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I arrived late at the Insured Retirement Institute’s annual meeting in Boston Monday and slipped into a darkened ballroom at the Westin Copley just in time to catch the end of the afternoon’s last general session.  

For this particular session, consultant Michael Maslansky had impaneled two dozen or so random investors jury-style in rows of chairs on the ballroom stage. I heard him ask them how they’d prefer to pay for financial advice:  

a.      On a sales commission basis.

b.      As a percent of assets under management.

c.       By the hour.

d.      As a flat fee for service.

By the number of raised hands, “by the hour” and “flat fee” were significantly more popular among consumers. Clearly, insurers will either have to re-engineer their compensation practices or re-educate American investors.

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This focus group-like presentation, called “It’s Not What You Say, It’s What They Hear: How to Talk to Consumers in a Post-Crisi World,” appeared to reflect the new focus at IRI, which has undergone a complete makeover in its staff, its mission and its website since changing its name from NAVA. 

NAVA—the original National Association of Variable Annuities—had been an inward-looking and somewhat dour trade group of annuity manufacturers. IRI has much broader and more public ambitions.

At the conference, I asked IRI president and CEO Cathy Weatherford, the former Oklahoma insurance commissioner who has been driving the transition since October 2008, whether IRI was focused on lobbying, consumer education, or financial advisors, she said, “All three. We’re doing all of them.” 

IRI’s mission to lobby “insured retirement solutions” is evidenced by the addition of experienced Washington lobbyists to the staff in the past year. Its focus on building stronger ties to the distribution community can be seen in its plan to put regular inserts in Financial Planning, Bank Investment Consultant and On Wall Street magazines.

(In fact, as a reflection of the new parity between advisors and manufacturers at IRI, the organization has raised distributor annual dues sharply to the same $40,000 that insurance companies pay, according to Rick Heil, IRI’s Director of Standards.)

Maslansky’s presentation seemed to indicate that IRI is serious about reaching out to consumers—although it’s hard to tell if IRI’s emphasis will be on learning from consumers or shaping their opinions or both.

In any case, the conference, which ended yesterday, was markedly different from NAVA conferences of the past. There were fewer people. There was a higher male to female ratio—perhaps because companies sent fewer mid-level annuity department staffers. Instead of a three-aisle carnival of exhibitors, as in past years, there were only 13 booths this year. 

Remarkably little was said about new annuity products or about the product flaws that led to the catastrophic failure of variable annuity lifetime riders over the past year. One attendee said he was “incredulous” at that.

And yet few attendees said they missed much about the old parochial, preaching-to-the-choir NAVA conferences aside from the fact that some of them necessitated mid-winter excursions to golf havens like Tucson and Palm Springs.

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Judging merely by the difference in the intensity of audience engagement in two conference events yesterday, IRI members are deeply interested in learning how to market to registered investment advisors (RIAs) and less interested in the Obama administration’s efforts toward automatic IRA enrollment for workers who don’t currently have access to a workplace retirement plan.

For instance, the audience’s attention faltered during Cathy Weatherford’s one-on-one onstage armchair interview of J. Mark Iwry, the Obama administration’s point man on the automatic IRA program and the $500 Savers Credit. By contrast, a standing-room-only crowd squeezed into a small meeting room for a breakout session called “RIAs and the Annuity World: The New Paradigm.”

RIAs are fee-based intermediaries who for several reasons typically don’t sell the variable annuities that many IRI members market. But RIAs are also the fastest growing type of intermediary in the financial landscape, and the decision-makers for increasing numbers of investors. To survive in the retirement income market, annuity manufacturers must win them over.

That won’t be easy. The session’s panelists—Lisa Plotnick of Cerulli Associates, Marc Costantini of John Hancock, and Patrick Ferrer of Advisor Distribution Consultants—described RIAs as more thoughtful, less sales-oriented, more fiduciary-minded, more cost-sensitive and more resistant to wholesalers than, for instance, registered reps.

