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Stimulus Money and Mobius Strips

Posted on March 18, 2021 by -

On the evening news programs, the talking heads always stress the first syllable of the word trillion when reporting on the Biden stimulus.

“One point nine TRI-llion dollars,” they say, in exactly the same way that they used to say, “One BIL-lion dollars,” and the way that Doctor Evil of the Austin Powers films said, “One MIL-lion dollars,” as he raised his pinkie.

As if a trillion dollars were a lot of money.

Where does all this digital greenery come from, and where does it go? Will it cause hyper-inflation”? Will it require tax increases? Will it crush our grandchildren? Why doesn’t the financial system crash under its own weight, like a substandard apartment building in an earthquake zone?

Everyone wants to know. Here are the answers:

The money comes from the country’s infinite well of credit. Yes, the easy money will inflate the prices of houses and stocks. Yes, the profits it creates will be partly taxed away, as a check on inflation. Yes, our grandchildren will pay the debt back—but only as it comes due, as we always have.

There’s a reason why the system doesn’t crash. The banks (by design) will always accommodate the US Treasury’s need for cash by buying its bonds, and the Fed (by design) will always accommodate the banks’ need for cash by buying back the bonds they bought from the Treasury.

As an analogy, consider the Möbius strip, a topological oddity. Imagine a belt with a half-twist in it, which creates one continuous surface out of what had been an inside surface and an outside surface (See below). When an object moves along the continuous surface, as in this video, it reaches a point where it flips into a mirror-image of itself. On the next circuit, it flips back again. It can travel that roller-coaster indefinitely.

Treasury debt and US dollars (Federal Reserve notes) are mirror images of each other. And their circuit runs through the banking system, where their identity flips back and forth in an infinite and scalable process. (You can see the flip below. Note how the vectors reverse direction.)

In theory, there’s no end to a Möbius strip, or to the ability of the Fed, the Treasury, and the banks to turn money into risk-free debt and risk-free debt into money. When those $1,400 Treasury checks hit household bank accounts they will add to the reserves in the banking system, which the banks can use to cover their outlays or to buy Treasuries.

What about those commercial banks? They have their own knitting to stick to. They loan money to borrowers with varying creditworthiness at varying levels of interest. The money they advance (out of thin air) is credit-money; they earn interest on the advance until the borrower pays it back. When the borrower returns the money, the credit-money and the loan disappear.

It’s true that, whenever a borrower writes a check to someone at another bank, the first bank has to fund the transfer with reserves; it gets those reserves back when a loan is repaid. But the banks as a rule can create much more credit-money than they have reserves in the vault or at the Fed. (That’s the “alchemy” of banking.)

There’s a lot of credit money floating out there in the economy. According to FRED (Federal Reserve Economic Research) at the St. Louis Fed, the banks have $15.25 TRI-llion in outstanding credit. Those are loans they’ve created, and earn interest on, but that the borrowers haven’t paid back yet. 

Let’s say a Black Swan event occurred—a pandemic and a recession, or an alien invasion—and thousands of businesses and millions of Americans were unable to make payments on their loans. If the aggregate shortfall to the banks were, say, $400 billion, the banks and other creditors would face a big liquidity shortage.  

Enter the Fed or the Treasury. Suppose that Congress instructed the Treasury to borrow $400 billion and put it into Americans’ bank accounts so they can make their loan payments and pay their bills. Solvency is restored. But what about the $400 billion in reserves that the banks paid to finance the Treasury’s deficit spending?

The banks can get the money back, either by selling the Treasuries they purchased to the Fed or borrowing against them at the Fed. Had there been no stimulus, the banks could still borrow the liquidity they need from the Fed—assuming they can post high-quality assets as collateral.

People balk at suggestions that the government drives the economy, and they should. It doesn’t. What drives the economy is the fact that 160 million Americans get out of bed, shower, put on decent clothes, and go to “work” every day so they can extinguish the loans that banks and credit card companies have advanced to them.

If a Black Swan interrupts the repayment of credit-money, as one did in September 2008 and again in March 2020, a giant money crevasse can open up beneath the financial system’s feet. Given the vastness of the banks’ credit advances ($15.25 TRI-llion), you can see how easily that crevasse might swallow a trillion dollars or two.

Part of the Biden stimulus will help fill or patch that crevasse. Much of it will probably pay off debt and disappear, which may explain why Americans won’t be pushing wheelbarrows full of banknotes through the streets. If the crevasse yawns too wide and too deep—and vital companies like GM or Boeing start sliding into it—no amount of Treasury debt or Fed money-printing could patch it over or fill it back up. Fortunately, we’re not there yet.   

© 2021 RIJ Publishing LLC. All rights reserved.

How Biden Might Pay for Expenditures

Posted on March 11, 2021 by -

We all win when the rich pay higher taxes, don’t we? Jeff Bezos or Mark Zuckerberg surely wouldn’t miss a billion or two. With another trillion in revenue, Uncle Sam wouldn’t have to sell as many bonds. Everyone’s money would be worth more, since federal taxes reduce inflation. It’s a win-win-win.

Are those statements true? Neo-classical macroeconomists would probably say they aren’t. But the Biden administration seems to be thinking along those lines. Liberal policymakers are talking about several new taxes. (There are no conservative policymakers; conservatives don’t believe government should “make policy.”)

Kerry Pechter

We know about the Biden plan to apply the payroll tax to incomes over $400,000. There’s also the Elizabeth Warren’s ultra-millionaire tax, the 10-basis-point financial transactions tax, and the Biden idea for converting tax deferral on retirement plan contributions to tax credits. Let’s consider them.

The Ultra-Millionaire Tax Act of 2021 (The “Wealth Tax”) would take two percent (2%) of a person’s assets worth in excess of $50 million each year and three percent (3%) of assets worth over $1 billion. The US would levy a six percent (6%) tax on assets over $1 billion if Congress creates a universal health care program. This tax would reach beyond income and reach most assets, with some exceptions.

The value of yachts, aircraft, mobile homes, trailers, cars, antiques or other illiquid collectibles worth less than $50,000 would not count toward the $50 million. The IRS would audit no less than 30% of the affected taxpayers every year. The bill would also give the IRS $70,000,000,000 a year for 10 years (2022 to 2032) for enforcement and another $30,000,000,000 a year for taxpayer services and business modernization. (I’m checking to see if those numbers were misprints in the bill. That would give the IRS $1 trillion over 10 years.)

According to an analysis by University of California-Berkeley economists Emmanuel Saez and Gabriel Zucman, “about 100,000 American families (less than one out of 1000 families) would be liable for the wealth tax in 2023 and that the tax would raise around $3.0 trillion over the ten-year budget window 2023-2032, of which $0.4 trillion would come from the billionaire 1% surtax.”

For a Bezos or a Zuckerberg, who sit on snow-capped Everests of appreciated stock, a 2% ultra-wealth tax would presumably force them to liquidate part of their holdings. It’s not clear how such sales might affect the market price of their stocks.

A financial transactions tax (FTT), most recently embodied in H.R. 328, also introduced in the 117th Congress, proposes a 10-basis-point tax (0.1%) on transactions involving stocks, bonds, futures, options swaps, and credit default swaps. Such a tax has been proposed in at least the past five Congresses, since the 2008-2009 financial crisis.

The FTT would aim at putting a speed bump in the path of various kinds of high frequency trading. The Joint Committee on Taxation estimated in 2020 that a prior proposal similar to H.R. 328 would generate $751.9 billion in revenue over 10 years. A February 23 study by the Congressional Research Service suggested that the bill might not stop all types or aspects of high frequency trading and that traders might invent ways to avoid it. 

The tax was discussed during a hearing this week of the Senate Banking, Housing and Urban Affairs committee, during a discussion involving the role of high-frequency trading, and of trading apps on phones used by minors, and the trading of GameStop shares, and the possible need for new regulation to prevent more such events. 

Of five panelists testifying, three—Gina-Gail S. Fletcher of the Duke University Law School, Teresa Ghilarducci of The New School and Rachel Robasciotti of Adasina Social Capital recommended it. The two others, Michael Piwowar, a former SEC commissioner, and Andrew Vollmer of the Mercatus Center, opposed new regulation.

Replace current tax deductions for retirement savings contributions with a refundable tax credits. As a candidate for the White House in 2020, President Biden unveiled a host of ideas for changing the tax system. Most of the ideas would raise taxes on the wealthiest or high-earning Americans (e.g., less than 2% of Americans earn more than $400,000 a year) and redistribute wealth down the income spectrum.

One of Biden’s proposals would replace a deduction (or income exemption) for contributions to traditional individual retirement accounts (IRAs) and defined-contribution pension plans with a refundable tax credit. The tax expenditure (tax forgone by tax deferral) for retirement savings was about $250 billion in 2019 and, if nothing changes, will be about $1.5 trillion over the 2019-2023 time frame, according to the Tax Policy Center.

Progressives point out that most of the benefits of tax deferral accrues to the wealthy, since they have the greatest capacity to save, save the most, and are in the highest tax brackets. When middle income people save in retirement accounts, the tax benefit of doing so is smaller. Switching to a tax credit could give a bigger incentive to the middle-class to save.

The retirement industry, as represented, for instance, by the American Retirement Association and the Investment Company Institute (ICI), can be expected to lobby heavily against any threat to current incentives of tax deferral, which has helped attract trillions of dollars into retirement accounts ($20.6 trillion in assets as of 6/30/2020), according to the ICI. 

Facing the inevitable

People tend to accept taxes that bring them tangible benefits, but resent taxes that don’t. Parents with children don’t mind school taxes, but empty-nesters do. Some people see taxes as theft by government, others as the price we pay for civilization. Some believe that getting rid of government would mean more money for everybody. Others believe that getting rid of government would mean no money for anybody, given that the federal government has a monopoly on issuing US money.

