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At the Morningstar Investor Conference

Posted on May 10, 2019 by Kerry Pechter -

David Blanchett was about mid-way into his presentation on retirement planning—”(Re) Modeling the Cost of Retirement”—when I arrived at the Morningstar Investors Conference in Chicago Wednesday morning. The breakout room at the McCormick Center was crowded with 300 or so attentive financial advisors, many braced against the walls with their wheeled carry-ons and bright red conference swag bags.

Morningstar’s retirement research chief introduced the topic of annuities gingerly, promising to say the “A-word” only once. He described income-generating insurance contracts succinctly:

“This is risk transfer. This is not wealth maximization.” He also said, “If you don’t talk about guaranteed income with your clients, then you’re not really providing holistic financial advice.” Great points.

Blanchett then showed how guaranteed income streams and a systematic withdrawal method can work together in the same retirement income plan. The greater the percentage of retirees’ essential expenses met by Social Security, pensions or annuities, he said, the greater their withdrawal rates from risky assets can be (to 6.9% a year, in his calculation). Blanchett gave a solid presentation on the benefits of annuities, for an audience that probably doesn’t use them much.

Most of Blanchett’s presentation will have been familiar to followers of his research, much of it done in collaboration Wade Pfau and Michael Finke of The American College. But the level of audience-engagement during the session seemed to signal that the notion of blending annuities and investments in retirement is new to a big percentage of advisors.

No surprise there: The preoccupation with market-beating returns and principal-preservation that dominates the accumulation stage is a hard habit to kick. It carries over into retirement, especially among wealthy clients who are counting on their advisors to make them even richer at the end of retirement than they were at the beginning.

Only one point in Blanchett’s presentation needed clarification, I thought. He said that “high income retirees get less from Social Security” than lower income retirees. I hear this a lot, but, obviously, it’s not true.

While Social Security, because of its progressive benefit formula, replaces a higher percentage of pre-retirement income for low lifetime earners, it doesn’t mean they “get more.” High lifetime earners receive, in absolute terms, much higher monthly benefits. They also receive higher cumulative benefits, because they tend to live longer.

Where are the life insurers?

Oddly, annuity providers failed to sponsor a single booth at the Morningstar conference trade show. On a break between breakout sessions, I paced up and down the broad avenues of the exhibition hall at the McCormick Center, snacking from a paper cup of dried bananas, cranberries and apricots, and didn’t see any.

If annuity issuers want to expand their reach into the RIA market, as they claim to, why aren’t any of them here? (That’s not meant to be a rhetorical question.) Yes, this is an investment conference, and most of the exhibitors are mutual fund firms. But Morningstar has a variable annuity data business, and a retirement research department, run by Blanchett. On the conference program, there was even a decumulation panel discussion on “Cracking the Retirement Nest Egg,” featuring Kelli Hueler of Income Solutions, the annuity platform for certain jumbo plan sponsors and providers.

Trade show exhibits are expensive; I get it. But if you hope to get traction with this audience in the future, show the annuity flag today. The journey of a thousand sales, they say, begins with a single booth.

Debt Among Near-Retirement U.S. Households

Posted on May 10, 2019 by No Author -

Target-date CITs grew in 2018: Morningstar

Posted on May 10, 2019 by Editorial Staff -

Assets in target-date mutual funds shrank in 2018 but the overall market grew, as providers gathered assets into low-cost alternatives like collective investment trusts (CITs), according to Morningstar’s annual Target Date Fund Landscape Report.

The 2019 report evaluated more than 60 series of target date funds (TDFs) and found intensifying demand for low-fee options. Providers answered demand with inexpensive options like CITs or new lower-cost series that rely on passive funds.

Assets in target-date strategies totaled more than $1.7 trillion at the end of 2018, with $1.1 trillion in mutual funds and approximately $660 billion in target date CITs. Vanguard claimed nearly 40% of the TDF market at year-end 2018 and held roughly $650 billion in total assets across its mutual fund and CIT series.

The report presents the latest developments in the target-date landscape, highlighting noteworthy considerations for target-date investors in five areas: Process, People, Performance, Price, and Parent.

In June, Morningstar intends to launch a new quarterly publication, “Target-Date Fund Series Reports,” which will feature analyses of sub-asset-class glide paths and insights on a series’ management. It will also introduce a revised methodology for performance attribution.

Key findings from Morningstar’s annual TDF landscape report include:

The demand for lower-cost options propelled growth in target-date series offered as CITs, which typically cost less than mutual funds. In 2018, assets in target-date CITs totaled approximately $660 billion, a roughly $30-billion increase in a year when returns were negative.
Assets in target-date mutual funds receded slightly in 2018 for the first time since 2008. Even though assets in target-date mutual funds fell to $1.09 trillion at the end of 2018 from $1.11 trillion at year-end 2017, their estimated net inflows for the year were positive, at $55 billion.
Price drove demand for TDFs in 2018. Nearly all the $55 billion estimated net flows in 2018 went to low-cost series that held more than 80% of assets in index funds. Assets moved to lower-cost share classes, reducing the average asset-weighted expense ratio to 0.62% in 2018 from 0.66% in 2017.
Many TDF providers have launched less-expensive alternatives to their higher-priced legacy offerings or made their strategy available in lower-cost vehicles like CITs. However, returns of a target-date provider’s newer, lower-cost series didn’t always beat those of the legacy. Of the 10 target-date series that replicate a legacy offering but with lower fees, the since-inception returns for three failed to keep pace.
“Passive target-date funds” do not exist. Even among series that invest only in index funds, there are significant differences in methods—differences that can’t always be inferred from their equity glide paths.
Only 16 of the roughly 140 target-date fund managers invested more than $1 million in their series as of year-end 2018. Of that 16, four of the six managers who run multiple series invest more in a higher-cost, legacy offering that relies predominantly on actively managed underlying holdings.

Germany struggles with defined contribution

Posted on May 10, 2019 by Editorial Staff -

Contrary to popular belief, not all Europeans have cushy pensions. In the German state of North Rhine Westphalia, only 47% of those employed in the private sector are covered by a workplace savings plan. The country has been promoting voluntary defined contribution plans, but there’s still a big coverage gap.

The situation in North Rhine Westphalia’s motivated its labor and social affairs minister, Karl-Josef Laumann, to call for mandatory workplace pensions across the German federal republic, according to a report in IPE.com.

Laumann, a Christian-Democrat, said at the annual conference of the pension association aba (Arbeitsgemeinschaft für betriebliche Altersversorgung) that proposals to reduce the statutory state pension level for everyone makes no sense when only half of Germany’s workers can make up the shortfall by saving in occupational pensions.

Among low-income earners, he said, only 28% of those earning up to €2,500 ($2,804) a month were signed up for a workplace pension and just over half (52%) of those earning up to €4,500 ($5,047) had a workplace pension, compared to 71% of those earning above this level.

“We’re not reaching the low income earners with occupational pensions,” Laumann said.

“Where we no longer have collectively agreed wages, no one is thinking about workplace pensions—and that’s why I come to the conclusion that this won’t work with a voluntary-only approach.”

Germany’s workplace pension reform law of 2018, known as the BRSG, had led to some growth in coverage, said Heribert Karch, the outgoing chairman of aba. But coverage growth is still slow.

Around 56% of Germans in jobs that are subject to taxes for national insurance also had a workplace pension in 2018, Karch said, with current approaches set to take this to around 60% or 70% by 2030. That would represent an increase of around 30 percentage points in 30 years.

Germany has been moving toward establishment of defined contribution (DC) plans designed by trade unions and employer organizations through collective bargaining agreements, an arrangement known as the “social partner model.” Trade unions are expected to discuss that plan in the fall.

Like the US, Germany appears to be struggling to increase the future retirement security of its citizens while balancing the cost equitably among workers, employers and the government, as it transitions to a world where defined contribution plans are the only supplement for the basic state pension.

Why Capitalism Needs Populism

Posted on May 10, 2019 by Raghuram G. Rajan -

Big Business is under attack in the United States. Amazon canceled its planned new headquarters in the New York City borough of Queens in the face of strong local opposition. Lindsey Graham, a Republican US senator for South Carolina, has raised concerns about Facebook’s uncontested market position, while his Democratic Senate colleague, Elizabeth Warren of Massachusetts, has called for the company to be broken up. Warren has also introduced legislation that would reserve 40% of corporate board seats for workers.

Such proposals may seem out of place in the land of free-market capitalism, but the current debate is exactly what America needs. Throughout the country’s history, it has been capitalism’s critics who ensured its proper functioning, by fighting against the concentration of economic power and the political influence it confers. When a few corporations dominate an economy, they inevitably team up with the instruments of state control, producing an unholy alliance of private- and public- sector elites.

This is what has happened in Russia, which is democratic and capitalist in name only. By maintaining complete control over commodity extraction and banking, an oligarchy beholden to the Kremlin has ruled out the possibility of meaningful economic and political competition. In fact, Russia is the apotheosis of the problem that US President Dwight D. Eisenhower described in his 1961 farewell address, when he admonished Americans to “guard against the acquisition of unwarranted influence” by the “military-industrial complex” and the “potential for the disastrous rise of misplaced power.”

With many US industries already dominated by a few “superstar” firms, we should be glad that “democratic socialist” activists and populist protesters are heeding Eisenhower’s warning. But, unlike in Russia, where the oligarchs owe their wealth to the capture of state assets in the 1990s, America’s superstar firms have gotten to where they are because they are more productive. This means that regulatory efforts have to be more nuanced—more scalpel than sledgehammer.

Specifically, in an era of global supply chains, US corporations have benefited from enormous economies of scale, network effects, and the use of real-time data to improve performance and efficiency at all stages of the production process. A company like Amazon learns from its data constantly to minimize delivery times and improve the quality of its services. Confident of its superiority relative to the competition, the firm needs few favors from the government—one reason why Amazon founder Jeff Bezos can back The Washington Post, which is often critical of the US administration.

