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Mass Mutual has a new look

Posted on May 18, 2017 by -

Massachusetts Mutual Life Insurance Company (MassMutual) has replaced its existing decade old logo with a new blue logo with dots that both represent the letter M and symbolize the individual clients that the 166-year-old mutual insurer tries to connect, according to a release this week.

A multi-channel national advertising campaign, including TV, radio, print, outdoor, digital and social advertising will carry the message across the nation. Johannes Leonardo was credited with the creative aspect of the project, The Working Assembly with the logo design and Giant Spoon with the media plan.

In explaining the logic of the new look, MassMutual pointed to some of the financial stresses felt by various U.S. demographic groups, all of which reflected a lack of income, of savings or of an ability to save.

The release cited increased “interdependence” among Americans and pointed to statistics showing that a third of adults ages 18 to 34 live with their parents. Only a third of Boomers expect their money to last a lifetime and Generation X has both dependent children and dependent parents, the release said.

Millennials, the release added, are “the largest living generation,” but their future capacity to save will be blunted by their more than $1.3 trillion in student debt. MassMutual also noted that median middle class income fell four percent in the past decade and that half of the members of the fast-growing Latino demographic in the U.S. feel “financially unprepared.” 

© 2017 RIJ Publishing LLC. All rights reserved.

Honorable Mention

Posted on May 18, 2017 by -

Wharton’s Olivia Mitchell wins 2016 EBRI Lillywhite Award

Olivia Mitchell, executive director of the Pension Research Council at the Wharton School of the University of Pennsylvania, has won the 2016 EBRI Lillywhite Award, which recognizes outstanding lifetime contributions to Americans’ economic security.

Mitchell, who joined Wharton in 1993, also serves as the IFEBP Professor and Professor of Insurance/Risk Management and Business Economics/Policy, in addition to Director of the Boettner Center on Pensions and Retirement Research at the school.

Her professional interests focus on public and private pensions, insurance and risk management, financial literacy, and public finance. Her research explores how systematic longevity risk and financial crises can shape household portfolios and work patterns over the life cycle; the economics and finance of defined contribution pensions; financial literacy and wealth accumulation; and claiming behavior for Social Security benefits. She has published over 220 books and articles.

Previously, Mitchell chaired Wharton’s Department of Insurance and Risk Management. She also taught for 16 years at Cornell University. She speaks Spanish and Portuguese, having lived and worked in Latin America, Europe, and Australasia. She received her B.A. in economics from Harvard University and her M.A. and Ph.D. degrees in economics from the University of Wisconsin-Madison. She is a senior editor of the Journal of Pension Economics and Finance.

In addition to leading the Pension Research Council, Mitchell serves as a Research Associate at the National Bureau of Economic Research; Independent Director on the Wells Fargo Fund Boards; Co-Investigator for the Health and Retirement Study at the University of Michigan; board member of the Michigan Retirement Research Center; and Senior Scholar at the Singapore Management University. The Lillywhite prize is named for Ray Lillywhite, a pension pioneer and advisor to state employee pension plans.  

Seifert to lead annuity sales at Lincoln Financial

Lincoln Financial Group has named Tim Seifert to be head of Annuity Sales, reporting to John Kennedy, senior vice president and head of Retirement Solutions Distribution. Seifert joined Lincoln Financial in 2014 to lead Small Market sales for the Retirement Plan Services business and produced record-setting small market sales growth, a Lincoln Financial release said.

Seifert previously served as head of annuity sales at Prudential Financial and spent 23 years at PLANCO Financial Services Group, a unit of The Hartford, where he led sales for annuities, mutual funds, 401(k), and 529 plans.

Headquartered in Radnor, Pa., Lincoln Financial Group had $236 billion in assets under management and 17 million customers as of March 31, 2017.   

Duperreault to lead AIG

Brian Duperreault has been appointed president, CEO and director of American International Group, Inc., effective May 14, 2017, according to a release this week. Peter D. Hancock resigned as President, Chief Executive Officer and Director concurrent with Mr. Duperreault’s appointment.

Duperreault was previously chairman and CEO of Hamilton Insurance Group (Hamilton). According to the release, Duperreault worked at AIG for 21 years early in his career before becoming CEO of ACE and later running Marsh & McLennan Companies, one of AIG’s largest broker partners.

Duperreault’s compensation arrangements at AIG include a grant, made upon his commencement of service, of options to purchase 500,000 shares of AIG common stock, which vest subject to AIG’s stock price exceeding certain targets. The arrangement will be outside of AIG’s equity incentive plans as an “employment inducement grant” under NYSE Listing Rule 303A.08.

Duperreault, who was born in Bermuda but grew up in the U.S., previously served as chairman and CEO of Hamilton Insurance Group, a Bermuda-based holding company, with property and casualty insurance and reinsurance operations in Bermuda, the U.S. and the UK. Earlier, Duperreault was president and CEO of Marsh & McLennan Companies from 2008 to 2012. Before joining Marsh, he served for two years as non-executive chairman of ACE Limited, an insurance and reinsurance company, and CEO of ACE Limited from 1994 to 2004.

Prior to joining ACE, Mr. Duperreault served in various senior executive positions with AIG and its affiliates from 1973 to 1994. Duperreault continues to hold board chairmanships at Attune, a data-enabled company established by Hamilton Insurance Group, AIG and Two Sigma, and Blue Marble Microinsurance. 

© 2017 RIJ Publishing LLC. All rights reserved.

Overcoming Hurdles in the Variable Annuity Race

Posted on May 11, 2017 by -

It’s well known that variable annuity sales have been in decline and issuers have no great appetite for the risks associated with lifetime income guarantees. And then there’s the problem of uncertainty over the fate of the DOL fiduciary rule, which has put at least a temporary chill on sales of B-share VAs on commission to IRA rollover clients.

But the big VA sellers continue to tweak their offerings in order to make sales that gather fee-generating premia without introducing hard-to-manage risks. For instance, there’s the enhanced death benefit announced last week by Prudential, the fourth-ranked individual VA seller in 2016, with sales of $7.98 billion.

In this story, we’ll also talk about the success of another non-income variable annuity product, AXA’s Structured Capital Strategies indexed VA. Prudential and AXA, along with Jackson National, the AIG Companies, MetLife, Ameriprise Financial, Lincoln Financial and Nationwide are all perennial leaders in the VA space, where the top 10 issuers routinely account for about 80% of the sales. (TIAA, a group variable annuity specialist, is in a category of its own. ING, now Voya, switched to indexed annuity sales.)

All of these companies, to varying degrees, relaxed the torrid VA sales paces that preceded the financial crisis and persisted until about five years ago. They have either cut back on sales of  living benefit rider products, de-risked their remaining income benefits with volatility-managed funds and less generous deferral bonuses, or switched their marketing efforts to accumulation-only contracts. A few firms have offered to buy back their under-water (i.e., in the money) contracts from owners.

Prudential has consistently said that it’s in the VA business to stay. It has an advantage: Its VA book-of-business may be stabler than others’ because it controlled the risk of its living benefit riders by employing a form of constant-proportion-portfolio insurance. In its Highest Daily VA contracts, the allocation to bonds automatically rises when equity values go down, thus protecting each account’s ability to fund its guarantee.

With the Legacy Protection Plus product, Prudential is looking to pick up some premia that aren’t tied to an income rider. The Legacy Protection Plus death benefit is now available to purchasers of Prudential’s popular Premier Retirement VA, which had sales of $3.2 billion in 2016. The benefit is aimed at financial advisors who do a lot of wealth preservation and estate planning work for high net worth clients.

The Legacy Protection Plus offers a 7% simple interest roll-up until the benefit base reaches 200% of the first-year purchase payments or the contract anniversary on or after the owner’s 80th birthday, whichever is earlier. On the death of the contract owner, the beneficiary receives the greater of the account value or the benefit base.

