November 19, 2012

Guaranteed Income Without an Annuity: A Product Whose Time Has Come?

Advisors like the short-term nature of the product, says Aria Retirement Solutions CEO

Talk about filling a need. Aria Retirement Solutions has a guaranteed income source without the variable annuity chassis—and advisors are catching on. David Stone, CEO of San Francisco-based Aria Retirement Solutions, is coming up on the first anniversary of the product, and all indications are it’s been a good year.

“We originally had a mindset to serve advisors, but recognized that growth comes from different partners, so we aligned ourselves with various mutual funds, TAMPs and custodians,” Stone said at Schwab Impact 2012 in Chicago last week. “But even though we’re looking to expand our distribution opportunities, our core is still with advisors.”

As far as his solution to guaranteed sources of income, “advisors like what they hear, but they obviously want to investigate it.” Since there wasn’t a lot of independent research, Aria recently teamed with research and consulting firm Milliman to provide of how the inclusion of a contingent deferred annuity product would impact a typical retiree’s income profile.

“The results were very favorable,” Stone said. “Because of the guarantee inherent in the product, clients have the confidence to aggressively invest other portions of their portfolio. They can have more income, more of a legacy for heirs and downside protection all in a fee-only package.”

The turning point that got advisors attention was “the short-term nature of the product.” Unlike a variable annuity or SPIA, clients are not locked in for life or an extended period of time, he explained.

“They can review it after three or four years and if they don’t think it’s worth it, they can take it off, Stone added.”

Like many advisors, Kimberly Foss first thought she was getting a pitch about a variable annuity—but then the  wholesaler started talking.

“I have 50 and 60-year-old women as clients, those that are in a transition in their life," said Foss, founder of Empyrion Wealth Management, a Dimensional Fund Advisors-affiliated firm with 80 clients and $200 million in assets under management. “Quite frankly, they’re scared. They live longer than men but sometimes weren’t the primary income source, so they have a problem.”

She said she calculates three separate numbers for her clients in order to plan—one to thrive, one to survive and one to strive.

“This product lets us wrap that 'strive' amount,” she noted. “It provides the guarantee, so they can sleep at night and aren’t afraid anymore.”

As to announcements like The Hartford’s recently in which it revealed it is getting out of the variable annuity business and will "buy out" some of its annuity owners, and whether such announcements help or hurt the perception of the product, Stone said “in some ways it hurts, but in many ways it helps.”

“They’re selling a flawed model,” he argued. “Ours in barebones and vanilla, and will eventually become the predominant model.”

“Investors want the upside of the market, but they want the downside protection of a CD,” Foss concluded. “This product does that, without the lockup. If they don’t like it, they can take it off.”

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Check out complete coverage of Schwab Impact 2012 at AdvisorOne, including:

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