But just because superstar firms are super-efficient today does not mean they will stay that way, particularly in the absence of meaningful competition. Incumbents will always be tempted to sustain their positions through anti-competitive means. By supporting legislation such as the 1984 Computer Fraud and Abuse Act and the 1998 Digital Millennium Copyright Act, the leading Internet firms have ensured that competitors cannot plug into their platforms to benefit from user-generated network effects.

Similarly, after the 2009 financial crisis, the big banks accepted the inevitability of increased regulations, and then lobbied for rules that just so happened to raise compliance costs, thereby disadvantaging smaller competitors. And now that the Trump administration has become trigger-happy with import tariffs, well-connected firms can influence who gets protection and who bears the costs.

More generally, the more that government-defined intellectual-property rights, regulations, and tariffs—rather than productivity—bolster a corporation’s profits, the more dependent it becomes on government benevolence. The only guarantee of corporate efficiency and independence tomorrow is competition today.

The pressure on the government to keep capitalism competitive, and impede its natural drift toward domination by a dependent few, typically comes from ordinary people, organizing democratically in their communities. Not possessing the influence of the elite, they often want more competition and open access. In the US, the late nineteenth century Populist movement and the early twentieth century Progressive movement were reactions to monopolization in critical industries such as railroads and banking.

These grassroots mobilizations led to regulations like the 1890 Sherman Antitrust Act, the 1933 Glass-Steagall Act (albeit less directly), and measures to improve access to education, health, credit, and business opportunities. By supporting competition, these movements not only kept capitalism vibrant, but also averted the risk of corporatist authoritarianism.

Today, as the best jobs drift to superstar firms that recruit primarily from a few prestigious universities, as small and medium-size companies find the path to growth strewn with impediments laid by dominant firms, and as economic activity abandons small towns and semi-rural communities for megacities, populism is emerging again. Politicians are scrambling to respond, but there is no guarantee that their proposals will move us in the right direction.

As the 1930s made clear, there can be much darker alternatives to the status quo. If voters in decaying French villages and small-town America succumb to despair and lose hope in the market economy, they will be vulnerable to the siren song of ethnic nationalism or full-bore socialism, either of which would destroy the delicate balance between markets and the state. That will put an end to both prosperity and democracy.

The right response is not revolution, but rebalancing. Capitalism needs top-down reforms, such as updated antitrust regulation, to ensure that industries remain efficient and open to entry, and are not monopolized. But it also needs bottom-up policies to help economically devastated communities create new opportunities and maintain their members’ trust in the market economy. Populist criticism must be heeded, even if the radical proposals of populist leaders are not followed slavishly. This is essential to preserving both vibrant markets and democracy.

Raghuram G. Rajan is professor of finance at the University of Chicago Booth School of Business and the author, most recently, of The Third Pillar: How Markets and the State Leave the Community Behind.

It’s No Joke: The Fed’s Comic Book is Wrong

Posted on May 2, 2019 by Kerry Pechter -

To teach young people “about basic economic principles and the Federal Reserve’s role in the financial system,” the New York Fed has published an Educational Comic Series. The pdfs of three of comic books are available for download from the New York Fed’s website.

These fanciful cartoon books use elements of science fiction (space travel, weird extraterrestrials, robots) to make the story of money entertaining and simple. But there’s a problem with the series. It repeats the myth that coins were invented to solve the inefficiencies of barter.

In one of the three books, “Once Upon a Dime,” the population of a planet called Novus barter with each other for what they need. A fisherman trades a fish for a jar of honey mustard. An E.T.-type swaps three small gears to a robot in exchange for the cakes the robot made. An octopus-like creature trades clock repair for a new pair of socks.

“This system of trading goods and services is called ‘barter’ and it works pretty well–as long as things don’t get too complicated,” the caption says.

The comic goes on to tell a familiar story, sometimes attributed to the 18th century Scottish economist Adam Smith: How coins (un-counterfeitable river stones, in this case) provided a common medium so that people could exchange goods for money at one place and time and then exchange that money for different goods at a different place and time.

In this telling, money gradually made large-scale commerce possible. People accumulated rocks and, when they had too many, banks were created to safeguard the accumulations. The banks loaned out the idle rocks at interest. Paper money and checks were later created to eliminate the need to carry hundreds of rocks.

Eventually, a central bank was needed. As credit expanded, inadvertent over-lending and defaults led to panics and bank runs. So the residents of Novus decided to create and fund a central bank that would serve as the banks’ bank. It would also monitor all the other banks so that they didn’t create too much or too little credit.

The inaccuracy—not just the over-simplification—of this version of the money-and-banking creation story has been known for at least a century. In 1913, British diplomat and economist Alfred Mitchell-Innes pointed out the shortcomings of the barter theory of money in two essays published in the Banking Law Journal. The first essay was called “What is Money?” The second, “The Credit Theory of Money.”

In Innes’ account, markets existed long before the introduction of metal coins. Trade was financed by credit and debt obligations based on a combination of IOUs, trust, reputation, laws and enforceable contracts. Most importantly, the development of large-scale commerce preceded the use of money by many centuries.

“The idea that to those whom we are accustomed to call savages, credit is unknown and only barter is used, is without foundation,” Innes wrote. “From the merchant of China to the Redskin of America; from the Arab of the desert to the Hottentot of South Africa or the Maori of New Zealand, debts and credits are equally familiar to all, and the breaking of the pledged word, or the refusal to carry out an obligation is held equally disgraceful.”

Scholarly research has since supported Innes’ premise. In his 2011 book, “Debt: The First 5,000 Years,” David Graeber writes, “There’s no evidence that [a barter economy] ever happened, and an enormous amount of evidence suggesting that it did not.” In a more recent example, Harvard law professor Christine Desan studied the history of the issuance of coins in Britain for her 2015 book, “Making Money: Coin, Currency, and the Coming of Capitalism,” and didn’t find support for the barter story.

It’s “a myth that money emerges naturally from the trades of enterprising individuals or their agreement on a common symbol of value,” she wrote. Coins, she discovered, were always in short supply, were not always durable, needed frequent revaluation, and were subject to hoarding. The big breakthrough in economics was, she found, was the 17th century discovery that governments (and, by extension, banks) could create large amounts of IOUs based on their anticipated receipt of taxes.

Desan characterizes modern money as a “political project” by which a sovereign government spends its IOUs (Treasury bonds, which pay interest, or Federal Reserve Notes, which don’t) into circulation and then cancels them as people and companies pay taxes. At the retail level, the government licenses banks to create dollar deposits out of thin air when they make loans, allow them to circulate at interest, and then extinguish the liabilities when borrowers repay the loans.

Does it make a difference whether we think that merchants spontaneously created gold coins and other “commodity money” to replace barter or whether we think of it as government-backed credit money (like the Continental dollars printed in the Revolutionary War, the greenbacks printed in the Civil War, or the “expansion of the Fed balance sheet” by trillions of dollars during the financial crisis)?

It makes a big difference. If money is a commodity originating in the private sector, then taxes can be characterized as confiscation—something parasitic to be resisted and avoided. But if a nation’s money is a kind of public utility, where the government and banks release money that never existed before, then taxes are essential. They complete the cycle of credit creation and destruction on which the global economy runs.

Your politics, in fact, is likely to be determined by the version of the story you believe. Whether you think that Social Security can or can’t “run out of money,” or whether you believe private banks should receive more or less government oversight, depends on whether you think money is primarily a private, a public matter, or both.

Desan thinks that we, as Americans, need to get the story right. Otherwise, we won’t be able to make smart decisions about our financial future. We’ve lost the “visibility of money as a political project,” she writes. With that disappearance, we also lost our ability to discuss “the role of fiscal action in supporting the value of money, the distributive stakes in the modern arrangement, and the alignment of rights and interests acted out in the ethics of capitalism. That absence, a void of history and theory, undermines the effort so urgent to our present moment to understand the political economy we inhabit.”

[Note: A spokesman for the New York Fed told RIJ this week that the central bank has been publishing educational comic books intermittently since the 1950s. He said he didn’t know if the comic books were historically accurate or inaccurate. The content of the newest comic books may have been based on the content of the older comic books, he said, which were written when the barter story still went largely uncontested.

To Defer or Not To Defer (SPIA or DIA)?

Posted on May 2, 2019 by George A. (Sandy) Mackenzie -

Annuities are curious instruments. The garden-variety annuity is the immediate life annuity—hereafter, the IA. Beloved by most economists, it is ignored or distrusted by most everybody else. As this article will show, it is actually the cheapest way to generate secure retirement income, provided the retiree can accept the illiquidity entailed by an IA’s upfront purchase requirement.

The IA in its simplest form is a contract with an insurance company, in which, in return for a fairly hefty upfront payment, the insurance company pays the annuitant a monthly sum after the contract is signed that lasts as long as the annuitant does. If payments start at age 66, and the annuitant dies at age 67 (and if the contract has no cash refund or period certain feature), that’s it; the payments end. If, on the other hand, the annuitant lives to age 100, or for 35 x 12 months, the insurance company is stuck with 420 monthly payments.

The IA has never been popular with Americans, even those with enough money to be able to buy one. In part, this is because an IA does not come cheap. For a guaranteed monthly income of only, say, $800 per month, a 65-year old male would have to pay about $143,000 today (or $156,000 if the contract has a cash refund feature). Since the life expectancy of a 65-year-old male these days is about 20 years, an insurance company cannot count on the premature death of its annuitants to lower the cost of its contingent liability.

