How do you determine the financial strength of an insurance company?

The problem arises when you go looking for a companies financial strength.  Where do you start?  There are 4 main rating companies:

1. A.M. Best
2. Standard & Poor’s
3. Moody’s
4. Fitch

Rating services do not use a universal scale.

S&P and Fitch are the most closely related both using a similar scale (AAA, AA, A, BBB, BB, B, etc).  They both use + and – as modifiers within their scale as well.  Moody’s on the other hand uses a fairly similar scale (Aaa, Aa, A, Baa, Ba, B, etc) but their modifiers are numeric with 1 being on the high end to 3 being on the low end.  AM Best focuses a bit more on the + and – with their scale (A++, A+, A, A-, B++, B+, B, B-, etc).  To access most of the sites and usually their rating scales or definitions you’ll also need to sign up.  Yes, it’s free to do so but it’s just one more tedious step for someone doing the proper research.

There is a problem of crossover.

You look up your life insurance company or your disability insurance company and they are an A+.  What does that mean?  Well with AM Best it’s the second best rating you can get.  That’s a superior rating.  But if it’s S&P or Fitch it’s the fifth best rating you can get.  With Moody’s that would probably be equivalent to an A1 rating.  Of course it could be a problem if you mistook the superior rating of AM Best with the upper medium rating of Moody’s or the ‘credit may affect finance’ rating (that doesn’t sound too good) of S&P or Fitch.

To make matters worse, when you go online for an insurance quote they often won’t show you all the ratings.  They might show you one or two and it’s up to you to understand what the rating is and put it in perspective.  Insurance agents are notorious for this too.  They will only show you the top rating.  It is not unusual for life insurance company’s ratings to vary quite a bit from agency to agency.

Enter Comdex

The Comdex is not a rating system but is instead a composite of the ratings a company has received.  The key here is that instead of focusing on the letter that is assigned to companies, Ebix Inc. focuses on the number or percentage of companies receiving each letter.  They then correlate this into a percentile score on a scale from 1 to 100.  The Comdex becomes a composite index that gives a company’s standing in relation to other companies that have been rated.  It gives a universal scale on which to compare your life insurance and disability insurance providers.

I am unaware of any free or easy way that the public can access the Comdex system.  But what you can do, is look up individual companies.  Almost all insurance providers have information pertaining to their financial strength easily accessible on their websites, this will usually include a Comdex score.  You can also request this information for your financial professional that you are working with.  I have full access to the Comdex database.  If you would like to learn more about a specific insurance company or how that company compares to other companies just ask and I will be happy to share that information with you.

To give you an example of how financial strengths might compare:

Related posts:

1. Banks vs Insurance Companies
2. Hidden Gem of Life Insurance Policies
3. How is Life Insurance Underwritten?

Have you ever asked your financial adviser what he/she does? What was the response?  Was it a long list of things?  Did it make any sense?  I work with financial advisers, I network with them, I meet them all the time, they are everywhere.  The second biggest turnoff when talking with these people is when they tell me they do everything.  Maybe it’s just me but I constantly struggle with this.  Or maybe it’s my background.

When I started in the financial industry I was pretty fresh out of college.  I was deciding between working for a big wirehouse and a smaller boutique firm.  I chose the smaller one pretty much because I didn’t want to work under someone else for a few years.  I wanted to build my own business.

The funniest thing in the industry is training.  I’m convinced the training is based on the business model that there will be huge turnover.  Depending on where you look most statistics say something like, only 10% of financial professional make it through 4 years in the business.  I’ve heard tons of stats that all seem to be slightly different.  This is how the big companies in financial services train.  They train people to sell products, as much as possible, as quickly as possible.  Who benefits from this?

This is all I think of when people tell me they do everything.  I was trained this way.  “Don’t leave money on the table” was what an old manager use to say.  How sad is that?  I couldn’t run my business this way so I changed but most people don’t and they might never.  I have learned one thing, the best advisers I meet niche.  They have their specialties and work with other specialists.  It might be fee only planing and they work with the product people.  It might be people insurance people that work with investment people or the investment people that work with the planning people.  The fact of the matter is that there is too much to know in the financial industry.  There are too many areas and too many situations to be able to handle them all.

