What is a living benefit guarantee doing in the hands of a fee-based advisor who does not sell annuities?
It is providing a way for fee advisors to offer income guarantees to clients who own mutual funds and managed accounts, said speakers here at the annual retirement industry conference.
The conference was co-sponsored by LIMRA International, Windsor, Conn.; LOMA, Atlanta; and the Society of Actuaries, Schaumberg, Ill. Breakout sessions addressed non-insurance guarantees as well as other emerging retirement income approaches, as follows.
Annuity guarantees for non-annuity products. These are essentially guaranteed living withdrawal benefits, but applied to mutual funds and managed accounts, not variable annuities, said Ed Friderici, managing director-business development and strategic partnership, The Phoenix Companies, Inc., Hartford, Conn.
Insurers offering them have ported the GLWB concept from VAs to the equities world, he explained.
His company offered the first such product in 2008, he said. Three other carriers (Allstate, Genworth and Nationwide) have since entered the market, and others are planning to follow.
Why offer this insurance feature on a non-insurance product?
Fee-based advisors have cost, complexity, control and commission issues with VAs and so won’t sell them, said Friderici. However, these same advisors recognize that some clients need and want guaranteed withdrawals. If a guarantee is attached to an “investment engine,” he said that addresses advisor concerns with VAs.
Such a guarantee offers the best of both worlds, he added, alluding to guaranteed income and the advisor’s best efforts.
The guarantees are voluntary, he added, explaining they can be turned on and off whenever the client wants.
“The product is not improving or fixing the VA,” stressed Tamiko Toland, principal researcher at Annuity Insight, New York City. “It’s a different way to skin the cat.”
In fact, she said she thinks that, as marketing of the feature widens, this will probably give a boost to sales of VAs having guaranteed living benefits.
The products are so new that they do not as yet have a generic name, Toland said. Her term for the feature is stand-alone living benefit, but she said other terms include hybrid annuity, contingent annuity, synthetic annuity, portfolio insurance, withdrawal insurance, mutual fund living benefit insurance, and mutual fund wrap.
By whatever name, “the guarantee is still insurance, and it is structured like a simple VA with a GLWB,” she said. It is separate from the asset management, is offered as a contingent deferred annuity or certificate, and is registered with the Securities and Exchange Commission.
Other common features include: annual step-up in guarantee value, portfolio-based pricing, spousal option, annuitize at age 100 to 105, and little or no death benefit.
The minimum investment ranges from $2,500 to $250,000, “so it’s not just a high net worth product,” Toland said.
This is essentially a “new product class” for carriers, Toland said. “It’s not the end point of innovation (in retirement income products) but rather an expansion of market potential for carriers and asset managers…It adds value to money management products.”
Retirement income portfolios. The big question for advisors is how best to combine retirement income products and solutions, said Chad Runchey, actuarial advisor, Ernst & Young, New York.