Do taxes reduce inflation? That depends. At the local and state level, you pay taxes, the money goes into an account, and government employees and contractors get paid. Ideally, they spend some their wages locally. At the federal level, I’m told, taxes involve a different process.

When it spends (Social Security benefits, for instance), the Treasury credits your bank account. When it taxes, it debits your bank account. The big difference is that the Treasury, unlike a state or county or individual, can spend before it taxes or borrows. Then it destroys the money it collects in taxes—thus reducing inflation. Don’t ask me exactly how or why. That’s above my tax bracket.

© 2021 RIJ Publishing LLC. All rights reserved.

New products bulletin

Posted on March 11, 2021 by -

Nationwide and Annexus partner on income-generating FIA

Nationwide is partnering with Annexus, the prominent independent designer of fixed indexed annuities (FIAs), to issue Nationwide New Heights Select, which is built “on the foundation of 2020 top-selling income FIA with a guaranteed roll-up.”

Nationwide New Heights Select offers two new indices, new bucketing capabilities for greater diversification, competitive accumulation opportunities, and increased lifetime income payout percentages on one of the optional income riders, the companies said in a release.

The contract offers options that track the performance of an index and lock in earnings at the end of each strategy term. New bucketing capabilities allow a clients’ contract value to be allocated among up to five strategy options, including two new indices.

The SG Macro Compass Index, which uses the current economic outlook to determine its asset allocation, is available on the product. It can “adapt to current market conditions by pivoting and leaning into growth assets when markets are bullish and defensive assets when markets are bearish,” the release said.

The methodology leverages the expertise of Societe Generale’s Quantitative Research team. It is rooted in the academic research of macroeconomic regimes created by Dr. Solomon Tadesse.

Nationwide New Heights Select has also added the NYSE Zebra Edge II Index, based on a methodology developed by economist Roger G. Ibbotson and his team at Zebra Capital Management, and founded on Ibbotson’s behavioral finance research. It uses his behavioral finance filtering process to evaluate the 500 largest publicly traded companies in the United States each quarter, and then remove the riskiest and most volatile companies to identify equities with the potential for higher returns with less risk.

Nationwide New Heights Select offers two optional living benefit riders available for an additional charge, to create a source of guaranteed income for life. The Nationwide High Point 365 Select Lifetime Income rider with Bonus now offers higher lifetime payout percentages with the flexibility for earlier withdrawals.

It includes a bonus of 10% of a client’s purchase payment added to their Minimum Income Benefit Value at contract issue. In addition, the Minimum Income Benefit Value will continue to grow daily at a 7% compound annual rate until the earlier of 10 years or until beginning lifetime income withdrawals, whichever comes first. By year 10, the Minimum Income Benefit Value is guaranteed to at least double. 

Equitable extends RILA feature to variable annuity

Equitable, which invented the registered index-linked annuity (RILA) 10 years ago, has enhanced its Investment Edge tax-deferred variable annuity to include an investment choice with a downside buffer similar to the one on Equitable’s Structured Capital Strategies RILA.

This “segment-based investment approach will track a well-known benchmark index of the client’s choosing,” an Equitable release said. Clients experience the growth of that index up to a performance cap rate, with protection against the first 10% of potential losses, less the contract fee.

Clients can select either a Standard Segment which measures investment performance over a one-year term, or the Step Up Segment which guarantees a return equal to the Performance Cap Rate, less the contract fee, if the index performance is equal to or greater than zero when the Segment matures. Clients can transfer out of, or between, the two Segment options at any time.

Investment Edge also includes two other choices for investing:

– Preset portfolios consisting of either investments selected by well-known managers, or risk-based portfolios that create a diversified asset-allocation.

– Option to build a diversified portfolio of investments from more than 100 investment options, including core U.S. and international equity options and alternative investments

Interactive retirement education and detailed product information for Equitable Financial’s individual retirement annuities is available through its online Retirement Guide.

The latest version of Investment Edge also gives clients a return-of-premium death benefit. The contract can be used as an investment vehicle for inherited IRA contracts.

Securian offers new IOVA

Securian Financial has introduced MultiOption Momentum, an investment-only variable annuity (IOVA) offering both indexed and variable investment options in a tax-deferred, variable annuity.

The contracts are issued by Minnesota Life Insurance Company.

“MultiOption Momentum is our first IOVA. It provides customization, flexibility and the ability to build risk hedge,” said Chris Owens, Securian Financial’s national sales vice president for retail life insurance and annuities, in a release.

IOVAs allow investors to set aside taxable assets in a tax-deferred instrument focused only on investment. With MultiOption Momentum, investors and customize the product to meet their needs with optional benefits for an additional cost.

Key MultiOption Momentum product features include more than 70 variable investment options, two indexed account options and one guaranteed interest account option.

MultiOption Momentum is available to all Securian Financial-approved distribution channels.

Honorable Mention

Posted on March 11, 2021 by -

Biden DOL won’t enforce Trump’s anti-ESG rule

The Department of Labor issued a notice yesterday saying, “Until it publishes further guidance, the Department will not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules with respect to an investment, including a Qualified Default Investment Alternative, or investment course of action or with respect to an exercise of shareholder rights.”

The notice referred to “Financial Factors in Selecting Plan Investments,” 85 Fed. Reg. 72846 (November 13, 2020), which adopted amendments to the “Investment Duties” regulation under Title I of the Employee Retirement Income Security Act of 1974 (ERISA). The amendments generally require plan fiduciaries to select investments and investment courses of action based solely on consideration of “pecuniary factors.”

In yesterday’s notice, the Biden DOL said it “heard from stakeholders that the rules, and investor confusion about the rules, have already had a chilling effect on appropriate integration of ESG factors in investment decisions, including in circumstances that the rules can be read to explicitly allow. Accordingly, the Department intends to revisit the rules.”

PEP rally: TAG Advisors launches Pooled Employer Plan

TAG Advisors, a branch of Cambridge Investment Research, Inc., has launched a Pooled Employer Plan (PEP) with Voya Financial, Inc. serving as the PEP’s recordkeeper. The plan went into effect on Feb. 1, 2021.

The TAG(k) PEP is “one of the first of its kind in the independent broker-dealer space.” a company release said. The PEP is available to all independent financial professionals affiliated with TAG Advisors, along with clients who seek less fiduciary liability and the pricing advantage associated with aggregating plan assets.

The TAG(k) PEP will use Plan Compliance Services, Inc., an affiliate of The Platinum 401k, Inc., as the pooled plan provider for the program. “TAG Advisors sees the benefit of having a ‘private label’ PEP to market through their distribution network,” said Terry Power, president of the Platinum 401k, in a release.

The PEP will market to pre-existing 401(k) plans with assets of $2 million to $50 million, which may currently feel burdened by undergoing an annual plan audit as part of their Form 5500 submission. TAG Advisors selected Voya to serve as the PEP’s recordkeeper. For more than 40 years, Voya currently serves has approximately 13.8 million individual and institutional customers in the US.

“We are pleased to be one of the first firms of our type in the country to offer a custom-branded Pooled Employer Plan to our clients,” said Greg Raines, CEO of TAG Advisors.

PEPs were enabled by the Setting Every Community Up for Retirement Enhancement (SECURE) Act, a bill enacted in December 2019. Under the Act, pooled plan providers began operating in January 2021, allowing retirement plan service providers to offer a single 401(k) plan, and ending the requirement that single plans had to be sponsored by single employers.

Some sponsors of the Act hoped it would bring 401(k) plans to small companies that had never had a retirement plan of their own because of the paperwork and complexity involved. But PEP providers appear to be marketing to existing plans. That’s logical, because companies with no plans have no assets to manage, at least at first.

As a branch of Cambridge Investment Research, Inc., TAG Advisors supports more than 300 advisers in 29 states. 

Net income for life/annuity industry fell 55% in first three-quarters of 2020: AM Best

While the sales process remains a challenge, most rated US life/annuity (L/A) insurance companies have remained well-capitalized during the pandemic to date, and have benefited from favorable mortality and morbidity experience, low credit impairments and rebounding equity markets, according to AM Best’s annual Review & Preview market segment report.

Net income for the L/A industry in the nine-month 2020 period fell by 55% from the same period of 2019, to $13.2 billion. Absolute capital and surplus (C&S) for the segment grew by approximately 5% through Sept. 30, 2020, from the prior-year period, said the new report, “US Life/Annuity Industry Weathers the Pandemic Well in 2020.” 

The segment benefited from positive, albeit significantly lower, earnings and a change in unrealized capital gains. Low interest rates and L/A carriers’ desire to hold more liquidity during the pandemic drove an increase in debt issuance, as companies took advantage of the opportunity to refinance older issues that had been priced at higher interest rates.

Debt issuance for the L/A carriers amounted to nearly $35 billion through September 2020, significantly higher than the approximately $20 billion through September 2019.

Offsetting the ongoing macroeconomic challenges that L/A insurers face are favorable underwriting and evolving risk management practices, including the use of hedges, adjustments to crediting and discount rates, and a focus on technology to improve sales.

Still, the industry has been facing the challenge of adapting to the remote work environment while converting to virtual sales practices during a period where a COVID-19-fueled spike in unemployment has been a drag on demand, despite a renewed interest in the need for life insurance on the part of consumers.

While companies in this market segment will need to focus a significant amount of attention to mitigating these risks and others, the report notes that they can ill-afford to allocate resources to strictly defensive initiatives, if they are to survive and grow over the long term.

In 2021, leveraging capabilities developed to support remote work and sales environments during the pandemic in order to better position their business models for top-line growth will be critical. A flurry of merger and acquisition announcements in early 2021 reinforces AM Best’s expectations that the L/A segment will remain heavily focused on interest rate risk amid declining interest margins.