So when you sit down with your adviser or you meet a new adviser, can they admit what they don’t know? Do they have help and support of specialists not only behind the scenes?  By the way that is what most advisers will say, “oh we have a group of specialists available to me”.  Most of the time that means, “I’m on my own I just want to seem like it’s more than just me”.  Next time you hear an adviser talk about all the things he/she knows and all the areas they can help you just realize that you might be talking to an expert at nothing.

How many hats is your financial professional wearing?

Related posts:

1. Your Ideal Financial Planner

I heard all 4 of these in the past week.  I thought I would share.  Let me know what you think.

1.  Person A was two months behind on his credit card and over the limit.  He was avoiding the phone calls.  When he finally answered and let them know he was a real person, he was offered a deal.  Pay $100 that day and $100 in two weeks and they would waive $78 in fees.  Good deal?

2.  Person B was three months behind on his car payment.  Answered the phone and told the person what was going on in his life and how he was trying to get caught up.  The bank offered him to pay $40 to offset the fees and in return his loan would be brought current and he wouldn’t have to make another payment until next month.  The did add the three payments he was late on to the end of the loan.  Good deal?

3.  Person C was three months behind on her credit card.  She had her conversation with the person on the phone.  She was offered to make a payment of $178 which would bring her current.  On top of that they would waive $90 in fees.  Good deal?

4.  Person D was going on four months behind on her car payment.  She ignored the phone calls.  Never talked to the bank.  Didn’t return any messages.  The day before Thanksgiving there was a knock on her door and her car was on a tow truck.  She had to send all past due payments plus fees via western union.  Then had to fax over information 3 different times.  And then had to pay $120 in cash to pick up the car.  To top it off her ipod is missing.  Good deal?

Is it better to talk to your creditors? I’m feeling like in this environment it is more important than ever.  Right now, they want to work with you because they’re starting to learn some is better than nothing.  Here’s my advice.  Answer the phone.  Be nice and be polite.  Most importantly be a person and tell them your story.  Tell them why you are late and how you truly want to get caught up.  Be sincere and be honest.  Then here’s the best part, ready?  Whatever they offer, count to 3, grit your teeth and slowly say “that’s a lot of money”.  Then don’t say a word.  See what they say.  Remember there is some room for negotiation.  You just might get a better deal than what was offered.

Person C that I mentioned above, answered a call and it was a different credit person than had left them a message.  The credit person that called was short and rude.  So person C, said so and got off the phone.  Person C then called back the credit person that had left her a message and got a better deal.  So don’t get mad or frustrated.  If you are late they are probably passing you around the department.  If you don’t like the person you are talking with either ask for a manager or hang up and call back.  You’ll probably get someone else.

Related posts:

1. 6 Reasons To Buy Your Insurance Online

I have to say it must be the way to go.  It’s the popular thing nowadays.  It’s everywhere.  On the internet the ads are all over the place.  If you work in the industry you are bombarded by offers.  Online insurance quotes are the way to go.

1. Where else can you get 2-3 phone calls within 2 minutes of submitting the information? You raise your hand to say that you are interested in insurance and they call you right away wanting to sell it to you.  Perfect.
2. It’s the best way to get the cheapest policy. That’s what it’s about right?  Price.  It’s an easy choice who to go with just take the lowest priced policy.  All insurance is the same.  What’s company rating?
3. They know what’s best for me. In only a few minute conversation or maybe no conversation at all, I get my quotes.  People call and can give me exactly what I need right away, perfect.  That brings me to my next point…
4. They are here to help me. They want me to have the best insurance policy on the market.  I can trust that they are going to help me and my family be protected.  And they get their 80+% commissions.
5. I might need other insurance. It’s great that they pass my information around to people who sell other types of insurance.  I love getting more phone calls from people I don’t know trying to sell me something.  Auto, health, homeowners, renters, business, I might just need it all.
6. They’re the insurance best-of-the-best.  Think about it.  The most successful insurance people must be the ones buying the leads.  It’s the successful ones that are waiting around the phone to call as soon as they get the lead in their inbox and then get into a price competition and sell something to someone they have never met.

