Archives: Articles

IssueM Articles

Fidelity Launches Two More Zero-Expense Funds

Posted on September 13, 2018 by -

The Empire in Boston strikes back again—betting that it can regain mutual fund leadership by following (and one-upping) the indexing leaders.

Fidelity Investments has doubled its stable of zero expense ratio mutual funds by launching Fidelity ZERO Large Cap Index Fund (FNILX) and Fidelity ZERO Extended Market Index Fund (FZIPX).

Individual investors can buy the two new funds with no investment minimums starting September 18, 2018. The large cap index fund is comparable to an S&P 500 index funds and the extended market index fund buys mid-cap and small-cap company shares.

Fidelity’s first two zero expense ratio funds, ZERO Total Market Index Fund and ZERO International Index Fund, appeared August 2 and have since grown to more than $1 billion in assets. Together, the four Fidelity zero-expense ratio equity funds provide market exposure to over two-thirds of industry index assets.

For several years, index funds (including exchange traded funds), primarily from Vanguard and BlackRock iShares, have captured most of the net fund flows at the expense of traditional actively managed fund specialists like Fidelity and Franklin Templeton.

Managers of index funds try to replicate the performance of the stocks or bonds that are included in specific indexes, which represent all of the assets within a certain market segment, such as large-cap stocks, value stocks or high yield bonds.

Active fund managers try to beat the performance of specific indexes by choosing specific stocks or overweighting in stocks with specific characteristics. Because actively managed funds can have higher much higher fees than index funds, active managers must overcome a performance handicap in order to beat the performance of a closely-related index fund.

In the year ending July 31, 2018, Vanguard funds attracted more than $226 billion in net flows and BlackRock iShares attracted $122.3 billion. Fidelity attracted just over $42 billion for the year. In July alone, Vanguard index funds attracted $16.4 billion, SPDR State Street Global Advisors ETFs attracted $10.4 billion ($6.6 billion into its S&P 500 Index ETF SPY alone), and Fidelity index funds attracted $6.9 billion.

A chart provided by Fidelity compared its two new funds favorably with the Vanguard 500 Index Fund, which charges 14 basis points (0.14%) per year, and Vanguard Extended Market Index Funds, which charges 21 basis points (0.21%) per year. Both funds require a minimum initial investment of $3,000.

All of Fidelity’s stock and bond index funds and sector ETFs have total net expenses lower than all of Vanguard’s comparable funds, according to the Fidelity release.

Fidelity recently announced zero minimums for account opening, zero investment minimums on Fidelity retail and advisor mutual funds and 529 plans, zero account fees, zero domestic money movement fees and significantly reduced index pricing. The firm also cut index mutual fund pricing by almost 50%.

In the release, Fidelity also touted its no-annual-fee 2% cash back credit card; free debit card and ATM fee reimbursement, free check writing and bill pay; free portfolio review at any Fidelity investor center; free asset allocation models for diversified and income portfolios; and transparent bond pricing at $1 per contract.

© 2018 RIJ Publishing LLC. All rights reserved.

Lincoln Financial to distribute new indexed annuity through Market Synergy Group

Posted on September 13, 2018 by -

Lincoln Financial Group is partnering with Market Synergy Group, an annuity product design firm with a network of independent insurance marketing organizations (IMOs), to launch the new Lincoln Retirement Safeguard fixed indexed annuity. The product will be exclusively through Market Synergy Group’s IMOs.

“We continue to expand distribution among independent marketing organizations,” said Tad Fifer, head of Fixed Annuity Sales and RIA Sales & Strategy at Lincoln Financial Distributors. “This new partnership with Market Synergy Group allows us to leverage their expertise in product design to offer customers a solution with accumulation potential and income protection through a leader in this distribution channel.”

Lincoln Retirement Safeguard features built-in protected lifetime income, including a benefit multiplier while saving for retirement, an option for increasing income in retirement, and an enhanced death benefit for heirs.

Lincoln Retirement Safeguard allows consumers to allocate through a combination of crediting strategies that provides conservative growth or market-driven growth, with options to reallocate every contract anniversary should their strategies change.

The solution also helps protect the client’s principal through a choice of a fixed account and four interest-crediting accounts, including the BlackRock iBLD Ascenda Index. That index gives clients global diversification through BlackRock’s iShares exchange-traded funds.

© 2018 RIJ Publishing LLC. All rights reserved.

‘Pent-up demand’ lifted annuity sales in 2Q2018

Posted on September 13, 2018 by -

Industry-wide annuity sales in the second quarter of 2018 totaled $56.0 billion, a 15.9% increase from sales of $48.3 billion during the first quarter of 2018, and a 12.3% increase over sales of $49.9 billion in the second quarter of 2017, according to a report on 2Q2018 sales by the Insured Retirement Institute, Beacon Research and Morningstar, Inc.

On a year-to-date basis, total annuity sales were $104.3 billion, a 5.8% increase of 2017 Q2 year-to-date sales of $98.6 billion.

According to Beacon Research, fixed annuity sales during the second quarter of 2018 rose to $31.9 billion, a 25.4% increase over sales of $25.4 billion during the first quarter of 2018 and a 21.8% increase over sales of $26.2 billion during the second quarter of 2017. Variable annuity total sales were $24.1 billion in the second quarter of 2018, according to Morningstar. This was a 5.2% increase from sales of $22.9 billion in the prior quarter and a 1.8% increase over sales of $23.7 billion in the second quarter of 2017.

“IRI has remained confident that annuities sales would rebound due to pent up demand for these solutions,” said IRI President and CEO Cathy Weatherford, in the release.

According to Beacon Research, fixed annuity sales strongly increased across all product types, with fixed indexed increasing sales by more than $3.0 billion in the second quarter and book value annuities rising over $2.0 billion, as compared to the first quarter of 2018. Fixed indexed annuity sales rose 20.8% to $17.7 billion from $14.6 billion in the first quarter of 2018, and 22.9% from second quarter 2017 sales of $14.4 billion.

Book value and market value adjusted (MVA) annuities, combined sales of which were $11.3 billion, rose 35.7% relative to first quarter sales of $8.4 billion, and were also up 25.6% versus second quarter 2017 sales of $9.0 billion. Income annuity sales also rose, posting sales of $2.9 billion, an 18.1% increase over first quarter income annuity sales of $2.5 billion. For the entire fixed annuity market, there were approximately $17.7 billion in qualified sales and $14.2 billion in non- qualified sales during the second quarter of 2018.

“The fixed annuity market saw record percentage increases across the board in the second quarter,” said Beacon Research CEO Jeremy Alexander, “reflecting strong demand among advisors and consumers for safety and guaranteed income.”

According to Morningstar, variable annuity net assets rose 0.7% to $1.97 trillion during the second quarter of 2018. On a year-over-year basis, assets fell 0.9%, from $1.99 trillion at the end of the second quarter of 2017, as increasingly negative net flows overcame positive market performance. Net flow in variable annuities was -$21.1 billion in the second quarter, up 14.6% from -$18.4 billion in the first quarter of 2018. Within the variable annuity market, there were $15.5 billion in qualified sales and $8.6 billion in non-qualified sales during the second quarter of 2018. Qualified sales rose 7.0% from first quarter sales of $14.5 billion, while sales of non-qualified variable annuities rose 2.2% from first quarter sales of $8.4 billion.

“While negative net flows continue to weigh on total net assets,” said Michael Manetta, Senior Quantitative Analyst at Morningstar, “it is encouraging to see a solid rebound in overall sales of variable annuities, indicating that distributors are normalizing operations in the wake of the DOL fiduciary rule being vacated.”

© 2018 RIJ Publishing LLC. All rights reserved.

Public Reactions to SEC ‘Best Interest’ Proposal

Posted on September 13, 2018 by -

Investors are confused, and may even be misled, by disclosures proposed by the Securities and Exchange Commission (SEC) to help investors choose an investment professional, according to independent testing conducted by Kleimann Communications Group on behalf of AARP, Consumer Federation of America (CFA), and the Financial Planning Coalition.

