Join us for a fireside chat where financial planning expert and educator, Michael E. Kitces will share proven practice management ideas and ways to better serve clients.
During this 60-minute session Michael will discuss:
Rethinking marketing to generate growth in your practice Applying behavioral finance concepts to better engage clients Building and running a team to fit your vision and goals
An open Q+A session will follow.
Guest Speaker:
Michael E Kitces, MSFS, MTAX, CFP®, CLU, ChFC, RHU, REBC, CASL Chief Financial Planning NerdKitces.com
Moderated by:
Michael Visconti Divisional Vice President Prudential Annuities
You’ll also learn about one of our most exciting sales opportunities for 2022, the FlexGuard® Income indexed variable annuity.
Please contact our National Sales Team at 800-513-0805 with any questions.
Fidelity is pleased to introduce the following enhancements to the Wealthscape Investor mobile app that will be available on June 21, 2022:
Account Statements
• Investors will have access to view their Account Statements through a new Documents feature that will be available in the app.
• Statements is the first type of document to be made available in the app; additional documents such as Tax Forms, Correspondence and Confirmations will be delivered in future releases and communicated accordingly at that time.
Account List Display
• To provide a consistent account viewing experience for investors, we have enhanced the mobile app to include account display preferences set by investors on WealthscapeInvestorSM.com. This enhancement to Account List will include the display of customized account groups and customized account names as well as hide accounts with
zero balances.
• The ability to create or modify account display preferences is only available in WealthscapeInvestor.com; this preference is not managed in the mobile app.
FINRA Rule 3210 requires that associated persons disclose brokerage accounts held at a member firm other than their employer, which means registered persons must disclose to ESI reportable accounts held at another brokerage firm. Accordingly, ESI has established electronic data feeds with several firms, through Star Compliance (“Star”), which allow the Firm to obtain account and transactional information on an automated basis. This allows your personal trading and holdings history to automatically populate your quarterly transactions and annual holdings certifications in Star.
The firms that provide automated data feeds include:
Ameriprise
Kestra Financial
Stifel Nicolaus
Betterment Securities
LPL Financial
T. Rowe Price
Charles Schwab
Merrill Lynch
TD Ameritrade
Chase Investment Services
MML Investors Services
UBS
Commonwealth
Morgan Stanley
USAA
E*Trade
NFS
Vanguard
Edward Jones
Prudential
Wealthfront
Fidelity
Raymond James
Wells Fargo
Interactive Brokers
RBC Wealth Management
JP Morgan
Robinhood
What if my brokerage firm is not listed above?
Not all brokerage firms allow for electronic data feeds. If you hold an account at a firm that does not provide an automated data feed, there are four options for reporting:
Move the account(s) to one of the firms listed above.
Attach statement(s) using the “Broker Account Statements” tile or the “To Do List” within Star Compliance (click here for directions).
Attach statements to your Quarterly Transaction Report (QTR).
We will request duplicate paper statements from the holding firm. However, if we do not receive them, we will reach out to you to obtain missing statements. It is your responsibility to assist in providing paper statements if the holding firm does not. Failure to provide account statements may result in disciplinary action.
How do i add a new brokerage account?
If you are interested in opening a new brokerage account with an outside firm, you need to obtain approval from ESI Compliance before opening the account. Contact ESI Compliance for an authorization letter – commonly referred to as a “407 letter”. ESI will provide the authorization letter, which you should attach to your new account application for the holding firm.
Once you have opened the account, complete the Authorization to Provide Account Information (ES0641) form, and email it to ESICompliance@nationallife.com. If the account is eligible to be added to a data feed, ESI Compliance will work with the holding firm to add your account to the feed. If the account is not eligible for a data feed, ESI will request the holding firm provide duplicate paper statements.
QUESTIONS:
If you have questions about reportable brokerage accounts, transactions, or the process for obtaining approval for an outside account, contact Ben Zarzycki at 802-229-3659 or bzarzycki@nationallife.com.