The lack of popularity of IAs means that for most Americans, the only guaranteed lifetime income they will receive in their advancing years is the benefit that Social Security provides, which pays out like an IA, but is also indexed to consumer prices. Social Security is not only the only source of lifetime income for older Americans; for the majority, its present value (if it were possible to capitalize the flow of Social Security payments) would account for most or much of their wealth.

IAs should have a real appeal to many older Americans, since the greater the share of wealth they represent, the less an older American has to worry that his or her retirement nest egg will run out if she lives to an advanced old age. IAs have a survival-contingent annual yield that is higher than that of a more conventional financial instrument.

To grasp this, consider that an IA is like a contingent bond: an investor making a choice between an instrument paying a given sum that continues to have value after her death and one that simply stops paying at that point, will pay more for (i.e., it will cost more than) the first type of instrument. But for as long as the annuitant stays alive, she will get a higher return on the IA. This differential increase with the starting age of the annuitant, because life expectancy declines with that age.

But what about the price of an IA, and the pain of giving up access to more than $100,000? The question arises as to whether these are stumbling blocks. Enter the IA’s less well-known cousin, the deferred annuity (DA), which typically doesn’t begin to pay out until the owner reaches an advanced age, like 81.

A stream of income of $800 per month beginning at age 81 when purchased at age 65 in the form of a DA might cost only about $35,000 (or $43,000, if there’s a cash refund feature). That gives the retiree protection against late-life poverty while providing about $100,000 more liquidity. Thus, the same survival-contingent income stream ($800), with no payments until age 81, costs much less than an IA, because of the smaller likelihood that the insurance company will have to pay out anything. If death occurs before age 81, there is no payment whatsoever, and the odds that payments will continue for many years even if the annuitant makes it to age 81 are not great.

So, it might appear that a DA gives us the best of both worlds: protection against poverty in advanced old age, and liquidity in the meantime. But that which glitters is often iron pyrite. Let’s make the reasonable assumption that our hypothetical annuitant also wants a risk-free income of $800 per month over the period from age 65 through age 80. If not provided by an annuity, it will have to be provided by a more conventional financial investment.

Assuming a rate of return on risk-free investments of three percent, and not taking account of the cost (including profit margins and sales commissions) of the conventional investment the upfront cost of this 15-year income stream will be about $115,000.

It can be seen—and will always be true—that the cost of an IA that provides income for life starting at age 65 will be less than the sum of the cost of the DA and the conventional investment.

Let’s do the math. Remember we are assuming, to avoid an apples and oranges comparison, that the conventional investment is risk-free, and therefore has a lower expected return than an investment like a S&P500 mutual fund. (We are also working with the actuarial values of both annuities and ignoring the costs of either type of investment. This should not affect the basic conclusion of the comparison.)

Working in years, not months, and letting r stand for the risk-free rate of interest, P_i stand for the probability of survival from age 65 to age i, FTCA stand for the fixed-term contingent annuity, DA stand for the deferred annuity, and CI stand for the conventional investment, their costs per dollar of income are given by:

FTCA = P₆₆/(1+r) + P₆₇/(1+r) + P₆₈/(1+r)²+ P₆₉/(1+r)³ + …. + P₈₀/(1+r)¹⁵

DA = P₈₁/(1+r)¹⁶ + P₈₂/(1+r)¹⁷ + P₈₃/(1+r)¹⁸+ P₈₄/(1+r)¹⁹ + …. + P₁₀₀/(1+r)³⁵

CI = 1/(1+r) + 1/(1+r)²+ 1/(1+r)³+ 1/(1+r)⁴+ …+ 1/(1+r)¹⁵

The cost of the IA is the sum of FTCA and DA. This has to be less than the sum of CI and DA, because all the P terms are less than one. In other words, if you set costs aside, the value of the contingent annuity must be less than the cost of the conventional investment. You can’t get a higher return on the conventional investment without taking more risk. And if you take more risk, you lose the predictability that comes with a guaranteed income stream.

Focusing on the low price of a DA can distract us and make us forget that if we want a given income when we are really old and grey, we might also want the same income during the first part of our golden years.

Honorable Mention

Posted on May 2, 2019 by Editorial Staff -

Loans from 401(k)s still declining: T. Rowe Price

The use of 401(k) loans reached a nine-year low of 22.5% in 2018, and continued a steady six-year decline of nearly 10%, according to T. Rowe Price’s annual participant data benchmarking report, Reference Point.

The report also found that the percentage of participants who took a hardship withdrawal fell for the ninth consecutive year, declining from 1.9% in 2010 to 1.3% in 2018. Meanwhile, both loan balances and the average amount of hardship withdrawals increased.

Additional findings include:

Participation declined slightly. The participation rate dropped by nearly 2% from 2017 to 2018. Plans that did not have auto-enrollment saw participation drop at more than twice the rate of those without auto-enrollment.
Auto-enrollment continued to significantly impact positive participant behavior. Participation was over 40 percentage points higher in plans with auto-enrollment compared with plans without it.
Pretax deferral rates continued to rise. The average pretax deferral rate increased slightly to 8.6%, reaching the all-time high for a second year in a row.
Employer match increased. Plans offering a 4% employer match surpassed those offering a 3% match for the first time. The reduction of the corporate tax rate due to tax reform may have contributed to the increase.
Plan adoption and participant usage of target date products reached an all-time high. Plan adoption of target date products reached an all-time high at 95%. Participant usage also increased in 2018 across all age groups but was highest among younger workers. Additionally, the percentage of participants with their entire account balance in a target date product has grown by 20% since 2014.
401(k) Roth contributions increased. The number of participants making Roth contributions increased by nearly 10% compared with 2017; however, overall usage remains low at 7.6%. Millennials age 30–39 are using Roth the most, at nearly 10%, with younger workers age 20–29 following at 8.8%. In 2018, nearly 75% of plans offered the Roth option.

Data are based on the large-market, full-service recordkeeping universe of T. Rowe Price Retirement Plan Services, Inc., retirement plans (401(k) and 457 plans), consisting of 657 plans and over 1.8 million participants, from January 1, 2007, through December 31, 2018.

Securian to offer individual annuities in the bank channel

Securian Financial has entered the bank distribution channel for individual annuities with customized products and a new sales team, Chris Owens, Securian Financial’s national sales vice president for retail life insurance and annuities, announced this week.

According to LIMRA, bank channel individual annuity sales in the U.S. were $41.5 billion in 2018, an 18% increase over 2017 sales, Securian said. Banks “have many risk-averse clients who traditionally purchase CDs. Annuities are an increasingly attractive alternative for bank advisors interested in generating a higher return on their clients’ investments,” said Owens in the release.

Securian Financial hired Kate McLees Hannon and Karl Krause as regional sales vice presidents. The company plans to hire four more regional sales vice presidents for the bank channel by year’s end.

Securian Financial will offer bank customers all of its individual fixed, indexed, variable and immediate income annuities, as well as annuities with accelerated death benefit features for clients concerned about the potential costs of chronic or terminal illness. Securian Financial is also developing specific annuity products for banks.

Securian Financial’s immediate income annuity, underwritten by Minnesota Life Insurance Company, was ranked by Barron’s magazine as the best product in the three varieties of immediate income annuities the publication researched: immediate life only annuity, immediate 10 year-certain annuity and immediate cash installment refund annuity. Securian Financial’s MyPath Ascend 2.0 variable annuity, underwritten by Minnesota Life Insurance Company, was ranked the third-best product in the variable annuity category by Barron’s.

Securian Financial describes itself as the eighth largest life insurance company in the United States based on total life insurance in force. The company had $78.5 billion in assets under management at the end of 2018 and ranked #462 on the 2018 Fortune 500.

Securian Financial has a 95 Comdex ranking, which puts it in the top 5% of companies with a Comdex rating, the release said. The Comdex rating is an average percentile of a company’s ratings from independent rating agencies that analyze the financial strength and claims-paying ability of insurance companies.

‘Bucketing’ software, by subscription, for professionals and amateurs

Investment Link, a Southfield, MI-based registered investment advisor (RIA) and financial software firm, has launched a subscription-based web-based decumulation planning platform that employs the “bucket” or time-segmentation system to create retirement income,

The service, intended for advisors and investors, is called The Retirement Buckets Income Plan. The advice consists of two parts: Planning Advice with risk management through Retirement Buckets, and Investment Advice with risk management through Target Volatility Portfolios.

Investment Link is led by Henry Ilyasov, a 46-year-old certified financial planner who worked for Ameriprise from September 2004 to March 2018, when he started his current company, according to his LinkedIn page.

The subscription service is available at three price points: The basic “registered” service, at no monthly fee, includes a Social Security calculator and “savings advice.” A “standard” service ($23.99 a month or $239 per year) offers those services plus “planning advice.” A “premium” service ($29.99 a month or $299 per year) that in addition offers “investment advice.”

Bucketing platforms for advisors have been around for some time. The Income for Life Model (IFLM) from Wealth2k has been available for over a decade. WealthConductor, which offers the IncomeConductor bucketing software, was founded in 2017.

Top earners in US own mid-sized businesses

Posted on May 2, 2019 by Editorial Staff -

Most households in the top 0.1% of the income distribution receive more income from their human capital than from their financial capital, according to a new paper from the National Bureau of Economic Research.

But, according to the paper, Capitalists in the Twenty-First Century (NBER Working Paper No. 25442) by Matthew Smith, Danny Yagan,Owen M. Zidar, and Eric Zwick, tax planning by business owner-managers has obscured understanding of how typical top earners make money. Their human capital income may reflect “socially beneficial hard work or socially harmful rent capture and uncompetitive behavior,” they wrote.

The primary source of top income is usually not recorded as wage income, but as tax-favored private business profit. The researchers estimate that 75% of the business profits reported by this group can be attributed to human capital— namely, returns on business owners’ intellectual and physical efforts, whether socially beneficial or not—rather than financial capital investments.

