The mutual fund industry's Holy Grail is a fund that can provide investors with a guaranteed stream of income without tying up the client's money in an annuity.
There's a ways to go yet, but Bruce Speca, executive vice president of investment management services at John Hancock Financial Services Inc., is closer than anyone else to pulling it off.
How close?
Close enough that Hancock has asked the Securities and Exchange Commission for an exemption that would allow it to offer funds with a guarantee.
Also close enough that others in the industry have approached Mr. Speca about the possibility that John Hancock could provide the guarantee for their proposed products.
His position as chief of development of Hancock's lifestyle and life cycle funds — the funds best-suited to include a guarantee — makes him the right person to move the ball forward, said Michael Evans, president of Fuse Research Network, an industry consultant.
“Bruce ... has been incredibly successful in building that [division] out,” he said.
Mr. Evans attributes the division's success to the way Hancock selects asset managers — it follows a “best of breed” strategy to select outside subadvisers — to run its lifestyle and life cycle funds.
Mr. Speca has pushed the strategy, and the rest of the industry is moving to it, Mr. Evans said.
Mr. Speca and Hancock blazed the trail toward a guaranteed fund last year when the company began enrolling employees in Guaranteed Income for Life, an optional rider on its 401(k) retirement plans to help participants protect their savings through a principal guarantee.
The program allows participants to invest some or all of their 401(k) funds in one or more of four Hancock lifestyle funds. The benefit base, which is guaranteed, is used to calculate a 5% annual lifetime distribution.
Read more: Is the John Hancock 401(k) worth it?
The guarantee, however, is still in essence an annuity.
“Wrapping these products with a guarantee outside an annuity becomes a challenge for a couple of reasons,” Mr. Speca said.
Getting an SEC exemption for an individual fund with a guarantee is the biggest hurdle Hancock faces, Mr. Speca said.
The other hurdle is pricing.
It costs money to provide a guarantee, but if it costs too much, there may be no point in owning the fund, Mr. Speca said.