The new death benefit is not available to clients who opt for the contract’s living benefit riders (a Highest Daily death benefit is available to them). The current annual expense ratio is 0.65% for contract owners ages 55 and under at purchase, 0.80% for those ages 56 to 70, and 0.95% for those ages 71 or older.

“We see so much of our audience focused on the income component. But we also think there’s a significant marketing opportunity among individuals who want to transfer wealth to their children or to charities, and an opportunity for us to partner with advisors who spend a lot of time on that,” said Jim Mullery, head of distribution and sales for Prudential Annuities, in an interview.

A variable annuity with an enhanced death benefit gives heirs or beneficiaries protection against market risk while allowing the owner to take income (with taxable earnings out first) as needed or to postpone taxes on the gains (except for required minimum distributions starting at age 70½) by not taking withdrawals. 

There are no special tax benefits to transferring money through a non-qualified variable annuity death benefit, however. Heirs can’t receive the death benefit tax free, as they would the proceeds of a life insurance policy, and there’s no potential “step-up in basis” that would eliminate capital gains taxes for heirs. Instead, they pay ordinary income tax on the difference between the cost basis of the contract (the purchase premia) and the death benefit.VA Sales Leaders 2016

“We’re looking at a whole different component of the marketplace with this enhancement,” Mullery told RIJ. “There have definitely been some challenges in VA world in sales. The ambiguity around the Department of Labor’s fiduciary rule has had an impact. But we are committed to this marketplace. We’re bringing out this feature because we think it’s important to innovate in this space.”

The Premier Retirement variable annuity series B-share contract has a seven-year surrender schedule, an M&E (mortality and expense risk) fee of 1.30%, a 0.15% administrative fee, and annual fund fees ranging from to 59 basis points to 1.67%.

As of the end of the third-quarter of 2016, Prudential was one of seven variable annuity issuers (including TIAA) with more than $100 billion in VA assets. Among issuers of individual VA assets, it ranked third with $154 billion. MetLife led with $166.7 billion and Jackson National was second with $154.3 billion.

The B shares of Premier Retirement variable annuity sold $3.21 billion in 2016, as the fifth top-selling individual VA for the year. Prudential finished 2016 in fourth place among individual VA sellers, with sales of $7.98 billion in 2016, down from $8.72 billion in 2015.  

AXA’s indexed variable annuity

When AXA introduced an indexed variable annuity in 2010, called Structured Capital Strategies, it was difficult to know what to make of it. Like fixed indexed annuities, it offered downside protection with upside caps; but it offered much higher caps than FIAs could offer because it protected the contractor owner from only the first 10% to 30% of the loss in a down year, rather than from 100% of a loss. One, three and five-year terms, as well as several index options, were made available.  

At the end of 2011, the contract was ranked 42nd among VA contracts with sales of $747 million, according to Morningstar. Then SCS started to climb the chart—in part because the sales of so many other contracts were falling and in part because advisors were gradually warming up to it. Sales were $1.4 billion in 2012 (17th) and $1.54 billion in 2013 (20th).

In 2014, sales slipped to $972 million, for a 35th place finish. But SCS bounced back in 2015, selling $1.45 billion (14th place). In 2016, it was the second-ranked individual VA contract in the fourth quarter ($947 million), and the seventh-best seller for the year ($2.62 billion). (Jackson National’s Perspective II 7-year contract was the runaway leader in 2016, with sales of $11.83 billion.

“After we started that category, it took a while to get firms to say yes, and then they started to say that it made a lot of sense. Now there are three or four companies selling indexed variable annuities, and probably more coming in. By adopting these strategies, our competitors validated the space,” said Kevin Kennedy, Managing Director and Head of Individual Annuities for AXA in the US. MetLife and Allianz Life are also issuers of indexed variable annuities.

“It’s been a good couple of years,” he added. “We just crossed 100,000 contracts and $10 billion in sales in Structured Capital Strategies. We continue to innovate it. Last year we added an annual lock, which means you can buy an S&P index-linked product and get a 10% cap every year for five years and downside protection of up to 10%. It’s not a ‘Trust me’ indexed product where you get a good rate at the start but you don’t know what it will be in the future. You know what you’ll get from point to point every year.

“With a lifetime income benefit,  you’re marrying the insurance company. With a B-share like ours, you get to ‘date’ the insurance company. This is not a ‘buy and die’ relationship. You’re not committing to us forever. You evaluate your options at the end of five years. We think people will look at the SCS and think, ‘It’s been a great run in the market, but gravity will set in at some point. With this product I’ll be getting some upside potential and some protection.’”

© 2017 RIJ Publishing LLC. All rights reserved.

Trump’s Tax Reform Dilemma

Posted on May 11, 2017 by -

Q: Since the modern federal income tax was created in 1913, how often has Congress enacted a revenue-neutral income tax reform that significantly expanded the tax base and lowered rates?  

A: Once. In 1986. 

It is no wonder that the Trump administration—like others before it—is struggling with broad and systemic tax reform. To better understand why, think of tax legislation in three distinct flavors: Tax cuts, tax increases, and revenue-neutral changes.

Most income tax bills cut taxes. The reason is obvious. Elected officials like to give something to voters rather than take something away from them.  

Since the large tax increases that financed World War II, most revenue bills reduced taxes, particularly in the period up through 1981. Significant reductions in defense spending as a share of the economy, along with inflationary increases in incomes that pushed people to pay higher individual income tax rates, made legislated tax cuts possible during what I call the “Era of Easy Finance.”

In a few cases, Congress did raise income taxes. Tax historians Joseph Thorndike and Elliott Brownlee have shown that almost all major income tax increases came about as a result of war. Others, generally raising annual revenues by well less than 1% of GDP, have been enacted, for instance, as part of several deficit reduction agreements between 1982 and 1997. 

Broad-based and systemic income tax reform that keeps revenues roughly the same as current law requires a tremendous amount of work, largely because it means broadening the tax base by identifying which popular tax subsidies, now costing more than $1 trillion annually, should be targeted for elimination. 

Less broad-based but still systemic reforms are also possible. Outstanding modern examples are the codification effort of 1954 and the 1969 reform best known for addressing tax issues surrounding foundations and charities. 

As economic coordinator of the Treasury’s 1984 study that led to the Tax Reform Act of 1986, I remember how difficult it was for Treasury and Joint Committee on Taxation staffs to draft legislation and to estimate cost and distributional effects for those proposals.

Increasing taxes on some to pay for tax cuts for others requires tax writers to agree on principles to guide and justify their actions. The political aspects of tax reform—building a political coalition to push to see these principles enacted—are even more difficult than the technical concerns.

Tax reform of the revenue-neutral variety is much harder than merely cutting taxes. To cut taxes, lawmakers simply tally a set of wants, perhaps pare them down to fit within a specified amount, and leave the financing bill for current tax cuts to future generations of unidentified taxpayers. 

Finally, the design of any systemic reform must acknowledge the economic and political environment of its time. The 1986 Act, for instance, took advantage of bipartisan concerns over tax shelters, President Reagan’s focus on high tax rates, Democrats’ objections to the rising income taxation of the poor, and social conservatives’ efforts to reverse the rising burden being placed on families with children.

Deficits were perceived to be a problem, though a smaller one than today in part because Congress had raised taxes and cut spending in the 1982 and 1984 budget agreements and in the Social Security Act of 1983. 

President Trump and his team have promised to cut tax rates for all businesses and for the middle class, while not increasing the deficit. They can’t get there by taxing the poor. Even if they assume greater economic growth, it’s not going to be enough to pay for the historically large tax cut provisions. So what’s left?