They derive this figure by comparing the performance of firms that have lost their owners through retirement or premature death with that of comparable firms that have not experienced these shocks.

IRS changes dating back to the 1980s provide an incentive for owners of pass-through businesses—partnerships and S-corporations—to receive income as business profits rather than wages. To the extent that pass-through profits are in fact disguised wages, they can distort traditional measurements of labor and capital income.

Today, up to the 99th percentile of the income distribution, wage income dominates. At the very top of the distribution, in the top 0.1%, business income is more important than either wage income or investment returns. In this elite group of households, fewer than 13% rely primarily on interest, rents, and other capital income.

Who are the human-capital rich? More than 70% are under age 60. They own mid-size companies in the white-collar, skilled service industries. Near the top—the 99th to 99.9th percentile—they typically own single establishments that offer consulting, legal, medical and other highly specialized services. Among the top 0.1%, above the 99.9th percentile, the typical company is an auto dealership, beverage distributor, or large law firm.

The researchers acknowledge that elite earners could be erroneously labeled as human-capital rich if they are drawing money from a family-owned pass-through company to avoid estate taxes. To identify top earners who are unlikely to be wealthy heirs, they examine the earnings of parents of top earners born from 1980 to 1982. Children whose parents were in the bottom 99% of the income distribution are unlikely to be wealthy heirs. The researchers find that most young top earners are children of parents from the bottom 99%, so their results are unlikely driven by erroneously labeled wages of wealthy heirs.

The growth of income from pass-through entities has contributed to widening income inequality in the last two decades. The profits of pass-through owners rose during the 2001-14 study period, as they benefited both from increased labor productivity and from their widening share of the value added by their workforces. In other words, owners claimed an increasingly large slice of a growing pie. Among top 1% firms, that slice grew from 37% to 48%; for top 0.1% firms, it grew from 40% to 52%.

Wages are rising, but so is productivity

Posted on May 2, 2019 by Stephen Slifer -

The ADP survey (see chart below) shows an impressive correlation with the private sector portion of the payroll employment data to be released a couple of days later. And well it should. ADP, or Automatic Data Processing, Inc. is a provider of payroll-related services. Currently, ADP processes over 500,000 payrolls, for approximately 430,000 separate business entities, covering over 23 million employees. The survey has been in existence since January 2001, and its average error has been 65 thousand. So while it is not perfect, it does have a respectable track record.

The ADP survey said that employment jumped 275,000 in April after having risen 151,000 in March after having climbed by 220,000 in February. In the most recent 3-month period employment has risen 215,000. On Friday we expect the BLS to report that private sector employment rose about 190,000 in April.

Jobs in goods-producing industries rose 56,000 in April after having fallen 1,000 in April. Construction employment rose 49,000, mining fell by 2,000, and manufacturing rose 5,000. Service providers boosted payrolls by 223,000 in April after having climbed 152,000 in March. The April increase was led by an increase of 59,000 in professional and business jobs, 46,000 in health care, 25,000 in administration and support, 9,000 in education, 53,000 jobs in leisure and hospitality, 37,000 jobs in trade, transportation, and utility workers, and 6,000 in financial services.

With the labor force rising very slowly, employment gains of 200,000 or so will continue to slowly push the unemployment rate lower. The unemployment rate currently is 3.8%, well below the full employment threshold. As a result we are beginning to see more and more shortages of available workers.

However, at this point most of the upward pressure on wages is being countered by a corresponding increase in productivity. Over the past year unit labor costs, or labor costs adjusted for the increase in productivity rose 1.0%. Despite the seemingly tight labor market there is little upward pressure on the inflation rate.

The stock market has rebounded and is now at a record high level. Interest rates will remain steady through the end of the year. Consumers remain confident. Corporate earnings are solid. The economy is still receiving some stimulus in the form of both individual and corporate income taxes. Thus, our conclusion is that the economy will expand by 2.7% in 2019 after having risen 3.0% last year.

The Conference Board reported that consumer confidence jumped 5.2 points in April to 129.4 after falling 7.2 points in March. This series reached a high of 137.9 in October. It is somewhat lower than that currently, but its level remains solid and is roughly in line with where it was for most of last year.

Lynn Franco, Director of Economic Indicators at the Conference Board said, “Overall, consumers expect the economy to continue growing at a solid pace into the summer months. These strong confidence levels should continue to support consumer spending in the near-term.”

Confidence data reported by the Conference Board are roughly matched by the University of Michigan’s series on consumer sentiment. As shown in the chart below, trends in the two series are identical but there can be month-to-month deviations. Both series remain at very lofty levels.

The consumer should continue to provide support for overall GDP growth in 2019. The stock market struggled for several months late last year but has rebounded and reached a new record high level. The economy continues to crank out 190,000 jobs per month. Consumer debt in relation to income remains low. Interest rates remain low and the Fed has now ceased its series of rate hikes. We anticipate GDP growth of 2.7% in 2019 after having risen 3.0% last year.

The employment cost index for civilian workers climbed at a 3.0% rate in the first quarter after climbing at a 2.7% pace in the fourth quarter. Over the course of the past year it has risen 2.8%. Thus, the labor market continues to get tighter, and to attract the workers that they want firms are having to work employees longer hours, and offer higher wages and/or more attractive benefits packages.

With the unemployment rate at 3.8% and full employment presumably at 4.5%, it is not surprising that we are beginning to see a hint of upward pressure on compensation.

Wages climbed at a 3.0% race in the first quarter following a 2.4% gain in the fourth quarter. Over the course of the past year wages have been rising at a 2.8% pace. Benefits climbed at a 2.6% pace in both the fourth quarter of last year and in the first quarter of 2019. As a result, the yearly increase in benefits is now 2.7%.

What happens to labor costs is important, but what we really want to know is how those labor costs compare to the gains in productivity. If I pay you 3.0% more money but you are 3.0% more productive, I really don’t care. In that case, “unit labor costs”—labor costs adjusted for the change in productivity—were unchanged.

Currently, unit labor costs have risen 1.0% in the past year as compensation rose 2.8% while productivity increased by 1.8%. We expect compensation to climb to about the 3.7% mark this year, but at the same time we expect productivity to rise by 1.9%. Thus, unit labor costs at the end of 2019 to be rising at a 1.8% rate which means that there will be little if any upward pressure on the inflation rate in 2019 stemming from the tight labor market. A 1.8% increase in ULC’s is clearly compatible with the Fed’s 2.0% inflation target.

Honorable Mention

Posted on April 25, 2019 by Editorial Staff -

UK pensions race to de-risk before Brexit

Prudential Retirement, a unit of Prudential Financial, Inc., has concluded about $2.6 billion in previously undisclosed longevity reinsurance contracts in the U.K. pension risk transfer market so far in 2019. As part of these transactions, Prudential Retirement is assuming the longevity risks of approximately 16,000 pensioners.

Many UK pensions are seeking to close agreements prior to the original March 29 Brexit deadline, a Prudential release said. But the recent extension of the Brexit deadline to late October, pensions have an unexpected window to move forward and de-risk.

Demand for de-risking solutions has also been driven by the robust funded status of U.K. schemes, which have improved markedly since 2016, the release said. The funding level of the average U.K. pension scheme stood at 100.1% on March 29.

“Pension schemes that can afford to de-risk have raced forward in the opening months of 2019, taking advantage of the window before Brexit to reduce their risks and lock in gains,” said Amy Kessler, head of longevity reinsurance at Prudential Financial, in the release. “Brexit brings increasing levels of uncertainty that could wash away recent market gains and funding improvements, putting de-risking out of reach for those with lower hedge ratios. But with funding at the highest levels in a decade, pensions are de-risking at an unprecedented pace.”

“Another impetus to de-risk is the notable decline in U.K. mortality rates during the last 10 months,” said Christian Ercole, vice president at Prudential Financial. “The resulting level of market activity favors insurers and reinsurers who have invested in their pricing and analytics teams, and it also favors pension funds that come prepared with credible and complete data.”

Prudential said it has completed more than $60 billion in international reinsurance transactions since 2011, including the largest on record, a $27.7 billion transaction involving the BT Pension Scheme.

‘The environment’ ranks low when choosing investments: Allianz Life

When deciding whether to invest in or do business with a company, U.S. investors give its social and governance behavior as much or more weight than its environmental record, according to Allianz Life’s ESG Investor Sentiment Study.

The study also found that most consumers believe companies focused on ESG issues have better long-term prospects.

When asked about the importance of a variety of ESG topics in their decisions to invest in a company, 73% of American consumers noted environmental concerns like natural resource conservation or a company’s carbon footprint/impact on climate change.

However, the same percentage emphasized social issues such as working conditions of employees or racial/gender equality, and 69% highlighted governance topics like transparency of business practices and finances or level of executive compensation.

About a third (34%) of respondents said a company’s stance on social issues was the most important factor in their decision to do business with a company, followed by 27% who ranked corporate governance issues as the top priority. Only 22% cited a company’s record on environmental issues as their chief concern.

Nearly 80% of those surveyed said they “love the idea of investing in companies that care about the same issues” they do, and 74% believe an ESG investment strategy is “not only one that you can feel good about, but one that makes long-term financial sense.” A full 71% percent also said they would stop investing in a company if it behaved in ways they consider unethical.

A significant gap still exists, however, actions and words. More than three-quarters of respondents (76% to 84%) said safe working conditions for employees, transparency in business practices and finances, living wages to employees, quality health insurance offerings, and natural resource conservation were important to them. Yet, fewer than half (40% to 44%) said they chose to invest/not invest based on those same business practices.

Investors more often choose to reward companies for good behavior rather than punish them for bad behavior.