Historically, bonds have served as excellent diversifiers and hedges for equities risk. In many historical periods, bonds offered negative or low correlation to equities and provided investors with material yields to supplement their income needs. However, persistent low interest rates and increased correlation to equities have impacted bonds and their effectiveness. Specifically, according to Morningstar, the average core bond fund lost 5.89% in the first quarter, and the average core-plus fund dropped 5.72%, the worst declines for both categories since the 2008 financial crisis. 1 Despite the challenges bonds have recently faced, investors still need protection from market decline. The recent market volatility is a stark reminder how market selloffs can be quick and painful. What can clients do to hedge market decline risk? Registered Index Linked Annuities, RILAs are variable annuities that have protection features to limit contract value losses in the event of a market decline.
To more fully examine how RILAs may be used as a bond alternative, let’s examine the pros and cons of both RILA’s and Bonds as potential assets within a client’s portfolio.
Bonds -Pros:
Individual bonds don’t have explicit asset management fees.
Do not have surrender charges.
Historically, bonds have realized low or negative correlation to equity risk.
Provide a predictable income stream.
Principal is generally returned at maturity.
Historically, bonds have generally exposed investors to less risk than equities.
Bonds typically have produced higher returns than bank CD’s.
A bond’s credit rating is generally consistent with its risk level, which can help the investor to accurately understand the principal risk they are assuming.
RILAs -Pros:
Have greater appreciation potential than bonds since performance is linked to underlying equity indices.
RILAs offer buffers which absorb up to a defined level of index decline. Common buffer levels include, -10%, -15% and -20%.
Certain RILAs offer floors. Unlike a buffer, RILA floors establish a maximum loss exposure. The contract owner realizes the loss to the defined floor. After the floor is reached, any additional index decline is avoided by the contract owner. Common RILA floors include -5% and -10%.
RILAs – like all annuities – offer potential tax-deferred growth of account values.
Certain RILAs offer guaranteed lifetime income benefits for clients that have income as a primary objective. There is an additional fee for lifetime income benefits.
Bond – Cons:
Bond prices fall when interest rates go up. Given the historically low interest rate environment and the Federal Reserve’s interest in controlling inflation, the likely direction for interest rates is up.
Longer-term bonds can be more susceptible to price fluctuations than shorter term bonds. Given that investors have sought higher yields, investors may have greater exposure to longer term bonds.
Bond correlation to equities seems to be increasing, which provides less diversification and downside protection.
Over the last 30 years, there is a 96% correlation between the starting return and the subsequent 10-year nominal return. If that forecast remains consistent, investors can expect 1 – 3% bond returns over the next 10 years. 2
RILAs – Cons:
RILAs can lose principal.
Some RILAs may have a capped upside,
RILAs have surrender charges, which normally last 3 – 6 years.
Certain RILAs may charge administration fees, which decreases the contract value.
Certain RILAs offer guaranteed lifetime income benefits that charge a fee and will reduce the contract value.
The income base is not guaranteed before initiating income and is based on account value. There is no guaranteed growth rate.
They may be challenging with rebalancing the overall asset allocation.
Now that we have addressed the pros and cons of both bonds and RILAs, it may be helpful to address how ESI’s Suitability team considers using RILAs as a potential alternative to bonds.
RILAs may have a place in the portfolios of certain clients who have acknowledged the considerations previously mentioned. With any annuity transaction, the Suitability team views each case on its own merits and the individual circumstances of the transaction. Below are just some of the general points to keep in mind when deciding whether this strategy is right for your client:
Awareness of annuity concentration (total value of client’s annuities subject to a surrender penalty as compared to liquid net worth)
Cash flow and client liquidity needs outside of annuities
Surrender penalties or loss of living/death benefit features if an annuity is being replaced
Client sophistication and ability to understand a product that may be more complex
Documentation of the overall strategy and how a client’s other portfolios may be adjusted in conjunction with the use of the RILA
Resources:
Below are links to some videos which address some of the material discussed and may be a potential resource:
If you have additional questions, please contact ESI Business Development, 800-344-7437.
How the Largest Bond Funds Fared in the First Quarter, Morningstar, April 5, 2022
Research affiliates based on data from Bloomberg and FactSet as of Dec. 31, 2019. Proxy: Bloomberg Barclays U.S. Aggregate Bond Index. Past performance is not a guarantee or a reliable indicator of future results.