Luma platform will use FireLight annuity sales technology

Luma Financial Technologies, an independent, multi-issuer structured products and annuities platform, will use the FireLight insurance and retirement sales platform provided by Insurance Technologies, LLC, to bring its Luma Annuities solution to market.

The Luma platform is intended to simplify the structured product investment process. A global fintech firm in the structured products space, Luma is betting that market volatility and the low interest rate environment and the prospect of market volatility will continue to drive interest in annuities.

Luma Annuities is a turn-key annuity sales and lifecycle management solution for advisers.  It simplifies all aspects of learning, transacting, configuring, and managing annuities for investment firms and advisors that sell income-generating products.

The Luma platform was created in 2011 by Luma Financial Technologies to help financial teams study, create, order and manage market-linked investments such as structured products and structured annuities. Broker/dealer firms, RIA offices and private banks use Luma to automate the full process cycle for offering and transacting in market-linked investments, including education and certification; creation and pricing of custom structures; order entry; and post-trade actions. 

SEI Wealth Platform to offer Income Conductor income planning tool

WealthConductor LLC, a fintech company, announced that its Income Conductor retirement income planning software is now available with the SEI Wealth Platform for use by independent advisers who use the platform.

IncomeConductor uses a time-segmented strategy developed by co-founder Phil Lubinski CFP, and provides financial professionals the ability to create customized plans for their clients, implement with products of their choice, and track and manage those plans efficiently and compliantly throughout long retirement horizons.

Advisors can automatically pull in daily account and position values regardless of location through direct and open architecture integration options, providing daily plan performance, segment analytics and automated alerts that help advisors protect their clients’ income.

This service is now available to mutual clients of the Platform and IncomeConductor, including advisors that use SEI’s Managed Account Solutions and Unified Managed Account capabilities.

David Lacusky appointed to senior sales position at Global Atlantic

Global Atlantic Financial Group has appointed David Lacusky as senior vice president and director of Strategy & Internal Sales for Individual Markets. He will report to Sam Barnett, Global Atlantic’s head of sales.

Lacusky will be responsible for defining engagement strategies, as well as developing a strategy to use technology, data and analytics in the sales process for both annuities and life insurance. He will also engage with partner firms’ sales desks and wholesaling teams to improve the sales experience.

Prior to joining Global Atlantic, Lacusky served as senior vice president and chief sales officer of retirement and investments at Stadion Money Management. Before that, he spent 15 years with The Hartford, where he held sales leadership positions, including head of sales office and national sales manager for annuities, as well as chief distribution officer for Hartford Japan.

On February 1, 2021, Global Atlantic became a majority-owned subsidiary of KKR, a leading global investment firm that offers asset management and capital markets solutions across multiple strategies.

© 2021 RIJ Publishing LLC. All rights reserved.

Reaching HNW clients in the pandemic era: Cerulli

Posted on March 10, 2021 by -

In light of COVID-19, providers of services to high-net-worth (HNW) families are relying on asset management partners more heavily for strategic solutions and capital markets guidance.

Since the pandemic began, however, HNW advisors and home offices have been working with an even tighter circle of asset managers, according to the latest Cerulli Edge—US Asset and Wealth Management Edition. 

Firms who want to grow their business therefore “need to understand that every engagement with a HNW practice is critical and requires distribution efforts to be more intentional and strategic,” Cerulli said.

According to surveyed HNW practices, access to portfolio managers/product specialists (57%), economic/market commentary (46%), and portfolio construction tools (44%) rank among the most valuable resources that asset managers provide. Firms that effectively serve HNW channels should continue to gain momentum. HNW advisors are proactively approaching asset managers for capital markets insights, innovative products, and portfolio construction support.

Many asset managers have shifted to a channel-agnostic approach distribution model from a channel-specific model. Sales coverage has become a function of how practices are structured and their level of investment complexity, instead of structuring sales teams solely on location and firm.

The pandemic has further accelerated this team-based approach. “Sales teams do not always need to be an expert on every strategy the firm offers, but they should be able to bring all the pieces together by navigating the firm to bring in the right person or specialist when necessary,” said Asher Cheses, senior analyst Cerulli.

Ultimately, the right distribution strategy will depend on a range of factors, but the most critical aspect for asset managers is to ensure they bring the right resources to the right advisor or firm, he added.

The virtual model will likely have a lasting impact on the way business is conducted for asset managers. Coverage models have become more dependent on technology and virtual engagements. More firms will implement virtual engagement on a wider scale to increase efficiencies.

“Personal engagement and technology can be a powerful combination for distribution teams to enhance efficiency and build scale, although success truly comes down to providing access, differentiated product, and intellectual capital when working with these key HNW relationships,” Cheses said.

© 2021 RIJ Publishing LLC. All rights reserved.

Pandemic Hurt Annuity Sales in 2020

Posted on March 10, 2021 by -

Overall US annuity sales volumes fell nine percent in 2020, to $219 billion in 2019, according to the Secure Retirement Institute (SRI) US Individual Annuity Sales Survey. But fourth-quarter 2020 sales were three percent higher than in the same period in 2019, at $58.6 billion.

At $55.5 billion, fixed indexed annuities (FIAs) were the top-selling annuity product category. In a sign of the growing clout of asset managers like Blackstone, KKR and Apollo in the FIA business, eight of the top 12 issuers of FIAs in 2020 have partnered or merged with such firms since about 2010. 

Those eight issuers are (in order of sales volume): Athene, Fidelity & Guaranty Life, Global Atlantic, Security Benefit Life, Great American, American Equity Investment, EquiTrust Life, and Delaware Life. Together these firms now account for about 42% of the FIA market.

All charts below are for year-end 2020 sales, and are provided by LIMRA SRI. For a detailed year-over-year sales break-out by product category, click here.

AIG, New York Life, and Lincoln Financial are the three companies with the most equal balance between sales of variable annuities and sales of fixed annuities. In overall annuity sales, they are #2, #3, and #4 after Jackson National. Almost all of Jackson’s nearly $18 billion in sales came from traditional VAs. New York Life is the top issuer of fixed annuities and Lincoln is the top issuer of registered index-linked annuities (RILAs).

RILAs are in a league all their own, with an appeal that probably has nothing to do with the fact that they are annuities. They continued their decade-long climb in sales with a 38% increase in 2020. The other bright spot in 2020 was fixed-rate deferred annuities, with sales up 10% in response to investor jitters.  

Just four companies account for about 80% of the $24 billion RILA market. They are (in order of sales volume): Lincoln Financial, Equitable, Allianz Life and Brighthouse Financial, each with over $4 billion in sales. This peloton is followed by Prudential Annuities, RiverSource Life and CMFG (Cuna Mutual), each with between $1 million and $2 million in 2020 sales.

Jackson National, partly on the strength of its Perspective II contract, continues to dominate the sale of conventional variable annuities, where contract owners directly hold tax-deferred versions of mutual funds in separate accounts. (RILA returns are based on the performance of options on the movement of indexes.)

With more than $16.5 billion in VA sales for the year, Jackson National has more than 20% of the traditional VA market. Jackson National has 24% of the individual conventional VA market, since TIAA’s $8.62 billion in VA sales consist mainly of group annuities. Jackson National is in the process of de-coupling from its long-time Asia-focused foreign owner, Prudential plc (no relation to Prudential Financial in the US).

Sales of income-focused annuities—the only annuities that pool longevity risk and offer so-called survivorship benefits—fell 28% because low interest rates raise their prices relative to the amount of retirement income they pay out. Combined sales of single premium immediate annuities and deferred income annuities fell more than 30% each for the year.

A year ago, “The yield on the 10-year treasury fell to 56 basis points and the equities market contracted 32%,” said Todd Giesing, senior annuity research director, SRI, in a release. “Worried investors turned to RILAs and fixed-rate deferred annuities for protection and growth. Protection-focused products represented more than half of all retail annuity sales in 2020.

“The cost of guaranteed income was very expensive under the economic conditions in 2020,” he added. “Investors who would have been in the market for guaranteed income products are likely turning to other annuity contracts—like short-duration fixed-rate deferred products — to wait for interest rates to normalize.”

Part of the growth in RILAs comes at the expense of the variable annuity products with guarantee lifetime income riders, an income-focused product, according to LIMRA SRI. Low interest rates have forced life insurers to lower the payout rates of income riders, which makes the products less attractive. 

Despite the year-long bull market in equities, volatility and uncertainty has dampened growth in accumulation-focused products — primarily VA contracts without income riders. Sales of these products, though stable in 2020, have dropped more than 30% since 2015.

© 2021 RIJ Publishing LLC. All rights reserved.

For Higher Yield, Consider Emerging Market Debt

Posted on March 9, 2021 by -

Historically, bonds have been essential to diversified portfolios—for both individual and institutional investors. Steady bond income reduces volatility and preserves capital to balance the risk of stocks, particularly during bouts of market stress. Bond coupons also provide liquidity for making incremental portfolio changes without the cost of selling assets.

But US investors, as well as those in Europe and Japan, have seen both government and corporate bonds yields collapse in both relative and absolute terms in the last dozen years. Zero Interest Rate Policy (ZIRP), Quantitative Easing (QE), and Negative Interest Rate Policy (NIRP) have left investors with slim pickings in the bond space.

Peter Marber

These central bank policy tools have become more common since the Global Financial Crisis in 2008. They helped push rates lower during the pandemic-induced economic contraction last year. In December 2020, Bloomberg reported that 27% of the world’s investment grade debt was yielding below zero. Rates are so low that investors can no longer consider global government bonds “risk free;” some call them “return free risk.”

Indeed, the recent backup in 10-year US government bond rates (from a low of 0.51% in August 2020 to 1.40% in February 2021) cost investors more than 8% in capital losses. Longer-dated US Treasuries sank even more during this period.

