A Better Asset Allocation Strategy Than “Set It and Forget It”

“Add value to your clients by making a complete evaluation of their annuity products. Our Annuity Audit service, backed by Morningstar Intelligence, is available to help. We will work up a thorough analysis and provide you with clear information to share with your client.”

Many of us have believed in asset allocation strategies – that is, shifting money management to a third-party and talking to your clients about the long-term. Their money is placed inside non-qualified, separately managed accounts (SMA), qualified IRAs, or variable/​fixed annuities, and then you and your clients just let it sit.

It is a ​“set-it-and-forget-it” mentality, and in less-turbulent times, it was a popular strategy. But the global pandemic that we are still living with has shifted a lot of needs. 

Too many people have lost jobs and are retiring earlier. Even more importantly, because of the volatility we live with, there is an increased interest in protected income. Today in America, there are $416 billion held in fixed and indexed annuities issued by insurance carriers. Not all of those are liquid, certainly, but according to a Gallup poll, 81% of those that bought a fixed annuity said they did so because they did not want to be a burden to their family.

All of this leads to a couple of opportunities:

1. Most fixed annuities have been on the books for a long time. They do not have income riders — but the need to have protected income is an essential part of their portfolio. If you have not looked at an Income Alpha strategy for these clients, we encourage you to do so. A certain amount of protected income can leverage the portfolio to a greater probability of retirement success, a claim we have the numbers to back up. Going back to the reason people buy annuities, is that they do not want to burden their families. Protected income is the best way of ensuring this does not happen. It is imperative to talk to your clients about using the asset appropriately.
2. Under the Pension Protection Act, you can shift that tax-deferred asset with a 1035 exchange, moving those funds into a linked-benefit policy for long-term care (LTC). If your client needs help with at least two of the six activities of daily living (ADL), they then receive LTC benefits from the linked-benefit policy where the cost basis is not only a gain but is also tax-free. So, you have now shifted from tax-deferred to tax-free. When you think about the increase in tax rates that are likely to happen over the next three to five years, we believe that your clients will be very receptive.

In total, there are more than $1.3 trillion of total annuities sitting on insurance carriers’ books right now. Think about that for a minute. Are your clients’ annuities performing like you thought that they would? Have those benefits been maxed out over the 10-year period available with an income rider? Can you increase income a little by looking at alternatives? Would a different vehicle preserve their assets better?

Add value to your clients by making a complete evaluation of their annuity products. Our Annuity Audit service, backed by Morningstar Intelligence, is available to help. We encourage you to reach out to the Palladium Group team to learn more. We will work up a thorough analysis and provide you with clear information to share with your client. Together, you can make an intelligent decision as to whether their current product is performing well or if there are changes to be made. And if there are, reach out to Palladium Group RIA Consultants at (888) 274‑5462 for more information.

Transformational Tactic

There are opportunities to increase your business by evaluating current annuities. You could improve your clients’ portfolios without reducing assets under management.

*This material is for financial professional and educational use only. Not to be reproduced or shown to clients.