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Singapore Mandates Annuities

Posted on October 21, 2010 by -

 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.”

© 2010 RIJ Publishing LLC. All rights reserved.

 

AXA Equitable Introduces Structured VA Product

Posted on October 21, 2010 by -

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.”

© 2010 RIJ Publishing LLC. All rights reserved.

 

Plan Experts Like Annuities

Posted on October 21, 2010 by -

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.

© 2010 RIJ Publishing LLC. All rights reserved.

Retirement Income ‘Smackdown’/CFDD

Posted on October 17, 2010 by -

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.”

© 2010 RIJ Publishing LLC. All rights reserved.

A New Designation Is Born: the RMA

Posted on October 13, 2010 by -

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.   

© 2010 RIJ Publishing LLC. All rights reserved.

How to Reach the Middle Class Investor

Posted on October 13, 2010 by -

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.  

© 2010 RIJ Publishing LLC. All rights reserved.

Bank Annuity Fee Income Improves in 2Q

Posted on October 13, 2010 by -

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).

© 2010 RIJ Publishing LLC. All rights reserved.

 

 

 

For Many Investors, Ten-Year Returns Are Less Than Zero

Posted on October 13, 2010 by -

The exodus of assets from domestic equity funds has been a big story this year. But TrimTabs Research notes that a lot of that outflow is finding its way into global equities, thus refuting the conventional wisdom that aging Boomers aren’t losing their risk appetite.

“Global equity mutual funds have posted an inflow of $72.2 billion since the end of March 2009, roughly matching U.S. equity fund redemptions of $65.2 billion,” according to TrimTabs September 22 fund flow report.

“In other words, there seems to be a specific disdain for U.S. stocks. We believe this is mostly because U.S. equities have been a terrible investment in the past decade.”

But TrimTabs confirmed another piece of conventional wisdom: that retail investors tend to buy high and sell low. Mis-timing the market apparently made the past decade even worse for many people than the S&P’s point-to-point net-zero performance in the Naughts Decade implies.

During the past decade, the S&P 500 ranged from a high of 1,565 in October 2007 to a low of 676 in March 2007. But the “flow-weighted purchasing price” was 1,434. That’s worse timing than a chimpanzee could achieve by throwing rubber darts at a Bloomberg screen. “If investors had bought randomly, their flow-weighted purchasing price should be 1,171—the average closing price of the S&P 500 in the past decade,” TrimTabs reported.

As a result, “about half of U.S. equity mutual fund investors are sitting on paper losses of more than 25% even though the S&P 500 stands exactly at its 10-year average,” the weekly bulletin said. “This helps to explain persistent equity fund outflows despite the recent rally. Some mutual fund investors are so deep underwater that rallies are essentially meaningless to them. Also, many investors might be selling simply to harvest losses on their underwater positions.”

© 2010 RIJ Publishing LLC. All rights reserved.

Jackson Enhances VA GWMB, adds BlackRock Fund

Posted on October 13, 2010 by -

Jackson National Life has introduced a “customizable guaranteed minimum withdrawal benefit (GMWB) called Freedom Flex as an option on its Perspective series variable annuity contracts.

“We took our Lifeguard Freedom Six, which had a six percent annual bonus and an annual step-up for a fee of 95 basis points, renamed it Freedom Flex, and added a 5%, 7% or 8% bonus with either an annual or quarterly step-up,” said Alison Reed, vice president of product management. “The rider price now ranges from 90 bps for a 5% bonus with an annual step-up to 130 basis points a year for the 8% bonus with an annual step-up.” Quarterly step-ups aren’t available on the 8% bonus.

“We’ve always focused on the cafeteria-style VA product, with various withdrawal and bonus options, and we decided to extend that to the GMWB option. It’s an extension of our ‘give the rep a choice’ philosophy,” Reed told RIJ.