While rates have rebounded from their summer 2020 lows, bonds worldwide still suffer from a yield shortage. To make up for this loss, many investors have (1) extended duration to pick-up additional return; (2) flocked to lesser liquid alternatives such as bank loans and private credit; or (3) switched to stocks. In total, these strategies are forcing investors to assume considerably more portfolio risk than they would with traditional bonds. Academics say that’s how finance works: the Capital Asset Pricing Model says investors need to take more risk to get more return. But maybe practice tops theory.

One exception worth exploring is the US dollar-denominated bond space of Emerging Market (EM) issuers in Asia, Latin America, the MidEast, Africa, and the former Soviet Union. This $3.7 trillion universe (roughly twice the US high yield market) includes more than 3,000 different bonds from more than 75 countries with credit ratings from AAA down to CCC. They offer higher yields than comparable American corporate bonds, on average, and help diversify a traditional US bond portfolio. A pool of bonds from dozens of economies helps reduce country risk. Like global equity portfolios, some Emerging Markets zig when others zag; that reduces overall portfolio risk.

More Than Meets the Eye

As Figure 1 shows, EM credit offers considerably more yield than US corporate bonds with comparable ratings:

The risk premium offered by EM dollar-bonds has fluctuated but generally offers greater yields, and often with shorter durations. Most investors assume that they will have to take on higher default risk to get that extra return, but EM dollar-bonds have actually defaulted less than US equivalents. According to JP Morgan, the average annual default rate from 2008 through 2020 was 3.56% for US bonds but only 3.38% for EM bonds. 

This may represent a missed opportunity. EM bonds have generated higher returns in US-dollar terms than their US equivalents, and could have offered even more return for modest increases in risk (see Figure 2) when blended with a traditional US bond portfolio.

Why haven’t more investors embraced EM dollar bonds? Maybe they misperceive the nature of an “emerging market.” The term, coined by the World Bank in 1989, is tied to a country’s per capita national income figures. The current threshold is $12,536 or less.

Oddly, dozens of EM countries have income above this threshold yet they are arbitrarily included in many EM investment indices. Several benchmarks lump South Korea, the world’s ninth largest economy with a per capita income level of nearly $32,000, with countries where annual income is less than $5,000. Many EMs also have better credit ratings than developed countries. Poland has higher ratings than Italy, South Korea than Japan, and Chile than Portugal. Singapore, which can be found in several EM indices, is among the ten AAA-rated countries in the world.

Investors’ misperceptions of EM countries may also be anchored by memories of crises in Mexico, Asia, and Russia during the 1990s. But EMs demand a reappraisal. Many, including China and India, are among the most dynamic and fastest-growing economies in the world. And the EM universe’s default and return statistics clearly show that the sector performs better than most investors imagine.

Still growing, still attractive

The EM bond universe is broadening and deepening, with more than $500 billion new issues last year. In January 2021 alone, more than $100 billion of EM dollar-bonds were floated from governments and corporations.  Their yields still look attractive:

While institutional investors typically build diversified portfolios of EM bonds from scratch, individuals can get tailored exposure from mutual funds and ETFs. Either way, investors can choose investment grade or high yield, specific regions, and a range of maturities. Given the large coupons earned annually from such bonds, individual investors might consider adding them to tax-deferred retirement accounts to optimize their long-term compounded returns.    

Investors don’t need to shoulder additional credit, duration, liquidity, or equity risk when seeking substitutes for traditional low-yielding US government and corporate debt.  Armed with new data and a fresh perspective, investors will find that a blend of EM dollar bonds from dozens of countries can help diversify their portfolios and improve their outcomes.

Peter Marber, PhD, is a 30-year Wall Street veteran. He heads emerging markets at Aperture Investors, LLC and lectures at Harvard and Johns Hopkins. He would like to thank Yardley Peresman of Aperture Investors, LLC for her contributions to the article. Retirement Income Journal was not compensated for hosting this article.

‘Income America’ Offers ‘5ForLife’

Posted on March 4, 2021 by -

The idea for Income America 5ForLife, the latest in a wave of new methods to add lifetime income options to 401(k) plans, was born on a flight from Houston to Kansas City in late October 2014.

Scott Colangelo, the founder of Qualified Plan Advisors, and his ERISA attorney, Matthew Eickman, were parsing an internal letter from a Labor Department official to a Treasury official. The DOL had given its blessing to auto-enrollment of plan participants into target date funds with annuities tucked inside.

For Colangelo, whose companies serve as fiduciaries and advisers to some 700 retirement plans, and that letter was a green light to the future. Yesterday, he unveiled his concept for making defined contribution more pension-like was unveiled to the world.

He came up with the name, “Income America.” If that sounds too much like a Marvel Comics team of heroes, especially for a new venture in an unproven market, consider Colangelo’s collaborators:

Prime Capital Investment Advisors (Colangelo’s registered investment adviser or RIA); Lincoln Financial and Nationwide (as co-guarantors of the 5ForLife group annuity); American Century (as TDF glide-path designer); Vanguard, Fidelity and Prudential (as fund providers); Wilmington Trust and Wilshire (as fiduciaries); and SS&C, whose “middleware” would wire it all together and ensure portability when participants change jobs.

In a nutshell: Income America is a series of target date funds with a novel type of guaranteed lifetime withdrawal benefit (GLWB) rider attached. The rider, called “5ForLife,” promises to pay plan participants 5% of their benefit base (the greater of the account value or net contributions at age 65) every year for the rest of their life. It doesn’t guarantee accumulation. The all-in expense ratio: 1.3% per year.

“We got some of the bigger competitors in the industry to come together, and 99% of it was positive,” Colangelo told RIJ yesterday, in a party mood.  “We’re having 70 people on a virtual happy hour tonight.”

Since last fall, several firms have brought new retirement plan solutions to the 401(k) market. They’ve responded to provisions in the Secure Act of 2019 (effective January 1, 2021) that, among other things, aimed to make plan sponsors less nervous about offering annuities to their participants.

These companies all believe that plan sponsors and participants want income solutions, and are willing to pay for them. That remains unproven. But the $5 trillion 401(k) market is much too big to ignore—especially when so much of those assets are escaping (irrevocably) into brokerage rollover IRAs.

‘We’re so past’ proprietary solutions

In the years since Colangelo began developing Income America, Prudential, Great-West and others have tried yoking TDFs with lifetime withdrawal benefits, without notable success. We asked Colangelo why he thinks Income America can succeed where those pioneers didn’t.

One reason, he said, is Income America’s flexibility. Previous products tended to come from a single life insurer, single record keeper and single fund provider. When Income America is sold by Colangelo’s advisers, they can offer the plan sponsor either a Lincoln or Nationwide guarantee, and act as fiduciaries or recordkeepers themselves. Lincoln Financial or Nationwide or American Century representatives can sell Income America, and offer their own recordkeeping services and services of other members of the consortium. A plan sponsor can choose to start the commencement date of the guarantee at age 45, 50 or 55, depending on what they think suits their participants. 

Scott Colangelo

“Our clients are so past proprietary solutions,” Colangelo told RIJ.“This won’t be anybody’s single product. It will be a consortium product. No one has ever done that before.”

The other appeal is expected to be the simplicity of the guarantee. When participants reach age 65, they can start taking their 5% each year. There are no ratchets to lock in a participant’s account gains from one year to the next, and no incentives for the client to delay taking income. 

Behind the scenes, of course, there’s considerable financial engineering. “This is neither a general account product nor a separate account structure, nor are they fixed annuities,” Eickman told RIJ. “The insurance companies provide a GLWB rider, assess an annualized fee, then buy hedging mechanisms (such as 20-year swaps and other vehicles) to allow them to insure the risk.”

At first glance, Income America, with its two life insurers, looks comparable to the three-life-insurer GLWB system that United Technologies uses. Every month, three companies bid for rights to insure incoming participant contributions, and the high bidder gets the lion’s share of that month’s contributions.

Bids at United Technology would fluctuate from month to month, depending on interest rates. In Income America, there is no bidding process. Lincoln and Nationwide levy their fee on half of the account balances.

As for the danger of Income America carving market share out of Lincoln or Nationwide’s existing 401(k) business, Eric Henderson, president of annuities at Nationwide, dismissed that concern.

Eric Henderson

“We have a number of efforts in in-plan space, but in this case we’re working with several different partners on something unique,” he told RIJ. “Each of our offerings work a little differently. Plan sponsors might prefer one design over another. We’ll let the employers choose which makes the most sense for them.

“This is a situation where a rising tide lifts all boats,” he added. “We welcome the competition. Increasing the number of providers who make this type of solution available will raise its visibility. Employers will see it regularly. As they see more of their peers offering it, they’ll feel pressure to do the same.”

‘Cost is a major factor’

To embrace Income America, or any similar program, plan sponsors will have to be comfortable with cost. Income America charges 1.3% per year of the participant’s account value. If the 5ForLife rider were applied when the participant was 50, he or she might pay the fee for decades.

If they outlive their own money, the annuity issuers keeps paying them until they die. If they die before spending all their own money, their beneficiaries receive any remaining account value. Participants can drop the coverage any time, or take withdrawals from their account with no penalty. But, as with other GLWBs, withdrawals reduce the income stream.

“For plan sponsors, fees are their number one concern. Complexity and fiduciary risk is number two. The average passive fund costs in the single digits. You’re asking a fiduciary to spend over 100 basis points [1%],” said Mark Fortier, one of the architects of the United Technologies plan.

Some look at the number of companies partnering on Income America and wonder how all of them can get paid. “I’m all for innovation, but cost is really a major factor.” said Kelli Hueler, whose IncomeSolutions platform allows retirees to roll over their DC savings into a fixed immediate or deferred income annuity, in an environment where the annuity issuers competitively bid for their business. Her program requires participants to take the initiative, and the employers she works with seem to like that. “Plan sponsors tell us that they don’t want to ‘hard default’ somebody into a benefit they may never take advantage of,” Hueler told RIJ.