It’s really the perfect scenario.  I type my personal information into a website I saw on tv.  They send it to 4 or 5 people who can really help me.  These people call me right away with all the answers to my problem.  They know what’s best for me and sell it to me as quickly as possible.  Go to the websites and put your information in now.

Follow my feed, follow me on twitter and e-mail me.

Related posts:

1. Networking Online

When was the last time you went to the doctor?  Chances are you do, or at least should have, seen your primary care physician within the last year for your checkup.  Isn’t that how you are supposed to do it?  Go get your annual checkup.  He checks your height, weight, blood pressure and blood work.  Then a good doctor will ask you how things are and maybe even get to know you a bit.  As you get older there are more risks to be concerned about and you start getting a few more tests done, things like EKGs, prostate exams and mammograms.  So what happens if there is a problem?

Maybe you have some concerns or issues, maybe a test comes back with something that needs to be looked at.  Does your primary care physician handle it or does he send you to a specialist?  Let’s see there are Cardiologists, Dermatologists, Endocrinologists, Gastroentrologists, Gynecologists, Immunologists, Neurologists, Oncologists, Podiatrists, Radiologists, should I continue?  Then you can even expand it to cover Dentist, Psychiatrists, Optometrists, Orthodontists, Audiologists, the list goes on and on.  Do you know what I think is the best part?  The refer you to the specialists.  Why do they do that?

Then there is the financial industry.  Have you heard from your financial planner lately?  You should have had your annual checkup, how did that go?  I’m guessing that you might have had a few concerns with the way the economy and the market are going.  Let me guess he sent you to a specialist right?  No.  Oh right, financial planners know it and do it all.  I can think of 27 different areas for financial planning right off the top of my head (I’ll spare you the list).  That’s just the basics.  They must be an expert in everything if they aren’t referring you.

Did you ever ask your financial adviser to see what they are an expert in?  Did you ask your doctor?  How similar are there answers?  So you have a different person for your eyes than your ears.  Someone different for you knee than for your teeth.  Yet you use the same person for your whole financial world.  Nowadays you even see CPAs, Attorneys and bankers doing financial planning.  Is there something wrong with this picture?

Follow my feed, follow me on twitter and e-mail me.

No related posts.

You have all read Universal Life Failure Part I, so you all understand a little bit about the history and the structure of a Universal Life insurance policy.  Well let’s get right into it.  It’s the 1980s now.  Interest rates are easily in double digits.  You’ve decided you need life insurance and are sitting down with an insurance agent.  You’re thinking ‘buy term and invest the rest’ and the agent says, ‘oh, we have that’.  He shows you a Universal Life insurance policy with an illustration.  The illustration looks great.  Huge cash value build up.  He shows how you can stop paying premiums in retirement, if you want to.  He even shows how you can pull a lot of money out into retirement.  What he doesn’t show you is the illustration is projecting 12% or maybe it was 15% interest rates for the rest of your life.  Is that even possible?

Let’s face it.  Most people never follow through on the ‘invest the rest’.  They say they will.  They might even want to and mean to.  Unfortunately, life happens.  Things come up and there are other things that money gets spent on.  I mean once you don’t put it into the insurance it’s spendable.  So you loved the idea of a policy that does it for you.  The all-in-one packaging.  The funny thing that isn’t the problem.  It can work as you’ll learn later.

Back to our example, you purchase your new Universal Life insurance policy, then interest rates slowly fall.  What no one predicted is the lowest rates in history.  Maybe it was the 7% interest rates that meant your policy returns weren’t keeping up with the mortality costs.  Or maybe it was the 4 or 5% interest rates that finally caught up with you.  It doesn’t matter but now you have a problem.  The only way to fix it is to put more money in the policy.  Now you have a failure.

