so that losses of principal are possible.

At the end of each one-, three- or five-year segment period, investors can re-allocate the maturity value of the segment to a new segment or transfer their gains to other investment options available within Structured Capital Strategies, depending on their needs and objectives.

According to a release, “The Structured Investment Option does not involve an investment in any underlying portfolio. Instead it is an obligation of and subject to the claims paying ability of AXA Equitable Life Insurance Company.”

Plan Experts Like Annuities

Posted on October 21, 2010 by Kerry Pechter -

Only five or six hands wavered upward during a workshop on retirement income at the ASPPA conference Tuesday when the roomful of third-party qualified plan administrators was asked if participants in their plans were likely to buy annuities.

But a pale forest of arms rose in unison when the speaker asked the 150 or so TPAs packed into the windowless hotel meeting room if they would buy an annuity with their tax-deferred savings.

That’s barely “anecdotal” evidence, as researchers say. But it suggested that members of the American Society of Pension Professionals and Actuaries—the ERISA wonks who will help decide whether qualified plans adopt lifetime income options—understand the utility of guaranteed products on a very personal level.

The ASPPA annual conference drew over a thousand TPAs, attorneys and actuaries to Washington, D.C. earlier this week. In addition to general sessions headlined by conservative columnist George Will and Department of Labor official Phyllis Borzi, there were 70 workshops. Only a handful of them dealt with lifetime income.

For logical reasons. Most TPAs are too busy directing and recording the traffic flow of contributions, investments, fees, loans and distributions in their plan correctly, filing Form 5500s on time, keeping the plan compliant and avoiding participant lawsuits, to think much about retirement income storm that’s still on the horizon.

On the other hand, the retirement crisis is already bedeviling them. It pressures them to reduce fees so that nest eggs can grow bigger, to choose less risky target date funds so that nest eggs don’t fall victim to sequence risks and to start learning about in-plan income options.

It also pressures them to implement auto-enrollment so that governments don’t inherit a cohort of elderly mendicants, and to provide decumulation education to complacent participants without driving up costs. Increasingly, it’s forcing them to look up from their spreadsheets and legal codes and respond to a long-range threat.

Three income workshops

Of the three workshops on retirement income issues, one was called Retirement: “The New Normal,” Nevin Adams, editor of PlanSponsor magazine, revealed a few alarming statistics showing that plan sponsors are awakening very slowly the retirement income dilemma.

For instance, in a poll conducted at a recent PlanSponsor conference, only 10% of attendees had an income replacement ratio in mind, only 28% said they thought their plan participants would be able to retire comfortably, fewer younger workers are saving for retirement today than were 10 years ago, and the adoption rate of auto-enrollment mechanisms by plan sponsors has slowed to a trickle because sponsors want to limit matching contributions.

Michael E. Callahan, the host of a workshop on retirement risks and a workshop on “Lifetime Income for DC Participants,” was unable to attend the conference. Callahan, former president of Pentec, Inc., a 401(k) consulting firm, is now the president of Edu4Retirement, a Southington, CT, startup participant education company formed last July.

Callahan’s slides were available, however, and were delivered by others. The slides on lifetime income didn’t focus on in-plan income options. Rather, they presented Callahan’s retirement income planning process, which is admittedly derived from the “build a floor, then create upside” philosophy endorsed by the Retirement Income Industry Association and described in the RIIA’s “Body of Knowledge” for its new designation, the Retirement Management Analyst.

As presented by Peter Swisher, a pension consultant at Unified Trust Company, Lexington, KY, Callahan believes that anyone who can afford not to spend more than 4.5% of their savings each year in retirement doesn’t need an annuity besides Social Security. But anyone who will need to draw down seven percent or more per year, he said, will need to put virtually all of their money in bonds or annuities.

Only people with more money than they need to pay their living expenses can afford to take risks with their money, the presentation suggested. Many money managers tell their clients that they need to invest in equities throughout retirement as an inflation hedge, and many investors go up in risk out of necessity. Highly unwise, in Swisher’s opinion.

