Allianz enters market for boomer retirement

Oct 30, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Allianz Income Management Services - a late arrival to the baby boomer retirement market - promises to shake up product offerings and producer compensation.

But the newcomer faces a chilly reception from most competitors already in the boomer retirement niche and skepticism from many financial advisers.

Insurers' retirement income products are "archaic and primitive," and the fees are too high, which is why many advisers don't want to sell them, said Bob MacDonald, who last week was appointed chief executive of AIMS. The Minneapolis-based company was formed in August to specialize in income products for baby boomer retirees.

"The industry has taken existing products and jury-rigged them to meet retirees' needs," Mr. MacDonald said.

He likened the process to selling DC-3s to clients who need 747s.

"They're both planes, but the comparison stops there," Mr. MacDonald said.

Executives at the insurer's German parent asked Mr. MacDonald, who was chairman and chief executive of Allianz Life Insurance Company of North America in Minneapolis until his retirement in 2002, to head the new venture.

Some advisers - numb from the barrage of insurer pitches for boomer retirement assets - said they are skeptical about the new kid on the block.

"Not another pitch to seniors that locks up their money," said Tim Bastion, a financial adviser with Manarin Investment Counsel Ltd. in Omaha, Neb., which manages $500 million.

A new boomer income strategy would "go in one ear and out the other," said Todd Bramson, senior partner of Minneapolis-based North Star Resource Group. He manages about $50 million and works in the firm's Madison, Wis., office.

But others welcome a new market for their retiring clients.

"Bring it on," said Carol Smith, principal of Carol Smith Consulting in Darien, Ill.

"The more life carriers that participate in the income side of the retirement topic, the better," she said.

Lower fees, commissions

The new company is developing low-fee fixed and variable annuities that include guaranteed incomes, inflation guards, sickness benefits and legacy transfers to heirs. Fees will be kept low by simplifying the products, by reducing mutual fund options and by compensating producers partially in company stock.

Products initially will be sold through Allianz agents and eventually through other channels, including broker-dealers and banks. The average initial investment for clients will be in the $250,000 to $500,000 range.

A fixed annuity is expected to go through state regulatory approvals and be on the market in about six months, and the first variable annuity is expected to be available in about a year, Mr. MacDonald said.

"Producers will receive lower commissions compared to what other insurers pay, but they'll get an additional 20% of the dollar amount of the commission as a bonus in the form of AIMS stock," he said. No other insurer offers that type of ownership interest to producers, Mr. MacDonald added.

"Stock could be attractive compensation - incentivizing with ownership is radical," said Jon Beyrer, a financial adviser with Blankinship & Foster in Solana Beach, Calif., which manages $300 million. But he added that there could be regulatory problems, as some advisers might place business to receive the stock even if the Allianz product isn't best for the client.

There won't be a "contingent commission" type of problem, because there will be full disclosure and transparency to the client, according to Mr. MacDonald. But he acknowledged that some broker-dealers might not allow their registered representatives to accept stock compensation.

The compensation agreement contains a provision stating that if there is no public market for the stock within five years, Allianz will buy it back based on an embedded-value formula derived from the business' profit stream.

Features exist already

Despite Mr. MacDonald's low opinion of the industry's retirement offerings, insurers say that they already have products that will satisfy retiring boomers.

"Most of the product features described by Allianz are already available today in one form or another," said Ron Danilson, senior vice president of The Principal Financial Group Inc. in Des Moines, Iowa.

Regarding Allianz's plan to pay producers partly in stock, he said that producers should be given cash compensation so they can choose to buy stock or use the funds in any way they want. "I haven't heard of any other company using stock for this purpose," he said.

The boomer retirement income problem isn't a product issue; it is an adviser and client education issue, said John Carter, president of Nationwide Financial Distributors Inc. in Columbus, Ohio.

Allianz's plans apparently aren't anything new to William Degnan, senior vice president at AXA Equitable Life Insurance Co. in New York. He noted that AXA has launched nearly 50 products or enhancements in the past four years, including annuities geared to retirees.

"I know that those companies have been talking about serving the retiring boomers' income needs, but it's been just that - all talk. The products they are offering were designed to provide income to widows and orphans," Mr. MacDonald said.

"The Hartford has been active developing retirement income solutions, but I would agree that some other companies have been more interested in advertising than tangible action," said Scott Sanderson, vice president of marketing and strategic relationships for Hartford Life Insurance Co. in Simsbury, Conn.

"The retirement pie is getting larger - we're not fighting for the same dollars," said Priscilla Brown, a spokeswoman for Lincoln Financial Group in Philadelphia.

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