Annuity FYI Blog

A new financial merger combines Ash Brokerage Corporation and InSource, Inc.’s annuity business.  According to Insurance News Net’s article “Ash Brokerage and InSource Combine Annuity Brokerage Businesses,” the new merger is operating as Ash InSource LLC.  Ash and InSource are two of the leading distributors of fixed and equity indexed annuities.  Joining the companies together offers a unique opportunity to offer financial professionals more expertise and resources.  The new brokerage business will have over $1 billion per year in sales of equity indexed and fixed annuity products.  The President and CEO of Ash Brokerage Corporation, Tim Ash, highlights the benefit that having such an expanded annuity portfolio will bring to the merged companies’ clients.

Both companies share similar cultures and a desire to be the most committed partner that financial professionals could desire.  Deck McCormick is the CEO of Ash InSource.  He says that this new company has an almost unlimited opportunity for growth and expansion because of its sales expertise in the annuity field.  Not much will change in the day to day operations for clients, but Ash InSource will be working diligently to ensure any transition is very smooth over the next few months.  Both merged companies have the intention of joining their life insurance business together in the near future as well.  While that is not a done deal, plans are in the works for Ash to take over InSource’s life insurance brokerage business as well.  They would like a full integration of InSource’s businesses with Ash.

According to Britain’s AnnuityRates.org, “Annuity rates (are) set to fall for 5 years, say IFA’s.”  The author states that 80% of the British advisers questioned believe that fixed annuity rates as well as other annuity rates will fall for five more years.  The study was performed by MGM Advantage at the recent Retirement Summit.  A quarter of the advisers think rates will fall by 7.5 to 10%, while a fifth of them think they’ll fall by more than 10%.

An interesting outcome from the interviews is that nearly all of the advisers questioned think that asset-backed, or indexed annuity products, will grow significantly over the next five years.  They think that people will be more open to taking bigger risks by investing in the markets in order to increase their annuity income.  With low interest rates, many investors are concerned that they will not be able to maintain their standard of living in retirement with conventional annuity products.

MGM Advantage says that rates in Britain continue to fall because of Solvency II and the increasing life expectancy of investors.  Their Flexible Income Annuity balances the need for a minimum level of income with both the risk of inflation and an option for increased growth.  It is a death benefit annuity with a minimum income guarantee rider.  Investors in Britain need to do the same thing as investors in America, shop around for the best fixed annuity rates and rates that will carry their savings through retirement.

According to Donna Mitchell’s “Annuities Could Get Boost From Small Business Legislation” in Financial Planning, the annuity industry’s recovery is being helped by President Obama’s administration.  After his Middle Class Task Force started promoting the use of annuities for the guaranteed lifetime income in January, the next step appears to be the new law called the Small Business Jobs Act.  Investors with non-qualified deferred annuities will now be able to take a portion of that annuity and purchase an immediate annuity while keeping the deferred product to grow money tax-deferred.  The point of this law is to encourage Americans to be more prepared for their retirement.

This new law is helping individual advisers and clients become more open to variable annuities, as the products have seen an increase in sales from year to year.  Independent broker-dealers are obtaining more of their revenue from annuities than before as well.  All annuities accounted for 26.2% of their 2009 revenue, with 89% of that total being from variable annuity products.  Since many small businesses cannot afford to offer retirement plans, workers in these businesses will now be able to have greater flexibility with their annuities outside of the office.  They no longer have to worry about large surrender charges and fees associated with changing annuity products because of this law.  There are likely more changes to come in the annuity industry from President Obama’s administration.

A 67-year old divorced woman’s retirement finances are studied in New Jersey’s The Star-Ledger’s article “Annuity the one missing piece in securing retirement cushion.”  Karin Price-Mueller’s story discusses the woman’s desire to partially retire next year and fully retire in 2012.  The woman has been smart with her money by keeping expenses low, holding off on receiving Social Security, working later in life, and saving in multiple accounts.  But she doesn’t have any fixed annuities or other annuity products which will help her guarantee monthly income to pay her bills in retirement.  She lacks a traditional pension, so an annuity will be the best way to complete her retirement pie.

With a large 401k settlement received through her divorce, this future retiree could even look into rolling part of that money into a 401k annuity if the option is offered by her plan sponsor.  She also has IRA’s, a brokerage account, and savings that she can use to purchase an indexed annuity or whatever annuity product she believes will work for her retirement.  By paying off her home mortgage and living debt-free, the subject of the article is in a wonderful financial place approaching retirement.  Continuing to work a few more years and delay Social Security while adding to her savings is like the icing on the cake for her retirement.  By purchasing an annuity to cover her basic expenses through her long life expectancy, she’ll have the rest of her savings and retirement accounts to use for extra expenses and passing down to her heirs.

More choices, including 401k annuity products, could be a positive thing for retirement plans.  According to Bank Investment Consultant’s “Do Annuities Belong in 401(k) Plans?,” Pamela J. Black ponders how 401k annuities fit into retirement plans.  The Department of Labor has shown interest in changing policies and updating information so that more companies will join with those already offering employees 401k options in their retirement plans.  Mutual funds almost exclusively held this business, so financial professionals dealing with those products seem to hope that things stay the same as they have.

One of the reasons many plan sponsors have stayed away from annuities is the fear of fiduciary responsibility should the insurance company offering the annuity go out of business.  The government is working to clarify fair harbor provisions so that this fear of liability will no longer turn plan sponsors away from 401k annuity products.

Many financial experts agree that more choices are almost always a good thing when it comes to retirement planning.  Some worry, however, that there may be some confusion related to the different products like fixed indexed annuities as well as costs associated with education and regulation.  One big benefit which is also the reason that the government became involved in the first place is the possibility that people will remember the reason that these defined contribution plans came about.  Saving money tax-deferred that is meant to be used incrementally in retirement is the goal of 401k plans.  Unfortunately many people have just been using their 401k’s like a savings plan and spending the money when they switch jobs.  The point of annuities are to grow the money tax-deferred and receive it in payments in the future to cover expenses.