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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.

World GDP Growth Rates (Past and Projected)

Posted on April 19, 2019 by No Author -

New Research on 401K Plans, from Top Researchers

Posted on April 19, 2019 by Kerry Pechter -

Most 401(k) participants barely notice, but the products and services in their plans undergo constant tinkering. The updates might be small or huge. At a big corporation, subtle fee reductions might occur. At a small shop, employees might punch in one morning and discover that they can save at work for the very first time.

Changes at a single plan are often inspired by innovations that are rippling through the whole defined contribution (DC) industry, and those innovations are sometimes the subject of scholarly investigation. Three recent studies shed light on three of the latest trends.

In one study, the Defined Contribution Institutional Investment Association (DCIIA) publishes, for the first time anywhere, data on the use of custom target date funds (TDFs). Another study, by the Center for Retirement Research at Boston College, looks at the results of the UK’s experiment with nationwide auto-enrollment in plans, known as NEST. A third study, by Morningstar, offers evidence that plan advisors should invest time and effort in identifying and replacing unsatisfactory funds.

DCIIA’s custom TDF survey

TDFs are funds-of-funds into which the contributions of auto-enrolled participants can be automatically deferred. A company might offer 10 TDFs, each assigned to a different retirement date (e.g., 2020, 2025, 2030), whose exposures to equities gradually and automatically shrink (following a common “glide path”) as their retirement dates (maturities) approach.

Just as senior executives at large corporations might wear bespoke suits, a giant company might create a uniquely tailored TDF as its plan’s qualified default investment options (QDIAs) instead of using an off-the-rack TDF from one of the major vendors.

But apparently nobody was measuring this phenomenon until DCIIA, an association of asset managers that distribute mutual funds and other investments through DC plans, decided in 2017 to gather data from nine custom TDF designers on 673 unique funds at 65 retirement plans with some $990 billion in assets.

Overall, DCIIA estimated that about a third ($340 billion) of that $990 billion was in custom TDFs as of the end of 2017. That $340 billion represented 16% of total industry-wide TDF assets and 80% of custom TDF assets. Overall, DCIIA found an estimated total of $2.1 trillion in TDF assets at year-end 2017. The main components were:

51% mutual funds, with a market value of $1.1 trillion
29% collective investment trusts (CITs), with a value of $622 billion
20% custom TDFs, with a value of $430 billion

The $2.1 trillion represents a 61.5% increase over the $1.3 trillion estimated for 2015. “Improved reporting, auto-enrollment, and a bull market over the period contribute to the significant increase over the three-year period,” said the DCIIA Research Center in its March 2019 Custom Target Date Fund (cTDF) Survey.

“The fact that [DCIIA] could gather this information at all is significant,” said Stacy L. Schaus, author of Designing Successful Target-Date Strategies for Defined Contribution Plans (Wiley Finance, 2010), in an interview. “There’s been very little research that showed the size of the market, and now it’s over $400 billion.”

The study didn’t provide details on individual custom TDFs. Instead, it showed the range among custom TDFs in their allocations to equities, fixed income, “inflation-sensitive” assets (TIPs, commodities, etc.) and “diversifiers” (bank loans, hedge funds, etc.). The custom TDFs appeared to differ most in their final allocations, at the retirement date.

For equities, the final allocations ranged from 12% to 39%; for fixed income, they ranged from 32% to 67%; for inflation-sensitive investments, they ranged from 5% to 46%; for diversifiers, they ranged from 1% to 30%.

“Custom TDFs allow investment options that packaged TDFs don’t provide for,” Schaus told RIJ. “A packaged TDF wouldn’t have CITs or private equity. A custom TDF gives you more exposure to high diversifiers, like commodities and REITs [real estate investment trusts]. Any packaged TDF can give you access to institutional pricing, but at the custom level the pricing is even lower, assuming you have enough size to meet the investment minimums” required by asset managers.

One flew over the 401(k) NEST

California, Oregon and other Democratic Party-controlled (“blue”) states are initiating statewide auto-enrolled salary-deferral IRA plans for workers whose employers don’t offer retirement savings plans. The experience of NEST (National Employee Savings Trust), the UK’s public-option savings vehicle, has helped guide the US states in designing, establishing and evaluating their own fledgling plans.

