When Jefferson National launched its Monument Advisor variable annuity (VA) as a tax-advantaged investment product without lifetime guarantees back in 2006, company executives admit it took some time to educate RIAs and fee-based advisors about its benefits. The process seems to be working. Jefferson National projects it will reach $700 million in sales this year after selling $400 million in 2012.
“When we started, people said this is an interesting idea, will it ever get traction?” recalls Laurence P. Greenberg, below, Jefferson National president, in a recent visit to the offices of LifeHealthPro.com. “Is going to be a niche? Are RIAs going to adopt annuities even if it’s different? By hitting $700 million in sales this year, we’ve shown we have come of age and it isn’t just a niche product. It’s going to be one of the largest individual annuity products in the marketplace, including commission-based products. RIAs get it – get the benefit of tax deferral. Now with rising taxes and the increase in tax-inefficient funds like alternatives, it’s more important than ever.”
That isn’t to say the Monument Advisor product hasn’t undergone changes in the nearly eight years it’s been on the market. In addition to the normal churn of fund options that an advisor can pick from, Jefferson National now offers advisors the ability to choose from several model managers that focus on different strategies, such as retirement income or fixed income.
“So if an advisor doesn’t’ manage assets and wants to use a third party, we provide those on our platform,” says David Lau, left, COO of Jefferson National.
That’s because more RIAs are outsourcing investment strategies to third parties or using a third party for one specific strategy, such as fixed income, Greenberg notes.
“We spent a lot of time this year building out our third-party model manager capability,” Greenberg relates. “So when you come to us, it’s not just about funds [within the annuity], it’s about, ‘I want a third-party strategist to provide me a model where I can apportion some of the client’s money into a third-party strategy.’ ”
Selecting those third-party model managers should be easier for advisors when Jefferson National launches its new website later this year. As Greenberg states, the website will take a “nebulous concept” of investment strategies and put them at the fingertips of the advisor.
“It’s not built around, here’s a product, buy it,” he says. “It’s built around, how do I invest my client’s money? What are my investment strategies? How does this tax-deferred investment account, how does that become part of my practice and how do I use it? That’s really the trend of the industry moving annuities away from just being a fund to the growth of annuities that are used as investment management platforms.”
“With the new web launch we’ll be packaging those investment solutions for advisors,” Lau continues. “For example, if you are an advisor looking to generate retirement income we will package together the funds we have that are designed to generate retirement income. It provides the ability to add your third party manager to do retirement income if you want, or choose some of the models that we have from our model managers to do retirement income.”
The problem with guarantees
From its start, Monument Advisor was designed solely as a tax-deferred investment vehicle, devoid of the lifetime income guarantees that have caused balance-sheet hassles of late at other variable annuity carriers.
Yet Lau says there is always value in the “peace of mind” those guarantees provide. However, he adds that the trend percolating within the industry is to manage those guarantees at the fund level.
“More and more insurance companies are turning toward the fund families, the asset managers, to provide the benefits they had been providing,” Lau explains. “A lot of the riders these days are invested in a particular strategy that’s been developed by a fund family, that’s either an absolute return strategy or some sort of downside protection strategy that’s hedged within the fund rather than the insurance company having to do it.”
Greenberg further predicts more growth in the fee-based variable annuity arena, although not immediately. The commission-based and captive -gent system has been around for many years and won’t be torn down overnight. He also foresees the development of specialized products that meet specific consumer needs, such as deferred or immediate annuities. Meanwhile, traditional annuity carriers will continue to experience fiscal woes and growth limitations.
No substitute for accumulation
Ultimately, Lau and Greenberg contend that when it comes to building up retirement income, there is no substitute for accumulation.
“There are no products that are silver bullets if you haven’t accumulated enough assets, that are going to magically make your retirement problems go away,” Lau says. “We believe in accumulating more, and our product does that. We continue to offer funds that are driven toward retirement income that have downside protection built in them.”
Jefferson National executives tout their product’s low-cost as well. It charges a flat fee of $20 a month, which for average policy size of $230,000 factors out to $240 a year. That’s much lower, Greenberg contends, than a variable annuity that charges more for guaranteed benefit riders on top of fund fees.
“We’ve brought a lot of those protections down to the fund level where it’s more efficient,” Greenberg says. “The way to really look at is grow your assets and manage the volatility around asset protection. When you want lifetime income, when you are ready to do that, find the best priced immediate annuity or figure out what your systematic withdrawals will be from your account.”