Among the 16 ESG issues highlighted in the study, 11 issues were more influential in investors’ decision to actively invest, including carbon footprint/impact on climate change, charitable contributions, and involvement in reducing poverty and wages provided to employees. Only two issues were more influential in causing people to stop investing in a company: animal testing and donations to political candidates/PACs.

A complete list of ESG issues that impact investment decisions, as well as additional data from the ESG Investor Sentiment Study, can be found at www.allianzlife.com/ESG.

OASDI reserves rise $3 billion and gain a year of viability

The financial health of the OASDI (Old Age and Survivors Insurance and Disability Insurance) program improved a bit last year, its Board of Trustees announced this week. The combined asset reserves of the OASI and DI Trust Funds increased by $3 billion in 2018 to a total of $2.895 trillion.

The Social Security reserves are projected to run out in 2034, the same as last year’s estimate, with 77% of promised benefits payable at that time. The DI reserves are estimated to run out in 2052–20 years from last year’s estimate of 2032–with 91% of benefits still payable.

In their 2019 Annual Report to Congress, the Trustees announced:

In 2020, for the first time since 1982, the total annual cost of the program is projected to exceed revenue. The cost will remain higher throughout the 75-year projection period. Reserves are expected to decline during 2020. Social Security’s cost has exceeded its non-interest income since 2010.

The year when the combined trust fund reserves are projected to become depleted, if Congress does not act before then, is 2035 – gaining one year from last year’s projection. At that time, there would be sufficient income coming in to pay 80% of scheduled benefits.

“The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them,” said Nancy A. Berryhill, Acting Commissioner of Social Security.

“The large change in the reserve depletion date for the DI Fund is mainly due to continuing favorable trends in the disability program. Disability applications have been declining since 2010, and the number of disabled-worker beneficiaries receiving payments has been falling since 2014.”

Other highlights of the Trustees Report include:

Total income, including interest, to the combined OASI and DI Trust Funds amounted to just over $1 trillion in 2018, including $885 billion from net payroll tax contributions, $35 billion from taxation of benefits, and $83 billion in interest. Total expenditures from the combined OASI and DI Trust Funds amounted to $1 trillion in 2018.

Social Security paid benefits of nearly $989 billion in calendar year 2018. There were about 63 million beneficiaries at the end of the calendar year.

The projected actuarial deficit over the 75-year long-range period is 2.78% of taxable payroll – lower than the 2.84% projected in last year’s report. During 2018, an estimated 176 million people had earnings covered by Social Security and paid payroll taxes.

The cost of $6.7 billion to administer the Social Security program in 2018 was a very low 0.7% of total expenditures. The combined Trust Fund asset reserves earned interest at an effective annual rate of 2.9% in 2018.

The Board of Trustees usually comprises six members. Four serve by virtue of their positions with the federal government: Steven T. Mnuchin, Secretary of the Treasury and Managing Trustee; Nancy A. Berryhill, Acting Commissioner of Social Security; Alex M. Azar II, Secretary of Health and Human Services; and R. Alexander Acosta, Secretary of Labor. The two public trustee positions are currently vacant.

View the 2019 Trustees Report at www.socialsecurity.gov/OACT/TR/2019/.

CBO expects slower real GDP growth in 2019

In CBO’s projections, the federal budget deficit is about $900 billion in 2019 and exceeds $1 trillion each year beginning in 2022. Over the coming decade, deficits (after adjustments to exclude shifts in the timing of certain payments) fluctuate between 4.1% and 4.7% of gross domestic product (GDP), well above the average over the past 50 years.

CBO’s projection of the deficit for 2019 is now $75 billion less—and its projection of the cumulative deficit over the 2019–2028 period, $1.2 trillion less—than it was in spring 2018. That reduction in projected deficits results primarily from legislative changes—most notably, a decrease in emergency spending.

Because of persistently large deficits, federal debt held by the public is projected to grow steadily, reaching 93% of GDP in 2029 (its highest level since just after World War II) and about 150% of GDP in 2049—far higher than it has ever been. Moreover, if lawmakers amended current laws to maintain certain policies now in place, even larger increases in debt would ensue.

Real GDP is projected to grow by 2.3% in 2019—down from 3.1% in 2018—as the effects of the 2017 tax act on the growth of business investment wane and federal purchases, as projected under current law, decline sharply in the fourth quarter of 2019. Nevertheless, output is projected to grow slightly faster than its maximum sustainable level this year, continuing to boost the demand for labor and to push down the unemployment rate.

After 2019, annual economic growth is projected to slow further—to an average of 1.7% through 2023, which is below CBO’s projection of potential growth for that period. From 2024 to 2029, economic growth and potential growth are projected to average 1.8% per year—less than their long-term historical averages, primarily because the labor force is expected to grow more slowly than it has in the past.

The Reason for SPIAs, from Pfau and Finke

Posted on April 25, 2019 by Kerry Pechter -

The benefits of using income annuities in retirement is the topic of a new whitepaper, written by Michael Finke and Wade Pfau of The American College and sponsored by Principal Financial Group. This paper provokes a couple of observations.

First, Principal is a publicly held retirement company. It’s promoting income annuities. That’s slightly counter-intuitive, since public life insurers usually don’t promote income annuities. They prefer indexed or variable annuities.

Second, the whitepaper provides a rationale for income annuities that we’ve all heard many times before, from the same credible sources. Why does the income annuity story need constant retelling?

Let’s address that second observation first. Does the Boomer audience not understand the value of longevity risk pooling? Are they not listening? Are the competing voices simply louder? Or has the no one yet written a slogan or tag line powerful enough to compel near-retirees to think about buying an annuity—any annuity?

As a writer of annuity marketing/educational materials for nine years, I struggled to compose a phrase or a sentence whose mere utterance would buckle knees nationwide, and awaken people in cities, towns, suburbs, and rural villages to the atomic power of mortality credits.

I tried humor. I paired an existing tag line (“We guarantee you won’t outlive your income”) with the vintage photo of a 19th century lynch mob about to hang a horse thief from a cottonwood tree. No one thought that was even worth sharing with the rest of the marketing team, let alone the compliance department. “Don’t eat cat food in retirement!” was more popular.

But sometimes I felt close to a solution. There were days when I thought phrases like “personal pension” or “retirement paycheck” would begin to open doors and close deals. I tried concepts like:

Annuities: The most income, the lowest cost.

Get more bang for your retirement buck.

As much income as the 4% rule, at two-thirds the cost.

Put half your money in an annuity–and invest the rest in stocks.

Cut the cost of retirement by 30%. Here’s how.

Is retirement keeping you up at night? An annuity can help you sleep tight.

But none had the stuff that makes a slogan immortal. I wanted to convey what few people realize: that the monthly payments from a fixed income annuity contain a bit of appreciation, a bit of principal and a risk-pooling credit that accrues not only to those who live an extra long time, but to every contract owner in every payment, starting with the first one. You get “cash back rewards” from dead people even if you don’t outlive them!

Well, you can see why I left marketing and went back to journalism.

Principal’s whitepaper reinforces what is largely self-evident by now—that longevity insurance can lower your risk of running short of money in your old age—with mathematical projections and Monte Carlo simulations from two of America’s leading retirement professors.

In the paper, Finke and Pfau, the chief academic officer and director of the Retirement Income Certified Professional program at The American College, respectively, offer three hypothetical cases:

Case 1: A married couple ten years before retirement.
Case 2: A married couple at their retirement date.
Case 3: A widow ten years into retirement.

In each case, the clients were assigning $100,000 to the creation of a monthly income. Finke and Pfau demonstrated that if they put half of that money into either a deferred income annuity (Case 1) or a single-premium immediate annuity (Cases 2 and 3) they could produce the desired income (from annuity payments and distributions from savings) with much less risk of running short of money by age 95 than if they put the entire $100,000 in a 40% stock, 60% bond portfolio.

Pfau and Finke’s calculations showed that even if future market returns were either average or above-average, the half-annuity strategy still produced more residual wealth at age 95 than the systematic withdrawal plan did. (The argument for an all-investment approach might have looked stronger if the allocation to stocks were 60% instead of 40% and the expected longevity was 85 instead of 95. But that would have made the market risk and longevity risk of that approach higher than the risks of the half-annuity approach.)

The dilemma facing income annuity issuers is that few investors hear this kind of presentation. Some advisors do offer income annuities when a client clearly can’t meet his income goals without one. But most agents and advisers would rather sell products that pay higher commissions; they may also avoid recommending income annuities because they can’t charge a management fee on their value.

So retirees rarely see side-by-side comparisons of several income-generation methods at once. At the same time, most public life insurers would rather sell variable or index annuities, which are more profitable. As a result, captive or affiliated agents at mutual companies tend to sell most income annuities.

So why does Principal, a public company, promoting income annuities? Because, despite having gone public in 2001, it still behaves like a mutual. It also still has an affiliated cadre of advisor representatives, Principal Advisor Network, in addition to third-party distribution.

“For a long time, we were a mutual insurance company in the heart of the Midwest, with Main Street values,” said Sri Reddy, senior vice president of retirement and income solutions at Principal since last summer. “We’re a public company that’s still based on the idea of serving Main Street America. That ethic guides the way we behave. Our products—SPIAs, DIAs and our Personal Pension Builder for retirement plans—are plain vanilla. There are still a lot of mutual-era people here. Our chairman and CEO, for instance, has been here for 35 years.”

Hence Principal’s sponsorship of a whitepaper on SPIAs and DIAs. “We said, ‘Let’s have some academics take a look at this problem and see if you can drive the efficient frontier up to the left a bit with income annuities,” said Reddy. In other words, could income annuities help deliver more income in retirement for the same or less risk than a balanced investment portfolio?

Before joining Principal nine months ago, Reddy was a senior executive in Prudential Retirement, in charge of promoting IncomeFlex, a guaranteed lifetime withdrawal benefit for plan participants. Now he’s promoting income annuities to advisors and to Principal’s plan participants. (Principal’s recent acquisition of Wells Fargo’s retirement business makes it the third largest US retirement plan provider in numbers of participants, after Fidelity and Empower.)

