Improving Retirement Security with a QLAC

January 12th, 2016, Comments Off on Improving Retirement Security with a QLAC.

In recent years, the prospect of expanding individual interest in annuitizing at retirement has been enhanced through the availability of an insurance product designed to provide monthly benefits, but only after a significant deferral period in retirement.

Since these products can be offered for a small fraction of the cost for a similar monthly benefit through a single premium immediate annuity (since the individual is absorbing the risk during the deferral period), many believe that this type of product would at least partially mitigate the individual’s reluctance to surrender control over a large portion of their defined contribution and/or IRA balances at retirement age.

In 2014, one of the major constraints of using this type of product in a qualified retirement plan, such as a 401(k), was eliminated when the Department of the Treasury and the Internal Revenue Service issued final rules creating a qualifying longevity annuity contract (QLAC), which would be exempt from the requirement that distributions from defined contribution plans and individual retirement accounts would typically need to begin by age 70-½ (significantly earlier than the age at which payments commence for these products).

A new Employee Benefit Research Institute (EBRI) analysis models two scenarios under which QLACs could be utilized as part of a 401(k) plan. The first scenario would attempt to convert 15 percent of the 401(k) balance with the current employer to a QLAC premium while simultaneously attempting to partially mitigate the risk of purchasing the product when interest rates are low.

The second proposal assumes (some) plan sponsors would be willing to convert the accumulated value of their 401(k) contributions to a QLAC purchase at retirement age on either an opt-in or opt-out basis for the employees.

“The analysis finds that, even at today’s historically low interest rates, the use of QLACs, through the transfer of longevity risk to the insurer, provides a significant increase in retirement readiness for the longest-lived quartile with only a small reduction for the general population. Sensitivity analysis on the QLAC premia resulting from likely increases in future interest rates provide even more favorable results,” said Jack VanDerhei, EBRI research director and author of the report.

“While it is still too early to know how individuals’ demand for these products and the insurance industry’s supply of QLAC options will eventually modify the market for longevity annuities, it is useful to model the degree to which QLACs can improve retirement security,” VanDerhei noted.

The full report, “How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?” is published in the August 2015 EBRI Notes and is online at

EBRI is a private, nonpartisan, nonprofit research institute focused on health, savings, retirement, and economic security issues.

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Ayo Mseka

Top New Year’s Resolutions for Advisors

January 6th, 2016, Comments Off on Top New Year’s Resolutions for Advisors.

Fostering growth will be top-of-mind for financial advisors in 2016, according to a recent report from SEI. The survey gathered responses from 484 financial advisors, who ranked their top New Year’s resolutions in three main areas–investment strategies, technologies and practice management.

Advisors’ top three priorities for 2016 were implementing goals-based investing, applying technology to increase workflows and efficiencies in their practices, and increasing the number of client referrals.

“Not surprisingly, advisors are focused on growing their businesses in 2016 and are particularly committed to helping clients grow their assets,” said John Anderson, Director and Head of Practice Management Series, the SEI Advisor Network. ”However, it remains important to stay on top of ongoing market volatility and regulation, as they can potentially impact the way advisors counsel their clients and can detract focus from clients’ personal goals.”

Goals-based investment strategy

Interestingly, 80 percent of advisors resolve to make enhancements to their businesses by exploring managed volatility investment strategies, which more effectively weather ups and downs in the markets. However, when asked to rank the resolutions for 2016, the number one investment-enhancement priority for advisors is to implement a goals-based approach to investing for their clients.

“True goals-based investing is setting goals and tracking against them, which helps redefine how a client measures success. It moves away from traditional benchmarks and towards a more meaningful one — progress toward specific client goals,” said Anderson. “In 2016, advisors will be focused on ways to keep existing clients happier by implementing longer-term, client-specific goals, rather than setting goals depending on the market, which will continue to fluctuate.”

Even though most advisors responded that “explore managed volatility investment strategies” is among their top three New Year’s resolutions, this is only a second priority in 2016, followed by implementing more tactical or dynamic investment options for clients.

Using technology to increase workflows

In terms of enhancing their practices with the use of technology, 80 percent of advisors said they planned to implement automated workflows to increase efficiencies for their practices. As noted by Anderson, “Increasing efficiencies is an important and attainable resolution by leveraging technology to create automated workflows. Advisors can benefit from workflow implementation in many ways; beyond increasing efficiency, it makes employee training easier, improves time management and enhances the client experience.”

Advisors were also interested in improving their social media profiles and customer relationship management (CRM) tools. Sixty-one percent plan to enhance their presence on LinkedIn and other social media sites. They also anticipate upgrading their client-facing websites, followed by offering video conferencing for client-review meetings, and adding new CRM tools to better track client contact information and account details.

Top practice-management resolution

With regard to practice growth, nearly two-thirds (63 percent) of advisors said they want to build their referral networks in 2016. Advisors ranked their top three practice-management priorities for the New Year as building referral networks, increasing contact with their clients through channels such as email marketing, events and social media, and expanding clients’ awareness of additional services that they offer. Advisors are also resolved to conduct more outward-facing marketing activities (48 percent) in 2016.

Ayo Mseka