As reported in a recent Issue Brief from the Center for Retirement Research at Boston College (CRR), auto-enrollment in the UK under NEST has gradually increased private sector retirement plan participation rates to 67% in 2017 from 32% in 2012. That breaks down to around 90% for workers at medium and large employers and 70% at small employers.

The CRR reported these lessons from the NEST experience:

Re-enrollment efforts don’t seem to have boosted participation any further. Most workers who chose to opt out when first enrolled also chose to opt out when re-enrolled three years later.
For employers with fewer than 500 workers, the UK participation rate flipped from being much lower than the US rate to significantly higher.
Employers with 50-57 and 30-49 workers saw substantial increases in participation, with participation rates reaching 74% and 67%, respectively.
Most new enrollees are making minimum default contributions, but the share of employees contributing at higher rates has also risen significantly.

The NEST experience “suggests that an equivalent reform in the United States could generate a sizeable increase in retirement plan participation, primarily among employers with fewer than 500 workers,” the CRR said.

Replace those burnt-out funds!

In a new report, “Change Is a Great Thing,” David Blanchett, head of retirement research at Morningstar, Michael Finke, chief academic officer at The American College, and Jim Licato, vice president, product management, Morningstar Investment Management LLC, questioned the conventional wisdom that plan sponsors are wasting their time in monitoring their investment menus (even though, in these litigious times, they risk accusations of a lapse in fiduciary duty if they don’t).

The three authors used “a unique longitudinal data set of plan menus from January 2010 to November 2018 that includes 3,478 fund replacements” in the plans of three retirement plan recordkeepers that use Morningstar’s managed account services. They found evidence that the conventional wisdom isn’t true.

“We find significant evidence that the replacement fund outperforms the replaced fund over both future one-year and three-year periods. The outperformance remains even after controlling for various fund attributes and risk factors. This analysis suggests that monitoring fund menus can improve performance, although more research on why this effect occurs is warranted,” they write.

“Large-blend was the investment style with the most replacements, averaging 42.7 funds per year, which was 10.8% of the total funds replaced,” the report said. “Equity was the most common broad style group, averaging 67.7% of replacements. Replacement funds tended to have lower expense ratios, averaging 5, 4, and 14 basis points for equity, bond, and allocation funds, respectively. Replacement funds tended to have higher historical returns, most notably at the five-year period, averaging 164, 41, and 70 basis points for equity, bond, and allocation funds, respectively.”

Social Security reckoning point

With the exhaustion of the Social Security reserves (“trust fund”) only 15 years away, Americans face a reckoning. They can ask the government to prevent Social Security benefits from dropping about 25%, but that would probably require taxes on high earners.

Alternately, they can choose to let benefits drop and possibly offset the lost purchasing power through contributions to some new form of universal DC plan.

Either solution would create new winners and losers, and therefore provoke opposition. The experience of other countries teaches that the less radical the change, the easier it would be to make.

The Awful Optics of Fighting Fiduciary Rules

Posted on April 19, 2019 by Kerry Pechter -

Last Monday, the state of New Jersey invited public comment on a proposal by the N.J. Bureau of Securities to “establish by regulation (N.J.A.C. 13:47A-6.4), the common law fiduciary duty and apply it to broker-dealers and agents, and to codify it for investment advisers and investment adviser representatives.”

Two financial services trade groups, the Insured Retirement Institute (IRI) and the Financial Services Institute (FSI), promptly responded with press releases denouncing the regulatory move. A month ago, they issued press releases opposing a similar effort in Maryland.

Despite the terrible optics of their war on investor protections, members of the brokerage industry seem determined to keep fighting. Flush with their victory over the Obama DOL fiduciary rule (with help from a sympathetic federal appellate judge in Texas), they may underestimate the cost to their reputations and overestimate the value of the conflicted business model that they’re trying to preserve.

In its release, the IRI warned that independent efforts by the states to regulate advisors would create inconsistent rules across the country, resulting in “fewer advisors, higher compliance costs that imperil smaller broker-dealer or financial advice firms, advisors less likely to take clients with moderate investment funds, and less product innovation and reduced availability of lifetime income products.”