Financial market performance since the start of the year, and in particular since the end of the first quarter, has been sobering to put it mildly. While these type of market gyrations are never fun, it may be helpful to provide some context. In the last ten years, there have been just two quarters when the S&P 500 index declined by more than 10%. Think about that for a moment! And one of those quarters was at the start of the pandemic. Simply put, financial markets have been behaving favorably for too long and investors have become unaccustomed to the volatility. However, market volatility is normal and is healthy in the long run.
Markets are currently reacting to an enormous set of changes in a compressed period of time: the on-going pandemic, the outbreak of war, supply chain disruptions (made more challenging by the war), high inflation (made incredibly more challenging by the war), and changes in monetary policy.
There were very few places to hide during the first four months of the year. Equities across the board struggled: the S&P 500 index -12.89%, MSCI EAFE index (Developed Markets) -11.74%, MSCI Emerging Markets index -12.10%. Bonds also had a difficult few months: the Bloomberg Municipal Bond Index -8.82%, the Bloomberg U.S. Intermediate Aggregate Index -7.09%.
Pretty much the only areas of the market that have performed well this year include energy and just about anything commodity-related. However, their recent performance is almost entirely due to the war in Ukraine. If there was a sudden end to the conflict, many commodity prices would be highly vulnerable to a significant pullback. Moreover, investing in commodities directly remains extremely risky since it is essentially speculation as commodities do not generate cashflows and are inherently volatile.
Historically, bonds have served as excellent diversifiers and hedges for equities risk. In many historical periods, bonds offered negative or low correlation to equities and provided investors with material yields to supplement their income needs. However, persistent low interest rates and increased correlation to equities have impacted bonds and their effectiveness. Specifically, according to Morningstar, the average core bond fund lost 5.89% in the first quarter, and the average core-plus fund dropped 5.72%, the worst declines for both categories since the 2008 financial crisis. 1 Despite the challenges bonds have recently faced, investors still need protection from market decline. The recent market volatility is a stark reminder how market selloffs can be quick and painful. What can clients do to hedge market decline risk? Registered Index Linked Annuities, RILAs are variable annuities that have protection features to protect contract values in the event of a market decline.
To more fully examine how RILAs may be used as a bond alternative, let’s examine the pros and cons of both RILAs and Bonds as potential assets within a client’s portfolio.
Bonds -Pros:
Individual bonds don’t have explicit asset management fees.
Do not have surrender charges.
Historically, bonds have realized low or negative correlation to equity risk.
Provide a predictable income stream.
Principal is generally returned at maturity.
Historically, bonds have generally exposed investors to less risk than equities.
Bonds typically have produced higher returns than bank CD’s.
A bond’s credit rating is generally consistent with its risk level, which can help the investor to accurately understand the principal risk they are assuming.
RILAs -Pros:
Have greater appreciation potential than bonds since performance is linked to underlying equity indices.
RILAs offer buffers which absorb up to a defined level of index decline. Common buffer levels include, -10%, -15% and -20%.
Certain RILAs offer floors. Unlike a buffer, RILA floors establish a maximum loss exposure. The contract owner realizes the loss to the defined floor. After the floor is reached, any additional index decline is avoided by the contract owner. Common RILA floors include -5% and -10%.
RILAs – like all annuities – offer tax-deferred growth of account values.
Certain RILAs offer guaranteed lifetime income benefits for clients that have income as a primary objective. There is an additional fee for lifetime income benefits.
Bond – Cons:
Bond prices fall when interest rates go up. Given the historically low interest rate environment and the Federal Reserve’s interest in controlling inflation, and the recent interest rate increases, the likely direction for interest rates is up.
Longer-term bonds can be more susceptible to price fluctuations than shorter term bonds. Given that investors have sought higher yields, investors may have greater exposure to longer term bonds.
Bond correlation to equities seems to be increasing, which provides less diversification and downside protection.
Over the last 30 years, there is a 96% correlation between the starting return and the subsequent 10-year nominal return. If that forecast remains consistent, investors can expect 1 – 3% bond returns over the next 10 years. 2
RILAs – Cons:
RILAs can lose principal.