Some seem to want simply to throw in the towel on revenue neutral tax reform and just cut taxes instead. But $1.3 trillion in additional spending is already built in for 2026 (largely due to rising interest costs and increased spending on Social Security, Medicare, and Medicaid). This is far more than the $850 billion in additional taxes projected to be collected for that year due to a growing economy. How will Congress and the president cover that existing shortfall, even before they think of more tax cuts?  

That’s the box the Administration is in. And it is why tax reform is no easier than health care reform. Avoiding big new revenue losses requires systemic reform, such as increasing taxes on individuals to offset business tax cuts or engaging in true budget reform that scales back popular programs. Those are the requirements of our time, like them or not. While they might briefly be ignored politically, over the longer run they can’t be dodged as a matter of either economics or arithmetic.

© The Urban Institute.

Talking Annuities with Voya’s Carolyn Johnson

Posted on May 11, 2017 by -

At Voya Financial’s first-quarter earnings call last week, Wall Street analysts asked about the firm’s handling of the risks of its closed block of variable annuity business. Voya, like other life insurers who sold a lot of VAs with living benefits during the 2000s, still holds thousands of contracts that are in-the-money for policyholders but under-water for Voya. 

Voya, of course, isn’t in the living benefit business anymore; since separating from Dutch giant ING, going public in 2013 and rebranding as Voya—you may have seen its origami-animal TV commercials—its individual annuity business now focuses on indexed annuities and investment-only VAs. During the call, however, CFO Mike Smith assured analysts that the remaining living benefit exposure is under control.

Smith said that Voya has accelerated the run-off of the portion of the VA block whose contracts carry a guaranteed minimum income benefit (GMIB) rider. Two billion dollars worth of those assets have flowed out of Voya, he said, with $1.2 billion of that leaving because of the firm’s offer to buy out policyholders with GMIBs .

“We offered this to half the GMIB policyholders. The take-up rate was 25%, which included about 13,000 policyholders with contracts worth about $1.2 billion,” Smith said. “Under our enhanced surrender offer, we had to make the offer to all of the [GMIB] policyholders. We can’t distinguish between their level of ‘moneyness.’ But we know that the vast majority of our GMIB contracts are in-the-money. So there’s been a meaningful reduction in risk, of about $300 million.”

Since the end of 2013, the value of all living benefit riders at Voya has fallen to $24 billion in 199,000 policies from $33 billion in 296,000 policies, according to a hand-out at the earnings call. As it was before it spun off from ING, Voya is primarily a retirement plan provider in the U.S. About 41% of its operating earnings comes from the retirement business, which serves 47,000 institutional clients and 4.5 million plan participants.  

Annuities count for about 28% of Voya’s operating earnings. Its annuity net flows have been up-and-down, with positive flows from indexed and investment-only VA products and negative flows from annual reset and multi-year guaranteed fixed-rate  annuities and single-premium immediate annuities.

Partly because of industry-wide uncertainty over the future of the DOL fiduciary rule, Voya’s indexed sales were down 15% (to $458 million from $540 million) and net flows were down more than 50% year-over-year in the first quarter of this year, to $80 million from $172 million in the first quarter of 2016. In January 2017, Voya introduced its Journey FIA, which offers “performance bonuses” during crediting intervals.

A chat with Voya’s CEO of Annuities and Individual Life

After the earnings call, Voya CEO of Annuities and Individual Life Carolyn Johnson spoke briefly with RIJ. We asked her about the fluctuations in Voya’s share price, which fell by almost half between July 2015 and July 2016, to about $24, then rebounded to almost $42 last March 3. Since then, it has slipped by about 14% to about $37.

“Our stock correlates closely with the interest rate environment,” Johnson (right) said. “If you map 10-year Treasury rates with our stock price, you’ll see a close correlation. That’s not unusual for financial services firms. We saw a dip after ‘Brexit.’ But our stock is up right now, and we feel pretty good about that.” Voya’s share price opened at $36.38 yesterday on the New York Stock Exchange.Carolyn Johnson 2

“As far as our annuity business goes,” Johnson said, “sales in the first quarter have been roughly in line with fourth quarter 2016. FIA sales for the industry were down a bit in fourth quarter, but we had an ‘up’ first quarter of 2017. There’s been some disruption from the DOL rule. Our investors look at net flows, and there has been more money coming in than flowing out. There’s been a 24% increase in sales of our investment-only VA contract. It offers over 100 funds to invest in.” [The VA product had a $51 million net flow in 1Q2017.]

“In our product sales, we sell a little more accumulation-related business than income-related business,” she added. “Our Wealthbuilder Plus FIA has an income benefit embedded in it, but the guarantee is small. It’s sold as an accumulation product, but it has an optional withdrawal benefit.  That’s selling really well.”

RIJ asked Johnson about her views on the DOL fiduciary rule, which, though currently delayed and facing a threat of revision or repeal from the newly-confirmed Trump Labor Secretary Alexander Acosta, has already forced indexed annuity issuers to think more about distributing their products through fee-based advisors and less through commissioned insurance agents.   

“Ultimately [the rule] will be a good thing,” she said. “You have three different types of reps—the transaction-oriented ones, the hybrids, and those that are entirely advisory. On the annuity side, we haven’t been attractive to the advisory group. That would be a whole new market for us. If you look at the upside of the Best Interest contract, it can take the customer though a process where you’re asking, What’s the best solution?”

To reach that new market, “we’re issuing a fee-based [version of our Journey] FIA in early summer,” Johnson added. “We’re watching and monitoring what others are doing on the fee-based side. With the delay in the rule, [the fee-based Journey] is less urgent, but it will launch at about the same time as we expected.” Johnson added.

RIJ asked her what’s she has heard about changes in compensation on annuity sales at broker-dealers.

“I’m on the LIMRA Secure Retirement Institute board of directors, and we met before the [LIMRA-SOA] conference two weeks ago in Orlando. People from Raymond James, Edward Jones, the asset managers and insurers were there. You’re hearing from the manufacturers, pretty consistently, that they have not heard from many broker-dealers about their final determinations on compensation,” she said.

“There’s a cat-and-mouse game going on. They’re all trying to be competitive. Nobody wants to have a level comp on all seven-year products, for instance, that’s significantly lower than their peers’. Some of the bigger broker-dealers came out with initial ideas. Then they came back with revisions. They know that if they go public with their rates, the news will spread like wildfire. If advisors don’t like it, it will cause attrition.”

Certain themes are emerging, however. “There is going to be a consistency of compensation within types of products. It may vary from broker-dealer to broker-dealer, but every seven-year B share contract, for example, will have the same commission. Manufacturers have to have flexibility within their systems to handle these differences. We have a handle on that,” Johnson told RIJ. 

“Taking away the variability on the compensation—that’s generally a good thing. Voya hasn’t played the ‘highest commission’ game. For those companies who use that approach, where the products weren’t as consumer-friendly, they won’t have that lever to promote sales anymore. This will put consumer value back in the product. For the industry as a whole, it will take some noise off the table,” she said.

“But I don’t see the commission business going away. There will still be transactional sales. The advisory model isn’t right for every customer. A lot of reps have not gone advisory, and that situation will be relatively slow to change. But they will have to deal with levelized commissions. That’s where I see the market going.”

© 2017 RIJ Publishing LLC. All rights reserved.

New Ladenburg Thalmann unit will help vet indexed annuity sales

Posted on May 11, 2017 by -

Ladenburg Thalmann Financial Services Inc. has launched a new wholly owned unit, Ladenburg Thalmann Annuity Services (LTAIS), to provide marketing strategies, product expertise, and back-office processing for sellers of fixed and equity-indexed annuities.

LTAIS is a “full-service annuity processing and marketing platform offering advisors propriety and industry-leading technologies, contracting and licensing, and in-house annuity experts,” according to a release.    

The offering is in part a response to the Obama DOL fiduciary rule, which requires advisors to pledge to work solely in the client’s best interest if they want to accept a commission on sales of indexed or variable annuities to IRA rollover clients. Many advisors and agents are giving up commissioned sales rather than sign the Best Interest Contract.