Three buckets

In one example, Swisher described a low-risk, three-bucket income strategy for a retired couple with $600,000 in assets (not including home equity) and a need for $24,000 a year in addition to Social Security. The strategy called for the investment of $231,000 in bonds in the first bucket for 10 years of income, $179,000 in stocks and bonds for 10 years of growth before conversion to income, and the rest to be used for the purchase of an annuity at age 85, if needed. Until then, it would sit in diversified investments.

Although Swisher said he finds single-premium immediate annuities valuable, he recommended against purchasing one at age 65, before the mortality credits gain value, and not in the current interest rate environment, when the yields on SPIAs are so low.

It was clear that participants need more information about turning their savings into income. But education costs money, and it’s not clear who should pay for it. Especially stubborn is the problem that only a minority of participants, particularly those who are older and have higher balances, are interested in learning to plan.

The participants who are most at risk for poverty in retirement aren’t saving enough, are borrowing from their accounts, are spending their assets when they change jobs, and, in many cases, don’t have the background needed to fully understand the risks and solutions that they face.

Brochures with pictures of slim, silver-haired retirees relaxing in white Adirondack chairs at the end of a pier beside a blue lake only turn them off, said George J. Taylor, a plan advisor from Muncy, PA. “They regard that type of future as unattainable,” he said. “It just turns them off.

Retirement Income ‘Smackdown’/CFDD

Posted on October 17, 2010 by Editor Test -

James and Ann West, your average hypothetical American couple on the cusp of retirement, face a dilemma. They hoped to retire in 2014 on $451,000, most of it in qualified plan savings. But Jim, 66, recently suffered a mild infarction and has decided to retire now. Ann, 62 and still earning $30,000, is baffled about what to do next.

What’s the best retirement income plan for the Wests? That was the challenge laid down for individual and plan sponsor advisors in the “Retirement Income Smackdown,” a contest sponsored by the Center for Due Diligence and judged at the CFDD’s 2010 Advisor Conference last week in Chicago.

The winning strategy, determined by a paper-ballot vote among about 150 people, came from John Mulligan, a 53-year-old Oregon CFP and CIMA. He “advised” the Wests to live on earned income and savings for four years, then maximize Social Security, and invest their excess capital in a globally diversified portfolio of stocks, bonds, real estate, commodities and cash.

In a phone interview, Mulligan described his influences as Moshe Milevsky, the RIIA’s “build a floor and create upside” philosophy, fellow advisors Ed Slott and Craig Israelsen, and Horsesmouth’s “Savvy Social Security Planning for Boomers” product—though not necessarily in that order.

There were two other Smackdown finalists at the CFDD conference, the best of about 25 entries. Burlington, Iowa, advisor Curtis Cloke recommended that the Wests top up their monthly income in retirement by purchasing two installment-refund income annuities, one immediate and one deferred until Ann’s retirement in 2014, with $290,000 of their savings.

A third contestant, William Heestand, a plan sponsor advisor in Portland, Oregon, approached the Wests as plan participants rather than as individual clients. (The CFDD is primarily an organization of plan sponsor advisors and ERISA specialists.) Heestand advised the Wests, who both had qualified plans, to put an in-plan, stand-alone guaranteed lifetime withdrawal benefit rider on their $451,000 in retirement accounts.

The people behind the Smackdown—Phil Chiricotti, the CEO of CFDD, Keith Diffenderfer, the advisor who hatched the idea, and Garth Bernard, the consultant who MC’d the Smackdown—kept the elements of the West hypothetical as uncomplicated as possible. The Wests, for instance, were renters, not homeowners. It wasn’t said whether they had heirs or beneficiaries.

The takeaway from their comments: the problem of designing an income plan was both difficult to solve and, perhaps paradoxically, amenable to a wide variety of solutions. Chiricotti wants to reprise the contest at the 2011 CFDD Advisor Conference.

Maximize Social Security

In examining the Wests’ situation, John Mulligan noticed that the couple was four years apart in age. He also noticed that their stated monthly income needs were about $4,000, and that they could eventually meet their fixed costs simply by maximizing their Social Security benefits.