The courtship of RIAs can already been seen in new products like John Hancock’s AnnuityNote contract, a stripped-down variable annuity with a built-in 5% lifetime payout for an all-in 1.74% fee. But RIAs still “recoil from annuities,” said one panelist. Unless persuaded otherwise, RIAs may continue to generate retirement income the way they know best: by building ladders of municipal bonds.

© 2009 RIJ Publishing. All rights reserved.

A new product upgrade from New River Inc. enables insurers to offer variable annuity prospectuses from their website that mirror those on the SEC’s EDGAR system, thus allowing annuity providers to comply with the SEC’s new Summary Prospectus Rule, the company said in a release.

The upgrade, called Variable Products Express Version 2.0, allows providers to take advantage of the cost savings associated with the web-based delivery of summary prospectuses without having to send contract owners to other websites for information.  

According to NewRiver, the new offering reduces the complexities of managing compliance fulfillment, creates a better user experience and promotes electronic consent and e-delivery.

NewRiver describes its core product, Variable Products Express, as a Web-based SEC-compliant data warehouse that gives insurance providers access to an online library of compliance documents (prospectuses, supplements, semi-annual and annual reports, and statements of additional information) for every open variable annuity and variable life contract and sub-fund sold in the United States.  

© 2009 RIJ Publishing. All rights reserved.

Federal regulator are considering a plan to have the nation’s healthy banks lend billions of dollars to the Federal Deposit Insurance Corporation, which protects bank depositors, the New York Times reported Tuesday.

The move, strongly supported by bankers and their lobbyists, would enable the FDIC to continue the work of rescuing America’s sickest banks. The FDIC insures $4.8 trillion in bank deposits.  The wave of 94 bank failures since last January has severely depleting its funds.   

Bankers and their lobbyists say they’d rather fund the FDIC with voluntary loans from banks rather than the two competing options: have the FDIC levy an emergency assessment from the banks or have the FDIC draw from its $100 billion line of credit at the Treasury Department.

A special assessment of $5 billion to $10 billion over the next six months would crimp bank profits and possibly push more banks into deeper financial trouble. Any new borrowing from the Treasury might look like a new taxpayer bailout that could trigger anti-bank sentiment.

Despite a special assessment imposed on banks a few months ago to keep the FDIC funded, its cash balance is only about $10 billion, down from about $30 billion at the start of the year. Some $32 billion has been set aside for failures that officials expect in the coming months.

© 2009 RIJ Publishing. All rights reserved.

Investors approaching retirement are focused on assuring an income that can maintain their standard of living, a recent TIAA-CREF Institute survey of 1,002 plan participants in higher education shows.  

• Within the past two years, 60% of respondents have sought out objective retirement planning advice;
• 87 % of respondents said that advice regarding strategies for drawing income to live on in retirement is important to them; and
• 86 % also said that advice regarding paying for healthcare in retirement is important to them.
• Of the 24 % who changed the amount they are saving for retirement due to developments in the financial markets, 61 % increased their savings.
• Nearly all colleges and universities continued to contribute to sponsored defined contribution plans; of the 4 % that made a change, 73 % decreased the contribution amount.
• 85 % of those who have consulted with a financial advisor within the past two years feel that the advice was independent and objective and 69% typically implement the recommendations received.
• The top reasons cited for seeking advice included: How to invest their savings (89%);  How much they should be saving (60%); Once retired, how to draw income to live on from savings (50%).

Two-thirds of those surveyed expressed concern about outliving their savings and about choosing the best way to draw income to live on from their savings. Among those planning to annuitize some or all of their retirement savings, the security of a guaranteed lifetime stream of income was by far the greatest motivation, cited by 40%, with 13% also citing the safety, stability and security of the annuitization option and 11% feeling that it will maximize their retirement income.

About 70% of those surveyed said they are concerned about being unable to afford good health care. Only 23% feel very well prepared to meet such expenses and 63% said they would be very or somewhat likely to contribute to a tax-preferred savings account specifically designed to pay for health-related expenses in retirement, indicating a desire for such a savings vehicle. A person retiring today at age 65 would need about $300,000 in savings to cover lifetime medical expenses to age 90.