 “In an age when the requirements for offering products and services to clients is under intensive regulatory scrutiny, it is critical that our advisors be confident in the way those products and services are delivered.” said Richard Lampen, CEO, President and Director, Ladenburg Thalmann Financial Services, in the release.

“Given the volume of annuity business generated from Ladenburg Thalmann-affiliated companies, we felt compelled to create a solution that will better enable integration of annuities into the planning process and allow access to leading carriers and products,” added Jim Gelder, CEO, LTAIS.

The launch of LTAIS expands Ladenburg Thalmann’s retirement product offerings to a network of firms with over 4,000 financial advisors nationwide. Ladenburg Thalmann is a publicly traded financial services company based in Miami, Florida.

Its subsidiaries include the broker-dealer firms Securities America, Inc., Triad Advisors, Inc., Securities Service Network, Inc., Investacorp, Inc. and KMS Financial Services, Inc., as well as Premier Trust, Inc., Ladenburg Thalmann Asset Management Inc., Highland Capital Brokerage, Inc., and Ladenburg Thalmann & Co. Inc., an investment bank. 

© 2017 RIJ Publishing LLC. All rights reserved.

Participants in Wells Fargo retirement plans can buy MetLife longevity insurance

Posted on May 11, 2017 by -

Wells Fargo Institutional Retirement and Trust announced that its plan sponsor customers can now offer the MetLife Retirement Income Insurance qualifying longevity annuity contract to their participants, Wells Fargo announced this week.

As participants approach retirement, they will be able to earmark a portion of their plan balance, subject to IRS limits, for the MetLife QLAC, which excludes that amount from funds used to determine the required minimum distribution people must take after age 70 ½. The participant must begin to receive income payments from the QLAC on or before their 85th birthday.

Participants at Wells Fargo client companies that adopt this new option will be able to learn more about it in existing education sessions. They can also call the Wells Fargo Retirement contact center and be routed to a MetLife representative. A MetLife online Retirement Resource Center will also be highlighted on that participant website and in Wells Fargo contact centers.

Recordkeeping, trustee, and/or custody services are provided by Wells Fargo Institutional Retirement and Trust, a business unit of Wells Fargo Bank, N.A. a bank affiliate of Wells Fargo & Company.

© 2017 RIJ Publishing LLC. All rights reserved.

Honorable Mention

Posted on May 11, 2017 by -

Off the mommy-track and into financial planning

The CFP Board Center for Financial Planning and iRelaunch have created the Financial Planning Re-entry Initiative (FPRI), a diversity and workforce development pilot program aimed at increasing the number of female financial planners.

The FPRI’s will help financial services firms establish internships for professional women seeking to return to the workforce, according to a release. FPRI firms will participate in a pilot using these internships. “Re-entry” internship opportunities will be posted on the CFP Board Career Center as they become available.

Firms participating in the initial FPRI pilot include: Edelman Financial Services and United Capital, both sponsored by TD Ameritrade Institutional; Fairport Asset Management and Yeske Buie, sponsored by Schwab Foundation; and Fidelity Investments.

iRelaunch will help employers develop, pilot, source for, present in, and publicize their re-entry programs. The initiative is modeled after similar programs in the financial services and STEM (science, technology, engineering and math) sectors.  

Men returning from a career break are also eligible to apply for and participate in the FPRI program.

To participate in future pilot programs, firms should contact Eddy Demirovic at the Center for Financial Planning at [email protected] 

Vanguard reports fund expense changes

Vanguard recently reported lower expense ratios for 82 mutual fund and ETF shares, including the world’s two largest stock funds and largest bond fund.

Vanguard Total Stock Market Index Fund, with $550 billion in assets, reported lower expense ratios for four share classes: 

  • Institutional (VITSX): a half basis point to 0.035%.
  • Admiral (VTSAX): one basis point to 0.04%.
  • ETF (VTI): one basis point to 0.04%.
  • Investor (VTSMX): one basis point to 0.15%. 

The $310 billion Vanguard 500 Index Fund saw reductions across the following share classes: 

  • Admiral Shares (VFIAX): one basis point to 0.04%.
  • ETF (VOO): one basis point to 0.04%.
  • Investor (VFINX): two basis points to 0.14%.

The $178 billion Vanguard Total Bond Market Index Fund saw reductions across the following share classes: 

  • Institutional Plus (VBMPX): one basis point decline to 0.03%.
  • Institutional (VBTIX): one basis point to 0.04%.
  • Admiral (VBTLX): one basis point to 0.05%.
  • ETF (BND): one basis point to 0.05%.
  • Investor (VBMFX): one basis point to 0.15%.

ETF expense reductions
In addition to the three ETFs listed above, 14 additional Vanguard ETFs experienced expense ratio decreases:

  • FTSE Developed Markets (VEA)
  • Value (VTV), Growth (VUG)
  • Short-Term Bond (BSV)
  • Mid-Cap (VO)
  • Small-Cap (VB)
  • Intermediate-Term Bond (BIV)
  • Large-Cap (VV)
  • Small-Cap Value (VBR)
  • Mid-Cap Value (VOE)
  • Small-Cap Growth (VBK), Extended Market (VXF)
  • Long-Term Bond (BLV)
  • Mid-Cap Growth (VOT)

Two shares report increases   
Vanguard Market Neutral Fund Investor (VMNFX) and Institutional (VMNIX) shares experienced 14 and 16 basis point increases to 1.60% and 1.52%, respectively.  

Dave Ireland returns to SSgA

State Street Global Advisors (SSgA), the asset management unit of State Street Corporation, today announced that Dave Ireland will return to SSgA as the new global head of defined contribution (DC). Based in Boston, he will report to Barry F.X. Smith, head of the Americas Institutional Client Group.

He most recently served as director of defined contribution distribution at Wellington Management, where he helped build its DC business.

Ireland will be responsible for SSgA’s industry-leading, $421 billion global defined contribution (DC) business, including business and product development, thought-leadership, marketing, and retirement-related public policy advocacy. He will lead a team of more than 40, located in Boston, London and San Francisco.

Ireland has more than 13 years of experience at SSgA. He was head of US Consultant Relations, director of the North American Defined Contribution Sales and Strategy and senior investment strategist and portfolio manager for the Global Asset Allocation team, which included SSgA’s Target Retirement Funds.

Waldeck to succeed Marcks as CEO of Prudential Retirement

Prudential Financial, Inc. announced that Phil Waldeck will succeed Christine Marcks as president and CEO of Prudential Retirement, a division of Prudential Financial, Inc., effective June 5. Marcks is retiring after 13 years at Prudential, including 10 years as president and CEO of Retirement.

Waldeck joined Prudential in April 2004 when it acquired Cigna’s retirement business. He currently leads Prudential Retirement’s Investment & Pension Solutions business, which had $185 billion in Institutional Investment Products account values as of March 31, 2017. He has worked domestically and internationally in Prudential’s pension risk transfer, longevity reinsurance, structured settlements and stable value businesses.

Yanela Frias will succeed Waldeck as head of Investment & Pension Solutions. She was most recently Prudential Retirement’s head of Structured Settlements. She also previously served as Prudential Annuities’ chief financial officer. 

Fidelity introduces new Social Security Benefits calculator

To help people better understand their Social Security claiming options and how they can impact income in retirement, Fidelity has introduced a Social Security benefits calculator, available at fidelity.com/SSCalculator. After answering five simple questions, the calculator provides a ballpark estimate of projected monthly and lifetime benefits across different claiming ages.

Envestnet announces enhanced advisor platform capabilities

Envestnet, Inc., the cloud-based platform for registered investment advisors, has introduced four new functions: an Advisor Dashboard, Advice Logix, Client Portal, and Open ENV. The functions were unveiled at the firm’s Advisor Summit in Dallas last week, according to a release.