So Mulligan’s plan called for Jim to retire now but delay Social Security until age 70, when he’d qualify for the maximum benefit: $2,990 a month. He advised Ann to work for four more years, then take spousal Social Security benefits of $1,450 for four years before switching to her personal benefits of $1,943 at age 70. (The Social Security estimates include cost of living adjustments, or COLAs.)

During the four-year gap, when Ann was still bringing home $2,250 each month but Jim was foregoing Social Security, Mulligan prescribed a simultaneous Roth IRA conversion of Jim’s $250,000 401(k) assets (in five annual steps) and a $1,775-a-month drawdown of his Roth account to cover living expenses. He paid part of the Roth tax bill with the Wests’ $25,000 money market savings.

As for the Wests’ invested assets, Mulligan advised them to allocate their savings to twelve categories, a la Craig Israelsen (small, medium and large cap domestic stocks, non-U.S. stocks, emerging market socks, real estate, resources, commodities, domestic and non-U.S. bonds, TIPS, and cash), and to rebalance monthly. Such a portfolio would have averaged 9.51% a year from 2000 to 2009, Mulligan said.

Buy income annuities

At the heart of Curtis Cloke’s strategy were two income annuities. Cloke, the creator of the THRIVE Income Distribution System, advised Jim West to take $2,265 a month in Social Security benefits immediately. He recommended that Ann retire in four years and claim lifetime benefits of $1,472.

To supplement Jim’s Social Security benefits and Ann’s salary until 2014, Cloke had the Wests put about $250,000 in an inflation-adjusted (5%), installment-refund, joint life income annuity that paid $754 a month starting in April 2011. In addition, Ann used $39,000 of her qualified savings to buy a deferred installment-refund joint life income annuity that paid a level $341 a month, starting in January 2018. At that time, Ann would begin taking $624 a month in RMDs from her 403(b) plan.

After purchasing their annuities, the Wests would have about $160,000 for emergencies and splurges. If they needed more liquidity for any reason, they could tap the commuted value of their $250,000 annuity. Cloke’s plan also included a conversion of Ann’s 403(b) to a Roth IRA. He rejected other scenarios—such as Jim delaying Social Security or Ann retiring in 2010—because they consumed so much capital over the next four years.

Get a living benefit rider

Then there was the GLWB solution. William Heestand, president of The Heestand Company, a Portland, Oregon plan sponsor advisor, assumed that Jim’s 401(k) and Ann’s 403(b) plans each offered a stand-alone lifetime withdrawal benefit rider like Prudential’s IncomeFlex or Great-West’s SecureFoundation in-plan annuity programs.

Heestand’s advice: Jim should retire now and claim Social Security, while Ann should work until 2014 and then claim. They should cover their entire $410,000 in qualified savings with a GLWB and activate the 5% annual withdrawal ($20,500). He assumed that their expenses started at about $56,000 per year, including Medicare supplements and long-term care insurance premiums.

Spreadsheeting the variable annuity’s investment performance under benign and adverse market conditions, Heestand observed—as others have—that the GLWB was superfluous under a benign scenario. But under adverse conditions, it provided about $300,000 more in income over a lifetime and left a larger estate than an uninsured, investment-only strategy. In particular, it protected the Wests from sequence of return risk, which Heestand described as “the real deal—the biggest financial risk in retirement.”

A New Designation Is Born: the RMA

Posted on October 13, 2010 by Editor Test -

Riding the underfunded but Wi-Fi-equipped Acela from Boston to New York last week after the fourth annual meeting of the Retirement Income Industry Association, I watched the salt marshes and inlets and islands of the Connecticut coastline go by and tried to identify what distinguishes Francois Gadenne’s organization from other trade groups in this field.

To me, three things characterize RIIA, which Gadenne started in 2006. First, the messaging is simple, consistent, and substantive. RIIA has two slogans, “The View Across the Silos” and “Build a Floor and Create Upside.” Neither of them needs much further explanation. The Keep-It-Simple-Stupid strategy still works best.