The research focuses on the Customer Relationship Summary (CRS) form, which is a central component of the SEC’s proposed “Regulation Best Interest” rulemaking package. The CRS is intended to clear up investor confusion regarding key differences between broker-dealers and investment advisers, including differences in the legal standards that apply.

In addition to AARP and CFA, the groups submitting the results to the Commission Tuesday include Financial Planning Coalition partners CFP Board, Financial Planning Association (FPA) and National Association of Personal Financial Advisors (NAPFA).

“We believe the results of this testing clearly indicate the need for the Commission to revise and retest the content, language, and format of the CRS,” the groups wrote in a letter sent to SEC Chairman Jay Clayton and members of the Commission.

The groups called on the SEC to commit to undertaking a rigorous process to revise and retest the CRS and to delay final adoption of its “Regulation Best Interest” regulatory package until it can be certain that the disclosures that form the centerpiece of that regulatory package work as intended to support informed investor decision-making.

Recognizing the important role that disclosure plays in the SEC’s proposed regulatory approach, the groups commissioned independent disclosure design experts, Kleimann Communications Group, to conduct usability testing of the CRS, using a mockup of the version for dual registrant firms developed by the SEC. The testing consisted of 90-minute, one-on-one interviews with typical investors in three demographically diverse locations.

Key Findings

Did not understand legal disclosures: Participants did not understand disclosures regarding the differing legal obligations that apply to brokerage and advisory accounts. Most participants assumed the standards would be the same despite the different language used to describe them.

“They would probably be exactly the same. If it’s an industry standard it would be standard across the board for everybody.” —St. Louis

“If there is indeed a difference in the way the law treats a broker/dealer service versus the way the law views an investment adviser firm, that difference needs to be made clear, if there is, in fact, a difference–which I do not know from these statements… The fact that they used that phrase on one side and not on the other hints at the idea that perhaps these things are legislated differently… then I want that to be spelled out very clearly.” —Philadelphia

Did not understand the term ‘fiduciary standard’: Most participants had little or no understanding of the term “fiduciary duty.” They were more comfortable with the term “best interests,” although their actual understanding of its meaning was mixed. Only a few recognized it as an obligation to put the customer’s interests first and to develop recommendations that reflect their personal goals and financial situation.

“Well, first of all, I have no idea what their fiduciary standard is.” —St. Louis

“Well, one thing, ‘fiduciary standard.’ ‘We’re held to a fiduciary standard.’ For a regular guy that punches a clock, I don’t see that word often or anything.” —Philadelphia

Think different standards meant best interest advice: Based on their understanding of the term “best interest,” some participants viewed the CRS as portraying brokerage accounts in a more favorable light than advisory accounts.

“If I’m looking at my best interest, brokerage would be better for me.” —Calabasas

“So, the obligation sounds better on the brokerage account, because it sounds like they are working on your best interests and treating you fairly . . . In the brokerage accounts, it makes it seem like they are more for you . . .” —St. Louis

Did not understand critical distinctions between different payment models, fees, and associated services: Participants struggled to articulate a clear distinction regarding the nature of services offered as part of brokerage and advisory accounts. The only feature of the accounts that was well understood by nearly all participants was the method of payment by transaction versus asset fees. But many could not translate that understanding into a determination of which model was the best match for them.

“Well, the number one key difference is [that] one is transaction-fee based and one is asset-based fee. That, I think, is the number one difference between them.” —Calabasas

“. . . They’re both saying the exact same thing. They offer advice on a regular basis, regularly monitor my account, contact by email. They’re both basically doing the same thing.” —Calabasas

Could not figure out which type of fees might cost more: Participants were deeply confused by disclosures regarding fees and costs. Both the content and the terminology in this section left participants confused and overwhelmed. They did not feel that the information provided enabled them to determine which account would cost them more.

“Once you get down to fees and costs, it’s time to stop with big sentences and start showing some figures-—as an example, here is this.” —St. Louis

“OK, but that’s very confusing. They’re saying up here asset-based fees . . . Then they go on here talking about other fees.” —Calabasas

People thought conflicts would not impact them: Most participants understood that conflicts of interest were present in both the brokerage and the advisory accounts and that these conflicts took the form of payments that created incentives to recommend certain products. However, few made a connection between the conflicts described and the possibility that they could result in recommendations that were not in their best interests.

“I’m confused by this section because I thought they were listing the conflicts of interest that they’re not allowed to do. But now that I’m reading this section, it sounds like this is what they’re allowed to do. Wow! That’s a little concerning.” —Philadelphia

“They would offer it to you at a lesser charge for the transfer or for the transaction. It seems like it is a benefit for the consumer because you are getting a better deal. Well, you are not being charged as much for the transfer or the purchase of theirs as you would something that wasn’t under their same umbrella . . . the fee would be less, I would think.” —St. Louis 002

Overwhelmingly, investors want and expect advice that’s in their best interest, regardless of any conflicts of interest.

“I know everything is about money but still, I just want to make sure it is in my best interests.” —Philadelphia

“…I don’t mind them having an incentive if it’s to my best interest too. If they’ve got my best interest at heart, then, as I said earlier, go ahead and earn as much as you can. But I don’t want you to sell me something or try and sell me something if my best interests are not at heart. If it doesn’t benefit my account and if it only benefits you, then I would take my business elsewhere.” —Calabasas 002

In short, despite favorable testing conditions that required participants to read the documents more carefully than most would on their own, few participants were able to consistently comprehend the information within a single section of the CRS. Fewer still were able to integrate and synthesize the information provided in the document as a whole.

Despite these serious shortcomings identified by the testing, the groups wrote in their letter that they “share the conclusion expressed by Kleimann Communications that a ‘usable document that communicates clearly and well with potential investors is a viable outcome.’ We offer these testing results as a first step of an iterative process designed to arrive at a final disclosure document that truly works to support an informed choice by investors between different types of accounts and different types of service providers,” they added.

The formal comment period on the SEC’s regulatory proposal ended August 7. The groups alerted the SEC in their comment letters that they were conducting the usability testing and would submit it as soon as it was available. In keeping with SEC practice, they expect the report to be made part of the public rulemaking record.

iPipeline announces annuity distribution partnership

Posted on September 13, 2018 by -

iPipeline, a provider of cloud-based software solutions for the life insurance and financial services industry, announced that its SimplyAnnuity tool, powered by the AFFIRM for Annuities order entry module, will be used by BCS Insurance Agency (BCSIA) to offer fixed and fixed indexed annuity products through Four Seasons Financial Group.

AFFIRM for Annuities is a compliance and order management system designed to integrate a carrier’s product rules with a distributor’s compliance processing requirements (customized workflows and suitability reviews) to generate transactions that are “in good order.” Compliant annuity applications are electronically submitted to carriers for processing after successfully passing all supervisory reviews.

“Our partners have traditionally sold health insurance products, [but we decided to] automate the process using SimplyAnnuity and offer fixed and fixed indexed annuities to our partners,” said Dave Burghard, President, BCSIA, in a release.

“We are now marketing to insurers to strategically expand their product offerings of life insurance and annuity products, automate the selling and buying process, and grow their revenue,” said Jim Sorebo, CEO, Four Seasons Financial. “Given the right tools and support, there is a huge, untapped opportunity to sell these simple annuity products.

BCS Insurance Agency (BCSIA) is a wholly owned subsidiary of BCS Financial Corporation (BCS). BCS has insurance licenses in all 50 states and is rated A- (Excellent) by A.M. Best.

Four Seasons Financial Group Inc. is a national wholesale provider of insurance and investments products and the technology solutions to streamline selling and buying processes to the institutional markets. FSFG works with over 250 banks and broker-dealers and over 5,000 financial advisors.

© 2018 RIJ Publishing LLC. All rights reserved.

Securian to offer “unitized model portfolios” to 401k plans

Posted on September 13, 2018 by -

Securian Financial is partnering with Mid Atlantic Capital Group to add “unitized model portfolios” to its 401(k) plan services menu as an alternative to third-party target date funds and to distinguish itself in today’s “commoditized retirement plan marketplace,” according to a Securian release.