“The guaranteed lifetime withdrawal benefit has a role to play for investors in the years leading up to retirement,” Reddy told RIJ. “It takes market risk off the table. But the income annuity is for people entering retirement today and creating income today.” I noticed, by the way, that the title of Principal’s whitepaper is It’s more than money. As annuity tag lines go, that’s not bad.

A retirement readiness tool from Alliance for Lifetime Income

Posted on April 25, 2019 by Editorial Staff -

The Alliance for Lifetime Income, a retirement industry trade group that includes most of the publicly held life insurers, as well as Milliman, the actuarial firm, have created an online wizard to help people quantify their retirement preparedness.

The Alliance needs an immediate publicity boost. Its sponsorship of the Rolling Stones “No Filter” U.S. tour is hampered by Mick Jagger’s illness, which forced the band to announce last month that it couldn’t begin the tour on April 20 in Miami as planned. A press release said the Stones expected to reschedule the tour.

Called the “Retirement Income Security Evaluation,” or RISE Score, it’s one in a series of efforts by the Alliance to promote products that generate guaranteed lifetime income. The Alliance represents 24 life insurers, asset managers and other firms in the retirement industry.

Based on responses to questions about guaranteed income sources, savings, and expenses in retirement, the RISE Score ranges from 0 to 850, analogous to a FICO credit score. (One person used the tool and received a “good” score of 650-699. The wizard also told the user that her “Income Coverage” ratio was 74% to 87%. In other words, her expected income in retirement from all sources, including portfolio withdrawals, could

“cover 87% of expenses in average scenarios and 74% of expenses in the worst 10% of scenarios. The expected income in retirement, excluding portfolio withdrawals, may cover 58% of expenses in average scenarios and 58% of expenses in the worst 10% of scenarios.”

According to a press release from the Alliance, all inputs to the RISE Score are anonymous and the tool doesn’t require consumers to provide any personally identifiable information.

To learn more about the RISE Score, please visit retireyourrisk.org/rise-score.

The Alliance for Lifetime Income members include insurers AIG, AXA, Allianz, Brighthouse, Global Atlantic, Jackson National Life, Lincoln Financial, MassMutual, Nationwide, Pacific Life, Protective, Prudential Financial, State Farm, TIAA, Transamerica and T. Rowe Price. Asset managers include Capital Group/American Funds, Franklin Templeton, Goldman Sachs Asset Management, Invesco, J.P. Morgan Asset Management, Macquarie, and State Street Global Advisors. Another member, Milliman, an actuarial firm, is a risk management consultant for many of those companies.

Annuities that Pay Cash Back Rewards

Posted on April 25, 2019 by Kerry Pechter -

Holland’s 17th century tulip craze serves as a foil for annuities in a recent TV commercial from Gainbridge, a new online annuity sales platform. The lavish 90-second costume drama, produced by Bullish, portrays deferred and immediate income annuities as prudent alternatives to financial fads.

“With uncertainty surrounding ‘hot’ investment areas like cryptocurrency, and the bull market in general, we want to showcase that our annuities are incredible products to grow and protect savings,” Andres Barragan, Gainbridge’s chief experience officer, told a reporter for Campaign US in March.

Gainbridge isn’t the only insur-tech startup hoping to sell annuities directly to consumers, but it and its sister companies are differentiating themselves in interesting ways. The most notable innovation: the use of income annuities to fund cash back charge cards that provide spending allowances for anyone from aging parents to college-age grandchildren.

While Gainbridge per se is new to the annuity business, its backers are not. Its parent, Group1001, a $36 billion insurance holding company, owns Delaware Life, a top-20 issuer of fixed indexed annuities (FIAs) in 2018 (with a 2.02% share of the $68.47 billion FIA market, according to Wink’s Sales & Marketing Report, 2018); Clear Spring Insurance, an issuer of workers compensation insurance, and Relay, a planned spending program (see below for details).

Dan Towriss

Group1001 CEO Daniel J. Towriss is an actuary who, as Guggenheim Partners’ insurance expert, led a team of private investors who formed Delaware Life Holdings. In 2012, that entity paid $1.35 billion for Sun Life Financial’s US annuity and life insurance businesses. Delaware Life Holdings later separated from Guggenheim and rebranded as Group1001.

Gainbridge; Click-and-buy a MYGA or SPIA

Gainbridge sells individual multi-year guaranteed rate annuities (MYGAs) and period-certain single-premium immediate annuities (SPIAs). The five-year MYGA shown on the website offers a 3.85% annual percentage yield (APY) which, in the example, produces a $54,355.69 payout on a $45,000 investment.

That rate beats most of the comparable contracts at immediateannuities.com, where five-year MYGA rates range from 2.85% to 4.00% per year, depending on the strength rating of the issuer and the minimum investment. The best five-year certificate-of-deposit (CD) rates are 3.00% to 3.10%, according to nerdwallet.com.

Gainbridge’s annuities come from Guggenheim Life & Annuity (A.M. Best strength rating of B++), which is owned by Guggenheim Partners.

“We can offer you this rate because we’ve replaced old-school paperwork and complexity with simplified products and smart tech,” according to a blurb on Gainbridge’s yellow-and-black website. The Gainbridge MYGA, which will be issued in three-year, five-year, and 10-year maturities, has the usual market-value adjustment for withdrawals exceeding 10% of the contract value.

“We chose to source the annuities for both products from Guggenheim Life to avoid cannibalizing the other entities in Group1001 and to keep the issuer at arm’s length,” Terrence Richardson, Group1001’s spokesperson, told RIJ.

“We’re targeting new segments of the market that our other brands are not, segments like do-it-yourself investors and extreme savers. Each of our four brand continue to target differentiated segments of the wider annuity market,” he said.

“It’s for people who want diversification of their assets and are do-it-yourselfers. We’re imagining two scenarios, mature investors looking for peace of mind and fixed returns without all the bells and whistles that some annuities have. We’re also looking for self-directed people and online natives ages 50 to 60 who want a dependable annuity. We just started in five states and have expanded to 18 states as of today. We have a roadmap to get certification in 49 states.” [New York State is excluded.] Gainbridge is also reaching out to a sports-minded audience. It advertised during the 2019 NCAA basketball tournament and is a sponsor of this year’s Indianapolis 500 auto race.

For people who want guaranteed immediate income over five or ten years, Gainbridge sells five-year or 10-year period-certain SPIAs. The example on the Gainbridge’s website shows a monthly payout of $794.20 for a purchase premium of $45,000. (That’s eight dollars a month more than a five-year SPIA at immediateannuities.com.) Investors who want to withdraw their unpaid-out principal can do so by paying a 4% commutation fee.

Relay: A cash back rewards card

With Relay, Group1001 is taking annuities in a new direction. In return for a lump sum payment, you get an immediate annuity that deposits a monthly allowance in a prepaid Relay card. It works like a debit card, but when the cardholder uses it in “credit” mode (without using a PIN number) to make a retail purchase, he or she earns a discount or “cash back” reward. The cash back rewards are a substitute for the internal returns that a period-certain income annuity would otherwise earn.

In the example on the website, visitors specify how much monthly income they want and for how long, and a wizard calculates the lump sum required. For instance, if someone wanted $975 a month for five years, they would need to pay about $57,000. According to the website, they would get 5% back on eligible purchases. A comparable annuity at immediateannuities.com would pay $995 a month, but would not provide rewards.

Group1001 envisions grandparents using Relay to provide monthly allowances for grandchildren in college, or people who want to provide a controlled level of spending money for elderly parents. “Grandparents might invest $10,000, and the student gets $200 a month plus three to five percent cash back,” Richardson said. “They could spend $200, earn $10 in rewards, and then have $210 to spend the following month.”

Relay users receive a prepaid VISA card issued by Sunrise Banks of St. Paul, MN. “You get issued a piece of plastic, and a smartphone app where you can see all of your transactions, your balance, and your rewards earnings,” he told RIJ.

Users have to be careful not to use the card at ATM machines, where they will pay a fee and not earn any reward. If a retailer defaults them into a PIN-mediated debit purchase, they also don’t earn a reward. Cash rewards are not taxed, so Relay doesn’t have to issue 1099 forms for them. Since Relay doesn’t take IRA money as premiums, there are no taxes on distributions.

These products diverge from the traditional purposes of annuities, such as longevity risk pooling, lifetime income, or tax deferral on the growth of after-tax money. So it remains to be seen how they will resonate in the marketplace. Richardson said that Group1001’s research has identified a substantial demographic of frugal “planners and savers” who patrol the Internet for optimal returns or attractive cash back rewards programs. “Our target audience ‘gets it,’” he said. “But we’re not trying to game the system. This is for long-term planners and savers.”

Financial Engines keeps growing

Posted on April 25, 2019 by Editorial Staff -

Financial Engines, the largest independent registered investment advisor (RIA) in the U.S. and a pioneer in the provision of “fintech” investment advice to retirement plan participants, added more than 900 new plan sponsors and more than 430,000 new plan participants in 2018, a release from Edelman Financial Engines said this week.

The new plans included six Fortune 500 companies, while Ford Motor Company, Henry Schein Inc., and Structure Tone, Inc. renewed their relationships with Financial Engines.

The company attributed the gains to its strategic relationship with ADP, which offers Financial Engines’ advisory services to its Retirement Services clients. According to the release, Edelman Financial Engines now has more assets under management than all other managed account providers combined.

In other news, Edelman Financial Engines said that Phyllis Borzi had joined its board of directors, a move intended to emphasize the company’s commitment to unbiased investment advice.