Many RILAs may have a capped upside on the indexing strategies
RILAs have surrender charges, which normally last 3 – 6 years.
Certain RILAs may charge administration fees, which decreases the contract value.
Certain RILAs offer guaranteed lifetime income benefits that charge a fee and will reduce the contract value.
The income base is not guaranteed before initiating income and is based on account value. There is no guaranteed growth rate.
Now that we have addressed the pros and cons of both bonds and RILAs, it may be helpful to address how ESI’s Suitability team considers using RILAs as a potential alternative to bonds.
RILAs may have a place in the portfolios of certain clients who have acknowledged the considerations previously mentioned. With any annuity transaction, the Suitability team views each case on its own merits and the individual circumstances of the transaction. Below are just some of the general points to keep in mind when deciding whether this strategy is right for your client:
Awareness of annuity concentration (total value of client’s annuities subject to a surrender penalty as compared to liquid net worth)
Cash flow and client liquidity needs outside of annuities
Surrender penalties or loss of living/death benefit features if an annuity is being replaced
Client sophistication and ability to understand a product that may be more complex
Documentation of the overall strategy and how a client’s other portfolios may be adjusted in conjunction with the use of the RILA
Resources:
Below are links to some videos which address some of the material discussed and may be a potential resource:
If you have additional questions, please contact ESI Business Development, 800-344-7437.
How the Largest Bond Funds Fared in the First Quarter, Morningstar, April 5, 2022
Research affiliates based on data from Bloomberg and FactSet as of Dec. 31, 2019. Proxy: Bloomberg Barclays U.S. Aggregate Bond Index. Past performance is not a guarantee or a reliable indicator of future results.
Join us for a fireside chat where financial planning expert and educator, Michael E. Kitces will share proven practice management ideas and ways to better serve clients.
During this 60-minute session Michael will discuss:
Rethinking marketing to generate growth in your practice Applying behavioral finance concepts to better engage clients Building and running a team to fit your vision and goals
An open Q+A session will follow.
Guest Speaker:
Michael E Kitces, MSFS, MTAX, CFP®, CLU, ChFC, RHU, REBC, CASL Chief Financial Planning NerdKitces.com
Moderated by:
Michael Visconti Divisional Vice President Prudential Annuities
You’ll also learn about one of our most exciting sales opportunities for 2022, the FlexGuard® Income indexed variable annuity.
Please contact our National Sales Team at 800-513-0805 with any questions.
To help you review the Illuminations fund strategist and SMA portfolios you’ve utilized for your clients and determine if there is something new and a better fit, performance snapshots have been updated for Q1 2022.
In addition to updated numbers, we’ve updated the format as well! With a growing number of portfolios and managers, we’ve implemented a new design that better accommodates our growing platform. Now in a spreadsheet format, the Performance Snapshot provides a separate worksheet for each fund strategist risk range and SMA account type.
(HINT: Link not working? Log into the agent portal first, and then try the link again)
While we know we should not make recommendations purely off of performance, lists such as these are a great starting point to look at alternative solutions to help our clients better meet their financial goals.
Interest rates remain at record lows and your clients’ income needs haven’t change. Consider the Touchstone Income Strategy powered by ESI Illuminations as part of a balanced and flexible solution for meeting your clients’ income needs.
The Touchstone Income Strategy powered by ESI Illuminations is a managed portfolio of a combination of Touchstone Funds that are allocated to generate income through a total return approach rather than strictly dividend income. The Strategy uses a combination of cash equivalents, fixed income, multi-asset and equity funds which seek to sustain a 5 percent withdrawal rate over a 20-year period.*
Visit ESI Illuminations platform tab to view updated materials on the Touchstone Income Strategy and how it can help your clients. New materials include a client-focused flyer, a hypothetical portfolio illustration, and an updated sales map.
Marketing materials on the Illuminations platform are located under the Platform tab.
*As with any investment Strategy, the Touchstone Income Strategy involves risk, and there is the possibility of loss of principal value. There is no guaranteed element of the Strategy.
