Income guarantees paired with UMAs developing slowly

Although the development of the income guarantee paired with a unified managed account, and with other vehicles, has run into several hurdles in the last year, providers say they will continue to push forward with the products. Ed Friderici, managing director of alternative retirement solutions at The Phoenix Cos. of Malvern, Pa., and Bill Marshall, president of Allstate Institutional Advisors LLC in Northbrook, Ill., yesterday discussed their companies’ forays into the world of combining asset-managed investment vehicles with an insured guarantee at the Managing Retirement Income Conference in Boston. The men spoke as part of the “Annuity Riders and the Creative Guarantee” panel discussion. Mr. Friderici’s company was the first to come out with the hybrid product when it paired with Lockwood Investment Strategies, a Malvern, Pa.-based unit of Pershing LLC in Jersey City, N.J., to release a product in March 2008. Clients with an approved model portfolio can attach an optional benefit that provides a 5% guaranteed income stream for life, beginning at age 65. Though that product remains targeted toward investors who can invest a minimum of $250,000, Mr. Friderici confirmed that a version that requires a minimum of $25,000 is in the works, using mutual funds. Allstate’s foray tackled the middle-market investor, combining its ClearTarget target date funds with an annuity-like guarantee that permits a 5% minimum withdrawal benefit. Still, while both products are available to investors, distribution problems continue to pop up. For instance, registered investment advisers have been the target for Phoenix’s products, but many of them aren’t licensed to sell insurance. Wholesalers have also been concerned about their own expertise on variable annuities and living benefits, fearing they have to be experts on these topics before they can grasp the hybrid guarantee product. Similar issues arose at Allstate, where the insurer first sold the wrapped mutual funds through its agency channel and then approached other broker-dealers. Explaining the nature of the product, while selling the guarantee next to funds with no track record, were a couple of the problems that the company ran into, Mr. Marshall said. Products continue to be developed. Nationwide Life Insurance Co. of Columbus, Ohio and Citigroup Global Markets Inc. of New York yesterday filed a prospectus with the Securities and Exchange Commission to provide guaranteed income payments with a unified managed account. “Life insurance companies are taking on a bigger portion of retirees’ investment concerns because we have that ability,” said Mr. Marshall. “Investment management companies don’t have that ability.”