The program will use unitized model portfolios designed by and held at Mid Atlantic Trust Company, a unit of Pittsburgh-based Mid Atlantic Capital Group. The program integrates the investment models with Securian’s recordkeeping services. Plans of any asset size can use it.

Unitized model portfolios, a relatively new development, have been described as diversified pooled investment whose value can be expressed daily in units. They enable a plan’s investment advisors to create QDIAs that are customized for a particular plan.

“Unitized model portfolios are for professionals interested in taking target-date funds to the next level by building customized risk-based solutions for participant usage,” said Kent Peterson, a retirement solutions vice president with Securian Financial, in the release.

“They provide a value proposition and competitive differentiator to retirement plan specialist advisors who focus on investments as part of their practice. Wealth management firms that, in addition to working with individual investors, offer retirement plan consulting to small businesses find unitized model portfolios particularly appealing and highly efficient.”

According to TD Ameritrade’s Unitized Managed Account publication, “The unitization process translates the value of multiple securities into a single daily unit value… UMAs allow independent Registered Investment Advisors (RIAs) to offer custom portfolio solutions to corporate retirement plan clients. By leveraging the power of model portfolios that are unitized daily, UMAs enable RIAs to deploy customized investment strategies on behalf of their plan sponsors and participants.”

© 2018 RIJ Publishing LLC. All rights reserved.

Trump’s Policies Will Displace the Dollar

Posted on September 6, 2018 by -

Back in 1965, Valéry Giscard d’Estaing, then France’s Minister of Finance, famously called the benefits that the United States reaped from the dollar’s role as the world’s main reserve currency an “exorbitant privilege.” The benefits are diminishing with the rise of the euro and China’s renminbi as competing reserve currencies. And now US President Donald Trump’s misguided trade wars and anti-Iran sanctions will accelerate the move away from the dollar.

The dollar leads all other currencies in supplying the functions of money for international transactions. It is the most important unit of account (or unit of invoicing) for international trade. It is the main medium of exchange for settling international transactions. It is the principal store of value for the world’s central banks. The Federal Reserve acts as the world’s lender of last resort, as in the 2008 financial panic, though we should recognize too that the Fed’s blunders helped to provoke the 2008 crisis. And the dollar is the key funding currency, being the major denomination for overseas borrowing by businesses and governments.

In each of these areas, the dollar punches far above America’s weight in the world economy. The US currently produces around 22% of world output measured at market prices, and around 15% in purchasing-power-parity terms. Yet the dollar accounts for half or more of cross-border invoicing, reserves, settlements, liquidity, and funding. The euro is the dollar’s main competitor, with the renminbi coming in a distant third.

The US gains three important economic benefits from the dollar’s key currency role. The first is the ability to borrow abroad in dollars. When a government borrows in a foreign currency, it can go bankrupt; that is not the case when it borrows in its own currency. More generally, the dollar’s international role enables the US Treasury to borrow with greater liquidity and lower interest rates than it otherwise could.

A second advantage lies in the business of banking: The US, and more precisely Wall Street, reaps significant income from selling banking services to the rest of the world. A third advantage lies in regulatory control: The US either directly manages or co-manages the world’s most important settlements systems, giving it an important way to monitor and limit the flow of funds related to terrorism, narco-trafficking, illegal weapons sales, tax evasion, and other illicit activities.

Yet these benefits depend on the US providing high-quality monetary services to the world. The dollar is widely used because it has been the most convenient, lowest-cost, and safest unit of account, medium of exchange, and store of value. But it is not irreplaceable. America’s monetary stewardship has stumbled badly over the years, and Trump’s misrule could hasten the end of the dollar’s predominance. Already back in the late 1960s, America’s fiscal and monetary mismanagement led to the breakdown of the dollar-based Bretton Woods pegged-exchange rate system in August 1971, when President Richard Nixon’s administration unilaterally renounced the right of foreign central banks to redeem their dollars in gold. The breakdown of the dollar-based system was followed by a decade of high inflation in the US and Europe, and then an abrupt and costly disinflation in the US in the early 1980s. The dollar turmoil was a key factor motivating Europe to embark on the path toward monetary unification in 1993, culminating in the launch of the euro in 1999.

Likewise, America’s mishandling of the Asian financial crisis in 1997 helped to convince China to begin internationalizing the renminbi. The global financial crisis in 2008, which began on Wall Street and was quickly transmitted throughout the world as interbank liquidity dried up, again nudged the world away from the dollar and toward competing currencies.

Now Trump’s misbegotten trade wars and sanctions policies will almost surely reinforce the trend. Just as Brexit is undermining the City of London, Trump’s “America First” trade and financial policies will weaken the dollar’s role and that of New York’s role as the global financial hub.

The most consequential and ill-conceived of Trump’s international economic policies are the growing trade war with China and the reimposition of sanctions vis-à-vis Iran. The trade war is a ham-fisted and nearly incoherent attempt by the Trump administration to stall China’s economic ascent by trying to stifle the country’s exports and access to Western technology. But while US tariffs and non-tariff trade barriers may dent China’s growth in the short term, they will not decisively change its long-term upward trajectory. More likely, they will bolster China’s determination to escape from its continued partial dependency on US finances and trade, and lead the Chinese authorities to double down on a military build-up, heavy investments in cutting-edge technologies, and the creation of a renminbi-based global payments system as an alternative to the dollar system.

Trump’s withdrawal from the 2015 Iran nuclear deal and the re-imposition of sanctions against the Islamic Republic could prove just as consequential in undermining the dollar’s international role. Sanctioning Iran runs directly counter to global policies toward the country. The UN Security Council voted unanimously to support the nuclear deal and restore economic relations with Iran. Other countries, led by China and the EU, will now actively pursue ways to circumvent the US sanctions, notably by working around the dollar payments system.

For example, Germany’s foreign minister, Heiko Maas, recently declared Germany’s interest in establishing a European payments system independent of the US. It is “indispensable that we strengthen European autonomy by creating payment channels that are independent of the United States, a European Monetary Fund, and an independent SWIFT system,” according to Maas. (SWIFT is the organization that manages the global messaging system for interbank transfers.)

So far, US business leaders have sided with Trump, who has showered them with corporate tax cuts and deregulation. Despite soaring budget deficits, the dollar remains strong in the short term, as the tax cuts have fueled US consumption and rising interest rates, which in turn pull in capital from abroad. Yet in a matter of several years, Trump’s profligate fiscal policies and reckless trade and sanctions policies will undermine America’s economy and the role of the dollar in global finance. How long will it be before the world’s businesses and governments are running to Shanghai rather than Wall Street to float their renminbi bonds?

© 2018 Project Syndicate.

A bit of recovery in variable annuity sales

Posted on September 6, 2018 by -

New sales of variable annuities reached $23.6 billion in the second quarter of 2018, compared with $22.4 billion in Q1 and $23.2 billion in Q2 2017. This marks the first period of positive year-on-year sales growth in nearly four years and only the second in the past six years.

Still, the pace of VA sales growth (1.6% year on year) paled in comparison to fixed-index annuities: According to LIMRA, FIA sales reached $17.6 billion in Q2 2018, up 17% from the year prior. Moreover, VAs continued to experience net outflows as policyholders continued to take withdrawals and/or annuitize their contracts.

The top three carriers in terms of sales volume—Jackson National, AXA Equitable, and TIAA-CREF—all saw sales growth slow in Q2, continuing a trend of slowing sales growth that began in mid-2017 (only Jackson has posted a quarter of positive year-on-year sales growth in the past year).

However, five of the seven remaining firms in the top 10 by sales saw double-digit sales growth in Q2, led by Prudential, which posted an impressive 35% increase in new sales year on year. These results have led to a notable shift in market share, with the top three companies accounting for 40% of VA sales versus 44% a year ago, while the next seven now account for 41% (versus 37% a year ago).

Given the heterogeneity of VA products, it is difficult to identify characteristics that may be driving sales in one direction or the other within the industry. However, there are a few patterns to note.