The Problem

Herein is the problem with Universal Life insurance policies.  You have falling returns coupled with increasing mortality costs.  As we said last time, once the policy is up and running the biggest expenses are the mortality costs.  This policy is built like Annual Renewable Term insurance which means every year the insurance costs go up.  Then you add in the economy.  As the life insurance company looks into its own performance it might just have to make changes to the policy.  Those changes aren’t usually better for the policy holder.  They usually mean increasing the mortality costs higher and/or faster.  Again you add this on top of falling interest rates, which equate to falling returns.  You have a big problem.

The other problem is the life insurance agent or whoever sold you the policy.  Have you heard from them?  It would be nice if they gave you some sort of heads up as to what was happening.  Maybe if they did a policy review you would have known.  Then you might just need to put in a little extra money over the years.  Instead none of this happened.  Instead you received a letter from the insurance company that says your policy is about to lapse because you don’t have enough cash value to cover the difference between the premium and the costs of the insurance.  This is the too little too late news which means the insurance company is probably asking for a good chunk of change.

When faced with this problem there are really 4 things you can do.

1. Put more money into the Universal Life insurance policy.
2. Lower the face amount of the policy which lowers the costs of insurance.
3. Some combination of the #1 and #2.
4. Get a new life insurance policy.

There is one thing that you most definitely need to do, get a new life insurance guy to help you.

Universal Life Insurance Policies Today

In case you didn’t know or haven’t heard, as of January 1st, 2008 life insurance policies were required to be based on the 2001 CSO tables as opposed to the previous 1980 CSO tables.  If you could imagine that people have been living longer in the previous 20 years or so.  What this means is that the costs of insurance have gone down.  For permanent policies this also means that instead of going out to age 100 they now go out to age 121.  Today we also have the lowest interest rates in history.  This means that today you cannot, I repeat cannot, get good cash value performance out of a Universal Life insurance policy.

Due to this fact, life insurance companies had to adjust again and they did.  They now have what is called secondary guarantees on Universal Life insurance policies.  This means that even if the policy runs out of cash value, as long as the secondary guarantee premium amount is paid, the policy is guaranteed to stay inforce for the life of the insured.  What does this mean?  Permanent term insurance.  It means nothing else but that.  The insurance company is admitting that the cash value won’t be there later on, so they are guaranteeing coverage if you pay the proper premium.  However, this gives up a lot of flexibility of the policy.  It becomes like a term insurance policy where if you don’t pay the premium you lose the policy.

The Solution

So there it is.  In today’s marketplace the position of a Universal Life policy is permanent term insurance.  If you already have one of these policies without the secondary guarantee or bought before January 1st, 2008, then my advice is to get a Life Insurance Audit.  Chances are you can save money and add guarantees that will only help your insurance coverage.  Hopefully this post helps you get an understanding of how Universal Life insurance policies have come to be what they are today.  I also hope that you can begin to understand how they work in today’s marketplace.  I’ll save the talk of Variable Universal Life insurance policies for another post.  So I will leave you with two questions…

1. Do you currently own a Universal Life insurance policy?
2. When was the last time it was reviewed and an analysis done?

If you have any questions or want a review and/or analysis done, e-mail me or get an insurance assessment.

Related posts:

1. Universal Life Failure Part I
2. Universal Life Holes
3. Whole Life Insurance is Stackable

Okay, here it is.  Another insider secret to the life insurance industry.  I’m going to explain to you why yours and/or so many other Universal Life insurance policies are failing.  You might ask what are they failing?  It’s easy to see how a UL policy will fail the person who bought it when they get a letter in the mail that says that they owe more money.  How is that for a surprise?  They are also failing insurance agents everywhere because bad news travels faster than good and all insurance agents then have to pay the price for the one who sold the policy.  Maybe he or she sold it chasing commission, maybe they didn’t know what they were doing or maybe they just didn’t understand how the policies works.  Whatever it may have been the rest of the insurance people pay the price.  It is failing for the insurance industry because it perpetuates people’s negative feelings about insurance.  It gives them a big reason to not put life insurance in place.  Most importantly it fails the dependents.  It fails the spouse, the children and loved ones that need the financial help if something where to happen.  Due to the failure of the policy it just might not be there when the payout is needed most.  In social media today it is known as an epic fail.