The IRI’s members include many advisers who accept compensation (commissions) from life insurance companies when selling annuities to investors. The industry knows that this form of vendor-financing facilitates a lot of sales that otherwise might not occur, but regulators fret that the practice is not transparent and that it incentivizes inappropriate transactions.

For its part, the Financial Services Institute, which represents more than 100,000 broker-dealer reps, said, “states should refrain from issuing their own fiduciary duty rules. FSI has long supported a federal uniform standard of care for all investment advice, and we believe the SEC is the appropriate authority to develop such a standard.”

What would the New Jersey rule do? Here’s an excerpt from the proposal:

Proposed new N.J.A.C. 13:47A-6.4(a)1 specifies that for a broker-dealer, or its agent, failing to act in accordance with a fiduciary duty to a customer when making a recommendation or providing investment advice is a dishonest or unethical business practice.

As set forth in subsection (a), a recommendation includes one for an investment strategy, the opening of or transfer of assets to any type of account, or the purchase, sale, or exchange of any security. Subparagraph (a)1i states that when making a recommendation, the fiduciary duty obligation extends through the execution of the recommendation and shall not be deemed an ongoing obligation.

To address the concerns over dual registrants “switching hats” when dealing with the same customer and the resulting investor confusion, the Bureau proposes subparagraph (a)1ii, to state that if a broker-dealer or agent also provides, in any capacity, investment advice to the customer, the fiduciary duty obligation is an ongoing obligation to that customer.

The fiduciary duty will be applicable to the entire relationship with the customer, regardless of the security account type. Paragraph (a)2 provides that it is a dishonest or unethical business practice if an adviser, or a broker-dealer or its agent who has discretionary authority over the customer’s account or a contractual fiduciary duty, or who is acting as an adviser, fails to act in accordance with a fiduciary duty to a customer when providing investment advice.

New Jersey is geographically small, but demographically and financially large. With about 9 million residents, it’s the eleventh most populous state. The median household income is close to $80,000, or about 33% higher than the US household median. In 2014, New Jersey ranked sixth in the US in sales of variable annuities, at $6.1 billion.

Other Eastern blue states that are contemplating fiduciary rules—Maryland (which includes professionals and government officials who work in Washington, DC) and New York—are rich too. Along with Nevada, which has a fiduciary rule initiative, those states represent about 13% of Americans likely to buy annuities, according to Information Asset Partners.

The registered-reps and advisers who are represented by IRI and FSI say they want a national standard of care. The Obama DOL offered them a nationwide standard of care, but it was a “fiduciary” standard, and any “fiduciary” rule worthy of the name will disrupt the brokerage distribution model, which, as noted above, relies in part on manufacturers to help finance its sales and marketing functions.

In truth, the brokerage industry doesn’t want any new regulation that might interfere with that model—not state or federal, patchwork or uniform. If there has to be regulation, the industry, as the FSI said, would prefer that the Securities & Exchange Commission (SEC) regulate it. The SEC knows the brokers best and—judging by that agency’s vague new “best interest” proposal—would probably regulate them least.

Fewest Open Variable Annuity Contracts Since 1997: Morningstar

Posted on April 19, 2019 by Michael Manetta -

New sales of variable annuities (VAs) came in at $22.5 billion in the fourth quarter of 2018, a 4.3% decline compared to a year earlier but in line with average quarterly sales figures over the past two years.

Sales of VAs with guaranteed living benefits posted a fifth consecutive quarter of positive year-on-year (y/y) sales growth, versus negative sales growth for VAs without a living benefit in three of the past five quarters (including Q4).

Sales shifted away from some traditional market leaders and toward newer VAs offering more generous living benefits and/or negative return protection. The ten top-selling VA issuers stayed much the same and accounted for more than 83% of total sales. TIAA dropped to fourth place from second and AEGON/Transamerica replaced New York Life in the top ten.

Among the five leading sellers, Jackson National remained the overall leader by a wide margin but AXA, Lincoln Financial and Prudential all gained market share at the expense of Jackson National and TIAA.

Jackson National introduced the only new VA in Q4 of 2018, the Elite Access Advisory II I-share. With no M&E fee and only a $240 annual fee, the contract is one of only about 10 deferred VAs currently available with no explicit asset-based fee linked to longevity risk. The product offers no living benefit riders.