Perspective contract holders can choose from the following options:

  • 5-8% annual bonus or “roll up.” Investors can grow their guaranteed withdrawal balance (GWB) by selecting an annual bonus ranging from 5% to 8% in years with no withdrawals.
  • Quarterly or annual step-ups. Contract holders can capture investment gains with annual or quarterly step-ups. Annual step-ups lock in the contract anniversary value, while quarterly step-ups lock in gains annually based on the highest adjusted quarterly contract value.
  • Single or joint option. Clients can provide guaranteed lifetime income for themselves with the single option, or for themselves and their spouse with the joint option. The joint option isn’t available on the 7% rollup with the quarterly step-up or the 8% rollup.
  • 99 investment options. Contract holders can choose from among 99 investment portfolios, without asset allocation restrictions.

Contract holders who wait 10 years (or until age 70, if later) to take withdrawals are eligible for a 200% GWB adjustment, which increases their guaranteed withdrawal balance to double what they invested in the first year.

When investors are ready to start taking retirement income, they may withdraw between 4% and 7% of their guaranteed withdrawal balance every year for life, depending on their age at the time of the first withdrawal. Contract holders can also start and stop withdrawals as desired, giving them the flexibility to decide when to take income.

In conjunction with the Freedom Flex launch, Jackson has added BlackRock, the world’s largest asset manager with $3 trillion under management, to its investment manager lineup. The firm will manage the new JNL/BlackRock Global Allocation portfolio, and will also subadvise the JNL/BlackRock Commodity Securities portfolio. In May, the company expanded its investment offerings with the addition of six American Funds Insurance Series portfolios.

© 2010 RIJ Publishing LLC. All rights reserved.

Vanguard’s Low Fees Get Lower

Posted on October 13, 2010 by -

Vanguard’s ultra-low cost “Admiral” class of mutual fund shares, until now available only to investors able to put at least $100,000 in an individual fund, are now within the reach of ordinary middle-class investors.

Investors now have to put only $10,000, not at least $100,000, in Vanguard’s broad stock and bond market index funds to buy ultra-low cost Admiral Shares, and only $50,000, not $100,000, to qualify for Admiral Shares on most Vanguard actively-managed funds.

Someone investing $50,000 in Vanguard’s 500 Index Fund, for instance, would pay $35 a year in management fees instead of $90. He or she would pay seven basis points (.07%) per year in fund management fees, the Admiral Shares price, instead of 18 basis points, the Investor Shares price. 

The move affects an estimated two million Vanguard shareholders and 52 Vanguard funds, including the huge Total Stock Market Index Fund (Admiral Shares, 7 basis points/Investor Shares 18 bps), the Total Bond Market Index Fund (Admiral Shares, 12 bps/Investor Shares, 22 bps) and Total International Stock Market Index Fund (Admiral Shares 20 bps/Investor Shares, 32 bps). 

© 2010 RIJ Publishing LLC. All rights reserved.

The Bucket

Posted on October 13, 2010 by -

Google to Map Inflation Using Web Data

Google is using its vast database of web shopping data to construct the ‘Google Price Index’ – a daily measure of inflation that could one day provide an alternative to official statistics. But the GPI is still a work in progress, the Financial Times reported.  

At the National Association of Business Economists conference in Denver, Google chief economist Hal Varian said economic data can be gathered far more rapidly using online sources. The official Consumer Price Index data are collected by hand from shops, and only published monthly with a time lag of several weeks.

Since last Christmas, Varian said that the GPI shows a “very clear deflationary trend” for web-traded goods in the U.S. Though not seasonally adjusted, the data show that prices rose during the same period a year ago. The ‘core’ CPI in the US, which excludes food and energy, rose 0.9 per cent on a year ago in August.

Comic Fred Willard Stars in Symetra’s ‘Don’t Fear 65’ Campaign   

Known for his film work in Waiting for Guffman and Best in Show, as well as TV roles in Modern Family and Everybody Loves Raymond, Fred Willard appears in three new video shorts hosted on Symetra Life’s DontFear65.com website. Willard also is featured in online ads directing consumers to the site.