Today’s low interest rates make it more expensive for annuity issuers to buy options to hedge their income guarantees, so Lincoln and Nationwide needed sharp pencils get the cost of a 5ForLife guarantee down to 0.975% within a total expense ratio of 1.3%. They did it by removing any promises to ratchet up the benefit base if the account value reached new high-water marks. The 45% equity allocation of the TDF during retirement presumably helps the support the guarantee as well, and the use of a CIT (collective investment trust) instead of a mutual fund as the product chassis helps keep costs and regulatory burdens low.

What happens if interest rates go up in the future? In that case, either the expense ratio of the product could go down or the payout at retirement could go up. Henderson said it was more likely that the cost could go down than that the payout would go up. 

Matthew Eickman

Under US pension law, plan sponsors don’t have to use the least expensive income solution. “The safe harbor provision [in the SECURE Act] doesn’t say it has to be cheap. “It requires that the cost be reasonable in relation to the value provided by the solution’s benefits and features, which inherently implicates an emphasis on value—not just low cost,” said Matthew Eickman, the ERISA attorney and head of Prime Capital’s retirement business.

“Strong, proactive fiduciaries start the inquiry from a different perspective. They ask, ‘We know there will be cost; is [Income America] the best way to solve the income problem?’ Informed fiduciaries certainly may justify a solution for the betterment of participants. In some plans, you can find good actively managed growth or foreign funds that alone cost 1.3%. The Income America solution provides much more value.”

Given the potential for lawsuits over fees, plan sponsors are going to need help evaluating these income proposals, said Michelle Richter, founder of Fiduciary Insurance Services. “This is yet another really creative solution entering the marketplace,” she told RIJ. “Plan sponsors are not experts in annuities per se. So it’s important that there are quantitative and qualitative services that help them analyze these new solutions quickly and clearly.” 

No one really knows yet if there’s a market for income solutions in 401(k) plans. The federal government would like to see retirees keep their money in low-cost qualified plans, and not to run out of money. The annuity issuers and the fund companies who distribute funds primarily through 401(k) plans have arguably stronger incentives to pursue this business and make it work.

There are some $5 trillion in 401(k) plans, which makes them an irresistibly large target. But it’s also a shrinking target. Retirees roll over hundreds of billions of dollars from 401(k) plans to individual brokerage IRAs every year. Annuity issuers and fund companies can make those assets much stickier by binding them into lifelong income contracts. 

Eickman gave a piece of the credit for Income America to his friend Mark Iwry, who as deputy secretary of the US Treasury for retirement policy in 2014, was trying to tear down regulatory barriers to lifetime income products.

“It was all part of Mark’s hope to stimulate interest and relax fiduciary fears. What Income America is doing is an indication that he succeeded in stimulating product development,” said Eickman.

Iwry created the Qualified Longevity Annuity Contract, which removes an obstacle to buying a deferred income annuity with pre-tax savings. In 2014, RIJ and the Retirement Income Industry Association gave Iwry its annual Innovation Award for the effort.

© 2021 RIJ Publishing LLC. All rights reserved.

How the pandemic affected indexed annuity owner behavior

Posted on March 4, 2021 by -

A study of the impact on fixed indexed annuity (FiA) policyholder behavior by the COVID-19 pandemic, including surrender activity, income utilization and partial withdrawals, was released this week by Ruark Consulting LLC. Ruark’s FIA studies cover products both with and without a guaranteed lifetime income benefit (GLIB).

The new study, which covered product with and without a guaranteed lifetime income benefit (GLIB), “gave us our first look at the effects of COVID-19 on FIA policyholder behavior,” said Timothy Paris, Ruark’s CEO.

“Given record low interest rates, and disruptions to sales channels, there was no way to know whether past patterns would continue. We’re intrigued by how some changed—and others didn’t.”

The study data comprised nearly 4 million policyholders from 16 participating companies spanning the 13-year period from 2007-2020, with $264 billion in account value as of the end of the period. GLIB exposure constituted 43% of exposure overall, and 47% of exposure in the last 12 study months. GLIB exposure beyond the end of the surrender charge period increased 83% over 2020 study exposure.

Highlights of the study include:

Extreme market activity, and COVID-related disruption to policyholders’ usual communication patterns with advisors and agents, had mixed effects on 2020 surrender activity. Record low interest rates led to more positive market value adjustment, and contracts in the surrender charge period with a positive MVA surrendered at higher rates. For contracts beyond the surrender charge period, surrender rates declined.

Contracts with a guaranteed lifetime income benefit have much better persistency than those without, and among contracts that have begun taking income withdrawals, surrender rates are even lower. Persistency appears insensitive to nominal money-ness (the relationship of account value to the benefit base), but when an actuarial money-ness basis which discounts guaranteed income for interest and mortality rates is applied, we see that persistency is greater when the economic value is higher.

Surrenders are sensitive to external market forces as well as the absolute level of credited interest rates. Contracts earning less than 2% exhibit sharply higher surrenders than those earning more.

Lifetime income commencement rates are low: 7% overall in the first year following the end of the waiting period and then falling to approximately 3% in years 3 and later. There is evidence of a spike in utilization after year 10, particularly where the benefit is structured as an optional rider rather an embedded product feature. Age, tax status, and contract size all influence commencement rates.

Lifetime income utilization increases sharply when policies are in the money, that is, when the benefit base exceeds the account value. After normalizing for age, tax status, and contract duration, contracts that are 25% in the money or more exercise at a 12% rate.

In contrast, when contracts with lifetime withdrawal benefits are out of the money, at the money, or modestly in the money, policyholders exercise at a base rate of about 2%. Income commencement rates are most sensitive to money-ness following the end of the rollup period.

Detailed study results, including company-level analytics, benchmarking, and customized behavioral assumption models calibrated to the study data, are available for purchase by participating companies.

Ruark Consulting, LLC, based in Simsbury, CT. is an actuarial consulting firm that provides principles-based insurance data analytics and risk management, and offers expertise on topics of longevity, policyholder behavior, product guarantees, and reinsurance. 

© 2021 RIJ Publishing LLC. All rights reserved.

Comfort with CITs has grown: Cerulli

Posted on March 2, 2021 by -

ETF assets grew more than 1% during January, surpassing $5.5 trillion thanks to $55 billion in net flows. Mutual fund assets fell 0.2%, ending the month with just below $18.2 trillion. Mutual funds experienced positive net flows ($38.3 billion) for the third consecutive month.

That’s from the latest issue of The Cerulli Edge—US Monthly Product Trends. The report analyzes mutual fund and exchange-traded fund (ETF) product trends as of January 2021, explores the attributes of collective investment trusts (CITs), and covers the growth of outsourced chief investment officer (OCIO) assets managed in separate accounts.

Driven by plan sponsors’ pursuit of lower-cost alternatives, CITs have captured marketshare from mutual funds, Cerulli found. Unlike mutual fund, CITs need a seed investor. To build out a CIT business, managers must have a strategy for acquiring seed investors; they must incentivize an existing mutual fund client through favorable terms, or enlist consultants to serve as matchmaker.

Results from Cerulli’s 2020 partnership survey with the Coalition of Collective Investment Trusts show that, in addition to drawing upon existing relationships to source seed investors, CIT sponsors report finding new clients to seed CITs, suggesting that comfort with the vehicle has grown.

Cerulli observes a trend of larger clients (greater than $100 million in AUM) turning to the OCIO model and bringing new demands to OCIO providers, such as fully customized portfolios. Responding to this demand, almost all OCIO providers (90%) offer a service model that includes a fully customized portfolio using separate accounts.

Cerulli expects that as the typical client size of an OCIO provider grows, the use of separate accounts will increase. Growth in the use of separate accounts is not only driven by the demand for customization, but also by the demand for lower fees.

© 2021 RIJ Publishing LLC. All rights reserved.

Big 4Q rally for US pension risk transfer deals: LIMRA SRI

Posted on March 2, 2021 by -

The US single premium buy-out sales totaled $13.7 billion in the fourth quarter, up 21% from fourth quarter 2019, according to the Secure Retirement Institute (SRI) US Group Annuity Risk Transfer Sales Survey. For the full year of 2020, buy-out sales were $25 billion, down 10% from 2019 results due to sluggish sales in the second and third quarters.

A group annuity risk transfer product, such as a pension buy-out product, allows an employer to transfer all or a portion of its pension liability to an insurer. In doing so, an employer can remove the liability from its balance sheet and reduce the volatility of the funded status.

Under a buy-out, the insurer would go further and take legal responsibility for paying monthly pensions directly to each individual plan member. A buy-in is an investment contract and the fiduciaries of the plan retain the legal responsibility to pay members’ benefits.

“After a quick start to the year, pension risk transfer sales slowed in the second and third quarters as employers addressed the impact of COVID-19 on their businesses,” said Mark Paracer, assistant research director, SRI, in a release. “This disruption was temporary and sales picked up by year-end.

“Low interest rates, market volatility and rising administration costs continue to challenge defined benefit plan sponsors and drive them towards de-risking opportunities like pension risk transfer. We expect this trend to continue in 2021,” he added.

“Historically, fourth quarter sales results tend to be higher than in other quarters. Fourth quarter 2020 buy-out sales continue this trend and represented the highest quarterly sales total recorded since fourth quarter 2012. For the year, more than 60% of carriers reported year-over-year growth.”

There were 177 new buy-out contracts sold covering 259,342 participants in the fourth quarter. For the full year, there were 432 buy-out contracts sold, representing 408,277 participants. 

In the fourth quarter 2020, there were two “buy-in” contracts totaling $1.6 billion. This is the highest quarterly total for buy-in products ever reported. For the year, buy-in product sales totaled $1.8 billion, 4% below 2019 sales results.

