Wealth Management
(New York)
Merrill Lynch is giving its herd of advisors a break on their incentive compensation. Brokers at Merrill have a piece of incentive compensation which gives them a bonus if at least 30% of clients use three specific services. But instead of making the cut off for meeting those quotas July of this year, they have extended it to January 2021, giving brokers an extra 6 months to meet those goals. Merrill Lynch says that the change will allow advisors to focus on best serving clients in this volatile period.
FINSUM: Even with the six-month extension, given the market volatility, it will likely be difficult to cross-sell clients into new products.
(New York)
Many people who are thinking about annuities don’t realize that many of them are sellable products—they don’t necessarily have to be held forever (even if that is often the best strategy). So which annuities are sellable and which aren’t? In general, SPIAs (single premium immediate annuities), DIAs (deferred income annuities), and QLACs (qualified longevity annuity contracts) are not sellable; VAs (variable annuities), FIAs (fixed index annuities), and MYGA (multi-year guarantee annuities) are usually sellable. Each of those latter products have surrender charge time periods in them, so it may cost something, but it does mean money is not locked in them forever.
FINSUM: Since selling would usually not be the best idea, this is more of a peace of mind factor than anything else, in our opinion.
(New York)
Many RIAs across the country are worried right now. With fee levels often tied to AUM, revenue seems likely to take a ~30% hit this year. That is enough to break many RIAs, especially those who were previously running only 10% profit margins. So how can RIAs cope? Firstly, those who have been very tight on budgets are in better shape. Those who were operating at 30% profit margins should be okay. A few of the key aspects to consider right now are: reaching out to vendors to “share the pain”, changing compensation structures towards lower fixed pay and more incentive-based pay, and switching to a quarterly budget, which will better align expenses and income.
FINSUM: We might go through a long period of lean times, so RIAs need to act fast to get their fixed costs under control.
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(New York)
A lot of advisors and investors are looking at fixed annuities right now, especially fixed index annuities. Such products offer principal protection and lifetime income, both of which are in short supply given current market conditions. It is important to remember though, that FIAs were only built to beat CD returns by a small margin, they are not supposed to have huge upside. With that said, there are ways to maximize returns, such as using income riders. These are extra features which provide higher lifetime income payments are a future date of your choice. They need to be added when you buy the annuity, not later, and do have annual fees.
FINSUM: Income riders are most popular with fixed index annuities, but do show up in some variable annuities and SPIAs.
(New York)
One of the most commonly asked client questions about annuities is “what is the best age to buy one?” The answer, as advisors know, is that there isn’t one; it depends on your financial goals and circumstances. That said, there are a couple things to bear in mind. Firstly, those in their mid-40s or younger should almost certainly not consider annuities (outside of some variable annuities) because they have the time to take additional risk (and get the additional growth) of direct exposure to the market. On the other end, annuity availability for those 80 and older declines rapidly. Accordingly, depending on circumstances, the sweet spot is likely in that range.
FINSUM: Annuities seem to be best bought for what they guarantee, not what they might offer, as downside protection and income protection are truly the name of the game.
(New York)
Usually, down markets are a very good tailwind for fixed annuities. With losses mounting, the prospect of full principal protection is usually very appealing. However, something odd is happening across the market—insurers are pulling many products from the shelves. Unlike the empty shelves in your local grocery store, it is not because they are selling out, it is because insurers desperately need to reprice the products given the huge moves in interest rates and market prices, and they do not have enough capacity to do this on the fly.
FINSUM: From a buying perspective, this market is perfect for fixed index annuities. Advisors may find some very attractive offers for clients.