Historical Overview of Universal Life

To understand how this is happening we must first look at the history of the Universal Life policy.  A UL policy came to being during the 1970s.  That means they have only be around about 40 years now.  So they are still young.  The old Whole Life policies were very rigid.  You go to purchase a policy and you get a set premium with a set face amount.  That’s it.  You pay the premium policy is good.  You don’t and you risk losing the coverage.  If you need more coverage, you get another policy.  No flexibility.  There needed to be a change.

Do you remember the economy of the 1970s?  It was a decade of poor economic performance, some may say the worst since the great depression.  It was high inflation coupled with rising unemployment.  Interest rates began to soar.  What did this mean for savings and investments?  People fled stocks and the mutual fund industry that had just really started to come into its own in the 1960s.  They fled for the high interest returns on bonds and even savings accounts.  Double digit interest rates were normal by the late 1970s setting the stage for some of the highest interest rates in history in the 1980s.

What did this mean for Whole Life insurance?  The performance in Whole Life insurance is more dependent on the insurance companies general account.  Within these accounts insurance companies hold a high percentage of bond with a mixture of maturities (lengths).  The insurance companies would hold the bonds to maturity.  This made it very difficult to keep up with the dramatic increases in interest rates near the end of the 1970s.  People were seeing bigger returns in savings accounts and kept hearing about ‘buy term and invest the rest’.  How could you lose when savings accounts are outperforming your policies?

The insurance companies recognized this.  Or maybe they recognized that they were loosing a lot of money through canceled policies and policy loans.  They knew they had to react to this trend.  The original concept was an annual renewable term policy with an annuity.  Then the Universal Life policy which inside it is an annual renewable term policy with a separate account that gives a fixed interest rate.  With this the policy charges become more transparent.  since the cost of insurance is based on annual renewable term it created an added flexibility in the premiums.  Each year the charges in the policy change, with an overall trend upward.  You contribute more than the costs and charges and the extra money goes into a separate account giving you a fixed rate of return.  It’s ‘buy term and invest the difference’ in one vehicle which allows you to enjoy the tax benefits of life insurance.

Structural Overview of Universal Life

Now that you understand the history of a Universal Life policy you can begin to understand its structure.  As stated previously at its core a Universal Life policy is annual renewable term insurance with a side account for fixed returns.  The initial expenses and charges of a new policy are always high.  The insurance company wants to protect against quick deaths and they want to get some money working for them.  They also have to pay commissions.  Commissions on a Universal Life policy usually range from 50% to 90% of the policy’s target premium anything over carries commission of around 1-2%.

After this high upfront charges, the major charges in the policy is the mortality costs or cost of insurance.  The lure of the policies is the same as term insurance.  At a young age the cost of insurance is low.  Once the policy is up and running you are basically buying annual renewable term.  Now annual renewable term is really cheap in your 20s and 30s.  As you hit your 40s and 50s it has a noticeable rise in cost.  Then by your 60s and 70s it’s becoming downright expensive.  It’s this the problem with term insurance.  The hope with a Universal Life policy is that the extra money you have paid in coupled with the interest earned on this extra money will be enough to offset the rising mortality costs.

To Be Continued…

This brings part I to a close.  I hope you are starting to have a good understanding of how the Universal Life policy was created and what the structure of the policy is.  This is going to set the stage for the second part.  In Part II, we are going to look at how we got to where we are today.  Today there is a whole different type of Universal Life policy out there.  A lot of changes have occurred.  These changes have been mainly spurred by interest rates and economic growth.  What do you think is going to happen with a policy with rising internal expenses and decreasing returns?  Sounds like a problem.  Then add economic growth helping to spur the performance of the stock market…guess you’ll have to wait and see.