The overall group annuity risk transfer sales were $15.3 billion for the quarter, 24% higher than fourth quarter 2019. In 2020, total group annuity risk transfer sales were $26.8 billion, down 10% from prior year results.

Total single premium buy-out assets were $168.4 billion and total buy-in assets were $3.4 billion. Together, they totaled $171.9 billion in single premium assets, 10% over last year.

Nineteen companies participated in this survey, representing 100% of the U.S. pension risk transfer market. Breakouts of pension buy-out sales by quarter and pension buy-in sales by quarter since 2015 are available in the LIMRA Fact Tank.

Honorable Mention

Posted on March 2, 2021 by -

SEC suspends trading of securities hyped in social media

The Securities and Exchange Commission (SEC) this week suspended trading in the securities of 15 companies because of questionable trading and social media activity.

The action follows the recent suspensions of the securities of numerous other issuers, many of which may also have been “targets of apparent social media attempts to artificially inflate their stock price,” the SEC said in a release. The order also states that none of the issuers has filed any information with the SEC or OTC Markets, where the companies’ securities are quoted, for over a year. 

The SEC also recently issued orders temporarily suspending trading in: Bangi Inc. (BNGI); Sylios Corp. (UNGS); Marathon Group Corp. (PDPR); Affinity Beverage Group Inc. (ABVG); All Grade Mining Inc. (HYII); and SpectraScience Inc. (SCIE).

Each of these orders stated that the suspensions were due at least in part to questions about whether social media accounts have been attempting to artificially increase the companies’ share price. The SEC can suspend trading in a stock for 10 days and generally prohibit a broker-dealer from soliciting investors to buy or sell the stock again until certain reporting requirements are met.

Mutual of Omaha aims to get ‘Retirement Right’

The Retirement Services division of Mutual of Omaha Insurance Company has enhanced its employer-sponsored retirement product and rebranded it as “Retirement Right.” The upgrade adds more pricing options for small to large plans and provides investment options, service flexibility and participant tools at any level, a company release said.

The launch will include national advertising, social media, digital and print media, with tactics kicking off in this month. “We’re here to help our plan sponsors and their employees get retirement right.” said Michelle Gibilisco, director of Business Development at the insurer.

“We are engaged in many new plan opportunities and our increased pricing flexibility allows us to be more competitive on plans of all sizes,” said Bob Woods, 401(k) National Sales Director at Mutual of Omaha, in the release.

Mutual of Omaha has been a retirement plan provider for 45 years, offering flexible product design, investment co-fiduciary services, 3(16) administrative fiduciary services, and participant engagement tools, the release said.

Americans feel more financial damage from pandemic than in 2008: Allianz Life

Nearly seven in 10 (69%) Americans (age 21+ in 2007) said they believe the COVID-19 pandemic will have a greater overall economic impact than the Great Recession (2007-2009),  according to the new 2021 Retirement Risk Readiness Study from Allianz Life Insurance Co. of North America.

More than half (56%) of respondents said the pandemic will also have a greater impact than the Great Recession on their personal finances. The results were based on a

December 2020 online survey of 1,000 people ages 25 and older in the lower 48 states. Singles with household incomes over $50,000, couples with incomes over $75,000, and those with investable assets of at least $150,000 were included. In other results:

68% of respondents (68%) said they retired earlier than expected, up from the 50% who acknowledged earlier-than-expected retirement in last year’s study. Similar to 2020, the majority said they retired involuntarily, for healthcare issues (33%, up from 25% in 2020) and unexpected job loss (22%, down from 34% in 2020); 43%  said they couldn’t save for retirement right now (up from 37% in 2020), and 42% felt too far behind on their retirement goals to catch up (up from 31% in 2020).

Americans still have unrealistic expectations about working in retirement. A full 70% of non-retirees think it is likely they will work at least part time in retirement, up from 65% in 2020. Yet, only 6% (versus 7% in 2020) of retired respondents were doing so.

The closer people are to retirement, the less they want to keep working. When asked if they would rather retire at age 55 with their basic expenses covered or work until age 75 and spend more in retirement, only 23% of retirees preferred to work longer (versus 32% of near-retirees and 48% of pre-retirees).

Near-retirees are more active in saving enough in a retirement account (29% versus 23% in 2020); diversifying their savings (42% versus 27% in 2020); researching expenses and risks associated with retirement (43% versus 35% in 2020); making a formal plan with a financial professional (37% versus 29% in 2020); and purchasing a product that provides guaranteed retirement income (38% versus 30% in 2020).

MetLife unit reinsures $5 billion in UK pension liabilities

Metropolitan Tower Life Insurance Co., a unit of MetLife, has closed its second and third longevity reinsurance transactions with Rothesay Life Plc, reinsuring approximately $5 billion of pension liabilities associated with two UK bulk annuity transactions completed in the fourth quarter of 2020.

Jay Wang, senior vice president and head of Risk Solutions for MetLife’s Retirement & Income Solutions business, said his company would continue to “expand our footprint within the U.K. longevity reinsurance market. Despite the pandemic, the UK pension and longevity risk transfer market remains resilient and robust.”

David Cox, co-head of Pricing and Reinsurance at Rothesay, said in a release, “We are pleased to continue to grow our relationship with MetLife.” 

Midland National FIA, offered at RetireOne, will include BlackRock ESG index

Midland National Life has added the BlackRock ESG US 5% Index ER (ticker: BESGUVCX) as a third index available to investors in its IndexMax fixed index annuity product, which is available to fee-based advisers on the RetireOne platform. The ESG index may include companies focused, for example, on lowering carbon emissions, emphasizing workforce diversity, and strengthening data privacy and security.

Demand for socially responsible financial products increased rose 42% in the past two years, said David Stone, founder and CEO of RetireOne, citing the United States Forum for Sustainable and Responsible Investment. ESG strategies currently comprise roughly 33% of US assets under professional management. The Deloitte Center for Financial Services (DCFS) estimates that ESG-mandates assets will account for half of all professionally managed investments in the US by 2025.

The IndexMax ADV “layers in potential annual performance credits with additional 5- or 7-year term participation credits to provide rates guaranteed for the term,” according to a Midland National release. In addition to the ESG index, IndexMax ADV offers the Fidelity Multifactor Yield Index 5% ER (ticker: FIDMFYDN), and the S&P 500 Low Volatility Daily Risk Control 5% Index ER (ticker: SPLV5UE).

RetireOne, a service of Aria Retirement Solutions since 2011, serves over 900 RIAs and fee-based advisors with offerings from multiple “A” rated companies. RIAs may access this fiduciary marketplace at no additional cost to them or their clients.

(c) 2021 RIJ Publishing LLC. All rights reserved.

                          

‘COVID-19 is not a retirement story’: CRR

Posted on February 25, 2021 by -

The COVID-19 pandemic hasn’t changed Americans’ overall retirement funding picture—mainly because the people who lost the most in the pandemic were those who already at greater risk for an insecure retirement, according to a new report from the Center for Retirement Research (CRR) at Boston College.

“The problems confronting the retirement system before the pandemic remain. Social Security continues to face a 75-year deficit and the depletion of the trust fund in the mid-2030s,” write Alicia Munnell, director of the CRR, and Anqi Chen, assistant director of savings research. “Employer plans continue to face inadequate balances, a major coverage gap, no decumulation mechanism, and low interest rates. And older workers continue to face difficulties in finding new jobs, causing many to retire too early,” they write.

“On the benefit side, Social Security payments continue to go out each month, and 401(k) balances appear relatively unaffected. On the income side, the impact on Social Security’s finances has been minimal, and employee and employer 401(k) contributions remain relatively steady.”

“While older workers have suffered, they have not been hurt disproportionately and appear as able to work from home as their younger counterparts. On the other hand, those with the least education—workers least likely to have a 401(k)—have borne the brunt of the recession,” the paper said.

Regarding the health of the Social Security system, the authors note, “The [Social Security] actuaries characterize the impact of the pandemic and recession as ‘significant’ and, indeed, a number of important assumptions look quite different in the next few years. Mortality is up, fertility and immigration are down, disability incidence is down in 2020 and then up for the next three years, unemployment is up, real wages are down then up, and real interest rates are down.

“But the impact on Social Security finances appears to be modest. Most of the pandemic/recession effects are projected to end by 2025, and the effects on the long-term deficit and on the depletion of the trust fund are negligible. In terms of the long-term outlook, the average income rate did not change at all and the cost rate rose only a tiny bit, leading to a slight increase in the 75-year deficit from 3.21 to 3.28 percent of taxable payrolls.”

© 2021 RIJ Publishing LLC. All rights reserved.

Beware the ‘Specialized’ ETFs

Posted on February 25, 2021 by -

When exchange-traded index funds (ETFs) first appeared, Vanguard employees heard through the office grapevine that Jack Bogle didn’t see the point. He didn’t object to index mutual funds—they were his passion. He didn’t see the sense of trading index funds throughout the day.

Maybe Bogle foresaw the complications described in the recent research paper, “Competition for Attention in the ETF Space.” In it, four economists assert that the first ETFs were solid; but too many new ones are faddish, opaque, expensive and a trap for investment duffers.

That’s the first of four papers in our latest Research Roundup. The others try to answer, respectively, these questions: Does the national debt matter? Does the average person expect deficit spending to cause inflation? And, will changes in the RMD (required minimum distribution) rules change how Americans use tax-deferred savings accounts?

Beware the ‘Specialized’ ETFs

Exchange-traded funds (ETFs) came to market in two distinct waves. First there were the ultra-low-cost index funds that revolutionized the fund industry. More recently there’s been a wave of bright, shiny, higher-fee “specialized ETFs” designed to exploit passing investment fads, a new academic paper asserts. 

“The original ETFs, which are broad-based products, are beneficial investment platforms, as they reduce transaction costs and provide diversification,” write Itzhak Ben-David and Byungwook Kim of Ohio State University, Francesco Franzoni of the Swiss Finance Institute, and Rabih Moussawi of Villanova University in “Competition for Attention in the ETF Space” (NBER WP No. 28369).