As the chief of the Department of Labor’s Employee Benefit Security Administration in the Obama administration, Borzi led a successful effort to pass a “fiduciary rule” that made financial advisors legally accountable for failing to act in the “best interests” of their clients and increased scrutiny of the sale of indexed and variable annuities. The rule was later reversed by the Trump administration.

All participants with access to Financial Engines services receive a personalized Retirement Evaluation, the release said. Almost half of all employees who have access to Financial Engines services use online advice, planning tools, or discretionary account management, and attend an educational seminar or meet with an advisor.

When compared to participants not using Financial Engines, within the first year of using Financial Engines’ services users were:

27% more likely to have increased their plan contribution rate
Two-and-a-half times more likely to have improved their retirement income score
Five times more likely to have improved their risk and diversification score

Global insurers wary of recession: Goldman Sachs

Posted on April 25, 2019 by Editorial Staff -

Far more insurers believe the U.S. economy will dip into recession in 2020 or 2021 (82%) than believe a recession will occur in 2019 (2%) or not at all in the next three years (16%), according to Goldman Sachs Asset Management’s (GSAM) eighth annual global insurance survey.

This year’s survey, called “Cautiously Opportunistic,” showed that slowing global growth and market volatility has led to heightened credit cycle concerns, with 85% (up from 34% last year) of respondents believing we’re in the late stage of the cycle.

GSAM interviewed 307 CIOs, CFOs and senior professionals at global insurance companies, representing more than $13 trillion in balance sheet assets and approximately half of the balance sheet assets for the global insurance sector

The results showed shifts in perceived risks and lower expectations for investment opportunities. Respondents indicated that investment opportunities are either stagnant (46%) or getting worse (40%), with only 14% indicating the opportunities are improving.

“Global insurers are decreasing allocation to public equities,” said Michael Siegel, GSAM’s Global Head of Insurance Asset Management, in a release. “Insurers are also shifting to less liquid asset classes such as private equity in order to avoid exposure to the increased volatility as speculation around a recession continues to rise.”

Highlights from the survey include:

Concerns around rising interest rates decreased significantly (7%, down from 30% last year) as insurance investors are increasingly concerned with credit quality deterioration in their portfolios (38%, up from 23% last year).
Fewer respondents are concerned about inflation in the next three years in their domestic market (27%, down from 74% last year).
More than half of respondents (62%) expect the 10-year U.S. Treasury yield to range between 2.5% and 3.0% by year-end, a break from their previous upward bias.
62% of respondents include environmental, social and governance (ESG) assets among their investment considerations; the sentiment was voiced by 83% of those in Europe, 81% of those in the Asia Pacific region, and only 43% in the Americas.
56% of insurers invest in ETFs, Fixed income ETFs are most often used to manage short-term tactical exposures or achieve operational efficiency.
46% of respondents invest in insurtech, with Asia Pacific as an outsized contributor at 68%. Operational efficiency is the most common reason for these investments.
Year-over-year, 10% more respondents ranked political events as a top three macro risks (42%). Regional consensus showed the U.S.-China trade conflict is the greatest risk to investment portfolios over the next 12 months (53%).

For the second year, the Insurance Asset Management team also surveyed retail distribution business leaders in North America. The survey covered macro risks, market outlook, the credit cycle and evolving industry themes. Credit and equity market volatility, potential U.S. economic slowdown or recession, and deteriorating liquidity conditions were the three biggest macroeconomic concerns.
GSAM Insurance Asset Management partnered with KRC Research on its global insurance investment survey.

How and Why to Invest in a Climate Change Strategy

Posted on April 25, 2019 by Lucas White and Jeremy Grantham -

Hurricanes, typhoons, droughts, wildfires, and other extreme weather events are causing record damage. Increasingly, climate change is impacting the economy and our daily lives and has come into focus as an existential threat to the world as we know it. We are rapidly approaching a time when the world will be forced to act aggressively in an attempt to overcome decades of inaction.

As return-oriented investors, we see this effort providing the backdrop for decades of secular growth in the climate change sector, along with the potential for strong returns.

Beyond strong returns, we believe a climate change strategy (for our purposes, a strategy investing in the sector) may offer other significant benefits as well. We expect these to include diversification, protection from climate risk, inflation protection, and the potential to buy growth-oriented companies at a discount.

However, excitement about these desirable characteristics can be tempered by uncertainty regarding how to position a climate change strategy in the context of a broader portfolio. In this paper, we will explore these benefits in more detail and also discuss how such a strategy may fit into an investment portfolio.

Expected benefits of a climate change strategy

In our 2017 paper, we made the case that the climate change sector will experience decades of secular growth. The global energy infrastructure is incredibly vast and complex and has been built up over more than 150 years. Transitioning to clean energy will take a tremendous amount of investment and time. Many trillions of dollars will be needed to decarbonize the economy and overhaul our energy grids. Experts project investments in renewables alone to approach $2 trillion per year by 2050.

We also made the case that the climate change sector is likely to be relatively inefficient with opportunities to add significant value. Given the secular growth tailwinds and the inefficiencies to be exploited, we believe that investors who do a good job of identifying the winners in the fight against climate change will be handsomely rewarded. In addition to strong returns, we have other expectations for a climate change strategy that are worth considering, as they will better allow us to think about how such a strategy might t into a broader portfolio.

Diversification

We would expect the drivers of return for a climate change strategy to be quite different from those of the broad equity market. Broad economic profitability and GDP growth will not drive a climate change strategy; the clean energy transition and efforts to decarbonize will. Thus, we expect to see periods where a climate change strategy performs well in a weak market and vice versa.

If we told you we had identified an asset class that provided equity-like returns, perhaps better, in a manner quite different from the broad equity market, you would jump at the opportunity. After all, hedge fund investors typically accept low returns, high fees, and illiquidity in the quest for uncorrelated returns. We believe climate change investors will be able to enjoy the benefits of diversification without making such sacrifices.

Protection from climate risk

Diversification, in and of itself, is compelling. Diversification that addresses a major risk to the broad economy is even more so. The Trump Administration’s Fourth National Climate Assessment concluded that climate change “is expected to cause substantial… damage to the U.S. economy throughout this century.” If climate change is a drag on the economy, companies focused on mitigation will see their products and services in high demand. Furthermore, as the world moves to decarbonize, regulation and carbon taxes loom as a risk for virtually all sectors. Green energy industries, however, will uniquely benefit from increased government intervention, not to mention from the ever-improving technology.

Indirect exposure to fossil fuel prices and inflation protection

Many investors have divested or are considering divestment from fossil fuels. Complicating these decisions is the fact that energy companies have outperformed the broad equity market and provided inflation protection and diversification (e.g., in the 1970s, oil and gas companies were up well over 100% in real terms with the S&P 500 down, a scenario that played out again from 2000 to 2010). Outperformance, diversification, and inflation protection are pretty big things to give up.

Fortunately, by investing in the clean energy solutions that compete with fossil fuels, one can maintain that exposure to traditional energy prices.

When fossil fuel prices rise, clean energy solutions become more competitive, and market forces accelerate the transition to them. Of course, the same is true on the downside. This connection between fossil fuel prices and clean energy returns could be seen in 2008 when oil spiked to $150 per barrel and coal and natural gas prices also soared. Solar and wind companies performed extremely well leading up to the peak in fossil fuel prices and then collapsed as fossil fuel prices came back down to earth.

Another example of the connection between clean energy solutions and fossil fuel prices surfaced in 2015 following a dramatic drop in oil prices. Electric vehicle sales in the U.S., otherwise in the midst of rapid growth, actually fell, as the economics surrounding gasoline improved.

Just as our traditional energy infrastructure relied on fossil fuels, clean energy relies on materials. Transitioning to clean energy simply moves the burden from fossil fuels to copper, lithium, nickel, cobalt, and other materials. Because of the indirect exposure to fossil fuel prices and direct exposure to clean energy materials, agriculture, water, and infrastructure, we believe the climate change sector, as we’ve defined it, will perform well in certain inflationary environments.

Growth at a discount

To this point in the paper, we’ve focused on the features of generic climate change strategies (to the extent that there are any), but our strategy, more specifically, is to attempt to identify companies that trade at a discount but still benefit from the secular growth tailwinds we’ve been discussing. Typically, value strategies under-grow the market; after all, the companies are cheap for a reason. What a value investor hopes for is multiple expansion that more than offsets the under-growth. When investing in a high growth sector of the market like climate change, however, you may be able to buy companies at a discount that are able to grow with, or potentially outgrow, the market.

Since inception in April 2017, the earnings growth of the GMO Climate Change Strategy has been higher than the MSCI All Country World Index (ACWI) while consistently trading at a 15-20% discount to ACWI. If we can continue to own a portfolio of companies trading at a discount without sacrificing growth, we believe we can generate strong performance over the long term.

While we’re on the topic of a value orientation to a growth universe, we might as well address a widely held misconception. Many investors believe that it’s somewhat paradoxical to buy “cheap” stocks in a growth universe. After all, you’ll miss out on the Amazons, Netflixes, and Teslas of the world. However, you’ll also miss a lot of high-flying companies that end up destroying a substantial amount of value for their investors. In fact, it turns out that the cheap half of the Russell 1000 Growth Index has outperformed the Russell 1000 Value Index for 40 years since inception in 1978. Just to rub it in, the cheap half of the Russell 1000 Growth Index outperformed the Value Index by more than Value outperformed Growth!

Portfolio fit

The prospects for strong returns, diversification, and inflation protection are exciting, but how does a climate change strategy fit into a broader portfolio? After all, very few investors have a climate change bucket! There are a few different ways of framing this sort of allocation. Our favorite framing is to position as a global equity alpha play with diversification benefits. We believe there’s money to be made in this sector. What more do you need?