Three of the best-selling VA contracts over the past several years—Jackson National’s Perspective II (7-year), TIAA-CREF’s R1, and Riversource Life’s RVS RAVA5 Advantage (10-year)—saw new sales fall by a combined $1.377 billion, or 22%, in the fourth quarter compared to a year ago, equivalent to a five-percentage-point decline in market share in just one year.

There were three newcomers to the top 10 contracts in sales, including two VAs issued within the previous 12 months.

Pruco’s Defined Income and Premier Retirement O-share policies were two of the fastest-growing VAs, thanks to strong living benefits. Defined Income jumped to sixth place from 12th place in sales, while Premier Retirement moved up one place, to third.

Each Pruco VA offers a guaranteed minimum withdrawal benefit (GMWB) with annualized step-ups equivalent to 6.3 and 5.5 times the associated benefit fee, corresponding to minimum withdrawal percentages for a 65-year-old of 6.3% and 5.8%, respectively. Perspective II and RVS GMWBs have step-up-to-fee ratios of 4.0 and 4.8 respectively, corresponding to guaranteed withdrawal fees for a 65-year-old of 5%.

Registered index-linked annuities (RILA) saw continued sales growth. Also known as structured, buffered, or hybrid annuities, these products include VAs that offer both variable- and fixed-indexed-like investment options. Others are effectively fixed-indexed annuities (FIAs) attached to a VA chassis.

Morningstar collects only sales data on the former, which we estimate accounted for around 65% of all the RILA sales in Q3 2018. Consistent with the booming popularity of pure FIAs, RILAs have seen significant sales growth in recent quarters, including Q4.

We estimate approximately $2.3 billion in the mixed-RILA space, equivalent to around $3.1 billion for the entire RILA space if we use our “65% rule.” That equals nearly 14% of all VA sales in the fourth quarter, compared to about 10% a year earlier.

Heightened market volatility may have contributed to the shift in VA sales patterns in Q4. GMWBs and RILAs are designed to protect against losses, but flows into managed volatility subaccounts did not increase despite a volatile market environment.

VA contract issuance and closures

Only one new variable annuity contract (VA) was issued in the fourth quarter, bringing the 2018 total to just 13 new contracts versus an average of roughly 33 per year over the 2014-17 period.

New issuance has failed to keep pace with contract closures. The number of VAs open to new investors has continued to decline: excluding New York-only contracts, there were only about 300 open VAs at the end of 2018. By our count, that is the fewest number of open contracts since 1997.

The lone VA brought to market in Q4 was an I-share from Jackson National. I-shares, also known as fee-based contracts, now account for around 22% of the open VA universe, up from 15% three years ago.

The lack of commission is attractive to investors looking to minimize costs at purchase, while uncertainty about the future of trail commissions—particularly following recent events concerning Ohio National—has made fee-based compensation that much more appealing to advisors.

VA benefit changes

Sun Life introduced a new guaranteed lifetime withdrawal benefit (GLWB) in the fourth quarter. At 0.30% for the single beneficiary version, the fee for the new Sun Life GLWB is among the lowest in its cohort. The benefit is available through the company’s Masters Prime VA, introduced in September, which has total annual expenses of 1.2%, above average but in line with other recent-vintage VAs.

The total number of available GLWB riders in the VA space was 112 as of end-2018, up from 94 a year prior and 66 three years ago. Such growth has coincided with the significant increase in sales of fixed indexed annuities (FIAs), many of which also offer an optional GLWB.

VA GLWBs tend to cost about 20 basis points more on average than their FIA counterparts, but the potential size of VA withdrawal benefits can be much larger. VA carriers offering GLWBs appear to be trying to compete by offering lower fees, as Sun Life has done.

Pacific Life lowered fees on several of its existing GLWBs in the fourth quarter. Fees on the CoreIncome Advantage Select series—which is still available to new investors—declined by 10 to 25 basis points. Fees on several other (closed) Pacific Life GLWBs also declined.

There were 22 non-fee-related benefit changes in Q4, many of them increases in withdrawal rates, which enrich the benefits without increasing the cost.

In the pipeline (based on preliminary SEC filings)

Prudential Annuities is preparing to release a new I-Share, called the Premier Advisor.