First, contracts that recorded positive sales growth in Q2 tended to have lower minimum fees than contracts recording negative sales growth year on year by around 5 to 15 basis points on average, depending on which subset of the universe one looks at. This appears to hold true when comparing only contract fees, contract fees plus subaccount fees, as well as living benefit fees.

Second, there is a significant difference in the number and type of optional benefits offered among the best-selling contracts, suggesting that the market for VAs (and their various benefit options) remains diverse.

Furthermore, 2012- and 2013-vintage contracts remain the best-sellers both by average sales volume and total sales volume by year. Of the top 100 selling VAs in Q2 2018, 25 were first issued in 2012 or 2013, while more than 40% of total sales volume in Q2 came from contracts of these vintages. Also, 2015 and 2016-vintage contracts sold well in Q2, while 2017-18 vintages were somewhat less popular.

That somewhat older vintages are dominating VA sales may reflect changes in how VAs are sold. Independent advisors accounted for more than 42% of all VA sales in Q2 2018, up from 36% a year earlier and 38% in Q1.

Meanwhile, captive agency sales have declined to less than 30% from 37% in the past year. Independent advisors may be more comfortable offering established products to their clients, possibly explaining the popularity of 2012-13 vintage VAs.

© 2018 Morningstar, Inc.

Personal Capital launches tax-efficient drawdown tool

Posted on September 6, 2018 by -

Personal Capital, the hybrid digital wealth management company, has introduced “Retirement Paycheck,” a service that shows retirees how to draw an income from their qualified and non-qualified savings accounts in the most tax-efficient ways while avoiding potential penalties.

The service is accessible through Personal Capital’s Retirement Planner, a Monte Carlo forecasting tool that projects a client’s future retirement savings levels based on estimates of portfolio return and volatility, annual savings, income and spending goals.

To arrive at personalized recommendations, the service integrates account level tax status, household tax filing status, and the latest state-by-state and federal tax date with a goal of extending the life client portfolios.

“How you withdraw money in retirement is just as important as how much you save,” said Amin Dabit, Personal Capital’s director of advisory services, in a press release. “There is a lot of complexity about how retirees should pay themselves from taxable, tax-deferred and tax-free accounts. Retirement Paycheck helps provide clients with the clarity needed to withdraw confidently.”

With Retirement Paycheck, Personal Capital clients can:

  • See taxable, tax-deferred, and tax-free accounts and get guidance on which to withdraw from, in what amounts, for each year of retirement.
  • Potentially increase their chances of having enough money throughout retirement.
  • See an indicator to reach out to their advisor if a Roth Conversion or Tax Gain Harvesting strategy is appropriate for the client’s situation to save money on taxes.

Personal Capital is a hybrid digital wealth management company based in San Carlos, California, with more than $7.5B in assets under management. The company offers free financial planning tools for investors and fee-based wealth management services, with hubs in San Francisco, Denver, Dallas, and Atlanta. Personal Capital has fiduciary financial advisors across the U.S.

© 2018 RIJ Publishing LLC. All rights reserved.

With new pension policy, California links retirement income to global warming

Posted on September 6, 2018 by -

Climate change is literally a burning issue in the tinderbox that is California, with wildfires costing the state a fortune and little doubt in the Democratic-controlled legislature that human-made global warming is one of the causes.

To incentive large companies to become part of the solution to the problem, legislators in the Golden State have passed a law requiring the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) to consider “climate-related financial risk” when making investment decisions.

The two funds, which oversee a combined $590 billion, recently slipped down a ranking of investors’ climate risk management by the Asset Owners Disclosure Project. In 2017, CalPERS was ranked 28th out of more than 300 pension funds, 19 places lower than a year before.

The bill must get the approval of California governor Jerry Brown before it can become law. IPE.com reported the news on Monday.

Senate Bill 964, which was passed last week, requires CalPERS and CalSTRS to identify climate risk in their portfolios and report on that risk to the public and to the legislature every three years. The first report is due before 2020.

The two funds must also report their portfolios’ carbon footprints, and their progress towards meeting California’s climate policy goals and the goals of the 2015 Paris agreement on climate change.

They should also provide a summary of activities undertaken by the pension funds in connection with climate-related financial risks.

Fossil Free California, a group co-sponsoring the bill, said it the first of its kind passed in the US and provides a statutory definition of climate-related financial risks that are posed to the funds by intense storms, rising sea levels, higher global temperatures, and economic damages from carbon emissions. Environment California, an advocacy group, also co-sponsored the bill.

The bill also covered other financial and transition risks emanating from public policies to address climate change, shifting consumer attitudes, and the changing economics of traditional carbon-intense industries.

CalPERS and CalSTRS are actively involved in a number of climate change initiatives, including Ceres and the Investor Network on Climate Risk.

Most recently, both funds were part of a coalition of investors voting for improved governance at Rio Tinto’s annual general meeting, relating to the company’s membership of lobbying organizations in relation to climate change – although this resolution was defeated.

© 2018 RIJ Publishing LLC.

Asset managers focus on advisor behavior: Cerulli

Posted on September 6, 2018 by -

The pool of advisors that wholesalers can influence is shrinking and becoming more sophisticated and a number of firms have chosen to re-evaluate the way their wholesaler maps are drawn because of the blurring of channel lines, according to new research from Cerulli Associates.

More than two-thirds (69%) of asset managers now operate with a primarily de-channelized sales force. “Just 53% of practices with assets under management (AUM) between $50 million and $100 million in-source their investment decision making,” said Ed Louis, a senior analyst at Cerulli, in a release. “However, this number jumps to more than 70% for those with $250 million or more in AUM.”

“These practices are increasingly made up of advisor teams with specialized roles, a systematic investment process, and a focus on providing holistic financial planning and wealth management services,” Louis added. “Additionally, the lines that historically divided the broker/dealer (B/D) channel are blurring as these trends around teaming and planning move downmarket. While these advisor teams offer their own unique value proposition to clients, the biggest difference can often lie in how they leverage home-office infrastructure.”

Cerulli believes that for many asset managers, especially those with a focused lineup or limited resources, if top clients and prospects all exhibit similar behavior, it is more efficient to invest in a single sophisticated professional to manage those relationships in a region.

“The ability that asset managers now possess to leverage data analytics makes it easier to identify and focus wholesalers’ efforts on those key opportunities of advisors who insource portfolio construction and away from less productive opportunities,” explains Louis. “The majority (74%) of asset managers currently employ dedicated data analytics staff.”

Cerulli’s latest report, “U.S. Intermediary Distribution 2018: A Holistic Approach to Wholesaling,” examines how asset managers are adapting to the changing points of influence over advisor portfolio construction decisions, the effects that platform rationalization and fee pressure have had on relationships between asset managers and broker/dealers, and the importance of effective coordination between the different arms of distribution to maximize opportunities at focus partner firms.

© 2018 Cerulli Associates.

Honorable Mention

Posted on September 6, 2018 by -

New Jackson National campaign depicts aging as beginning, not an end

Jackson National Life Insurance Company has released “Second Stories,” a photo essay book capturing stories from ten older individuals who, instead of retiring after career changes or health setbacks, decided to do something new and exciting.

Second Stories is a component of Jackson’s larger “Retire on Purpose” platform, which depicts retirement as a new and exciting chapter in life. The program is designed to help advisors build more holistic practices through “purpose-driven” financial plans.

In addition to Second Stories, Jackson’s Purpose program has these components:

Advisor and consumer-facing marketing collateral, including a workbook, presentations, conversation starter cards, flip book, promotional items and seminar invitations. The resources are available to Jackson-appointed advisors.

“Second Stories is a fascinating depiction of how the traditional idea of retirement is evolving,” said Dan Starishevsky, senior vice president, Distribution & Advisory Marketing for Jackson National Life Distributors LLC (JNLD), the distribution and marketing arm of Jackson.

“These 10 stories point to a new, exciting opportunity during life after work — while the typical ‘9-to-5’ was largely about paying bills, the second story is about pursuing passions and engaging in meaningful activities. It really makes you think, what’s next for me?”