The campaign is designed to fight post-crisis paralysis and dispel obsolete ideas about retirement. “‘Don’t Fear 65’ is more than an awareness campaign; it’s a call to action,” said Jim Pirak, Symetra vice president of Corporate Marketing. “With the confidence of many retirees shaken by the economic downturn, Don’t Fear 65 encourages people to take charge of their financial future and approach retirement with optimism.”  

In the web videos, Willard is seen on a Sunday drive with an actor playing his grandson. “Grandpa” gives the boy dubious financial advice in vintage Fred Willard style. He regales his grandson with a series of observations about staying healthy, planning for retirement and achieving important milestones in retirement.

A series of title cards are interspersed throughout the videos, countering the questionable advice from Grandpa with sound information about how Symetra’s income annuity products can help build guaranteed income for life. Now in its third year, the campaign website is a resource for Symetra distribution partners to use with their clients as they build financial plans.

The campaign will run nationally through banner ad placements on websites frequented by retirees and pre-retirees, including MSN, Yahoo, WSJ.com, MarketWatch.com, Barrons.com, SmartMoney.com, Kiplinger.com, and online media outlets on the Tribal Fusion ad network. Symetra worked on the updated campaign with Seattle-based Copacino+Fujikado.

TIAA-CREF CEO Calls for New Thinking on Retirement Security

In San Antonio, Texas, TIAA-CREF CEO Roger W. Ferguson, Jr. told members of the National Council on Teacher Retirement at their annual conference that it’s time “to rethink, repair, and restart America’s retirement system.”  

He called for a system that would “combine the best practices of defined benefit plans and defined contribution plans, be affordable for employers, and give employees access to guaranteed income that will last a lifetime.” Such a system would:

  • Ensure workers have access to retirement savings opportunities. By enrolling workers automatically, private-sector workplace plans can approach the public sector, where nearly all full-time workers have access to a retirement plan, he said.
  • Help workers amass sufficient savings, via 15-20 investment options, as well as objective advice and guidance to help workers understand them.
  • Provide opportunities to save for long-term retirement health care expenses, which can be anywhere from $200,000 to $800,000 for a retired couple.   
  • Offer all workers a guaranteed lifetime income option. The average monthly Social Security payment for retired workers is about $1,600, he said, while average monthly spending for individuals over age 65 exceeds $3,000.

Eighty percent of higher education employees, who use TIAA-CREF, describe themselves as “somewhat confident” or “very confident” that they will have enough money to live comfortably in retirement, compared with just 54% of all U.S. workers, according to the TIAA-CREF Institute.

As an example of a new approach to public sector retirement plans, Ferguson cited TIAA-CREF’s agreement with the government of Orange County, California to provide an optional defined contribution retirement account that would supplement a new tier in the county’s defined benefit program.

The plan offers new county employees the option of taking a reduced defined benefit, and the county will match a percentage of savings directed to an employer-provided individual account. It includes fixed annuity options that can be used to supplement defined benefit income guarantees.    

Phoenix Life and Reassurance of NY Is Sold to Philadelphia Financial and Renamed 

A company that recently split off from the Phoenix Companies Inc. is the new parent of Phoenix Life and Reassurance Company of New York, National Underwriter reported.

Philadelphia Financial, Plymouth Meeting, Pa., a firm that specializes in selling private placement insurance through advisors who serve wealthy individuals, says it has acquired Phoenix Life and Reassurance of New York and renamed the company Philadelphia Financial Life Assurance Company of New York.

Phoenix Companies, Hartford, a 159-year-old insurer that has been hit hard by the recession, sold Philadelphia Financial to Tiptree Financial Partners L.P., New York, in June. Phoenix has been reporting the Philadelphia Financial business as a discontinued operation since 2009.

The main life operating subsidiary of Phoenix Companies is domiciled in New York state, and the Phoenix Companies did not need Phoenix Life and Reassurance to sell life and annuity products in New York state, a Phoenix Companies representative says.