Remember to follow my feed, follow me on twitter and e-mail me.

Continue reading Part II

Related posts:

1. Universal Life Failure Part II
2. Universal Life Holes
3. What Every Life Insurance Policy Shouldn’t Be Without

Have you heard of the new IRS website for small businesses? In an attempt to make it easier for small businesses to find the right retirement plan, the IRS has rolled out the IRS Retirement Plan Navigator.  It is tagged as “An easy retirement plan guide for small employers”.  It’s main content is directed to choosing, maintaining and correcting a plan.  As well as providing a plan comparison table.

Do you think a website like this really works? It does accomplish providing a comparison based on very broad information.   Does that really help an employer?  Or does it just confuse them?  I guess I just feel bad for the small businesses out there, trying to do all of this themselves.  It must take a lot of time and effort.  Isn’t it just easier to have a trusted professional do it for you?

What other options does an employer have? They can do the research themselves or they can find someone to do it for them.  At the very lease they will need an investment company/person to work with no matter what their plan.  Isn’t it easier to just start their and find a trusted investment person to help you figure out which plan is best?  Do they feel it is easier to deal with the person that answers the 800 number after they’ve done all the research themselves?  The time it must take to figure out what type of plan they want and who they want it with.  How many man hours do they put into this research?

What can you do to help? Most employees feel helpless about their retirement plan options.  Have you talked to your employer about it?  Better question, do you know who to talk to?  Take 5 minutes out of your day and let the HR department or CFO or owner of your company know what you think of their retirement plan.  If you love it, tell them.  If you hate it, tell them.  Just make sure to tell them why you feel the way you do so that they know what kind of job they are doing and how to make it better.  This information will be a lot of help to a good employer, trust me.  Send me an e-mail and let me know how you feel about your employer plan.  I’m interested and maybe I can help if you need it.

Related posts:

1. Who Controls Your Retirement Money?
2. Max Out Your 401k Math
3. 2 Worst Financial Tools

I came across an interesting interview with Garrett Gunderson.  I found out about Garrett through social media and an associate of his Chris Miles.  I think it was LinkedIn that we first met through but I can’t quite remember.  Anyways, I was intrigued by some of the things I saw on LinkedIn and on his website, FireYourFinancialAdviser.com.  So Chris and I had a conversation.  That conversation led me to buy Garret’s book, Killing Sacred Cows.  Don’t you love the name?

Now the purpose of this post is not to review the book.  If you are interested in hearing about the book you can find it as well as reviews at Amazon.com.  I will tell you that I enjoyed reading the book and it does have a very powerful message that I’m sure I will continue to touch upon in future posts.

What made me write was this interview titled Unusual Business Tips.  (I apologize for not being much of a tech guy because I can’t figure out how to inlay it in this post.)

Here are Garrett Gunderson’s 6 tips for business owners:

1. Raise Salaries: His reasoning here is for a vote of confidence for your employees.  Focus on the people and the productivity.  This will remove any anxiety and get them motivated.

2. Spend More: People are cutting spending in the wrong spots.  Do you want to grab more market share?  There’s a huge opportunity out there because everyone else is cutting back in their marketing efforts.  You will make more money.

3. Meet Less: Have you ever left a meeting wondering what the purpose of that was?  Focus on purpose and productivity.  Brief meetings can be a lot more productive.  Get rid of reactive meetings.  Know the purpose and outcome of your meetings.  Eliminate all others.

4. Stop Saving for Retirement: People don’t know or understand where they are putting their money or what’s going to happen to it.  There are too many unknowns.  He calls in gambling.  The rough 2008 beat down people’s confidence and made them less productive in other areas of their lives.  Invest first in yourself and focus on effectiveness of your dollars.

5. Put All Of Your Eggs in One Basket: Entrepreneurs over diversify themselves.  He calls it de-worse-ification.  People diversify because they don’t know what will work.  They spread themselves thin.  So instead focus on what you do know and what you are committed to.  It is better to invest in a business that you do know and have passion for.