The Big Shift (from VA to FIA)

Posted on April 11, 2019 by No Author -

Why Living Benefits Are Dying

Posted on April 11, 2019 by Kerry Pechter -

One of my takeaways from last week’s LIMRA-Society of Actuaries Retirement Industry Conference in Baltimore was that sales of income-generating variable annuities (VAs) and fixed indexed annuities (FIAs) have shrunk during a period when they should have been rising.

In a presentation of data on past, present and projected annuity sales, LIMRA Secure Retirement Institute director Todd Giesing and research analyst Teddy Panaitisor showed a reversal in the percentage of sales annuities with income benefits in recent years, from 56% with a rider in 2011 to 56% without a rider (such as guaranteed lifetime withdrawal benefit, or GLWB) in 2018.

Sales of annuities rose smartly in 2018 vs. 2017, but mainly on the strength of contracts without income benefits. FIAs as a category grew 26.5%, but sales of FIAs with income-generating riders rose only 11.7%. Between 2011 and 2018, sales for the FIA category grew by 190%, but sales of FIAs with living benefits rose only 64%.

In the VA category, sales of contracts with income-generating riders grew more (7.6%) than VAs overall (2%) last year, but the long-term trend for VAs is negative: VA/GLWB sales are down 62% since 2011. (Indeed, according to the Insured Retirement Institute, there was a net outflow from all VA contracts in 2018 of $79.2 billion.)

The point is this: Instead of buying annuities for lifetime income and protection against outliving their savings, Americans are buying annuities for accumulation. They’re using annuities (or their advisors are recommending annuities) for tax deferral, or for higher returns than they can get from conventional bonds, or for safer returns than they can get from equity mutual funds.

Sales of true annuities—single premium immediate income annuities, or SPIAs—were up 16% in 2018, to $9.7 billion, thanks in part to an increase of about 10% in the level of monthly income they pay out to the owners. But SPIAs are a small discrete market dominated by mutual insurers (vs. publicly held) and sold mainly by captive agents (vs. independent agents and advisors). SPIA sales have not risen above their historic range; sales also reached $9.7 billion in 2014.

The aging of the baby boomers seems to be driving annuity sales only to the extent that boomers use them to reduce their market risk as they (and the bull market) get another year older. But neither advisors nor boomers seem to be gravitating toward the purchase of “longevity insurance,” which involves mortality pooling and is the advantage that only annuities (and annuity-like tontines) can deliver.

Boomers want to de-risk, but they don’t want to miss out on gains. Today’s deferred annuities allow them to have it both ways, more or less. “At the moment we still have strong returns from equity markets and most individuals are still in the stage of accumulation,” Panaitisor told RIJ this week. “They see the equity market rising and defer on locking in those guarantees.” When they do buy annuity living benefit riders, they’re buying them later in life and “taking advantage of equity growth and higher interest rates to grow their underlying assets,” he said.

Why are living benefit sales weak, aside from the fact that the bull market has lulled older Americans into a false sense of security?

Theory One. An annuity distribution executive said recently that the living benefit, which puts limits on the amounts that the annuity owners can spend each year without penalty, doesn’t entice his wealthy clients. They don’t want limits on their spending, and they’re not especially afraid of running low on cash. Their biggest concerns are long-term care expenses and capital gains taxes.

Theory Two. The VA/GLWB was most attractive when it offered the prospect of generous payout rates and gave advisors ample freedom to choose the underlying investments. Now, the income riders for VAs and FIAs usually offer either attractive income or broad freedom to invest, not both. But some advisors wonder why, if their clients are paying a 1% insurance fee to the insurer, there should be any limits on investment freedom. (Perhaps because without limits the insurance fee would be twice as high.)

Theory Three. Thanks to “governors” (volatility management strategies) that often limit the growth of the VA investments, advisors are no longer confident that their clients’ VA or FIA account balances will grow enough to earn “step-ups” in payouts. These step-ups that will help maintain the purchasing power of their income in the face of inflation. Advisors used to tell clients to add a GLWB to their VA “just in case” the market crashes. They’re not doing that as much.

Theory Four. Even if advisors are not inclined to churn annuities and earn new sales commissions, advisors generally want the freedom to move in and out of products. Income-generating annuities, which make sense mainly as buy-and-hold propositions, don’t fit into that worldview.

