What You Need to Know
- RetireOne recently joined with Midland National to introduce the Constance contingent deferred annuity.
- One challenge: Clients, and some advisors, struggle to understand the CDA concept.
- RetireOne is presenting a commentary by Finke that explains why a retirement saver might want a CDA.
Clients who hate existing retail annuity investment portfolios can build their own.
RetireOne has brought in Michael Finke — a retirement security researcher — to help it explain that this is possible, even for retirement savers who are not billionaires and who do not own lairs on private islands.
Finke wrote a “white paper,” or commentary, that talks about why a retirement saver might consider using a contingent deferred annuity.
“Think of a contingent deferred annuity as portfolio income insurance,” Finke says in the paper. “Portfolio insurance through a CDA provides the freedom to spend without the fear of running out.”
What It Means
Everyone knows you and your clients are hungry for ideas about how to generate guaranteed streams of lifetime income.
Very rich people have been able to put their own, homegrown portfolios inside annuities by purchasing private placement annuities.
A CDA contract provides a tool that ordinary clients can use to do something similar.
When a life insurer sells a CDA, it’s agreeing to provide the kinds of benefits guarantees it might offer through a conventional annuity separately from the underlying assets.
A CDA issuer might promise to convert the client’s own pool of assets into a lifetime stream of income, and promise to protect the client against any risk of investment-market-related loss of account value.
The client can use a CDA to bolt an annuity spigot onto an IRA, or onto an ordinary stock portfolio.
A CDA is to a regular annuity what a clip-on tie is to a regular tie, or what detachable skate wheels are to regular roller skates.
U.S. insurers have been working with regulators on developing the CDA concept for years.
David Stone, the founder and CEO of RetireOne — a company that offers the clients of fee-based advisors access to life and annuity products — has been a leader in that effort.
The Constance CDA
Last year, RetireOne worked with Midland National, a life insurer that’s part of Sammons Financial, to develop the Constance CDA contract.
When selling the CDA, Midland National charges an annual insurance certificate fee ranging from 1.1% to 2.3% of the assets, and it helps advisors collect annual advisory fees that typically range from 0.75% to 1% of the assets, according to a product fact sheet for advisors.