6. Go Back to School: Continue to invest in your education and learning.  Don’t cut spending in the areas of furthering your knowledge.

I love a person that thinks outside the box and is not afraid to go against what people believe.  The biggest point here that I think he is trying to make is to have faith and confidence in something.  What better than yourself?  If you can believe in what you do and what you know it will make you more productive and happier.  I couldn’t agree more with this sentiment as I’ve seen it in my own life.  We all have down days or bad days here or there.  Do you get as much work done on those days?  What is the quality of your work on those days?  If you can build and grow the confidence and faith in yourself then you can drastically reduce your non-productive time and you might just surprise yourself in what you are able to accomplish.

Now I purposely did not add my commentary into Garret’s tips.  They are his tips and I wanted to keep that intact without my opinions of them.  I want to open this up to you.  What do you think of what he has said?  Do you think it can work?  Does or will anyone actually do these 6 things?

No related posts.

What advisors need is some sort of hybrid product that successfully integrates asset management with guaranteed income, said Tom Modestino, senior analyst at Cerulli who wrote the report: “State of Retirement Income: Addressable Opportunity, Strategies and Future Outlook.”

This is an excerpt I read last week from Advisors Need Better Income-Generating Tools on financial-planning.com.

So today I am going to tell you about a vehicle that will address this.  I really wonder if Tom or the person writing the article is aware of this.  This vehicle is called the Retirement Management Account.  I won’t go into too much detail of the history but it was actually designed by Jerry Golden.  He is the one that developed the Guaranteed Minimum Income Benefit at The Equitable back in 1996.

The RMA at its core is an income planning and monitoring program.  What it accomplishes is simplifying a person’s retirement income planning by using one account where multiple use to be needed.  The benefit of this is an easier to use and understand account for the client to manage not only their retirement income but also the taxes and rules surrounding that access of retirement accounts.  It allows a single monthly distribution check, a single statement and a single account in compliance with custodial IRA requirements.

The RMA is made up of two separate pieces in one shell.  The two pieces are mutual fund model portfolios and a multi-premium immediate annuity, also known as a Flexible Benefits Annuity.  This creates more flexibility for the client than the traditional lump sum annuitization.  The FBA also has built in cost of living and survivorship options.

The biggest benefit of this program is flexibility and liquidity.  It allows the client to balance guaranteed income and market participation.  By combining the two under one shell, distributions can be taken through one check and can be turned on or off at any time.  Now you might be thinking that you can’t turn off an annuity, which is true.  By using one shell, it allows the client to turn off distributions from the account.  The way it does this is by flowing the annuity income stream back into the mutual funds, thus, avoiding any taxable distributions that aren’t needed.  This could be a huge benefit in years such as 2009 where the IRS waives required minimum distributions.  It also can allow the mutual funds to recover from market losses by not only, not drawing on them in a down market but in fact adding to them without taxable consequences.

The downside to such a program is that it is still at the heart, mutual fund portfolio plus immediate annuity.  Any money that is annuitized is just that and turned into a stream of income.  The mutual fund portfolio also is not an open architecture platform.  What that means is your fund choices are limited.  Some people might not mind this and it might be a deal breaker for others.  The account is limited to retirement money, it is an IRA account.  One other question that arises is fee structure.  The mutual funds have an asset based fee of 1% or less depending on the level of assets while the FBA pays a commission just as any annuity does.  This means that the advisor’s role with a program such as this is to help manage the mutual fund portfolios while also reviewing and aiding with decisions in regards to the need for guaranteed income.

This program is designed for the baby boomers.  It’s target market is people ages 55-75 who have either retired or are planning to do so.  In today’s environment this type of program can really increase the flexibility and control a person has over their retirement money.  Today more and more people are figuring how to deal with losses in their account, increasing expenses and thus increasing needs.  When things change for you, you need to have a program that can change with you.  This just might be a piece to that puzzle.

If you have any further questions about this program please feel free to e-mail me.

Related posts:

1. Diversifying Your Income Streams
2. Carnival of Financial Planning #112
3. When a Variable Annuity Can Work