Outside of global equities, the most natural home for a climate change strategy for many portfolios may be in the real assets allocation. There’s also a growing trend toward making specific allocations to ESG, impact, and sustainable investments. Clearly, a climate change strategy would be a candidate for these types of allocations or for investors who favor thematic investing more generally.

Perhaps the most interesting framing, however, may be to think of this type of strategy as insurance. As already discussed, the experts expect climate change to have a major impact on the economy. Even with the uncertainty surrounding such projections, one must acknowledge that there’s a significant risk that climate change will have a considerable, unpleasant economic impact. It seems reasonable to think that investors would want to protect themselves from this risk, and investing in a climate change strategy would be a good start.

Conclusions

Allocating to a climate change strategy is not standard operating procedure for investors, but for those willing to think outside the box, we expect the rewards to be significant. Not only should investors be intrigued by the potential for returns, diversification, and inflation protection, but a well-designed climate change strategy should also help protect a portfolio from a major risk to the economy. There are a variety of ways that such a strategy could fit into a portfolio. It’s up to investors to figure out how a climate change strategy fits into their particular investment process, but we expect it will be worth the effort.

Total Annuity Sales (by issuing company, 2018)

Posted on April 25, 2019 by No Author -

Fin-wellness offerings grow at Prudential, MassMutual

Posted on April 19, 2019 by Editorial Staff -

Prudential Financial is adding new features to its financial wellness service, such as helping plan participants manage student loan debt, navigate job changes, access financial coaching and “develop a personalized financial roadmap,” according to a release this week.

Prudential’s existing digital financial wellness platform is available to more than seven million individuals across more than 3,000 organizations. Prudential Pathways, the company’s on-site financial education program, has been adopted by nearly 600 plan sponsors who use Prudential retirement and insurance services.

Prudential is introducing the following new solutions in the workplace:

LINK by Prudential. Employees can use LINK to create an online personal profile and establish goals like building an emergency fund, insuring loved ones, saving for retirement or purchasing a home. AI technology allows employees to integrate their existing Prudential retirement accounts and non-Prudential financial accounts. Participants can self-provision, work with an advisor via video chat or phone or meet in person with a Prudential Advisor.

Coaching. Prudential is also expanding its financial wellness engagement capabilities to include a financial coaching service, available via phone and one-way screen share. This coaching service is designed to help individuals learn about and adopt healthier financial behaviors, such as developing and sticking to a budget. The service is being piloted with selected employers.

Student loan assistance. In addition to the emergency savings and budgeting solutions it already offers, Prudential is launching Student Loan Assistance, an online resource that offers loan consolidation and repayment options, and allows employers to make repayment contributions. Vault, an Austin, Texas-based student loan technology benefits firm, will provide this service for Prudential.

PruPassages and beneficiary services. As part of this outplacement service, a Prudential Advisor talks to employees about continuing life insurance coverage. Prudential is also providing new beneficiary services for individuals, with an easier claim process and services such as digital submission of claim forms, text and email status alerts, and funeral planning.

MassMutual adds HSAs to its retirement platform

Massachusetts Mutual Life Insurance Co. (MassMutual) is making Health Savings Accounts (HSAs) available on its MapMyFinances financial wellness tool for retirement plan participants.

The HSAs, a service of WEX Health Inc., will enable workers who are covered by high-deductible healthcare plans to save on a tax-favored basis for eligible healthcare expenses during their working years and retirement. Contributions to the account may be made by The employee, the employer, or both may contribute. The employee owns the account.

Contributions to HSAs carry over year-to-year, can be invested and earn interest for greater savings potential, and can be used tax free for eligible medical expenses in retirement. However, no additional contributions can be made once the employee who owns the account enrolls in Medicare.

While HRAs and FSAs require eligible expenses to be validated by a third party, the Internal Revenue Service does not require such validation for HSAs. However, it is required that consumers keep all of their medical receipts for eligible expenses in the event of a tax audit.

MapMyFinances, introduced by MassMutual earlier this year, is a financial and benefits planning tool. It is available automatically at no cost through employers that sponsor MassMutual’s 401(k) or other defined contribution retirement plans, voluntary insurance benefits or both.

Based on the data provided, the tool sets priorities based on the user’s personal financial needs, such as health care, retirement savings; life, disability, accident and critical insurance coverage; college savings; debt reduction; budgeting and others.

A new report from Cerulli and the SPARK Institute, a trade group for defined contribution plan recordkeepers, provides feedback on financial wellness plans from 26 recordkeepers representing $5.9 trillion in DC plan assets, 443,000 plans, and more than 80 million participants.

“There is increased awareness among retirement industry stakeholders that plan participants do not save for retirement in a vacuum,” said Dan Cook, a research analyst at Cerulli, in a release. “The average participant has several competing financial priorities.”

Mass-market (less than $100,000 in investable assets) and middle-market ($100,000 to $500,000 in investable assets) participants are less likely than their more affluent peers to name financial advisors as their main source of retirement advice, the report said. These participants are likely to have no other source of advice than their plan providers.

Most (71%) of DC recordkeepers measure effectiveness of their financial wellness programs by participation in education sessions; 67% use website activity (e.g., click rates, interactions per website per website visit).

Honorable Mention

Posted on April 19, 2019 by Editorial Staff -

Great American launches three-year FIAs

Great American Life has introduced two new fixed-indexed annuity (FIA) products: American Landmark 3, for the retail channel, and AssuranceSelect 3 Plus, for the financial institutions channel. Both seek growth and both allow penalty-free access to cash after three years.

Available indexed strategies include well-known indexes and ETFs, including the S&P 500®, iShares U.S. Real Estate ETF, and iShares MSCI EAFE ETF, providing upside potential with protection against market loss. Additionally, the American Landmark 3 and AssuranceSelect 3 Plus issue up to age 90, which gives older clients a safe vehicle for growth and legacy protection.

“As the only three-year fixed-indexed annuities available today, these products give consumers the flexibility to walk away after three years without penalty should their needs or market conditions change,” said Joe Maringer, national sales vice president, Great American Life, in a release.

Great American Life is a member of Great American Insurance Group. It is rated “A+” by Standard & Poor’s and “A” (Excellent) by A.M. Best for financial strength and operating performance.

Allianz Life backs a structured note platform

Allianz Life Ventures, part of Allianz Life Insurance Company of North America, has announced it has invested in Halo Investing, Inc. during the company’s most recent Series B financing round, it was announced this week.

“Halo is the world’s first independent, multi-issuer technology platform for structured notes, which have traditionally only been available to wealthy investors because they require a minimum investment of over $1 million,” a press release said.

The Halo platform leverages analytics to help financial professionals transparently manage structured note portfolios for clients, allowing them to monitor notes, analyze trends and sell for access to secondary liquidity.

Halo has raised $11 million from venture capitalists including an affiliate of Piton Investment Management, William Blair Circle, an affiliate of William Blair, and Allianz Life Ventures. Halo plans to use the money raised to pursue two strategic initiatives aimed at drastically changing the way structured products are manufactured, purchased and traded.

Guilbert becomes division president at Symetra Life

Daniel R. Guilbert has been named president of Symetra Life’s Individual Life and Retirement Divisions, Margaret Meister, president and CEO of Symetra Financial Corporation announced this week.

“As leader of the Individual Life Division (ILD) since 2017, Mr. Guilbert oversaw the unit’s launch of its first indexed universal life product and worked with the ILD leadership team to prioritize systems and processes modernizations,” a Symetra release said.

“Guilbert has helped build Symetra into a fixed indexed annuity leader since joining the company in 2010, simultaneously guiding an expansion and diversification of the company’s retirement product portfolio,” the release said. “Under his leadership, the Retirement Division achieved its first billion dollar sales quarter and Symetra products are now available in every major bank in the United States.”

Broadridge to buy TD Ameritrade retirement unit

Broadridge Financial Solutions, Inc., has agreed to buy the retirement plan custody and trust assets from TD Ameritrade Trust Company, a subsidiary of TD Ameritrade Holding Company.

The acquisition of TD Ameritrade’s retirement plan custody and trust assets will expand Broadridge’s Matrix Financial Solutions mutual fund and ETF trade processing platform, which provides the retirement industry with access to more than 25,000 funds.

Upon closing of the transaction, Matrix is expected to have approximately $420 billion in assets under administration and over 118,000 plan accounts in custody.

TD Ameritrade Institutional, a division of TD Ameritrade, Inc., provides custody and brokerage services to more than 7,000 independent registered investment advisors. It will continue to offer the TD Ameritrade Retirement Plan (TDARP), a turnkey bundle of record-keeping, administration and other services for plan advisors. TD Ameritrade Institutional will maintain its TDARP sales, service and marketing teams as well as its vendor relationships with TDARP service providers.

Terms of the deal were not disclosed. Pending regulatory approvals, it is expected to close in the second quarter of 2018. Wachtell, Lipton, Rosen & Katz serves as legal advisor to TD Ameritrade.

Where are the life insurers?

Loans from 401(k)s still declining: T. Rowe Price

Securian to offer individual annuities in the bank channel

‘Bucketing’ software, by subscription, for professionals and amateurs

UK pensions race to de-risk before Brexit

‘The environment’ ranks low when choosing investments: Allianz Life

OASDI reserves rise $3 billion and gain a year of viability

CBO expects slower real GDP growth in 2019

Gainbridge; Click-and-buy a MYGA or SPIA

Relay: A cash back rewards card

Expected benefits of a climate change strategy

Diversification

Protection from climate risk

Indirect exposure to fossil fuel prices and inflation protection

Growth at a discount

Portfolio fit

Conclusions

MassMutual adds HSAs to its retirement platform

Great American launches three-year FIAs

Allianz Life backs a structured note platform

Guilbert becomes division president at Symetra Life

Broadridge to buy TD Ameritrade retirement unit

Data Connection

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