Videos featuring purpose and academic experts Richard Leider and Christine Whelan: https://www.youtube.com/user/JacksonNationalTV.

T. Rowe Price’s new ad campaign explains its active management philosophy

T. Rowe Price has launched a new U.S. mass media advertising campaign, “The Full Story,” showcasing its strategic investing approach. The campaign is designed to dispel some of the inherent complexity in investing by demonstrating how the firm’s investment professionals conduct research and analyze investment opportunities for its mutual funds and other investment products.

The campaign is now running nationally in digital and print properties, social media channels, and select local TV markets. T. Rowe Price plans to launch its national TV spots in September. T. Rowe Price worked with marketing communications agency J. Walter Thompson New York to develop the campaign.

More information is available at www.troweprice.com/fullstory.

The campaign articulates T. Rowe Price’s approach through examples ranging from advancements in bio-technology to the impact of e-commerce on cardboard demand.

The advertisements illustrate T. Rowe Price’s active approach to investing. Robert Higginbotham, head of global investment management services for T. Rowe Price, said, “High-quality active management can make a real difference to investors’ future financial lives.”

Rowe Price is also creating a series of videosto capture some of the stories its hundreds of investment professionals encounter when they explore opportunities and analyze the markets and the companies within them. The company plans to post additional videos to its website over the next few months.

Baltimore-based T. Rowe Price Group, Inc. is a global investment management organization with $1.07 trillion in assets under management as of July 31, 2018. The organization provides mutual funds, subadvisory services, and separate account management for individual and institutional investors, retirement plans, and financial intermediaries.

Global Atlantic announces annuity product ‘overhaul’

Global Atlantic Financial Group said this week that it “overhauled its entire suite of fixed index annuities, enhancing both income and death benefit options for those planning for retirement. Options offer guaranteed growth of benefits and are immune to market volatility.”

The products now offer additional options and indices among the interest crediting strategies, covering more risk profiles and growth objectives, a Global Atlantic release said.

Additional features available within the updated annuity suite include a feature that can create greater access to income if required for certain healthcare needs, as well as new death benefit features that create a more substantive legacy.

The new fixed index annuities are available through broker-dealers, banks and independent agents across the U.S. The products are issued by Forethought Life Insurance Company, a Global Atlantic subsidiary. Benefit availability may vary by product, state and firm, the release said.

Citing LIMRA data, the company said it is ranked eighth in U.S. fixed indexed annuity sales as of June 30, 2018, up from thirteenth a year earlier. Global Atlantic was also the third-ranked seller of traditional fixed annuities and Forethought Life’s ForeCare contract was the top selling traditional fixed annuity in the second quarter of 2018, according to Wink, Inc.

Global Atlantic was originally the Goldman Sachs Reinsurance Group before it was spun off as an independent company in 2013. It acquired the Aviva USA life insurance business from Athene in 2013, and in 2014 acquired Forethought Financial Group, which had The Hartford’s annuity business the year before.

Bankruptcies among those age 65 and older have tripled since 1991, the Global Atlantic release said, citing a study published by the Social Science Research Network. Factors contributing to the increase include the shift of financial responsibility in retirement away from employers and the government, as well as the escalating cost of healthcare.

© 2018 RIJ Publishing LLC. All rights reserved.

Making Annuities Easier for RIAs

Posted on September 6, 2018 by -

Several technology companies have set up platforms this year to make it easier for investment advisors, particularly those in the registered investment advisor (RIA) channel, to integrate annuities and other insurance products into their financial plans for pre-retirees and retirees.

The firms are Envestnet, the big Chicago-based turnkey asset management platform, which just launched Envestnet Insurance Exchange; DPL Financial, a creation of one the founders of Jefferson National, which sold variable annuities to RIAs; and ARIA Retirement Solutions, whose RetireOne platform, created in 2011 to sell stand-alone living benefits, has been repurposed as an annuity back office for RIAs. Orion Advisor Services, which competes with Envestnet, is also in this space.

These platforms would give RIA advisors whatever they need—vetted annuity and insurance products from participating carriers, insurance-licensed support desks, retirement income planning tools—to become “holistic” advisors, stop sending business to insurance agents, and differentiate themselves from robo-advisors.

Are we seeing the long-awaited inflection point where the mass of advisors (in addition to existing dually-licensed or hybrid advisors) becomes more “ambidextrous” in the use of investment and insurance products for retirement planning? Given the complexity of the advisory world, it’s hard to generalize or make predictions.

Taking it as a given that Boomers need principal-protection and guaranteed income products along with investments, a few things are clear: The RIA space continues to grow; integrated technology platforms (either in-house or third-party) are replacing traditional distribution; if your products or services aren’t on the platforms, you’ll be left out. One wild card factor: With the disappearance of the Obama fiduciary rule, which discouraged the sale of indexed or variable annuities on commission to IRA owners, no-commission annuities may lose some of their momentum.

DPL Financial

David Lau

David Lau, a co-founder of Jefferson National’s low-cost investment-only variable annuity business for RIAs (since sold to Nationwide), created this platform, which is intended to serve as an “outsourced insurance department” for RIAs. It brings together non-insurance licensed RIAs and no-commission insurance products. DPL Financial charges RIA firms an annual, asset-based membership fee that Lau told RIJ will amount to “75 to 100 basis points over the life of the product.”

Insurance products on the platform, according to a DPL fact sheet, include investment-only variable annuities (from AXA, TIAA, Security Benefit and Great-West), fixed indexed annuities (from Allianz Life and Great American), “buffer” annuities from Allianz Life, AXA and Great-West), fixed annuities from Integrity Life, single-premium immediate annuities from TIAA and Integrity Life, and term life insurance from TIAA.

In a recent interview, RIJ asked Lau if DPL Financial was mainly more about helping RIAs capture 1035 exchanges, where the advisor gains new assets by helping clients get out of existing annuities, than about selling new annuities to people. He said that while about 60% of the business has been 1035 exchanges, he expects that ratio to drop.

“This is about bringing commission-free insurance products to the RIA market,” Lau said. “1035 exchanges are part of it. The clients of RIAs may already own expensive insurance products. But the bigger idea is that insurance is a big component in financial plans.

“For instance, there’s a need for principal protection. RIAs often plan for that need, but they’ve been hamstrung in offering insurance solutions. In the past, the paradigm for the RIA has been to identify clients’ insurance needs and then send the clients away to an insurance-licensed competitor who may or may not fill the RIA’s prescription. It doesn’t make for a great client experience, because the client will get put into expensive, commission-driven insurance products.”

ARIA’s RetireOne

RetireOne, created seven years ago by ARIA Retirement Solutions, which was and is led by former Charles Schwab executive David Stone, was first intended to sell unbundled guaranteed lifetime withdrawal benefits (aka stand-alone living benefits) to RIAs, who would attach them to fee-based investment accounts.

Now RetireOne, like DPL Financial, is betting that non-insurance licensed independent RIAs will feel compelled to respond to the Boomers’ retirement needs by adding an insurance component to their practices. Instead of charging advisors a fee, like DPL, RetireOne will receive compensation from the carriers on its platform. Those carriers currently include Allianz Life, Ameritas, Great American, Great-West, Transamerica, and TIAA.

Mark Forman

“We call ourselves the Insurance and Annuity back office,” said Mark Forman, senior managing director at RetireOne, who came to ARIA from Jefferson National. “The real opportunity, as David Lau has pointed out, comes from the fact that RIAs can’t do insurance and have to outsource it. It’s not about pushing products and getting commissions. It’s about thinking long-term and being a partner. When I talk to RIAs, they see the value in the model. The ones we talk to are open to annuities. And once you can win them over, you have a fan for life.”

While insurance companies will pay RetireOne, Forman doesn’t want his firm to be equated with insurance marketing organizations, or IMOs. “I don’t like the notion that we’re an IMO. I’ve dealt with IMOs in the past. The commissions have driven so much of that business that the term IMO has come to mean questionable sales practices. They wear grey hats. We’re not doing marketing for the insurance companies. We’re trying to educate advisors about these solutions. There are no product-centric conversations.”