Advisor Dashboard. The Advisor Dashboard is a “command center for advisors,” with these features:

  • Envestnet Analytics for data analysis.
  • A task center that prioritizes actions and alerts.
  • A “launch pad” for single-click access to client-relationship-management or financial planning tools provided by Envestnet partners. 
  • A business planning center that delivers book-of-business revenue analysis, what-if planning, and long-term business plan goal definition.

Advice Logix. Advice Logix supports the account onboarding process. After clients answer a short list of additional questions, Advice Logix creates a Goal Analysis plan for the proposal. Daily progress towards the goals is tracked in the Client Portal and Advisor Portal.

Client Portal. Envestnetannounced new features for its Client Portal:

  • Improved account opening and servicing automation.
  • A new investor education center with personalized content and benchmarking.
  • Improved goal-planning tools with “intuitive” goal selection and tracking capabilities.
  • An enhanced document vault for secure file sharing.   

Open ENV. Envestnet also announced these recently-introduced Open ENV integrations and capabilities:

  • An improved Open ENV API library, providing access to Client Management, Financial Planning, Performance Reporting, Account Servicing, and Investment Research resources.
  • Improved digital integration with custodians for faster processing of account opening, account funding, and account servicing requests.
  • Integration with Riskalyze, which allows financial advisors to quantify a client’s risk tolerance and use the data to meet client expectations.
  • Integration with Twenty Over Ten, a service specializing in website development for financial advisors.

© 2017 RIJ Publishing LLC. All rights reserved.

Hueler Income Solutions and NISA form alliance focused on retirement income for DC plans

Posted on May 11, 2017 by -

Hueler Income Solutions, LLC and NISA Investment Advisors, LLC today announced a strategic alliance aimed at helping defined contribution plans build and deliver retirement income for participants. Hueler’s extensive industry relationships and knowledge complement NISA’s growing defined contribution initiatives and heritage of delivering customized and risk-controlled solutions for clients.

NISA’s minority investment in Hueler will allow both firms to seek better connectivity, education, and guidance for defined contribution participants and to promote the development and utilization of solutions that address retirement income and longevity risk. The relationship will reinforce the firms’ efforts to refine their DC offerings and increase the financial wellness and retirement security of participants.

“Working with NISA will help us realize our vision for the next generation of technology and connectivity,” said Kelli Hueler, Founder and CEO of Hueler Income Solutions. “This collaboration allows us to enhance Hueler’s suite of services and delivery model for the benefit of our existing client base and to capitalize on new business opportunities to incorporate lifetime income into defined contribution offerings. Importantly, we remain an independent entity empowered to run our business consistent with our longstanding focus on innovation and industry collaboration.”

“NISA and Hueler have a shared vision of how a focus on income and retirement security will mean greater savings and financial wellbeing for participants,” said David Eichhorn, Managing Director, Investment Strategies at NISA. “This investment is an additional demonstration of our dedication to building solutions for retirement income with a path to solving the longevity problem within the defined contribution framework. We are excited to work with Kelli and the Hueler team and believe this relationship will be a catalyst for growth for both firms going forward.”

© 2017 RIJ Publishing LLC. All rights reserved.

How Boomer decumulation will impact investment returns

Posted on May 10, 2017 by -

If the rise in stock, bond and housing prices over the past 30 years was driven largely by Baby Boomers saving for retirement, does it follow that asset prices will suffer if or when Boomers liquidate their assets during retirement and Generations X and Y can’t absorb them at current prices?

In a new research brief, Steven Sass of the Center for Retirement Research at Boston College tackles this important question.

His conclusion: “The demographic transition will likely put downward pressure on investment returns—that is, on interest rates and on profits per dollar invested,” he wrote. “Just as a decline in interest rates raises bond prices, the demographic transition and decline in investment returns is likely to put upward pressure on asset prices until a new equilibrium is reached—an equilibrium with lower investment returns.”

This projected decline in investment returns is due to changes in the supply and demand for savings brought on by the demographic transition, he explained.  The demographic transition is due to the retirement of the Baby Boom generation, to be followed by younger cohorts of similar size. 

In terms of the demand for savings, “The sharp deceleration in the growth of the working-age population means that the economy needs far less savings to build new offices, factories, roads, and machinery than it had when the labor force was rapidly expanding. This decline in the demand for savings should lower investment returns,” wrote Sass, who is author of The Promise of Private Pensions (Harvard, 1997).  

While many expect an “asset melt-down” when the Boomers retire, Sass suggests that there won’t be a mass liquidation. The primary reason is wealth inequality in the U.S. The wealthiest elderly households (the 10% of the population that owns 85% of financial assets) won’t sell their assets; they’ll live on the interest and dividends. 

The “median net worth in the top three income quintiles of single retirees…  generally declined only modestly  [according to past studies],” the brief said. “Specifically, the top two quintiles, which hold the lion’s share of the net worth of all elderly households, show either increases or only a modest decline.”

That’s because of their “desire to hold reserves, primarily against the risks of outliving their savings or incurring high medical or long-term care expenses; a desire to leave bequests; and a general aversion by the elderly to drawing down their savings.”

International capital flows may actually increase this downward pressure on investment returns. Europe and Japan are aging much faster than the U.S. In many developing economies, the population is now aging into their high-saving years, from 40-65. Cuts in Social Security benefits in the U.S. could also lead American workers to save more, which would further increase the supply of savings and further reduce investment returns.

The demographic transition is primarily responsible for Social Security’s funding shortfall, Sass points out. To the extent that it also lowers investment returns, it will give Gen-Xers another headache: “The decline in returns will require [them] to save more to secure a given amount of income in retirement,” the brief said.

© 2017 RIJ Publishing LLC. All rights reserved.

 

Where U.S. Manufacturing Jobs Really Went

Posted on May 5, 2017 by -

In the two decades from 1979 to 1999, the number of manufacturing jobs in the United States drifted downward, from 19 million to 17 million. But over the next decade, between 1999 and 2009, the number plummeted to 12 million. That more dramatic decline has given rise to the idea that the US economy suddenly stopped working – at least for blue‐collar males – at the turn of the century.

But it is wrong to suggest that all was well in manufacturing before 1999. Manufacturing jobs were being destroyed in those earlier decades, too. But the lost jobs in one region and sector were generally being replaced – in absolute terms, if not as a share of the labor force – by new jobs in another region or sector.

Consider the career of my grandfather, William Walcott Lord, who was born in New England early in the twentieth century. In 1933, his Lord Brothers Shoe Company in Brockton, Massachusetts, was facing imminent bankruptcy. So he relocated his operations to South Paris, Maine, where wages were lower.

The Brockton workers were devastated by this move, and by the widespread destruction of relatively high‐paying blue‐collar factory jobs across Southern New England. But in the aggregate statistics, their loss was offset by a bonanza for the rural workers of South Paris, who went from slaving away in near‐subsistence agriculture to holding a seemingly steady job in a shoe factory.

The South Paris workers’ good fortune lasted for just 14 years. After World War II, the Lord brothers feared that depression could return, so they liquidated their enterprise and split up. One of the three brothers moved to York, Maine; another moved to Boston. My grandfather went to Lakeland, Florida – halfway between Tampa Bay and Orlando – where he speculated in real estate and pursued non‐residential construction.

Again, the aggregate statistics didn’t change much. There were fewer workers making boots and shoes, but more workers manufacturing chemicals, constructing buildings, and operating the turnkey at the Wellman-Lord Construction Company’s Florida‐based phosphate‐processing plants and other factories. In terms of domestic employment, the Wellman‐Lord Construction Company had the same net factor impact as Lord Brothers in Brockton. The workers were different people in different places, but their level of education and training was the same.