Second, RIIA’s members represent a cross-section of the corporate, academic, and professional subgroups of the retirement industry. RIIA encourages a diversity of viewpoints and rejects groupthink. Since almost everyone agrees that there’s no single solution to the retirement income challenge (at the personal, group or national level), this approach makes sense.

The third distinguishing characteristic, I think, is RIIA’s entrepreneurial flavor. Gadenne likes to call this a “bottom up rather than top down” philosophy where the members rather than the leadership drive the agenda. Like Gadenne, many of its members are entrepreneurs (by choice or otherwise). Which makes for some intense networking.

At the meeting, RIIA announced the graduation of its first crop of Retirement Management Analysts—designees who have taken a course and passed a test based on the “Build a Floor, Then Pursue Upside” retirement planning approach that’s codified in a book that RIIA produced last year, RIIA’s Advisory Process, by Gadenne and Michael Zwecher.

The RMA is a new designation for advisors who want to distinguish themselves as retirement income specialists. It also serves as an outreach and marketing tool for RIIA. It reflects a belief among RIIA’s leadership that the most intense money-making in the retirement income space will occur in the offices of independent advisors when they are advising high net worth retirees. There might be action elsewhere—say, in the 401(k) arena—but not as much as in the advisor sphere.

So far, about a dozen people have passed the test and received the designation. Fifteen more took the exam last week and were waiting for their grades to be posted. It’s a significant step and the culmination of a couple of years of work. But it will probably take awhile for the RMA to catch up with, say, InFRE’s 13-year-old Certified Retirement Counselor (CSC) designation.

Boston University’s Center for Professional Education is offering an online course on the RMA that starts in late October and runs until early December, when a third flight of candidates will take the test. The course has an official price of $1,250 but an introductory price of $995, according to BU’s Ruth Ann Murray. The RMA is open to anyone, although RIIA membership is required.

Like many other organizations, companies and individuals, RIIA absorbed some setbacks during the financial crisis. But the fact that RIIA convinced major retirement industry players to sponsor this year’s RIIA annual meeting in Boston on October 4-5—including Bank of America Merrill Lynch, Allianz Global Investors, Barclays Capital, New York Life, LPL Financial (and Boston University)—suggest that the juices are flowing again.

How to Reach the Middle Class Investor

Posted on October 13, 2010 by Editor Test -

Non-affluent or middle-market Baby Boomers tend to be underserved by financial advisors, who focus on affluent or “high net worth” clientele. But the middle class also needs retirement planning advice, and they obviously outnumber the folks-who-live-on-the-hill. So it stands to reason that opportunities exist for advisors to serve them.

Two research papers released in September by the Society of Actuaries go a long way toward helping advisors and other financial service professionals understand the situations of near-retirees in the middle-market and the reasons why they don’t often work with advisors.

“Segmenting the Middle Market: Retirement Risks and Solutions,” was prepared by Mlliman’s Noel Abkemeier under SOA sponsorship. It breaks out the retirement planning process into its component decisions, highlights seven principles or steps for retirement income planning, and provides four different sample client examples, with three variations of each one (single male, single female, married).

For instance, here are the six types of decisions that near-retirees or retirees need to make:

Work (When to retire, whether to work part-time)
Claiming (When to claim Social Security)
Insurance (How much and what kinds to buy)
Investment (How to invest savings in a risk-appropriate way)
Housing (Whether to downsize, release equity, etc.)
Tax (How to minimize them in retirement)

And here are the report’s seven essential steps of retirement planning:

Quantify Assets and Net Worth
Quantify Risk Coverage
Compare Expenditure Needs Against Anticipated Income
Compare Amount Needed for Retirement Against Total Assets
Categorize Assets
Relate Investments to Investing Capabilities and Portfolio Size
Keep the Plan Current

The second paper, “Barriers to Financial Advice for Non-Affluent Consumers,” was prepared by Dan Iannicola, Jr., and Jonas Parker, Ph.D., of The Financial Literacy Group for the SOA. This paper describes the individual, social and institutional barriers that prevent middle-class investors from seeking or obtaining professional financial advice.