John Hillman is the president of Philadelphia Financial. Tiptree, the current majority owner of Philadelphia Financial is, a holding company controlled by large financial institutions.

Goldman Executive Joins New York Life’s RIS Business

Benjamin Woloshin has joined New York Life as senior vice president and head of relationship management for its Retirement Income Security (RIS) business, reporting to executive vice president Chris Blunt.

Woloshin had most recently been vice president responsible for institutional relationships in Goldman Sachs’ Reinsurance Group.  He also worked at MetLife and Putnam Investments.

Blunt said he planned to hire several additional senior-level relationship managers who will report to Woloshin, who replaces senior vice president Allyson McDonald, who has assumed responsibility for the external sales operation of RIS, also reporting to. Blunt. 

New York Life’s income annuity business set a new six-month record of $870 million in 2010, Blunt said.  On the accumulation side, mutual funds set a sales record of more than $5 billion in the first six months, with third-party channels accounting for more than $4 billion of the total.  First half net sales of mutual funds were $2.3 billion, a record pace.  

Principal ‘White Paper’ Describes DoL Fee Disclosure Rule

Starting July 16, 2011, a new Department of Labor rule will require many financial professionals to disclose to their retirement plan fiduciary clients the fees they receive and the services they provide. To help professionals understand the implications of the rule, the Principal Financial Group has posted a number of resources on its fee disclosure education website.

The new resources include:

Putnam Makes Fees Transparent for Plan Participants

Putnam Investments will offer transparent and comprehensive disclosure of fees and expenses to participants in the 401(k) plans it administers, the Boston-based fund company announced. The new disclosures will be available online through Putnam’s plan participant web site later this month.

The new disclosures will:

  • Give participants access to real-time information about their total fund expense ratios, as well as any transaction fees associated with their plan.
  • Address the expense ratio of each investment option, converted into a dollar value per $1,000 invested; offer a list of transactions and transaction fees as well as any fees related to services such as managed accounts or online advice.
  • List the services that participants can access, including automatic plan features that help them save; educational programs; comprehensive statements; Putnam’s Lifetime Income Analysis Tool, which estimates monthly retirement income; and available investment choices.
  • Be accompanied by a video tutorial that addresses: assessing plan value; the employer’s fiduciary responsibilities as they relate to the value and fees of their plan; the different types of fees that participants typically incur and an explanation of charges.   

 

© 2010 RIJ Publishing LLC. All rights reserved.

Retirement Income ‘Smackdown’

Posted on October 12, 2010 by -

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.”

© 2010 RIJ Publishing LLC. All rights reserved.

Milliman Assesses Impact of Dodd-Frank Act on Insurers

Posted on October 6, 2010 by -

Only one section of the Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) significantly affects the insurance industry, but that section—Title V—could have significant implications, according to Milliman.

Title V describes the creation of a Federal Insurance Office (FIO) within the Department of the Treasury and outlines a program of state-based insurance reform.

These changes “are significant because they represent a first step toward the potential transfer of regulatory authority from the states, the exclusive locus of regulatory authority until now, to the federal government,” says a new white paper written by Milliman analysts Joy Schwartzman and Gail Ross.

The FIO will collect information and monitor all lines of insurance except health insurance, long-term care insurance and crop insurance. Within 18 months, the FIO’s director must give Congress an assessment of the current state regulatory system and recommend improvements to the regulation of insurance in the U.S.

Besides covering systemic risk regulation, capital standards and consumer protection, the report will inquire into “the feasibility and potential costs and benefits of regulating insurance at the federal level and/or sharing such regulation between the states and the federal government.”

The two biggest effects of the legislation, Milliman said, would likely be greater access to market for nonadmitted insurers and single-state regulation and financial reporting for reinsurance companies.

© 2010 RIJ Publishing LLC. All rights reserved.