© 2009 RIJ Publishing. All rights reserved.

In last Sunday’s New York Times, Peter Boone of the London School of Economics and MIT’s Simon Johnson called for specific regulatory changes to prevent future financial crises.

“Our main regulatory bodies, including the Fed, are deeply compromised,” they wrote. “Rather than act as tough overseers of the public purse that we need-and that we had before 1980-they have become cheerleaders for the financial sector.”

Boone and Johnson recommended that the government:

• “Prohibit companies and senior managers in regulated financial industries from making donations to political campaigns.”

• “Restrict public employees involved in regulatory policy from working in those industries from for five years after they leave office.”

• “Prohibit people who move to government from the financial sector from making policy decisions on bailout and regulatory-related matters for a minimum of five years.”

• “Raise capital requirements for the financial sector-and the bigger the bank, the more capital you should need. The Obama administration should at least triple the current requirements.”

“The phenomenal growth of derivatives over the past 30 years,” they wrote, “has made all our big banks more interconnected, and hence systemically risky; if one bank falls the others fall with it. Yet our regulators, many of whom remain in office today, watched as this time bomb grew and then exploded with the collapse of the American International Group.”

Boone is chairman of Effective Intervention, a British charity, and a research associate at the London School of Economics’ Center for Economic Performance. Johnson, who blogs at baselinescenario.com, is a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics.

© 2009 RIJ Publishing. All rights reserved.

John Hancock Retirement Plan Services has announced a distribution partnership with the financial services firm Edward Jones.  Through the agreement, Edward Jones’ financial advisers have access to the John Hancock 401(k) platform, including JH Signature, defined contribution plans, and the Guaranteed Income For Life feature.

“We are pleased to be expanding the reach of our products and services and are particularly excited to be working with Edward Jones,” said Art Creel, Executive Vice President, Sales & Marketing, John Hancock Retirement Plan Services, in the announcement.

© 2009 RIJ Publishing. All rights reserved.

Tim Seifert has joined Prudential Annuities as a vice president and director of National Sales.   He will be responsible for sales planning and execution across independent broker dealer, wirehouse, bank and agency distribution channels, reporting to senior vice president Bruce Ferris.

Seifert will also oversee Prudential Annuities national sales managers, National Sales Desk and Business Development Desk. He joins Prudential after more than 23 years at PLANCO Financial Services, LLC, a Hartford Life Inc. company, where he was most recently senior managing director for sales and distribution. 

© 2009 RIJ Publishing. All rights reserved.

Milliman, Inc., the global consulting and actuarial firm, today released the latest update to the Milliman 100 Pension Funding Index, which consists of 100 of the nation’s largest defined benefit pension plans. In August, pensions experienced asset increases of $14 billion and liability increases of roughly $26 billion, resulting in a $12 billion decrease in funded status.

The decline reduced funded status to 75.0% based on $1.007 trillion in assets and a projected benefit obligation of $1.341 trillion. Over the last 12 months, the cumulative asset return has been 9.78% and the funded status has fallen by $338 billion. For these 12 months, the funded ratio of the Milliman 100 companies has fallen from 100.3% to 75.0%.

“August was something of a milestone month,” said John Ehrhardt, co-author of the Milliman 100 Pension Funding Index. “Not only did pension liabilities hit an all-time high for the second straight month, but it was one year ago exactly that pension funding last stood above 100%.” View the complete monthly update at www.milliman.com/expertise/employee-benefits/products-tools/pension-funding-study/index.php.

© 2009 RIJ Publishing. All rights reserved.

The Securities and Exchange Commission voted unanimously yesterday to create rules that would improve the quality of credit ratings by requiring greater disclosure, fostering competition, helping to address conflicts of interest, shedding light on rating shopping, and promoting accountability.