This study reveals that, generally, non-affluent consumers don’t understand investing, don’t understand the value of investment advice, and don’t trust the financial services industry. At the same time, most non-affluent consumers don’t occupy the same social spheres as advisors, and a variety of cultural and even language barriers may separate them.

Moreover, most financial institutions pass over the non-affluent market as unprofitable, or focus on selling them products they may not be able to afford. Recently, financial institutions face the ill will created among many investors by the events of the 2008-2009 financial crisis.

The fact that men and women take such different approaches to money also apparently affects the typical couple’s use of financial advice. The researchers point out that, while women usually keep the family’s books and would like to consult an advisor, men usually do the investing and long-range planning.

But, just as most men don’t like to consult maps or ask for directions when driving, most of them would rather practice self-reliance than consult an advisor. “This situation is compounded by the fact that couples often avoid conversations about long-term financial issues so that the need for advice may not be addressed and a plan to seek advice may never be developed,” the paper said.

Bank Annuity Fee Income Improves in 2Q

Posted on October 13, 2010 by Editor Test -

Income from annuity sales at bank holding companies (BHCs) reached $640.9 million in the second quarter of 2010, up 10% from $582.6 million in the first quarter, according to the Michael White-ABIA (American Bankers Insurance Association) Bank Annuity Fee Income Report.

Year over year, bank annuity fee income was up 8.0% from the $593.1 million in the second quarter of 2009. First-half 2010 annuity commissions of $1.22 billion, however, were down 7.8% from $1.33 billion in the first half of 2009.

The report is based on data from all 7,077 commercial and FDIC-supervised banks and 930 large top-tier bank holding companies operating on June 30, 2010. Of those 930, 387 or 41.6% participated in annuity sales activities during first half 2010.

Their $1.22 billion in annuity commissions and fees constituted 10.8% of their total mutual fund and annuity income of $11.33 billion and 15.1% of total BHC insurance sales volume (i.e., the sum of annuity and insurance brokerage income) of $8.10 billion.

Of the 7,077 banks, 894 or 12.6% participated in first-half annuity sales activities. Those participating banks earned $375.0 million in annuity commissions or 30.6% of the banking industry’s total annuity fee income. However, bank annuity production was down 22.6% from $484.3 million in first half 2009.

Nearly seventy-three percent (72.7%) of BHCs with over $10 billion in assets earned first-half annuity commissions of $1.15 billion, constituting 94.0% of total annuity commissions reported. This revenue represented a decrease of 8.4% from $1.26 billion in annuity fee income in first half 2009.

Among this asset class of largest BHCs in the first half, annuity commissions made up 10.3% of their total mutual fund and annuity income of $11.16 billion and 15.0% of their total insurance sales volume of $7.65 billion.

BHCs with assets between $1 billion and $10 billion recorded an increase of 4.9% in annuity fee income, rising from $59.6 million in first half 2009 to $62.5 million in first half 2010 and accounting for 37.4% of their mutual fund and annuity income of $167.1 million.

BHCs with $500 million to $1 billion in assets generated $11.0 million in annuity commissions in first half 2010, down 8.2% from $12.0 million in first half 2009. Only 32.3% of BHCs this size engaged in annuity sales activities, which was the lowest participation rate among all BHC asset classes. Among these BHCs, annuity commissions constituted the smallest proportion (12.9%) of total insurance sales volume of $84.9 million.

Wells Fargo & Company (CA), Morgan Stanley (NY) and JPMorgan Chase & Co. (NY) led all bank holding companies in annuity commission income in first half 2010. Among BHCs with assets between $1 billion and $10 billion, leaders included Stifel Financial Corp. (MO), Hancock Holding Company (MS), and National Penn Bancshares, Inc. (PA).

Among BHCs with assets between $500 million and $1 billion, leaders were First American International Corp. (NY), Ironhorse Financial Group, Inc. (OK), and First Citizens Bancshares, Inc. (TN).

Genworth Financial Acquires Wealth Management Firm

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