An insurance distributor for RIAs Tuesday launched a contingent deferred annuity for that marketplace, which the firm calls the first of its kind.
RetireOne, which is part of Aria Retirement Solutions, added the product in conjunction with Midland National Life Insurance Co. The annuity, dubbed Constance, is a commission-free living benefit that is paired with, but separate from, about 200 mutual funds, ETFs and model portfolios that RIAs can select from numerous investment providers, according to the firm.
That pairing of a stand-alone living benefit insurance component with separate underlying investments means that RIAs can effectively apply a lifetime income wrap to brokerage accounts and traditional or Roth IRAs, the company said.
The product is similar to a guaranteed living withdrawal benefit that accompanies variable annuities, but it differs in that the underlying investments are at separate custodians — not under the insurance company’s administration.
“This is really a sequence-of-return-risk product,” RetireOne CEO Dave Stone said. “Anybody who’s within five years of retirement … is a perfect candidate for this.”
The insurance component begins making payments in retirement to the policy owner after the assets in the account have been depleted. It has three different payment options, one of which drops payments by 100 basis points after the covered assets are exhausted, another that keeps payments at the same level and a third that can increase them based on the 10-year Treasury.
“The goal here was to hit a 5% withdrawal rate at age 65, which is becoming more difficult to do in a low interest-rate environment,” Stone said.
Fees range from 110 bps to 220 bps, varying by the level of equity exposure and payment options, although fees will likely average 130 bps to 160 bps for most clients, he said.
The fee rates decrease as accounts grow as a result of investment returns, so that clients effectively pay the same rate they did on contributions, he said.
The maximum equity allocation is 75% for self-built portfolios, but it is slightly higher in some of the model portfolios that are available, Stone noted. “You get a lot of equity exposure, with a robust benefit base, at a locked-in fee.”
Insurers have their eyes on the RIA market, broadly. According to a survey conducted last year by Cerulli Associates and the Insured Retirement Institute, 86% of insurers said the independent RIA channel represents “tremendous potential for the annuity industry.” However, less than half the insurers surveyed said that their firms have dedicated significant resources to building fee-based variable annuities or fixed indexed annuities.
A separate recent survey of RIAs by DPL Financial Partners, which provides access to commission-free insurance products for that market, found that clients’ attitudes about annuities changed considerably over the past two years. In 2019, less than 15% of RIAs’ clients said they like annuities at least somewhat; that figure increased to 40% as of this year, according to DPL.
Further, 78% of RIAs said that predictable income was more important to their clients than asset growth.
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