Theory Five. GLWBs are high maintenance products, and advisors don’t feel like they’re getting much help from the issuers in managing them. The contract owners don’t monitor their contracts, and don’t necessarily know when they to lock in a step-up or take income, especially if they don’t need the distribution to pay for current expenses.

Theory Six. Life insurance companies may not be pushing the sale of living benefit riders because of the hard-to-measure liabilities they can create. The sudden departure of Ohio National from the variable annuity business was a reminder that it’s still possible, even with the use of volatility-management strategies, for a life insurance company to overdose on GLWBs.

As the 21st century began, the typical VA/GLWB (with an annual enhancement to the benefit base during a 10-year interval before the first withdrawal) seemed poised to be the financial workhorse of the Age Wave, providing insurers with both insurance and investment fees and boomers with protection from outliving their savings.

But sales of VA/GLWBs fell to $41.1 billion in 2018 from $107.2 billion in 2011. Sales of FIA/GLWBs haven’t picked up the slack; they peaked at $31.6 billion in 2016. Combined sales of all income-generating annuities (including deferred income annuities, or DIAs) were $133.5 billion in 2011 but only $81.8 billion in 2018. Even as the oldest boomers have reached their “slow-go” decade, sales of income-generating annuities are falling as a percentage of annuity sales overall.

Honorable Mention

Posted on April 11, 2019 by Editorial Staff -

IRI issues 4Q 2018 annuity sales report

Overall annuity sales rose 9.7% in 2018, with the combined sales of fixed and variable annuities reaching $218 billion, according to the Insured Retirement Institute (IRI), which this week announced final 2018 market data for the U.S. annuity industry based on data reported by Beacon Research and Morningstar, Inc.

Total annuity sales

Industry-wide annuity sales in the fourth quarter of 2018 were $58.8 billion, a 7.1% increase from sales of $54.9 billion in the third quarter of 2018 and up 23.5% from the versus fourth quarter of 2017, when sales were $47.6 billion. Full-year 2018 total annuity sales were $218.0 billion, up 9.7% from 2017, when total annuity sales were $198.6 billion.

Fixed Annuity Sales

Fixed annuity sales in the 2018 fourth quarter were $35.9 billion, up 12.7% from fixed annuity sales of $31.8 billion in the previous quarterand 51.6% higher than the fourth quarter of 2017, when sales were $23.7 billion. Fixed annuity sales were $125.0 billion in calendar year 2018, up 17.0% from sales of $106.8 billion in 2017.

Variable annuity sales

Fourth quarter 2018 variable annuity total sales were $22.9 billion, down 0.7% from 2018 third quarter sales of $23.0 billion and 4.3% lower than 2017 fourth quarter VA sales of $23.9 billion. The $92.9 billion in sales during 2018 was an increase of 1.2% over 2017 VA sales of $91.8 billion.

Sales of $19.6 billion for fixed indexed annuity sales in the fourth quarter of 2018 set a new high-water mark. The quarter’s sales were up 8.8% from 2018 third quarter sales of $18 billion (the previous record) and up 42% from 2017 fourth quarter sales of $13.8 billion. Sales of $69.9 billion in 2018 set a new annual record, up 28.8% over 2017 sales of $54.3 billion and 16.3% higher than the previous annual record of $60.1 billion set in 2016.

Book value annuity sales

Sales of book value annuities in the fourth quarter 2018 were $8.9 billion, up 27.7% from the $7.0 billion in the third quarter of 2018 and up 91% from 2017 fourth quarter sales of $4.6 billion. Book value annuity sales were $27.9 billion in 2018 were up 34.5% from 2017 sales of $20.7 billion.

Market value adjusted (MVA) annuity sales were $4.1 billion in the fourth quarter of 2018, equal to sales in the previous quarter. MVA sales increased 61% versus fourth quarter 2017 sales of $2.5 billion. For the full year of 2018, MVA sales were $15.8 billion, up 28.0% from 2017 sales of $12.4 billion.

Income annuity sales were $3.3 billion in the fourth quarter of 2018, up 19.6% from the previous quarter ($2.7 billion) and 24.0% higher than 2017 fourth quarter income annuity sales of $2.6 billion. On a year-over-year basis, income annuity sales reached a new high of $11.4 billion, up 9.1% over 2017 sales of $10.5 billion.