RetireOne RIA Platform Scenario

 

Envestnet Insurance Exchange

Envestnet started out as the first cloud-based turnkey asset management program (TAMP) for independent broker-dealers and has been on a decade-long growth tear. It moved into the RIA space with its acquisition of Tamarac in 2012. Now it’s partnering with Fiduciary Exchange LLC (FIDx) to offer Envestnet Insurance Exchange. The first annuity issuer to jump on board was Global Atlantic, which owns Forethought Life, on June 28.

“Our purpose is to enable advisors to go from being investment advisors to being wealth advisors, to being the expert in the middle of a complex technological and economic eco-system,” Envestnet co-founder Judson Bergman told RIJ in a 2017 interview.

The Exchange will include a “curated” selection of fiduciary-focused insurance products, insurance solutions “tailored to the investor’s needs,” fee-based and commission-based insurance offerings, and a workflow that integrates insurance and investments. The Exchange will include a service called Guidance Desk that will allow unlicensed RIAs access to the consulting and fiduciary services that lets them use the Exchange.

“Envestnet has partnered with FIDx to launch our new Insurance Exchange,” Bill Crager, president of Envestnet, told RIJ in a recent email. “While accommodation services can assist RIAs with annuity sales, our Insurance Exchange is designed with expectations to modernize the current distribution model by fully integrating the annuity ecosystem into the advisory process.

“When completed, the home office and advisor experience will be identical to what our clients currently enjoy with investment products. As part of this offering, we are partnering with industry-leading carriers to deliver commissioned and fee-based products for both fixed and variable annuities. To date, we’ve received significant interest from our clients across all channels including RIAs.”

The life insurer point of view

Corey Walther

Allianz Life will have products on several of the insurance platforms, according to Corey Walther, head of business development and distribution at the insurer, which has dominated the fixed indexed annuity business in the US since buying Life USA almost 20 years ago. It sold $831.6 million worth of the structured variable annuity, Index Advantage annuity, which comes in commissioned and non-commissioned versions, in the first half of 2018, according to Morningstar, Inc.

Walther notes that the new insurance platforms resolve the technical barriers that hinder advisors from combining insurance and investment products. “The Envestment Insurance Exchange is less about supporting RIAs without a license than about having the technology that integrates annuities and risk management tools into the wealth management platform and producing better client outcomes,” Walther told RIJ. “Advisors won’t have to swivel their chairs from one platform to another to bring annuities into the process. They can do it seamlessly. The technology brings the whole ecosystem together.”

Independent RIAs have been under a lot of stress. With the arrival of robo-advisors, asset allocation has been commoditized. RIAs, including the independents, are becoming better educated about the complexities of risk management, which helps their value proposition. They can ask, ‘How can I help you manage your risks?’ Large RIAs, with $20 to $30 billion under management, are approaching us. They’re interested in learning more about insurance products.”

Trend drivers

Given the asset growth of the RIA channel—18% year-over-year and an 11% compound annual growth rate over the past five years, according to Cerulli Associates—annuity issuers can’t afford to ignore it. An analyst at Aite Group, Denise Valentine, also believes that, because RIAs are fiduciaries, there’s a certain burden on them to provide pension-less Boomers with the risk management tools that they’re going to need in retirement.

Although RIAs without insurance license don’t currently often recommend annuities, Valentine told RIJ, “there is a growing awareness of the shortfall in retirement planning to date and growing recognition of the role of some type of annuity.”

Demand from consumers for protection, she believes, is going to shape the habits of advisors. The development of these platforms, she said, “is a preparation move. More people are going to be asking about some kind of annuity. And if you’re an independent RIA with a fiduciary hat, you have an obligation to do what’s best for them.”

What do RIAs themselves think about all this? “I would agree that RIAs were, and many still are, not appreciative of annuities, but I do think they’re coming around,” said Heather Kelly, vice president, risk management at United Capital, an Irving, Texas RIA, which built its own internal platform for combining investments and annuities. “At United Capital, we recognized that it was important to have true integrated planning.”

Retirees and near-retirees are also starting to demand principal-protection and guaranteed income products. “The markets are really high,” Kelly said. “Anybody over 65 is old enough to remember the 2008 financial crisis. I know advisors who have been in situations where clients have said, ‘I want to move half a million dollars out of the market and put it into an annuity.’”

© 2018 RIJ Publishing LLC. All rights reserved.

Ascensus’ TPA empire continues to grow

Posted on August 30, 2018 by -

Ascensus has entered into an agreement to acquire PenSys, a third-party administration (TPA) firm based in Roseville, CA. It will immediately become part of Ascensus’ TPA Solutions division.

So far in 2018, Ascensus has also purchased Continental Benefits Group, 401kPlus, INTAC, and ASPERIA.

PenSys is a nationally recognized TPA that specializes in the design, implementation, and administration of defined contribution, defined benefit, and cash balance retirement plans. The firm, which also offers 3(16) fiduciary services, has established a strong reputation for providing creative plan design and high quality service, Ascensus said.

Jerry Bramlett, head of TPA Solutions, said, “This addition to Ascensus TPA Solutions goes a long way toward helping us build a national TPA that offers a broad set of services and resources to financial professionals, employers, and employees.”

Raghav Nandagopal, Ascensus’ executive vice president of corporate development and M&A, said in a release, “This acquisition expands our California footprint significantly and adds to our capabilities to service clients nationally.”

© 2018 RIJ Publishing LLC. All rights reserved.

Allianz Life leads in total sales of fixed deferred annuities: Wink

Posted on August 30, 2018 by -

Allianz Life ranked as the top issuer of non-variable deferred annuity sales, with a market share of 7.8%, followed by AIG, Athene USA, Global Atlantic Financial Group, and New York Life, according to the latest edition of Wink’s Sales and Market Report for the second quarter of 2018.

Allianz Life’s Allianz 222 Annuity, an indexed annuity, was the top-selling non-variable deferred annuity, for all channels combined, in overall sales. It was the top-selling indexed annuity, for all channels combined, for the sixteenth consecutive quarter.

Indexed annuity sales for the second quarter were $17.3 billion; up nearly 22.0% when compared to the previous quarter, and up more than 18.4% when compared with the same period last year. Indexed annuities have a floor of no less than zero percent and limited excess interest that is determined by the performance of an external index, such as Standard and Poor’s 500.

Allianz Life was the top issuer of indexed annuities, with a market share of 12.7%, followed by Athene USA, Nationwide, Great American Insurance Group, and American Equity Companies. Allianz Life’s Allianz 222 Annuity.

Traditional fixed annuity sales in the second quarter were $875.0 million; up 19.9% from the previous quarter, and down 12.5% from the same period last year. Traditional fixed annuities have a fixed rate that is guaranteed for one year only.

Jackson National Life ranked as the top issuer of traditional fixed annuities, with a market share of 11.9%, followed by Modern Woodmen of America, Global Atlantic Financial Group, AIG, and Great American Insurance Group. Forethought Life’s ForeCare Fixed Annuity was the top-selling fixed annuity for the quarter, for all channels combined.

Multi-year guaranteed annuity (MYGA) sales in the second quarter were $10.0 billion; up 23.4% when compared to the previous quarter, and up 27.2 % when compared to the same period last year. MYGAs have a fixed rate that is guaranteed for more than one year.

New York Life ranked as the top issuer of MYGA contracts, with a market share of 18.1%, followed by Global Atlantic Financial Group, AIG, Protective Life, and Delaware Life. Forethought’s SecureFore 5 Fixed Annuity was the top-selling multi-year guaranteed annuity for the quarter, for all channels combined.

Structured annuity sales in the second quarter were $2.4 billion; up 12.6% from the previous quarter. AXA US ranked as the top issuer of structured annuities, with a market share of 40.2%. Brighthouse Life Shield Level Select 6-Year was the top-selling structured annuity contract for the quarter, for all channels combined.

© 2018 RIJ Publishing LLC. All rights reserved.