“Specialized ETFs ride the same wave of financial innovation,” they add. “However, these products compete for the attention of unsophisticated investors who chase past performance and neglect the risks arising from the under-diversified portfolios. Specialized ETFs, on average, have generated disappointing performance for their investors.”

The authors suggest that “the most important financial innovation of the last three decades, originally designed to promote cost-efficiency and diversification, has also provided a platform to cater to investors’ irrational expectations.

“The investor clientele of specialized ETFs has a greater fraction of retail investors, who are typically considered less sophisticated. Relatedly, specialized ETFs are very popular among sentiment-driven investors, i.e., those that trade through the online platform Robinhood, which has become famous in recent years for hosting investment frenzies.”

With a market value of more than $5 trillion, ETFs now account for about 17% of the total assets in US investment companies, according to the paper. More than 3,400 ETFs have been launched, covering broad-based indexes like the S&P 500 to niche investment themes, such as a trade war, cannabis, vegan products, work from home, and COVID-19 vaccines.

“Specialized ETFs fail to create value for investors,” the authors conclude. “These ETFs tend to hold attention-grabbing and overvalued stocks and therefore underperform significantly: They deliver a negative alpha of about −4% a year. This underperformance persists for at least five years following launch.”

Does The National Debt Matter?

Stocks climb a wall of worry, they say. So does the national debt. It grew steadily after the US left the gold standard in 1971, and the federal bailouts of 2008 and 2020 have pushed it into the nose-bleed zone. If you try to forget it for a minute, somebody shows you the National Debt Clock.

In their new paper, “Does the National Debt Matter,” Randall Wray of the Levy Institute at Bard College and Yeva Nersisyan of Franklin and Marshall College propose a different way to look at the debt. It doesn’t come from out-of-control government spending, they say. Instead it reflects the enormous US trade deficit and debt remaining from fiscal responses to past recessions.

When Americans buy electronics from Asia or cars from Germany, dollars pile up overseas. A chunk of that money necessarily comes back to the US through purchases of US debt by foreign banks. [Technically, no physical dollars “pile up.” Digits change in foreign accounts at the Fed.] When the US suffers recessions, tax receipts fall, social welfare payments rise, and/or the Treasury engages in debt-financed spending. 

Wray and Nersisyan are both proponents of Modern Monetary Theory. MMT reveals the integration and interdependency of the public, private, and foreign sectors of the US economy. Given that a sovereign country is never short of its own currency, MMT holds that no level of federal debt or deficit stops the US Treasury from paying its bills or prevents the Federal Reserve from supplying the private banking system with enough reserves to ensure that all good checks clear (including Treasury checks). In MMT, the public sector serves as a risk-free counter-party to the private sector, not its competitor for limited finances. “Mainstream economists look at government debt as a liability of the government, forgetting that it represents an asset for the holder,” they write.

In a country issuing its own currency, economic growth never has to stall for lack of money or credit per se. It stalls when there aren’t enough real resources to mobilize with money. In the current COVID-19 pandemic, they write, “The problem has not been lack of finance, but lack of the real output we need: hospital beds, masks, testing kits, safe places to quarantine those who are infected, and maybe even food, shelter, and clothing to support the population. Focusing on resource availability and resource distribution… rather than government budgetary impacts would have been a good first step.”

Do Most People Expect Deficit Spending to be Inflationary?

How does the average person, living in his or her tiny microeconomic universe, respond to macroeconomic trends? When the media reports that government debt has soared to a record high, or that it will reach a stratospheric level in 10 or 20 years, how does an individual’s expectations of future inflation change?

In their recent research paper, “Fiscal Policy and Household Inflation Expectations: Evidence from a Randomized Trial” (NBER Working Paper No. 28485), three economists report their analysis of the responses to the questionnaires they sent in December 2018 to about 92,000 American households covered by the famed AC Nielsen. About 30,000 people responded.

Most people respond to predictions of towering future national debt levels with increased expectations about inflation, but not to reports of current levels of debt, according to authors Olivier Coibion of the University of Texas at Austin, Yuriy Gorodnichenko of University of California–Berkeley, and Michael Weber of the Chicago Booth School of Business at the University of Chicago.

“Our results suggest that most households do not perceive current high deficits or current debt as inflationary nor as being indicative of significant changes in the fiscal outlook. In that sense, our results are not out of line with Dick Cheney’s famous quip that ‘deficits don’t matter,’” they write.

“Telling households that the US budget balance will deteriorate so that the national debt will increase by ten trillion dollars by 2028 leads to an increase in short-run inflation expectations of 25 basis points and a rise in the cumulative inflation expectations of about one percentage-point over ten years.”

The economist Robert Barro suggested in the 1970s that government borrowing today to boost the economy would be self-defeating, because rational investors would foresee higher taxes in the future and make offsetting preparations for them. (Barro’s idea was based on the Ricardian Equivalence, which holds that it doesn’t matter in the long run whether a government funds itself through borrowing or taxes.) This new paper didn’t support that idea.

How Will Changes in RMD Rules Change Behavior? 

Taking required minimum distributions (RMD) from tax-deferred accounts like IRAs and 401(k) plans can be painful for retirees, especially if they don’t need the money for current expenses or if they planned to leave the assets to their beneficiaries. The withdrawal doesn’t add much to their enjoyment of life; it just triggers a tax bill.

New legislation has begun to shake up the sleepy RMD world. The age at which Americans must start taking annual required minimum distributions (“RMDs”) from their pre-tax IRA, 401(k), or 403(b) savings accounts was lifted to 72 from 70-1/2 by the SECURE Act of 2019. Proposals are also afoot to raise the age to 75, to exempt accounts of less than $100,000 from RMDs, or even to eliminate the RMD altogether.

What would be the consequences of any or all of those changes? Economic researchers looked into that question and concluded that none of them would have much affect on retirees who use their tax-deferred accounts for current income, but it might affect the behavior of retirees who intend to bestow those pre-tax assets on their heirs.

“If RMD rules were applied only to retirement assets in excess of $100,000… or were completely suspended, this would result in notably lower lifetime tax payments by high-income individuals having a bequest motive,” write Olivia Mitchell of the Wharton School and Vanya Horneff and Raimond Maurer of Goethe University in Frankfurt, Germany, in “Do Required Minimum Distribution 401(k) Rules Matter, And For Whom? Insights from a  Lifecycle Model” (NBER Working Paper 28490).

“Financial institutions such as insurance companies and mutual funds offering retirement plans and investment advice would benefit from ascertaining their clients’ bequest intentions, before advising them about RMD strategies,” the authors point out. “Our conclusions will also interest professional financial planners guiding clients as they make retirement payout choices.”

© 2021 RIJ Publishing LLC. All rights reserved.

‘Bermuda Triangle’ Deal for Principal Financial?

Posted on February 25, 2021 by -

There was just the right combination of vagueness and specifics in the “settlement agreement” between the Principal Financial Group and one of its major shareholders, Elliott Investment Management, to raise eyebrows—and questions—this week.

Are Principal and Elliott headed for the type of restructuring deal that other big asset managers and annuity issuers have struck in recent years? These deals have released big chunks of capital that had been tied to blocks of in-force annuity contracts. RIJ has called these “Bermuda Triangle” deals, since they sometimes involve a Bermuda-based reinsurer.  

The ingredients appear to be present. In 2019, Elliott (founded in 1977 by billionaire Paul Singer) got into the life/annuity business by buying Prosperity Life, which issues fixed and fixed index annuities. Prosperity Life’s parent, Prosperity Holdings, is a Bermuda company whose executive officer, Mark Cicirelli, is also US head of insurance at Elliott and chairman of Prosperity Life. A Bermuda Triangle scenario might involve reinsurance of Principal annuity liabilities in Bermuda by Prosperity Life and management of the annuity assets by Elliott… but that’s purely my speculation. 

In a conference call this morning, Principal CEO, chairman and president Dan Houston confirmed to a panel of equity analysts that Principal’s upcoming strategic review was taking place against a “backdrop of transactions” that had been successful in “liberating capital” and that Principal “wants to make sure that we’re looking at the potential of those.” He was presumably referring to last year’s reinsurance deals between Jackson National and Athene and between Equitable and Venerable Holdings.

Houston fended off a question about whether Principal leaned toward divestiture or reinsurance of any of its businesses. He said it was “way too early on to provide insights on what we might do.” He promised more details at Principal’s Investor Day in June.

One slide in today’s presentation showed that Principal plans to redeploy $1.4 to $1.6 billion in capital in 2021, including $600 million to $800 million in share repurchases. Principal ended 2020 with a reported $2.9 billion in excess and available capital; it doesn’t appear to need a reinsurance deal to provide more.

Here’s what happened so far this week:

A Principal release on February 22 said:

Principal Financial Group (Nasdaq: PFG) today announced steps to enhance shareholder value by initiating a strategic review of its business mix, capital management, and capital deployment options. Principal will be adding two new independent directors to its Board of Directors, Maliz Beams and a second director to be named at a later date. These actions, which follow a constructive dialogue with one of Principal’s largest investors, Elliott Investment Management, LP (“Elliott”), build on Principal’s ongoing efforts to drive growth and create value.

Beams was CEO of retirement solutions at Voya Financial Inc. from 2011 to 2014, and helped guide Voya’s separation from ING. In 2017, Voya sold its insurance and annuity business to Athene Holding Ltd. In 2020, Athene reinsured $26.7 billion in Jackson National annuity business. 

Elliott, which manages about $40 billion and owns a reported 2% of Principal stock (total market cap: $16.65 billion, based on a share price of $61, February 25, 2021), “has been pushing the company to explore selling or spinning off its more capital-intensive life insurance business to focus on its more profitable wealth management operations,” according to Bloomberg, which cited unnamed sources.

