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Do you have clients who want guaranteed income, but are
reluctant to sign onto an annuity that pledges underlying assets to an
insurance company? New hybrid products, known as “Stand Alone Living
Benefits (SALBs)” combine an annuity with a managed investment
portfolio. So a guaranteed lifetime withdrawal benefit may be extended
to a fee-based advisors’ managed exchange traded funds and mutual fund
portfolios.
“Fee-based advisors are warming up rapidly (to SALBs),” says Eric
Henderson, national sales manager with Nationwide Financial, Columbus,
Ohio. Phoenix Companies, Nationwide Financial, Allstate Life Insurance
Co. and Genworth Financial, are among those insurers offering SALBs.
Another six firms have similar products in registration, according to a
report by Strategic Insight, a New York-based research firm.
Charles Roame, principal with Tiburon Strategic Advisors in California,
sees enormous potential for this kind of insurance among fee-based
advisors. There are more than 18,000 fee-based advisors who manage more
than $2 trillion in assets.
Here’s how a SALB works: If and when a client’s account value
dwindles to zero as a result of systematic retirement withdrawals, the
insurance kicks in. So, regardless of market performance, the investor
continues to get the 5 percent annual income for life. Clients also can
arrange for income to continue for a spouse.
Typically, the products require that an investor be at least 65
years-old to initially access the guaranteed income stream. Account
values may be stepped up during the investment phase based on the
annuity contract’s provisions.
Overall, the insurance fee for the SALB ranges from 85 to 260 basis
points, depending upon how much is invested in stocks. While this is on
par with variable annuity living benefit charges, SALB clients realize
savings on mortality and expense fees and mutual fund investment
management fees.
As with variable annuities, SALBs have limits on how much investors can
allocate to stocks. For example, Genworth’s “Life Harbor” SALB
lets investors put as much as 70 percent in stocks. By contrast,
Nationwide’s "Retirement Income Solutions" limits stock allocation to
50 percent of assets.
Tamiko Toland, author of a report by New York-based Strategic Insight,
entitled “Guaranteed Retirement Income Beyond Annuities,” says that
the guarantee is an insurance policy. It is offered as a contingent
deferred annuity or certificate that is registered with the Securities
and Exchange Commission. Toland estimates more than $700 billion in
assets in managed accounts and mutual funds could be eligible for the
stand alone living benefit.
“What sets the SALB apart from other existing products is its novel
approach to providing guaranteed retirement income on investment assets
outside of annuities,” she says. “The SALB provides new product
development and distribution opportunities.”
Phoenix Companies, Hartford, developed the first of these products in
March 2008 with Lockwood Capital Management, a Malvern, PA-based
registered investment advisor, affiliated with Pershing LLC, New York.
Phoenix research indicates many high-net-worth consumers and advisors
liked the features of variable annuities with living benefit guarantees.
But they were put off by their complexity, cost and the lack of control
over the assets. The underlying products, fees and investment minimums
vary by firm.
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