So, during the supposedly stable post‐war period, manufacturing (and construction) jobs actually moved en masse from the Northeast and Midwest to the Sun Belt. Those job losses were as painful for New Englanders and Midwesterners then as the more recent job losses are for workers today.

During the 2000s, American blue‐collar jobs were churned more than they were destroyed. Until 2006, the number of manufacturing jobs decreased while construction jobs increased. And in 2006 and 2007, losses of residential construction jobs were offset by an increase in blue‐collar jobs supporting business investment and exports. It was not until the post‐2008 Great Recession that blue‐collar jobs began to be lost more than churned.

Because there is always some degree of churn, a more accurate perspective on what has happened is gained by looking at blue‐collar jobs as a share of total employment, rather than at the absolute number of manufacturing workers at any given time. In fact, there was an extremely large and powerful long‐run decline in the share of manufacturing jobs between World War II and now. This gives the lie to the meme that manufacturing was stable for a long time, and then suddenly collapsed when China started making gains.

In 1943, 38% of America’s nonfarm labor force was in manufacturing, owing to high demand for bombs and tanks at the time. After the war, the normal share of nonfarm workers in manufacturing was around 30%.

Had the US been a normal post‐war industrial powerhouse like Germany or Japan, technological innovation would have brought that share down from 30% to around 12%. Instead, it has declined to 8.6%. Much of the decline, to 9.2%, is attributable to dysfunctional macroeconomic policies, which, since Ronald Reagan’s presidency, have turned the US into a savings‐deficit country, rather than a savings‐surplus country.

As a rich country, the US should be financing industrialization and development around the world, so that emerging countries can purchase US manufacturing exports. Instead, the US has assumed various unproductive roles, becoming the world’s money launderer, political‐ risk insurer, and money‐holder of last resort. For developing countries, large dollar assets mean never having to call for a lifeline from the International Monetary Fund.

The rest of the decline in the share of manufacturing jobs, from 9.2% to 8.6%, stems from changing trade patterns, primarily owing to the rise of China. The North American Free Trade Agreement, contrary to what US President Donald Trump has claimed, contributed almost nothing to manufacturing’s decline. In fact, all of those “bad trade deals” have helped other sectors of the American economy make substantial gains; and as those sectors have grown, the share of jobs in manufacturing has fallen by only 0.1%.

In this era of fake news, astroturf social movements, and misleading anecdotes, it is imperative for anyone who cares about our collective future to get the numbers right, and to get the right numbers into the public sphere. As the Republican Party’s first president, Abraham Lincoln, put it in his “House Divided” speech, “If we could first know where we are, and whither we are tending, we could then better judge what to do and how to do it.”

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. He helped design the bailout of Mexico during the 1994 peso crisis.  

© 2017 Project-Syndicate.

 

Real and Fake News on State Auto-IRAs

Posted on May 5, 2017 by -

Senate Republicans voted Wednesday to reverse a ruling by the Obama Department of Labor that would have helped states like California and Oregon proceed with plans to require employers without retirement plans to let their workers be auto-enrolled into state-sponsored Roth IRAs so they could save for retirement through payroll deduction.

In other words, the Senate’s majority voted (on House Joint Resolution 66) to make it harder for states to sponsor such plans. This week’s vote book-ended a similar vote (on H.J. 67) in April that applied to municipal versions of so-called “auto-IRA” plans that cities such as New York and Philadelphia hoped to establish.

Hypocrisy aficionados noted that Republicans, traditional champions of state’s rights and less federal regulation, voted solidly against state’s rights and against relief from federal regulation. And industry groups that supposedly favor workplace savings urged the Senate to thwart plans that, incidentally, low-income and minority union members in solidly Democratic states wanted.

The votes won’t necessarily stop the states from executing their plans. At the Pension Research Council’s conference on Saving and Retirement in an Uncertain Financial Environment today, David John of AARP said, “Five states are continuing with their plans. A number of other states are continuing their efforts. This is not the end.” 

 

This week’s vote was, at least for some, a slight surprise. After the vote on the city exemption last month, an auto-IRA advocate at a Washington non-profit told me that some headway had been made in educating Republican senators about the auto-IRA or “Secure Choice” plans, and that they might still be persuaded to vote for these plans at the state level.

Republicans who had voted to reverse the municipal exemption, she said, did so in the mistaken belief that the Obama DOL had tried to force states to herd workers into IRAs where they would not be protected by the provisions of the Employee Retirement Income Security Act of 1974, or ERISA.

On the contrary, the states had reached out to the DOL and asked for a ruling that confirmed that states could sponsor and run auto-IRAs without the burden of DOL red tape. (The plans would work like 529 college savings plans; state-sponsored but run by big asset managers. State Street, for example, is set to manage the money in Oregon’s plan.)

After analyzing the situation and determining that ERISA oversight wasn’t necessary for these plans, the Obama DOL complied with the states’ requests and issued an exemption that clarified the situation. A similar exemption for cities soon followed. The states can still set up auto-IRAs without an explicit exemption from ERISA, but some states might not for lack of legal clarity.   

But press releases from the American Council of Life Insurers and the Investment Company Institute, who should be pro-savings, this week congratulated the Senate for killing the exemption. They said the vote preserved essential ERISA protections for workers. 

That’s a tactical mischaracterization. The Senate, the ACLI and the ICI worry that if states require small employers currently without plans to provide access to a payroll deferral IRA at work, and if a cheap, simple public option is available, then many small employers will be lost as potential clients to the advisor-sold 401(k) industry. Advisor-sold retirement plans are an important distribution channel for large asset managers.

AARP, which is consumer-driven, supports the state plans. This week it criticized the Senate votes. Charging that “ H.J. Res. 66 does significant harm to a common-sense bipartisan solution that creates private investment vehicles to help middle class families save through a simple payroll deduction,” AARP promised to inform its 38 million members how each Senator voted.

November’s election results, of course, had doomed the exemption. From a political perspective, the state auto-IRA initiatives can’t expect to find much love in Washington, D.C., these days. States where auto-IRAs have gotten traction—California, Oregon, Connecticut, Illinois, and Maryland—are “blue” states where Democrats control the legislatures. (The initiative has been proposed in other states but hasn’t made nearly as much progress there.) These are states, almost by definition, where unions have influence in the legislatures. The Service Employees International Union (SEIU) in particular has supported the state auto-IRAs as a near-necessity for their members.

The state auto-IRAs aren’t a perfect solution to the lack of retirement plan coverage at small businesses. The ACLI, the ICI and other retirement industry groups have argued that a federal mandatory auto-IRA would be better policy than a bunch of different state plans. Privately, some have said that state auto-IRAs will only do harm by channeling small employers and low-income employees into feeble savings plans that lack the incentives and capacity needed for long-term success.

But there’s a deeper reason, and it’s not a secret. A few years ago, an official at ASPPA (the American Society of Pension Professionals and Actuaries; now part of the American Retirement Association) explained to me the importance of incentives in the retirement business.

The fundamental driver of defined contribution plan coverage in the United States, in the small and micro-plan market, is the army of brokers and advisors who sells them, he said.  This army is incentivized not only by fees earned from selling and servicing a plan to a small business, but also by the prospect of cultivating high net worth principals in the businesses as individual advisory clients.

More specifically, he explained that only when a broker or advisor demonstrates to small business owners that the tax benefits of sponsoring a 401(k) plan are big enough to justify the expense and labor involved, do many small business owners agree to start a plan.

According to this view, state-mandated auto-IRAs will only introduce an inferior product into the marketplace. Through a crowd-out effect, they will unintentionally rob small business employees of the opportunity eventually to participate in a 401(k). But that supposed opportunity is really a phantom opportunity for millions of low-income workers, and not a valid argument against trying something new. 

© 2017 RIJ Publishing LLC. All rights reserved.     