Wealth2k Enhances Income Illustration Software

Posted on October 6, 2010 by -

Wealth2k, marketer of the Income For Life Model retirement income planning software, has introduced a new application that “allows advisors to dynamically create income strategies that blend time-segmentation of retirement assets with period certain and lifetime income elements including SPIAs and annuity income riders,” the Boston-area company reported.

“This software application addresses the need for an understandable, unifying structure that gives context to various investment products, including products that provide guaranteed income elements,” said Wealth2k founder David Macchia in a release. 

Wealth2k has produced a 4-minute video explanation of the new illustration platform, which is being released as an upgrade to Wealth2k’s existing IncomeForLifeModel program. The video can be found at www.IncomeForLifeModel.com.

Within pre-set ranges, advisors can define financial assumptions including:

  • Dynamic time-segmentation (2-10 segments)
  • Segment duration
  • Segment-specific rate-of-return objectives
  • Segment-specific inflation assumptions and liquidation factors
  • Staged lifetime income benefits commencing in any year of the income plan.

Advisors may combine all their clients’ external sources of retirement income, including pensions and Social Security. The software will solve for a “floor” of guaranteed retirement income, and can incorporate external income sources in the “flooring” calculation.

© 2010 RIJ Publishing LLC. All rights reserved.

Allianz Life Introduces First Inflation-Protected FIA Income Rider

Posted on October 6, 2010 by -

Alliance Life’s MasterDex X fixed indexed annuity now offers a “Simple Income III” rider, which provides guaranteed lifetime income with optional inflation protection. According to the issuer, it is the first rider of its kind to offer adjustments for inflation.

Simple Income III offers level, indexed, or inflation-protected payments. Under the inflation option, payments rise with increases in the Consumer Price Index (CPI-U).  

Inflation is the number one retirement risk, according to the 2009 Risks and Process of Retirement Survey Report from the Society of Actuaries. At an assumed average of 3% annual inflation, $100,000 loses 14% of its purchasing power in five years and 45% in 20 years, according to the issuer.  

The CPI-U-linked payment option protects purchasing power throughout the first 20 years of income, up to 10% per year. For an extra annual fee of 60 basis points, the Simple Income III Rider also offers an 8% bonus added to the withdrawal value each year until income withdrawals begin or the client turns age 90, whichever comes first.

Allianz Life is a unit of Allianz SE, the 20th largest company in the world by revenues, according to the Fortune Global 500, August 2010.

© 2010 RIJ Publishing LLC. All rights reserved.

Pacific Life Launches Its First SPIA

Posted on October 6, 2010 by -

Encouraged by requests from its wholesalers and independent advisors, Pacific Life has introduced its first single-premium, immediate fixed annuity, called Pacific Income Provider.

“For many individuals, retirement plans were a primary source of retirement income, but once they retired they found themselves coming up short. In this new retirement reality, clients need multiple sources to provide guaranteed lifetime income,” states Christine Tucker, Pacific Life’s vice president of marketing, Retirement Solutions Division.

Pacific Income Provider offers 10 payment options, including Life with Cash Refund, which returns any remaining purchase amount to the beneficiary when the annuitant dies.

Clients may also opt for a Future Adjustment Option, which allows a one-time increase or decrease in income payments. For example, a client may delay taking Social Security until age 70 to maximize benefits. In this situation, the Future Adjustment Option may be elected to schedule a decrease in income payments starting at age 70. Alternately, clients can choose an Inflation Protection Option, which increases payments by 2%, 3% or 4% per year.

New marketing materials and additional information regarding Pacific Income Provider are available at PacificLife.com. Financial professionals can run multiple quotes through an enhanced illustration system to determine a payment option for their clients.   

© 2010 RIJ Publishing LLC. All rights reserved.

The Bucket

Posted on October 6, 2010 by -

FPA to Offer InFRE Materials to Advisors 

Under an alliance between Financial Planning Association (FPA) and the International Foundation for Retirement Education (InFRE), FPA members will have access to discounts on new retirement planning tools and resources. The assistance is benefit of the FPA Member Advantage Program.   