Net income of U.S. life/annuity industry drops in first-half 2018: A.M. Best

Posted on August 30, 2018 by -

The U.S. life/annuity industry’s net income dropped nearly 13% in first-half 2018, according to a Best’s Special Report published this week. That decline, along with an increase in stockholder dividend payments, drove industry capital and surplus down by 1.8% compared with the prior year-end.

The report, “A.M. Best First Look—First Half 2018 Life/Annuity Financial Results,” is based on data from companies’ six-month 2018 interim statutory statements received as of Aug. 21, 2018, representing about 85% of total industry premiums and annuity considerations.

During the first half of 2018, the U.S. life/annuity industry experienced:

  • A $6.0 billion decline in premiums and annuity considerations.
  • A $5.9 billion increase in net investment income.
  • A 9.5% decline, to $24.9 billion, in pretax net operating gains from the prior year period.
  • A $3.5 billion reduction in federal and foreign taxes.
  • Net realized capital losses of $3.3 billion.
  • $17.0 billion in total net income, down from $19.5 billion in the same period of 2017.
  • A drop in capital and surplus to $371.4 billion in first-half 2018 from $378.3 billion at the start of the year.

The trend of reduced cash and bond positions in the industry continued during the first half of 2018, with further increases to mortgage loans and other invested assets. Mortgage loans constituted 12.4% of total invested assets in the first half of 2018, up 41% from the first half of 2014.

© 2018 RIJ Publishing LLC. All rights reserved.

Honorable Mention

Posted on August 30, 2018 by -

Allianz Life annuities join Envestnet platform

In a new partnership between Envestnet and Allianz Life’s entire portfolio of annuity products, including both advisory and commission-based products, will be available on the Envestnet Insurance Exchange, the two companies have announced.

The Envestnet Insurance Exchange, announced this past May, integrates insurance solutions into the wealth management process on the Envestnet platform. It is intended to streamline the annuity sales process.

With the new partnership, “advisors at banks, broker-dealers, independent insurance agencies and registered investment advisors (RIAs) throughout the United States will be able to research and potentially recommend Allianz Life annuity solutions as an option for their clients,” the release said.

“We have consistently heard from advisors that they want to offer more holistic solutions to help their clients achieve their financial goals,” said Tom Burns, chief distribution officer, Allianz Life.

The Envestnet Insurance Exchange can be accessed through various tools and features on Envestnet’s Advisor Portal. Envestnet has partnered with Fiduciary Exchange LLC (FIDx), a firm specializing in integrating advisory and insurance ecosystems, to develop and manage its Insurance Exchange, and the platform additions are scheduled to be available at the end of the year.

Financial advisors will need an insurance license to introduce insurance products. For those advisors who are not licensed, Envestnet will be offering a service called Guidance Desk that will allow unlicensed RIAs access to the consulting and fiduciary services that would enable them to use the Insurance Exchange. This service is still in development.

Aviva (U.K.) transfers pension risk to Prudential

The Prudential Insurance Company of America, a unit of Prudential Financial, Inc., has assumed the longevity risk for about £1 billion (nearly $1.4 billion) in pension liabilities from Aviva Life and Pensions U.K. Ltd, in the first longevity reinsurance transaction between the two firms.

Prudential has executed more than $50 billion in international reinsurance transactions since 2011, including the largest longevity risk transfer transaction on record, a $27.7 billion transaction involving the BT Pension Scheme.

With the increasing affordability of pension risk transfer—a reflection of attractive pricing, enhanced capacity of insurers, and the improved funding ratio of U.K. pensions—many U.K. pension insurers are seeking longevity reinsurance arrangements, a Prudential release said.

Market activity in 2018 is building toward a very strong second half. Rising rates and equities, combined with lower-than-expected longevity improvements, mean that pension schemes are very well-funded and that de-risking is more affordable than ever. Leading pension schemes are taking advantage of this favorable environment by locking in gains and transferring risk,” said Amy Kessler, head of longevity risk transfer at Prudential, in the release.

The agreement follows at least 10 others in the market during the last 12 months that have exceeded $1 billion in size. Collectively, these U.K. longevity reinsurance and longevity swap agreements signify a noticeable market surge, driven by pension schemes eager to capitalize on their improved funded status, and take risk off the table.

Funding levels of U.K. pension schemes have improved markedly since the Brexit vote of 2016, boosted by fresh contributions, strong investment performance and higher gilt yields (which lower the present value of future liabilities).

Millennium Trust notes growth milestones

Millennium Trust Company, LLC, a provider of retirement and institutional custody services to advisors, financial institutions, businesses and individuals, reported a strong quarter of performance in the second quarter of 2018. The firm also was recognized in the Crain’s Chicago Business Fast 50 as one of the top companies in the Chicago metropolitan area for outstanding revenue growth over the past five years.

In early July Millennium Trust announced an agreement with The Bancorp Bank (Bancorp) to acquire approximately 160,000 automatic rollover IRAs. After the transfer of accounts from that acquisition, Millennium Trust will have more than $24.5 Billion in assets under custody.

The acquisition builds on a successful quarter for Millennium Trust’s Retirement Services team that promotes retirement readiness in America. The firm now has more than 86,000 agreements with plan sponsors and more than 1 million individual retirement accounts.

Millennium Trust’s Institutional Custody Services team introduced a refreshed Millennium Alternative Investment Network (MAIN) in the second quarter. MAIN is a free research, education and alternative investment resource that informs investors and advisors about alternative assets, and provides access to streamlined investing processes.

Institutional Custody Services ended the second quarter with over $12.8 Billion in assets under custody in more than 450 private and public funds. The team reported almost 15,000 unique alternative assets under custody at the end of the quarter.

EY announces technology investment, leadership moves

EY (Ernst & Young) will invest US$1 billion in new technology solutions, client services, innovation and the EY ecosystem over the next two financial years, commencing from July. In a release, EY described the outlay “as part of an ongoing strategy to provide clients and people with innovative offerings using the latest disruptive technologies.”

The investment, which augments an ongoing technology spend, will be used to develop new technology-based services and solutions in areas such as financial services, cyber, risk management, managed services, software services as well as digital tax and audit services, the release said.

In personnel matters, Nicola Morini Bianzino joined EY as Global Chief Client Technology Officer (CCTO), with Steve George as EY Global Chief Information Officer (CIO) and Barbara O’Neill, EY Global Chief Information & Security Officer (CISO). These appointments complement our existing investments in innovation including our global artificial intelligence (AI) and Blockchain labs, the EY release said.

Bianzino joined EY from Accenture, where he led AI and AI strategy. He also led Growth and Strategy for Accenture’s technology, innovation and ecosystems, which included new ventures, acquisitions and investments. Based in Silicon Valley, he will focus on bringing digital capabilities to clients so that technology is at the heart of the EY services.

Steve George was CIO for Citigroup’s North American retail banking, mortgage and global commercial banking teams. He has also worked at Accenture as well as Chase and Huntington Bank. He is based in New York and will focus on embedding digital technologies across EY teams globally.

Joe Celentano succeeds Dewey Bushaw at Pacific Life

Pacific Life has named Joe Celentano to the post of senior vice president and chief finance and risk officer of the company’s Retirement Solutions Division (RSD), effective January 1, 2019. He will succeed Dewey Bushaw, who is retiring after a 24-year career at Pacific Life.

Celentano, who joined Pacific Life in 1992, previously served as Pacific Life’s chief risk officer from 2012 to 2017 before joining RSD as the division’s financial and risk management operations. In his new role as executive vice president, he will focus on growth and innovation, while also continuing the expansion of product offerings and distribution channels. He will transition into his new role over the course of the fourth quarter in 2018.

Bushaw is retiring after a 24-year career with Pacific Life with many significant contributions, most notably his strong leadership in stewarding the division through a period of unprecedented growth and industry changes.

DC plan participants ‘stay the course,’ ICI survey shows

Only 1.1% of defined contribution plan participants stopped contributing during the first quarter of 2018, according to the Investment Company Institute’s “Defined Contribution Plan Participants’ Activities, First Quarter 2018” study, which tracks data on more than 30 million participant accounts in employer-based DC plans.