Based on those figures, the market value of Elliott’s investment in Principal has increased by about $33 million. About three-quarters of Principal’s $10.3 billion in variable annuity (VA) account value is covered by a guaranteed minimum withdrawal benefit (GMWB) rider. Such guarantees have created risk exposure for other life/annuity companies with large books of VA business. 

Last Monday, Principal filed a Form Schedule 14A with the Securities and Exchange Commission disclosing that it had reached a “customary cooperation agreement as well as an information sharing agreement” with Elliott.

For its part, Elliott agreed to “standstill.” According to Principal’s latest 10-K:

Elliott has agreed to abide by customary standstill restrictions (subject certain exceptions relating to private communications to the Company) until thirty (30) days prior to the deadline for the submission  of stockholder nominations for non proxy-access director candidates for the Company’s 2022 annual meeting of stockholders (the “Cooperation Period”),   including that Elliott will not, among other things, (A) engage in transactions resulting in Elliott’s beneficial ownership exceeding 5% of the Company’s common stock, or its aggregate economic exposure exceeding 9.9% of the Company’s common stock, (B) seek any additional representation on the Board, (C) make any requests for stock list materials or other books and records of the Company, (D) engage in any solicitation of proxies or (E) make certain proposals relating to extraordinary transactions publicly or in a manner that would require public disclosure.

Principal posted just under $300 million in individual VA sales in the first three-quarters of 2020, according to LIMRA SRI, for 18th place, out of total VA sales of $70.3 billion. It was not among the top 20 issuers of fixed annuities or of total annuity sales. For comparison, its total individual annuity sales were $3.2 billion in 2015, for 20th place.

According to Principal’s current 10-K report, filed Monday:

“As of December 31, 2020, excluding the Acquired Business that has not migrated, we provided full service accumulation products to (a) over 39,100 defined contribution plans including $280.3 billion in assets and covering over 6.0 million eligible plan participants, and (b) to over 1,900 defined benefit plans, including $23.3 billion in assets and covering over 344,000 eligible plan participants.

“As of December 31, 2020, approximately 46% of our full service accumulation account values were managed by our Principal Global Investors segment, 43% were managed entirely by the third party asset managers that were not under contract to sub-advise a PFG product, 4% were sub-advised and 7% represented employer securities. As of December 31, 2020, 93% of our $10.7 billion in variable annuity account balances was allocated to mutual funds managed by the Principal Global Investor. As of December 31, 2020, $7.4 billion of the $10.3 billion of variable annuity separate account values had the GMWB rider.”

© 2021 RIJ Publishing LLC. All rights reserved.

Meet Laurence Black, Interpreter of Indexes

Posted on February 25, 2021 by -

In these videos, Tamiko Toland, director of annuity research at CANNEX, the annuity data firm, interviews Laurence Black, founder of The Index Standard, an independent startup based in Manhattan. The firm “provides index ratings and forecasts that aim to make index and ETF screening simpler and easier.”

Here’s a link to the full-length, 50-minute video. Here’s a link to a three-minute sample.

A former head of indexes at Barclays and ABN MMRO, Black has now created tools for helping others understand and evaluate the indexes that power exchange-traded funds (ETFs), fixed index annuities (FIAs) and registered index-linked annuities, or RILAs.

The Index Standard aims to help self-directed investors, financial advisers, and Registered Investment Advisor platforms answer questions such as:

  • How do you know which index or ETF to buy?
  • How do you assess the best one?
  • Other than performance, what other factors do you need to consider?

With trillions of dollars invested in ETFs, with combined sales of index-based FIAs and RILAs close to $80 billion in 2020, and with many more intermediaries selling or recommending those products, the financial industry’s need for an index-rating tool is greater than ever. 

Before founding The Index Standard, Black was a managing director and head of Quantitative Indices and Strategies at Barclays. He led Barclays’ index partnerships with Yale economist Robert Shiller and Nouriel Roubini, as well as with Novus Partners. Before Barclays, Black was Head of Indices at ABN AMRO for seven years in London. He holds an MBA from the University of Warwick, and a Bachelor’s degree from the University of Cape Town.

(c) 2021 RIJ Publishing LLC. All rights reserved.

Honorable Mention

Posted on February 24, 2021 by -

Pacific Life offers fee-only, investment-only VA

Expanding its product offerings for RIAs (registered investment advisors) Pacific Life has issued a no-commission, no surrender charge, investment-only variable annuity (IOVA) that “can be integrated into the technologies RIAs currently use,” according to a release this week.

As an IOVA, the contract offers tax-deferred growth but no living benefit option, such as a guaranteed lifetime withdrawal benefit or GLWB. But, as with any annuity contract, the owner can choose to convert the account value to a guaranteed lifetime income stream by annuitizing it. 

https://www.pacificlife.com/content/dam/paclife/rsd/annuities/public/ria/pdfs/brochure-flyer/pacific-advisory-variable-annuity-brochure.pdf

According to the product brochure, the Pacific Advisory Variable Annuity features include:

  • A contract fee of 45 basis points per year, including a mortality and expense risk fee of 15 basis points, a platform fee of 15 basis points, and an administrative fee of 15 basis points.
  • A minimum investment of $25,000 for either qualified or non-qualified premiums
  • An optional return-of-premium death benefit for a fee of 15 basis points
  • Investment option fees ranging from three basis points for a Schwab S&P 500 Index to 1% for an Invesco Oppenheimer International Growth Fund.

Other fund families on offer include Vanguard, Fidelity, American, Templeton, DFA, BlackRock, Franklin, T. Rowe Price, MFS, Western Asset Management, PIMCO, JPMorgan, Goldman Sachs and Janus Henderson. Several providers also offer a variety of model asset allocation options.

The contract allows RIAs “to manage and bill directly on their clients’ assets without creating a taxable event or reducing clients’ benefits.” According to the product brochure: 

  • Withdrawals for advisory fees will not be considered a withdrawal if the amount of advisory fees withdrawn is equal to or less than 1.50% of the total account value for the calendar year.
  • Withdrawals for advisory fees that exceed an annual rate of 1.50% of the account value during the calendar year may reduce the death benefit amount by more than the actual excess withdrawal amount.
  • Withdrawals from the contract to pay advisory fees reduce the account value by the withdrawal amount.
  • Withdrawals for advisory fees may impact guarantees under the contract and the benefits provided by optional benefits.
Wells Fargo to sell its asset management business

Wells Fargo & Company has agreed to sell its Wells Fargo Asset Management unit to (WFAM) to private equity firms GTCR LLC and Reverence Capital Partners, L.P., for $2l1 billion. The sale includes Wells Fargo Bank N.A.’s business of acting as trustee to its collective investment trusts and all related WFAM legal entities, according to a release.

Upon closing of the transaction in the second half of 2021, the new, independent company will be rebranded. “As part of the transaction, Wells Fargo will own a 9.9% equity interest and will continue to serve as an important client and distribution partner,” the release said.

Nico Marais, WFAM’s CEO since June 2019, will remain CEO; he and his leadership team will continue to oversee the business. Joseph A. Sullivan, former chairman and CEO of Legg Mason, will be appointed as executive chairman of the board of the new company following the closing of the transaction.

WFAM has $603 billion in assets under management, 24 offices globally, and specialized investment teams with 450 advisers. WFAM will operate independently as portfolio company of GTCR and Reverence Capital.

“This transaction reflects Wells Fargo’s strategy to focus on businesses that serve our core consumer and corporate clients, and… on growing our wealth and brokerage businesses,” said Barry Sommers, CEO of Wells Fargo’s Wealth & Investment Management division, in. a release.

Wells Fargo & Company has approximately $1.9 trillion in assets and serves an estimated one in three U.S. households and more than 10% of middle market companies in the US.

Philips, MetLife and Principal Financial seal $1.2 bn pension risk transfer deal

Philips North America LLC has agreed to transfer about $1.2 billion in pension plan obligations to Principal Financial Group and the Metropolitan Tower Life Insurance Company subsidiary of MetLife.  of Philips North America Pension Plan obligations to Principal and MetLife.

The agreement, signed in the fourth quarter of 2020, provides guaranteed retirement income solutions for approximately 11,000 retirees, beneficiaries and deferred participants in the Philips North America Pension Plan.

MetLife will act as the lead administrator for the monthly benefits for approximately 9,000 retirees and their beneficiaries in the Philips North America Pension Plan. Principal will have financial responsibility for a portion of these monthly benefits and will settle such obligations directly with MetLife. Principal will have sole responsibility for the approximately 2,000 deferred participants.

The transaction will not change the amount of monthly pension benefits received by the Philips’ pension plan participants and participants will continue to receive a single payment each month. MetLife and Principal, rather than Philips, will be responsible for making these monthly payments.

Security Benefit receives IRS approval of annuity fee arrangements

Security Benefit has received a favorable private letter ruling (PLR) from the Internal Revenue Service (IRS) that payment of certain investment advisory fees from an annuity contract are not treated as a taxable event by the contract owner. This allows financial professionals and their clients to incorporate non-qualified fee-based annuities in their portfolios more easily.

Financial professionals can deduct client fees from the cash value of certain non-qualified Security Benefit annuities, without tax consequences for their clients. The advisory fees must only be for ongoing investment advice and cannot exceed an annual rate of 1.5% of the advisor contract’s cash value. The fees must be related only to the annuity and paid directly to the registered investment advisor.

Currently, Security Benefit offers a fixed index annuity, ClearLine, and the Elite Designs variable product on DPL’s platform. 

An Eldridge business, Security Benefit and its affiliates offer products in retirement markets and wealth segments for employers and individuals and held $41.1 billion in assets under management as of December 31, 2019. 

© 2021 RIJ Publishing LLC. All rights reserved.