FPA members now have access to discounted educational packages offered through the InFRE Retirement Resource Center (IRRC) on various topics within retirement planning, such as the Strategies for Managing Retirement Income Package, Certified Retirement Counselor (CRC) Program, “Managing Your Retirement Income” Educational Workshop and many more. CRC certificants and registrants will also receive discounts on FPA’s Virtual Learning Center archives and are eligible for a group membership program discount.

FPA members will receive 20 percent off the purchase price of InFRE retirement programs through October 31, 2010. After October 31, resources are available to FPA members for 15 percent off the purchase price.

The Principal Expands Online Library for Advisors

 To attract retirement-minded advisors to its offerings, Principal Financial Group has launched a Retirement Education Portal that gives advisors access to an online library focused on retirement income planning and “tools and resources for overall retirement plan education.”    

Financial professionals will be able to select materials based on number of years prior to retirement or by the stages of retirement planning.  Resources include customizable education plans, meeting materials, and a new magazine called Education Edge.

The portal also gives financial professionals access to “local education personnel” who conduct group education meetings and one-on-one meetings with participants.  The expanded portal is part of Principal’s Retirement Income Edge program.

Mutual of Omaha Says “Aha!” to Social Media

Mutual of Omaha, which sponsors a campaign that it calls “Life’s Aha Moments,” has launched an online survey inviting people to vote for their favorite aha moments of the year. The top vote getters will become commercials for the company’s 2011 national broadcast advertising campaign, which will debut early next year.

“Aha Moments” are the epiphanies that are the topic of the “uplifting” and “inspirational” stories that Mutual of Omaha has collected from the public. The company kicked off its sponsorship of life’s aha moments in February 2009 with national advertising, a website devoted to aha moments, and an online community through Facebook, Twitter and other social applications.

For more information on aha moments, visit http://www.mutualofomaha.com/aha.

The company recorded more than 1,000 such stories during a recent four-month, 25-city national tour. From those 1,000, the company selected 75 moments for the first round of voting, which began October 1 and concludes on October 15. Consumers will be able to view and vote for all of the eligible entries at http://ahamoment.com/vote.

Following the first round of voting, the top 25 vote getters will move into the final round of voting, which begins on October 18th and ends on October 31, 2010. The top-10 moments will become the company’s newest television ads. The website will also allow people to encourage others to vote by sharing their favorite moments via e-mail, Facebook, Twitter and other popular social media outlets.

Phoenix and AltiSure Launch ‘Secure Lifestyle’ Annuity Series

The Phoenix Companies, Inc., and The AltiSure Group, an annuity and life insurance design and distribution company, announced the launch of their co-developed Secure Lifestyle Annuity Series, which includes The Secure Lifestyle and the Secure Lifestyle Bonus fixed indexed annuities.

The Secure Lifestyle Annuity Series offers two benefits: 1) The Safety Growth Strategy, a new interest crediting method, and 2) The Guaranteed Income and Family Wealth Transfer Benefit (GIFT), which combines guaranteed lifetime withdrawals with an enhanced death benefit for one charge.

“With the Safety Growth Strategy, a client can benefit from the positive return of the S&P 500 in excess of 5%,” said Philip K. Polkinghorn, senior executive vice president, business development at Phoenix.

The product’s GIFT Benefit is an optional rider that offers clients guaranteed lifetime withdrawals and an enhanced death benefit with a 6% compound annual rollup in one package. Clients can maximize their income opportunity by deferring the start of withdrawals under their Guaranteed Lifetime Withdrawal Benefit (GLWB), while remaining protected by the enhanced death benefit until the beginning of the guaranteed withdrawals under the GLWB rider.

 “If the client defers the start of withdrawals for 12 years, the income benefit base used to calculate the annual GLWB amount will grow to more than triple the original premium with the Secure LifeStyle Bonus Annuity,” said Niju Vaswani, president of AltiSure.