If retirement were college, most older Americans would flunk out

Posted on May 5, 2017 by -

A recent Retirement Income Literacy Survey from The American College of Financial Services showed that older Americans (ages 60 to 75, with at least $100,000 in investments) are less retirement income-literate than they think.

While more than three-fifths (61%) of about respondents thought they understand retirement income, only 33% of those surveyed could pass a quiz on life expectancy, long-term care expense, investing and generating retirement income that was administered by The American College (See grade range below). 

Retirement Income Literacy Grades

The demographic divide

There are significant differences in literacy rates between men and women, college educated and non-college educated, and between wealthier and less wealthy respondents.

  • Only 17% of women passed the quiz, as opposed to 35% of men 
  • 49% of respondents with over $1 million in assets passed as opposed to 20% of respondents with below $1 million in assets
  • 40% of those with a graduate degree or more passed – as opposed to just 9% of respondents without a college degree who passed 

Clueless on strategies to improve retirement security

  • Only 33% understand that it is more effective to work two years longer or defer Social Security for two years than to increase retirement contributions by 3% for five years just prior to retirement
  • Only 45% recognize that a life annuity can protect against life expectancy risk
  • Only 38% of participants in the survey know that 4% is the amount they can afford to “safely” withdraw per year from a retirement account

Long-term care: Out of sight, out of mind

  • 82% of respondents do not expect that most older Americans will need long-term care at some point in their lives. When considering long-term care, respondents lack knowledge on several critical items.
  • Only 33% know that Medicaid pays for the majority of long-term care expenses provided in nursing homes
  • Only 30% know that family members—not nursing homes, assisted living facilities, or hospitals—pay most long-term care costs

Power of retirement literacy

Respondents who passed the quiz were:

  • 46% more likely to have a long-term care plan in place
  • 36% more likely to feel confident they could manage their own investments throughout retirement
  • 16% more likely to have a written plan in place

The American College commissioned Greenwald & Associates for the study. Respondents were asked a number of knowledge, behavior and attitudinal questions about retirement income planning.

Information for this study was gathered through online interviews with 1,244 Americans conducted Feb. 16 – March 1, 2017. Respondents were ages 60-75 and had at least $100,000 in household assets, not including their primary residence.

© 2017 RIJ Publishing LLC. All rights reserved.

Fidelity and Stanford study sources of well-being and stress

Posted on May 5, 2017 by -

“The top two things you can do to improve your well-being are to pay off debt and start exercising,” said Jeanne Thompson, senior vice president of Thought Leadership, Fidelity Investments. “Debt and experiencing a reorganization at work can have the biggest negative impact on your overall sense of well-being.”

That was the big takeaway from a recent survey by Fidelity and the Stanford Center on Longevity of more than 9,000 employees that sought to understand how certain events affect a person’s health and wealth, as well as their overall happiness and career.

“A key component of living long and living well is about navigating life events that can impact a person’s finances, health, career, overall happiness and ultimately their overall well-being,” said Tamara Sims PhD, director of the Stanford Center on Longevity Sightlines Project, noting that those conclusions are supported by the Stanford Center on Longevity’s Sightlines Project.

Here are five common life events that have significant and wide-ranging impact on a person’s total well-being:

Taking on or paying off credit card debt or a consumer loan.

  • Nearly 70% of women said this led to higher stress levels, compared to 47% of men.
  • 36% of women sleep worse (21% of men)
  • 34% of women gained weight (17% of men)
  • 29% of women were less active (12% of men)
  • 59% of women said paying off debt made them happier, compared to 50% of men
  • 62% of women indicated their lives were improved (53% of men)
  • 44% of women reported lower stress levels (37% of men)

Starting or stopping an exercise routine.

  • After starting to exercise, 71% of people felt happier, 56% felt less stress, and 38% were more motivated at work.
  • After ceasing to exercise, 69% of people felt less happy, 55% felt more stressed and 20% were less motivated at work. 

Return of adult children to the family home.  

  • One in nine Boomer parents surveyed said their kids boomeranged “to the nest” in the past year.
  • 68% of parents affected reported they are more stressed, and more than half said they are less happy (53%), less satisfied (54%) and have less leisure time (53%).
  • 76% of parents said they face higher expenses; 46% of women reported sleeping worse and 40% reported gaining weight.

A reorganization at work.

  • 30% of people surveyed experienced a “reorganization” at work in the past year.
  • More employees cited reorganizations as their most significant life event, of the events in the survey.
  • 64% of people reported feeling less happy and 30% felt worse about their finances during a reorganization.
  • 49% of Millennials reported losing sleep and 63% of women had lower career satisfaction after a reorganization.

Becoming a caregiver.  

  • One in four women reported becoming a caregiver for a sick or elderly family member in the past year.
  • 78% of women indicated they are more stressed as a result, compared to 66% of men
  • 50% of women slept worse (33% of men)
  • 43% of women gained weight (22% of men)
  • 42% of women stopped exercising (32% of men)
  • 37% of women report saving less (26% of men)

Being in the ‘sandwich generation’

  • Gen X is the new “sandwich generation,” who are simultaneously raising children, saving for college, retirement and long-term care, paying off debt and caring for parents. 
  • 65% of Gen Xers had a life event that negatively impacted their well-being versus 60% of Boomers and 57% of Millennials.

© 2017 RIJ Publishing LLC. All rights reserved.

How to decumulate without getting fleeced by the tax man

Posted on May 5, 2017 by -

Conventional wisdom around tax-efficient retirement withdrawals is wrong, according to retirement planning experts William Reichenstein and William Meyer, two Social Security claiming gurus who claim there’s a better way to create income from retirement savings.

Reichenstein and Meyer, principal and CEO, respectively, of Retiree Income, published their recommendations recently in an article entitled, “How to Beat the Conventional Wisdom: Part 1” in Financial Advisor magazine.

“These strategies provide greater tax efficiency, creating six or more years” of portfolio longevity compared with a conventional strategy, Meyer said.

Investors are often advised to exhaust one retirement account at a time, starting with tax-deferred accounts and moving to tax-exempt accounts. In research published in 2015 in The Financial Analysts Journal, Meyer and Reichenstein suggest otherwise.

The most tax-efficient strategies, they write:

  • Recognize the impact of progressive tax rates
  • Call for withdrawals from multiple accounts concurrently
  • Use Roth conversions
  • Take advantage of years when the investor has lower marginal tax rates

Retiree Income produces retirement income planning software for both financial professionals and consumers that applies these principles to decumulation from taxable and tax-deferred accounts.

Meyer has developed products and services in executive leadership roles at H&R Block, Advisor Software and Charles Schwab. Reichenstein, CFA, holds the Pat and Thomas R. Powers Chair in Investment Management at Baylor University.

He is the author of In the Presence of Taxes: Applications of After-Tax Asset Valuations (FPA Press, 2008), and coauthored with William Jennings Integrating Investments & the Tax Code (John Wiley & Sons (2003).

© 2017 RIJ Publishing LLC. All rights reserved.

Honorable Mention

Posted on May 5, 2017 by -

Jackson aims ‘Cha-Ching’ financial education program at future policyholders

Jackson National, the top seller of variable annuities in the U.S., has launched the Jackson Charitable Foundation, a nonprofit with immediate plans to roll out “Cha-Ching Money Smart Kids,” a financial education program designed to help children become financially empowered adults. 

The Foundation, operating as a 501(c)(3), will support educational programs designed to improve the ways Americans manage their money, a Jackson release said. Its board chair will be Barry Stowe, chairman and CEO of the North American Business Unit of Prudential plc, Jackson’s parent.

The Jackson Charitable Foundation’s first initiative is the U.S. rollout of Cha-Ching Money Smart Kids, a program that teaches basic money concepts to kids ages 7-12 through a series of three-minute music videos portraying relatable animated characters making real-world decisions about money.  