Savos Personal Portfolios is a comprehensive portfolio solution available on the AssetMark platform that has a unified managed account structure with individual stock, ETFs, and institutional mutual funds – all under one acct number. If you have clients looking for customization, such as screening for ESG values, or personalized service, such as a tax-managed transition report, don’t miss this recording!
In our DOL communications ESI has discussed the work we are doing to ensure adherence to disclosure and notification requirements set forth as part of the SEC regulation Best interest, as well as the Department of Labor rules governing retirement plans and Individual Retirement Accounts. ESI has updated three forms for use when representatives are making a Recommendation to a client to rollover their retirement plan to an IRA, and when recommending the purchase of an Annuity. The forms are titled:The Defined Benefit Recommendation formThe Defined Contribution Recommendation formThe Annuity Purchase and Exchange Disclosure.You may already be familiar with these forms since they are currently in use. However, recent updates to the regulations have resulted in updates to the disclosures and information provided on these three forms IF making a recommendation (vs education) to rollover from Qualified Plan to an IRA. This DOL spotlight is designed to make you both aware of the updates to the forms, as well as provide guidance on how to complete the newly added sections of the Defined Contribution and Benefit Recommendation and the Annuity Purchase and Disclosure Forms.
Transition Period May 9th – June 29thThe newly updated forms are available starting May 9th, in both Merrill as well as Docupace. ESI is launching the forms weeks in advance of the requirement date, to provide time to learn how best to complete these forms when making a recommendation to rollover plan assets.
Pay special attention to the new sections of these forms which are now requiring more detailed documentation regarding the rationale for the recommendation as well as a cost comparison if the rollover is from a 401K plan.
ESI strongly encourages representatives to become familiar with how to complete the new sections of these forms, IF recommending (vs educating) a rollover. This will help to ensure new business is not delayed due to incomplete or missing information.
New Section on the Annuity Purchase and Exchange Disclosure Frequently Asked QuestionsWhen are these forms required?The defined Benefit or defined contribution RECOMMENDATION forms are used when RECOMMENDING (vs educating) a client rollover their assets out of their plan into an IRA, and the IRA will purchase any product other than an Annuity.
The Annuity Purchase and Exchange Disclosure Form is always required when an annuity is being purchased, however the new section V on page 5 , is only required to be completed when a recommendation is made to rollover from a 401k plan. These forms are not new; what are the updates to the form?In summary, the forms have been updated to document rationale for recommending the client leave their current plan as well as rationale for the account type being recommended. In addition, a cost comparison analysis between their current plan and the product/service recommended has been added. Is the Best Interest Supplemental Worksheet required as well?If you are using one of the above-mentioned rollover recommendation forms, you do NOT need the Best Interest Supplemental Worksheet, as the information provided is redundant. However, it is always required for annuity purchases regardless of the funding source. How do I know the costs associated with their current plan?You will need to request a copy of the plan’s participant fee disclosure document which is called the 404(a)(5). This document will provide the detail needed to complete the form. When is the deadline for using the new forms?The new forms will be available and generated in Docupace starting May 9th but are not REQUIRED by regulation until June 30th. Forms that have been signed May 8th and earlier will be accepted through May 31st. Can I continue to submit the current version until June 29th?ESI encourages use of the new forms right away. Doing so will give you time to better understand how to complete the new sections and if an error is made, it can be corrected. However, starting June 1st, the new versions of all forms must be used regardless of when they were signed. Beginning, June 30th, if an error is made on the form, it is outdated, or it is missing, the business may need to be rejected per the regulation since disclosure must occur pre-transaction.
The Operations Team may send reminder emails and/or call to remind reps of the upcoming changes while in the transition period. What if I cannot get a copy of the 404(a)(5)?ESI has created a reference chart which will be posted on the National Life Agent Portal under the ESI Tools section, which gives you the estimated cost data.
Reminder! DOL education and training is available on the National Life Portal. Simply click on the lighting bolt located in the upper right side of the main menu bar and scroll down to DOL Training Page.
Guest Speaker:
New Section on the Annuity Purchase and Exchange Disclosure