Other findings from the first quarter of 2018 include:

  • 1% of DC plan participants changed the asset allocation of their account balances and 3.5% changed the asset allocation of their contributions.
  • 3% of DC plan participants took withdrawals, the same share as in the first quarter of 2017.
  • 5% of DC plan participants took hardship withdrawals, about the same share as in the first quarter of 2017.
  • 4% of DC plan participants had loans outstanding at the end of March 2018, compared with 16.7% at the end of 2017.

SEC orders Transamerica entities to pay $97 million

The Securities and Exchange Commission (SEC) has charged four Transamerica entities with misconduct involving faulty investment models and ordered them to refund $97 million to misled retail investors.

Investors put billions of dollars into mutual funds and strategies using faulty models developed by AEGON USA Investment Management LLC (AUIM) and used by Transamerica Asset Management Inc. (TAM), Transamerica Financial Advisors Inc., and Transamerica Capital Inc., the SEC said in a release.

“The models, which were developed solely by an inexperienced junior AUIM analyst, contained numerous errors and did not work as promised,” the SEC’s order said. “When AUIM and TAM learned about the errors, they stopped using the models without telling investors or disclosing the errors”

Without admitting or denying the charges, the four Transamerica entities agreed to pay nearly $53.3 million in disgorgement, $8 million in interest, and a $36.3 million penalty, and will create and administer a fair fund to distribute the entire $97.6 million to affected investors.

In separate orders, the SEC also found that Bradley Beman, AUIM’s former Global Chief Investment Officer, and Kevin Giles, AUIM’s former Director of New Initiatives, each caused certain AUIM’s violations. The two men agreed to settle the SEC’s charges without admitting or denying the findings and pay, respectively, $65,000 and $25,000 to affected investors.

David Benson, Anne Graber Blazek, and Paul Montoya of the Enforcement Division’s Asset Management Unit in the Chicago Regional Office, and Michael Cohn of the Asset Management Unit in the New York Regional Office conducted the SEC’s investigation.

© 2018 RIJ Publishing LLC. All rights reserved.

Allianz Life adds living benefit to structured index annuity

Posted on August 30, 2018 by -

The idea of tacking a lifetime income benefit rider onto a buffered or structured indexed annuity is relatively new. Since AXA invented the buffered concept eight years ago, this type of product has been designed for accumulation and for investors who haven’t started thinking about retirement income per se.

But last May, Lincoln Financial’s new “Level Advantage” structured index annuity featured Lincoln’s patented i4Life variable income annuity as a option. Now Allianz Life has fitted a living benefit rider to its existing Index Advantage structured index annuity. The earlier version had an annuitization option but no living benefit.

The new product is called Allianz Index Advantage Income Variable Annuity. Other companies in this space can be expected to follow suit. [See today’s covered story on an ETF version of a buffered product.]

Structured annuity sales in the second quarter were $2.4 billion; up 12.6% from the previous quarter, according to Wink, Inc.’s latest survey. While AXA US is still the top issuer of structured annuities, with a 40% market share, the Brighthouse Life Shield Level Select 6-Year was the top-selling structured annuity contract for the quarter across all channels.

In terms of risk and return, structured index annuities occupy a middle ground fixed indexed annuities (FIA) and variable annuities (VA) in the annuity product spectrum. They offer more upside potential but less protection than an FIA. Conversely, they offer less upside potential than a VA but a measure of protection against loss that VAs don’t offer (except indirectly, through volatility-controlled funds).

The new Allianz product is loaded with options, which makes it flexible (which advisors like) but complex (which advisors say they don’t like). It offers four index options, two death benefit options, five combinations of performance caps and downside buffers and an income rider as standard equipment. There’s no deferral bonus (aka “roll-up”) on the income rider, but contract owners receive a modest hike in the annual payout percentage for every year they delay taking income after the initial purchase.

The product’s minimum purchase premium is just $5,000. It has a six-year surrender penalty schedule starting at 8.5%. There’s a 1.25% annual product fee (most of which reimburses Allianz Life for the commission it pays the agent) and a 0.70% annual fee for the income rider. The product currently comes only in a commissioned version.

Matt Gray

Matt Gray, senior vice president for Product Innovation at Allianz Life, told RIJ that Index Advantage is designed to compare favorably on price with variable annuities that have income riders.

“In looking at the traditional VA marketplace, we saw that advisors and broker-dealers don’t like the all-in fees of 330 to 350 basis points. We also saw, based on our ‘Chasing Retirement’ study, that there’s a large population of consumers who feel behind in their savings and want to catch up.”

Gray said that Allianz Life is emphasizing “the power of and” in the product. Where a traditional VA with living benefit offers income based on the higher of the benefit base or the account value, Index Advantage Income offers retirees a chance for higher payouts if they delay income and upside potential over the entire life of the product—even after income begins.

Contract owners get potential for gain through the ownership of options on any of these equity indexes:

  • S&P500
  • Russell 2000
  • NASDAQ 100
  • EURO STOXX 50

The product also offers five combinations of upside potential and downside protection:

  • Index Performance Strategy. This option offers the highest caps (14% on the S&P500 Index). The issuer absorbs initial losses up to 10%, with the owner responsible for net losses beyond 10%.
  • Index Precision Strategy. This option offers a fixed rate (8% on the S&P500 Index) whenever the return of the index is zero or positive. The issuer absorbs initial losses up to 10%, with the owner responsible for net losses beyond 10%.
  • Index Guard Strategy. This option offers somewhat lower caps than the Performance Strategy (10.25% on the S&P500). The owner absorbs the initial losses up to a floor of -10%.
  • Index Protection Strategy with a Cap. Like a traditional fixed indexed annuity, this option protects the owner from any loss (assuming no early surrenders) and has relatively low caps (4.50% on the S&P500).
  • Index Protection Strategy with DPSC (Declared Protection Strategy Credit). This option also protects the owner from any loss. It offers a fixed payout (4.10% on the S&P500) whenever the return of the index is zero or positive.

Once income starts, the client uses only the last two strategies above.

While gains from these strategies can boost annual income levels for contract owners, it’s important to remember that the product’s biggest benefits accrue to contract owners who live the longest and collect income for the highest number of years. The insurer doesn’t pay out any of its own money until after the client’s own money has been exhausted by income or fees.

By the same token, the longer the contract owner waits before taking a monthly income, the greater the annual income level. That’s based on the assumption that the income will be paid out for fewer years. The advantage of this type of product over a conventional fixed income annuity is greater liquidity and the chance (under one of the options) for rising income in retirement.

Here’s a hypothetical example of how this product would work, suggested by an example that Allianz Life uses in the brochure for this product:

A 55-year-old single woman puts $300,000 into the Index Advantage product. If she retires immediately, she can take out 4.50% or $13,500 per year. But the payout percentage rises by 30 basis points for every year she defers income. If she retires at age 60, she can take out 6% of her accumulation. If she retires at 65, she can take out 7.5% and if she waits until age 70, she can take out 9% per year.

In Allianz Life’s example, the woman waits 10 years, until she turns 65, to begin taking income. By then, she has accumulated a hypothetical $500,000. She then has two ways of taking income: a fixed income or a reduced initial income that can increase when one of the available market indexes goes up.

For instance, she can take the “level income” option and receive $37,500 per year for life (0.075 x $500,000). Or, if she can choose the “increasing income” option and take a lower initial payout of $32,500 but maintain exposure throughout retirement to one of the four market indexes. After the $32,500 income begins, she must use one of the two Index Protection Strategies for future growth.

Gray said that the income from Index Advantage Income should compare favorably with the income from a traditional VA with a guaranteed lifetime withdrawal benefit.

“In back-test studies we’ve done, 61% of the time the contract owner had a starting income that was at least 10% more than the income produced by a traditional variable annuity,” he told RIJ. “The average starting income was 34% higher than a VA’s. Fourteen percent of the time, a variable annuity would produce a starting income at least 10% higher than Index Advantage, with an average starting income that was 18% higher.”

© 2018 RIJ Publishing LLC. All rights reserved.