For the entire fixed annuity market, there were approximately $20.6 billion in qualified sales and $15.3 billion in non-qualified sales during the fourth quarter of 2018.

Beacon Research CEO Jeremy Alexander said, “We expect all fixed annuity product types to continue showing robust growth in 2019. as millions of Americans seek solutions that can help them feel secure during retirement.”

According to Morningstar, variable annuity net assets rose in the third quarter as the bull market in equities continued to drive higher valuations in subaccount assets.

Variable annuity assets fell 9.5% from just over $2 trillion in the third quarter to $1.8 trillion, as market volatility weighed on equity and allocation subaccounts. Assets were 8.6% lower than the nearly $2 trillion recorded at the end of 2017. Allocation funds continue to be the largest asset class by share of assets, at $676.8 billion, or 37.3% of total variable annuity assets. Equity funds held $590.6 billion, or 32.6% of total VA assets.

Net asset flows in variable annuities were -$20.2 billion in the fourth quarter, a 4.3% drop from $19.4 billion in the third quarter of 2018. Net flow for the full year 2018 stood at -$79.2 billion, as compared to -$66.7 billion in full year 2017 net flow. Within the variable annuity market, there were $15.3 billion in qualified sales and $7.6 billion in non-qualified sales during the fourth quarter of 2018. For the year, qualified sales were $60.2 billion, or 64.8% of total VA sales, while non-qualified accounted for $32.7 billion, or 35.2%.

“Higher volatility and market losses weighed on VA assets,” said Michael Manetta, Senior Quantitative Analyst at Morningstar, “but we did not see a corresponding plunge in sales. With equity markets recovering in the first quarter of 2019 we should see sales continue to improve, with gains in lifetime income products and structured annuities, which offer protection against the impact of volatility.”

iPipeline favors “best interest” rule in New York

iPipeline, the provider of cloud-based software solutions for the life insurance and financial services industry, today announced its support for NY Reg 187, a proposed regulation in the state of New York, and said that many of its customers support it as well.

The regulation, like the Labor Department “best interest” regulation that was reversed by the Trump administration and a Texas federal appeals court, would require financial intermediaries to act in the “best-interest” of their clients. Currently, a range of intermediaries can call themselves advisors and need only disclose conflicts of interest to their clients, not abandon those conflicts.

iPipeline, which has adapted its proprietary platform to support best interest regulations, said it has assembled a like-minded network of 135 insurance carriers, 1,300 distributors and financial institutions, and hundreds of thousands of agents and licensed financial advisors.

The firm’s ‘SSG Digital’ global platform is designed to support regulatory compliance, suitability assessments, order entry, insurance application quoting, illustrations and processing, underwriting, policy administration, e-Signature, e-Delivery, and analytical reporting, said Tim Wallace, CEO, iPipeline, in a release this week.

Vestwell, a retirement plan fintech, raises $30 million

Vestwell, a digital retirement platform, has raised $30 million in Series B financing in a round led by Goldman Sachs Principal Strategic Investments, working with Goldman Sachs’ Consumer and Investment Management Division, Vestwell holdings Inc. announced this week.

Joining the round were Point72 Ventures, the venture capital arm of Nationwide, Allianz Life Ventures, BNY Mellon, and Franklin Templeton, with additional participation from Series A and Series Seed investors, F-Prime Capital, FinTech Collective, Primary Venture Partners, and Commerce Ventures.

Vestwell claims to be the first digital platform built for the retirement plan working with 401(k) and 403(b) plans.

In the past 12-months, Vestwell said, its client base has grown tenfold and it has entered alliances with BNY Mellon, Allianz, Namely, Dimensional Fund Advisors, OnPay and Riskalyze, with others that will be announced shortly.

Vanguard brings new active commodities fund to market

Vanguard announced that it will launch a new actively-managed fund, Vanguard Commodity Strategy Fund, in June 2019. The Malvern, PA-based mutual fund giant filed a preliminary registration statement with the Securities and Exchange Commission this week.