One rule will force certain investors to rely less on credit ratings and more on their own research. Another requires the agencies to disclose rating histories and requires them to share information about securities they have rated with competitors so they too can rate the securities, the New York Times reported.

“These proposals are needed because investors often consider ratings when evaluating whether to purchase or sell a particular security,” said SEC Chairman Mary Schapiro. “That reliance did not serve them well over the last several years, and it is incumbent upon us to do all that we can to improve the reliability and integrity of the ratings process and give investors the appropriate context for evaluating whether ratings deserve their trust.”

In 2006, Congress passed the Credit Rating Agency Reform Act that provided the SEC with authority to impose registration, recordkeeping, and reporting rules on credit rating agencies registered as Nationally Recognized Statistical Rating Organizations (NRSRO). Currently, 10 credit rating agencies are registered with the Commission as NRSROs.

© 2009 RIJ Publishing. All rights reserved.

Participants in 401(k) plans shifted $203 million to equities from fixed income in August, according to Hewitt’s 401(k) index.

Total equity allocations rose to 56.2% of all 401(k) assets from 55.3% in July, Hewitt Associates said in its monthly report. While equity allocations have increased steadily since February, the average is still well below the 62% of a year ago, the report noted.

Lifecycle funds received 32.1% of all inflows in August, or $147 million, while international funds received 17.6%, or $80 million. Stable value funds experienced the most outflows for the month at $299 million, representing 65.4% of all outflows. Since April, stable value funds have had outflows of nearly $1 billion, the report said.

According to Hewitt, 22% of participant-only contributions went into stable value funds, while 21.8% went into lifestyle funds and 16.9% went into large-cap U.S. equity funds. For overall contributions, 21.1% was invested in lifecycle funds, 20.3% was invested in stable value and 15.7% moved into large-cap U.S. equity funds.

© 2009 RIJ Publishing. All rights reserved.

The Department of Labor is killing a regulation issued in the last days of the Bush administration allowing advisers affiliated with mutual funds, brokerage firms and other companies that sell investments to provide investment advice to 401(k) participants, Investment News reported.

“We believe the final investment advice regulation published in the Jan. 21 Federal Register went too far in permitting investment advice arrangements not specifically contemplated by the statutory exemption,” said Phyllis C. Borzi, assistant secretary of the Employee Benefits Security Administration, a unit of the Labor Department.

Ms. Borzi, made the announcement last week at a conference in Washington sponsored by the American Society of Pension Professionals & Actuaries.

The Pension Protection Act of 2006 included a provision aimed at making it easier for investment advisers to provide advice to 401(k) participants as long as fees earned by advisers are no different for investment options that are recommended and as long as disclosures are provided.

Many investment advisers opposed the Bush rule, arguing that fund companies and brokerage firms could exert pressure on advisers to recommend proprietary products. The Obama administration and House Education and Labor Committee Chairman George Miller, D-Calif., also had objected to the Bush rules.

© 2009 RIJ Publishing. All rights reserved.

Non-qualified annuities contribute significantly to the retirement security of middle-class Americans, and those who own annuities have great confidence in financial future despite downturn, says a new Gallup survey.

The survey of 1003 annuity owners nationwide was conducted by The Gallup Organization and Mathew Greenwald & Associates in conjunction with the Committee of Annuity Insurers (CAI),  a trade group of major life insurance companies. 

The survey showed that eight out of 10 owners of non-qualified annuities (annuities purchased with after-tax money, rather than money in a 401(k) or IRA) have annual household incomes below $100,000 and 42% have incomes below $50,000. Only 4% have incomes over $200,000.

More than 80% if owners intend to use their annuities to avoid burdening their children in their later years. About the same percentage intend to use their annuities to hedge longevity risk.

Most non-qualified annuity owners are female (58%) and the average owner is a retired 70-year-old woman with a moderate income.  Most owners (69%) are retired, up from 58% in 2005.  Owners’ average age increased to 70 in 2009 from 66 in 2005. 

© 2009 RIJ Publishing. All rights reserved.