The 10% premium bonus offered with the Secure LifeStyle Bonus Annuity boosts the initial account value by 10% of the original premium at contract issue. A percentage of the premium bonus and its earnings vest each year during the surrender charge period. All interest is credited on the entire account value including the premium bonus. Generally, products that do not offer bonuses have higher credited interest rates, participation rates and caps.

Optional riders such as the GIFT Benefit involve a fee calculated as a percentage of the benefit base that is deducted from the contract value. There are surrender charges during the first 10 years.

AllianceBernstein Acquires Alternative Investments Group from SunAmerica

As part of its expansion into alternative investments, AllianceBernstein L.P. has acquired a group at SunAmerica that manages a portfolio of hedge fund and private equity fund investments.

“We are pleased to add to our alternative investment capabilities this exceptional hedge fund and private equity fund investment team,” said AllianceBernstein Chairman and CEO Peter Kraus. “Marc Gamsin and his SunAmerica Alternative Investments colleagues have built an outstanding platform.” 

“We’ve admired AllianceBernstein’s superb investment research for many years, and we’re thrilled to become a part of this respected, global institution, while maintaining our long-standing SunAmerica relationship,” Gamsin said.

© 2010 RIJ Publishing LLC. All rights reserved.

Madoff’s Unsolved Mysteries

Posted on October 4, 2010 by -

The black hole into which Bernie Madoff pumped a still unaccounted-for $7.9 billion grew even darker on September 26 with the death of 84-year-old Los Angeles investment advisor Stanley Chais, one of only two potential witnesses to the laundering of these mystery funds.   

Both Chais and another Madoff associate, Jeffry Picower, had been charged in separate fraud suits by the SEC in 2009. The government hoped they would help expose the  “labyrinth of interrelated international funds, institutions, and entities of almost unparalleled complexity and breadth” into which the money vanished, as a bankruptcy trustee described it.

But neither case will ever come to trial. In two of the greatest disappearing acts in financial history, Chais died 10 days ago of a rare blood disease and Picower drowned in his own swimming pool in Florida last October, after an apparent heart attack at age 67. Each had known Madoff for 30 years or more, long before he began his Ponzi scheme.

Both men had enjoyed special access to Madoff’s operation. According to the SEC complaint, Picower was told in advance of Madoff’s monthly profit “targets,” or the amounts with which Madoff planned to pad Picower’s accounts. With this knowledge, Picower or his assistant could request higher or lower “profits” for various accounts.

Moreover, to amplify Picower’s fictional profits to accommodate this siphoning off, Madoff extended him so much fictional credit that his accounts had, according to the bankruptcy trustee’s analysis, a “negative net cash balance of approximately $6 billion at the time of Madoff’s arrest.”

Picower collaborated by faxing Madoff backdated letters to support fabricated trades, some of which reportedly earned profits as high as 550%. As a result, Picower was able to withdraw over $2.4 billion just between 2002 and 2008.

Like Picower, Chais worked closely with Madoff. (His name came up first on Madoff’s office speed dial.) According to the SEC complaint, Chais withdrew $1.15 billion from 60 accounts for himself, family members, and corporations in which he held interests, from funds into which he consolidated his clients’ money, and from other entities. Madoff enabled him to justify such massive withdrawals by crediting him with inexplicably high phantom profits, with some accounts earning over 300% a year.

Together, Picower and Chais withdrew a total of $7.9 billion between 1995 and 2008 from the phantom profits that Madoff allocated to them, according to the reckoning of the bankruptcy trustee.

Why were such staggering notional profits systematically credited to the Picower and Chais accounts and then systematically and purposefully siphoned out of these accounts? Were Picower and Chais following instructions in re-depositing the billions that they withdrew?

All Ponzi schemes need an exit strategy. Unfortunately, with the deaths of Picower and Chais, we may never unravel the secret of where that money ended up.

© 2010 RIJ Publishing LLC. All rights reserved.