The new fund will invest primarily in commodities and treasury inflation protected securities (TIPS). It will have an average expense ratio of 1.25%. The fund will solely offer Admiral Shares at a $50,000 investment minimum, with an estimated expense ratio of 0.20%, which Vanguard described as less than a sixth of the cost of competing broad-based commodity-linked funds.

The performance benchmark for the new fund will be the Bloomberg Commodity Total Return Index. It will invest in commodity-linked derivative investments, such as commodity futures and swaps, collateralized by a mix of Treasury bills (T-bills) and short-term TIPS, which add a layer inflation protection.

Vanguard’s Quantitative Equity and Fixed Income Groups will advise the fund. The group is comprised of 35 strategists, analysts, and portfolio managers who managed Vanguard Managed Payout Fund’s commodity strategy for more than 10 years.

At launch of the new commodity fund, the $1.8 billion Vanguard Managed Payout Fund will reallocate its commodities exposure, consisting of $135 million, to the new fund.

Giovanni and Coutts rise at Lincoln Financial

Lincoln Financial Group announced this week that senior vice president Christopher Giovanni has been named corporate treasurer and senior vice president Jeffrey Coutts, who currently serves as corporate treasurer, has been named to the new role of chief valuation actuary, effective May 6, 2019.

Giovanni will assume responsibility for Corporate Treasury oversight, including balance sheet management, debt and capital management, liquidity management and rating agency relationships. He will also continue to oversee Investor Relations and Strategic Planning, reporting to Randal Freitag, executive vice president, chief financial officer and head of Individual Life for Lincoln.

As Lincoln’s first chief valuation actuary, Coutts will be responsible for the executive leadership of actuarial valuation and modeling within Lincoln. This includes the day-to-day management of the actuarial organization. He will continue to have responsibility for mergers and acquisitions and financial reinsurance and report directly to Freitag.

Global Bankers to divest its US life companies

Global Bankers Insurance Group, LLC confirmed this week that it is pursuing a sale of its U.S. life insurance companies and has met with potential acquirers. The company, headquartered in Durham, NC, owns Bankers Life, and the insurance companies acquired by Global Bankers since September 2014 include Southland National Insurance, Life Reinsurance, Colorado Bankers Life, Annuity Reinsurance, Mothe Life, Conservatrix and GB Life (formerly NN Life Luxembourg SA.

Blueprint Income, a fintech firm, will sell Pacific Life deferred income annuity online

Posted on April 11, 2019 by Editorial Staff -

Blueprint Income, a Internet-based, direct-to-consumer annuity distributor, has agreed to collaborate with Pacific Life on the distribution of a multi-premium deferred income annuity for Generation X-ers and others who want “a predetermined amount of monthly income starting at a predetermined retirement date in the future,” according to a release this week.

The contract is called “Next,” and was designed by Pacific Life “to support the purchase of insurance products through digital platforms like Blueprint Income,” the release said. “With a minimum of $100 to get started, it takes minutes to get set up, and in most cases applications are approved instantly, with no paper applications and no phone calls.”

“We’ve heard a clear desire — especially among Generation X — to have the security of a pension that their parents relied on to achieve financial peace of mind,” said Blueprint Income co-founder and CEO Matt Carey, in a statement.

“Next by Pacific Life creates an opportunity for us to connect with the next generation of consumers who haven’t yet taken that first step toward guaranteed retirement income, in a fast, simplified manner,” said Pacific Life Executive Vice President and Chief Operating Officer Adrian Griggs, in a statement.

The Next Deferred Income Annuity is available in 20 states (Alabama, Arizona, Colorado, Connecticut, Delaware, Georgia, Indiana, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, Ohio, South Dakota, Utah, West Virginia, and Wisconsin) and the District of Columbia. More states will be added over the coming months, the release said.

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

DCIIA’s custom TDF survey

One flew over the 401(k) NEST

Replace those burnt-out funds!

VA contract issuance and closures

VA benefit changes

In the pipeline (based on preliminary SEC filings)

IRI issues 4Q 2018 annuity sales report

Total annuity sales

Fixed Annuity Sales

Variable annuity sales

Book value annuity sales

iPipeline favors “best interest” rule in New York

Vestwell, a retirement plan fintech, raises $30 million

Vanguard brings new active commodities fund to market

Giovanni and Coutts rise at Lincoln Financial

Global Bankers to divest its US life companies

Data Connection

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