Cha-Ching was developed and launched in Asia in 2011 in partnership with Cartoon Network Asia and Dr. Alice Wilder, the children’s education expert. It was developed under Stowe when he was CEO of Prudential Corporation Asia (PCA), the Asian operations of Prudential plc. 

Cha-Ching currently broadcasts across Asia through Cartoon Network in Hong Kong, Malaysia, Singapore, Philippines, Indonesia, Thailand, Vietnam, and Taiwan, and through free-to-air TV in Cambodia and Myanmar, reaching 34 million households every day. More than 250,000 children in Asia have participated in the classroom version of Cha-Ching Money Smart Kids at schools.

To distribute Cha-Ching to U.S. children and families, the Foundation is investing nearly $3 million and formed partnerships with Discovery Education and Junior Achievement USA.

Discovery Education, the leading provider of digital content and professional development for K-12 classrooms, serving 4.5 million educators and over 50 million students, is beginning an engaging three-year financial literacy program based on Cha-Ching Money Smart Kids for elementary school classrooms nationwide.   The partnership includes no-cost classroom and family activities, educator guides, family activities, a sweepstakes, a broad-based public service awareness (PSA) campaign on the Discovery Family network along with Cha-Ching animated videos, and more. These resources will be available at www.cha-chingUSA.org.

Through a six-year grant from the Jackson Charitable Foundation, Junior Achievement USA (JA) is integrating Cha-Ching Money Smart Kids videos and lessons into its “JA Our City” classroom program, taught to third-grade students by community volunteers. The program is predicted to reach 2.7 million students in 15,000 U.S. schools. 

‘Income for Life Model’ now available to LIMRA members

Wealth2k’s The Income for Life Model 2017, a retirement income solutions platform from Boston-area firm, Wealth2k, will be available to LIMRA members in variations that may include co-branded and white label versions, according to a recent release.

Hundreds of LIMRA members, including insurers, broker-dealers and asset managers, will be able to use IFLM at a reduced price, Macchia told RIJ this week. As broker-dealers try to standardize their producers’ approaches retirement income planning, in part for compliance reasons, having a common system like IFLM will be increasingly important, he said.

“LIMRA members have a huge stake in retirement income,” said Kenneth Cochrane, vice president of Commercial Research at LIMRA, in the release. “In partnering with Wealth2k, our objective is to help our members capitalize on this multi-trillion-dollar opportunity in a manner that institutionalizes the member’s approach to the retirement income market.”

IFLM uses a multi-bucket approach to retirement income planning, with specific assets, including annuities, dedicated to generating income in discrete periods during retirement. The process often calls for reserving the riskiest assets for buckets that won’t be tapped for ten or twenty years, and safe assets for near-term income needs.

The solution features a digital education component, HumanRobo, “that delivers compliant education on retirement income planning,” the release said. It “helps consumers understand the importance of managing key financial risks in retirement while also providing insights on the utility of various product types in an income strategy.”

“In the post-DOL environment, all product recommendations must be secondary to a process that assigns a context and a purpose to each product recommendation. The LIMRA Wealth2k partnership will make it easy for LIMRA members to quickly and easily introduce a process for retirement income that fulfills this need,” said David Macchia, CEO of Wealth2k.

The Department of Labor’s fiduciary rule will create demand for solutions like IFLM, Macchia said, giving advisors a tool for scaling their services at a time of fee compression and for making their recommendations transparent at a time of rising standards of conduct.

The “DOL [fiduciary rule] didn’t arrive in a vacuum,” he said. “It was published at a moment when fintech was rapidly advancing. Where DOL and fintech merge, commoditization of advice, of products, and of advisors themselves is ignited. Executing properly on retirement income can be a winning strategy for LIMRA members to mitigate the worst effects of commoditization.”

Debt is a source of anxiety and stress for many: Northwestern Mutual

Nearly three quarters of Americans struggle with debt and their burden is significant in terms of both size and duration, according to Northwestern Mutual’s 2017 Planning & Progress Study.

Given the fact that the median household income in the U.S. is around $50,000, that most people couldn’t lay their hands on $2,000 easily, and that Americans have about $4 trillion in non-mortgage consumer debt, according to NerdWallet, that number isn’t surprising.

The latest Northwestern Mutual survey of about 2,000 Americans ages 18 and older showed:

  • 47% of Americans owe at least $25,000, with average debt of $37,000, excluding mortgage payments.
  • Among those with debt, 45% spend up to half of their monthly income on debt repayment.
  • More than 10% say their debt exceeds $100,000.
  • 36% of those surveyed said they will be in debt for between 6 and 20 years
  • 14% expect to be in debt for the rest of their lives
  • Mortgages (29%), credit card bills (19%), and personal educational loans (7% for general population/23% for Millennials) were the most common sources of debt.

The research released today is part of the 2017 Northwestern Mutual’s Planning & Progress Study annual research project exploring Americans’ attitudes and behaviors toward finances and planning. The Study launched earlier this month with a look at the current state of financial optimism. 

Four in 10 Americans said debt has a “substantial” or “moderate” impact on financial security and the same number consider debt a “high” or “moderate” source of anxiety.

When asked what would help their financial situations the most, 26% of those surveyed said, “Eliminating all debt” and 29% said, “Earning significantly more money.”

When asked how they would use a $2000 windfall, 40% said they would pay down debt.

Americans said they spend 40% of their monthly income (after paying for necessities) on entertainment, leisure travel, hobbies, and more. One in four Americans surveyed said that “excessive/frivolous” spending was the financial pitfall to which they are most prone. Those managing debt said they used the following payment strategies:

  • “I pay as much as I can on each of my debts each month” (35%)
  • “I pay off debts with the highest interest first and make minimum payments to others” (19%)
  • “I pay what I can when I can” (18% of general population/25% of Millennials)
  • “I make minimum monthly payments to each creditor” (17%)

Harris Poll conducted the 2017 Planning & Progress Study for Northwestern Mutual. The poll included 2,117 American adults aged 18 or older (2,117 interviews with U.S. adults age 18+ in the General Population and an oversample of 632 interviews with U.S. Millennials age 18-34) who participated in an online survey between February 14 and February 22, 2017. 

At Transamerica, your voice can be your password

Transamerica has launched Transamerica Voice Pass, a technology developed with Nuance Communications, Inc., that “leverages voice biometrics technology within a natural language understanding system” in order to increase security in call center operations.

“Customers calling Transamerica’s customer care service centers will be able to more easily and securely authenticate and access their accounts while also identifying the reason for their call, simply by speaking,” according to a Transamerica release this week.

Transamerica claims to be the first U.S. company to use the unique sound of the customer’s voice for authentication. Customers who adopt this service option can securely access their accounts merely by speaking the phrase, “At Transamerica, my voice is my password.” No additional passwords, PINs, security questions or subsequent calls are required.

Voice Pass matches each caller’s voice with his or her unique voiceprint on file. The voiceprints contain 100 physical and behavioral voice characteristics.  to identify and verify an individual by their unique voiceprint. While effective in reducing acts of fraud, Voice biometrics reduces acts of fraud and authenticates 80% faster than PINs, passwords and security questions. 

XY Planning Network to partner with FMeX

XY Planning Network (XYPN) said its 400 member firms will receive one year of complimentary access to Financial Media Exchange’s advisor marketing content library, and receive a discount to the service thereafter.

Financial Media Exchange, or FMeX, provides white label content to the financial services industry for sales and client relationship development. Advisors can send FMeX’s content from a phone, desktop or tablet to clients via email, LinkedIn, Facebook, Twitter, websites, blogs or daily newsletters.

XY Planning Network, with over 400 advisors, is a turnkey financial planning platform for fee-only financial advisors serving their Gen X and Gen Y peers. XYPN provides its members with compliance support services, marketing support, business tools and templates, and a wide range of technology solutions.

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