In Practice May 10, 2023

New RIA Aims to Advise Plan Sponsors on Diligent Annuity Selection

Experts in the insurance and asset management industries have launched Annuity Research & Consulting to advise 401(k) plan sponsors and recordkeepers on annuities.

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A new registered investment adviser, Annuity Research & Consulting, has entered the market aiming to help plan sponsors that want to offer annuities to their participants and need help with the insurance provider selection process.

Michelle Richter-Gordon, the executive director at the Institutional Retirement Income Council, and Mark Chamberlain, the founder of the Open Architecture 2020 Group, announced Tuesday the formation of their fee-only consultancy for 401(k) retirement plans and their recordkeepers.

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ARC’s goal is to “transform the DC industry’s approach to investigating lifetime income options by bringing an outside expert specialist resource to those who seek objective, thorough and analytical annuity advice,” the introductory press release stated.

After teaching together at the Center for Board Certified Fiduciaries, Richter-Gordon and Chamberlain say they realized there are many RIAs who are unlikely to become annuity experts, so they decided to lead by example.

Richter-Gordon and Chamberlain have a combined 60 years of experience in both the insurance and asset management industries, which they say makes them unique and enables them to analyze complicated annuity contracts.

“When you combine an annuity contract, which is considered by most to be pretty complex, with the intricacies of the asset management industry … there’s a need for plan sponsors to understand what’s going on under the hood,” Chamberlain says. “What’s unique about what we’re doing is combining our two experience sets in such a way that we can bring an ERISA-standard solution to sponsors who seek objective information.”

No Commissions

Chamberlain says ARC’s business model does not involve the firm getting any commissions from insurance products, nor do they receive fees based on assets under management. Instead, the firm charges hourly and project-based fees.

As a service provider, ARC aims to offer “unbiased search capabilities, a rigorous selection process and/or proper benchmarking capability for measuring the cost/benefit tradeoffs and monitoring them at a prudent expert level,” according to the press release.

Richter-Gordon adds that ARC is not limited to recommending certain annuity providers; rather, it has access to the “whole universe” of providers.

Among the main concerns Richter-Gordon sees among plan sponsors and the advisory community when adding annuities into a plan are litigation risk and the credit worthiness of certain insurance companies.

“We believe that rating agencies do not accurately capture important information about [how] certain insurers are more heavily exposed to private equity ownership or opaque reinsurance transactions, that we think are important to know about to protect oneself as a fiduciary against the possibility that an insurer is not able to deliver on its promises in a plan environment,” Richter-Gordon says.

Not only does the new firm offer ERISA 3(38) and 3(21) fiduciary capabilities, but it can also provide non-fiduciary consulting and education for both plan sponsors and participants to help them think about ways to integrate annuities with traditional 401(k) investment policy to manage participants’ longevity risk.

The Decumulation Dilemma

Chamberlain says there is some recent market evidence suggesting that about half of plan sponsors are looking to focus only on a decumulation solution for their participants, while members of the other half are more interested in exploring the turnkey approach to the full retirement lifecycle—a solution for the accumulation phase, the nearing-retirement phase and the decumulation phase.

“That’s the conversation that needs to happen before you find the right fit on the products side,” Chamberlain says.

Richter-Gordon says ARC already is equipped with data about the various annuity products and insurers available in the market, and the firm can match plan sponsors with the appropriate products based on the criteria in their plan, using a 10-step process they have developed.

Their process is engineered to meet or exceed the current safe harbor guidelines in ERISA Section 404(e), according to the press release. Chamberlain says ARC dissects annuity contracts to see who owns the risks: the insurance company or the consumer.

These risks can include anything from counterparty risks to liquidity risks to an initial return versus an inflation-adjusted return, according to Chamberlain.

“Counterparty risk management is one of the ten risk factors in our process that explains why most of the research we do is qualitative – thorough annuity due diligence does not lend itself well to data-based computer tools,” Chamberlain says. “We’re trying to change the conversation away from fintech quantitative solutions to more of a boutique research firm that can do institutional quality research the way institutional consultants have traditionally approached asset management.”

Data & Research May 9, 2023

The PLANADVISER Interview: Fiona Greig, Global Head of Investor Research and Policy, Vanguard

Research and policy expert Fiona Greig discusses moving from consumer spending and saving patterns to the world of long-term retirement investments.

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The PLANADVISER Interview: Fiona Greig, Global Head of Investor Research and Policy, Vanguard

Welcome to The PLANADVISER Interview, an online series bringing you the most influential people in the industry discussing the trends and issues of the day—in their own words.

As an economic research and policy expert, Fiona Greig has held roles such as consultant, university lecturer and deputy budget director for the city of Philadelphia. By the time the pandemic hit, she was leading JPMorgan Chase & Co.’s consumer research division, part of the JPMorgan Chase Institute, where she had access to the bank’s vast pools of data, including household finances, credit card use and home mortgages. Although the unprecedented times of the pandemic had the team working long hours to track trends, she enjoyed her time “being on the cutting edge of using proprietary client data in an anonymized way to do research that was having a real impact.”

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In the fall of 2022, Greig moved on from JPMorgan Chase to join asset management behemoth The Vanguard Group Inc. Now she is global head of investor research and policy for Vanguard’s Investment Strategy Group. In this role, Greig says she has a “window” into the massive world of 401(k) retirement investing. She is now bringing her expertise in household finance and the use of financial data to bring insights to policymakers, business leaders and Vanguard’s internal teams that create investment products and strategies.

We spoke with Greig recently about her new role and areas of interest in 2023.

PLANADVISER: You joined Vanguard in the fall of 2022. Can you talk about the new position and what you are working on?

GREIG: I had been with the JPMorgan Chase Research Institute for almost eight years, and I was thinking to myself, What can be next? It was around the moment that I was wrestling with this question when Vanguard called. I knew they had this incredible combination of big data, where I could leverage my academic background in the context of a private sector organization, but with a public goal. … From the start, I knew this was a company that advocates for all investors, and there was this clear alignment for me, personally, in terms of the mission.

What appealed to me specifically was Vanguard’s think tank. Of course, this means publishing research externally, but also working on Vanguard’s house view on any number of topics. For instance, the latest thinking internally for our businesses in terms of how to construct portfolios, the next best nudge for our investors, as well as how to advise them. … It was an opportunity not just to continue to use data for good externally, but also actually inform internal strategy.

PLANADVISER: Vanguard’s research and insights are widely cited and used by retirement plan advisers and others in the industry. What is the data that you want to delve into?

GREIG: The 401(k) is the largest asset after the home for most Americans. It’s an incredible source of wealth for families, and, coming into Vanguard, I get to peek into what the flows are in that data. It’s a window into how families are feeling financially. … We also have some really interesting surveys in terms of what people think is going to happen to the stock market or GDP over the next year or 10 years—both a short- and long-term horizon—and how those investor expectations connect to their behavior. 

Families are not usually trading [within 401(k) plans] even in these volatile markets, because the vast majority leave their assets in plan. But we can look at loans and hardship withdrawals, which, though small, are more about the trends you can draw from them. We’ve been watching those figures come up a bit in 2022 and 2023. Would I say that we are seeing financial distress writ large? No, absolutely not. So many of these indicators fell to a very low base [during the pandemic], and cash buffers were at a high-water level. So we enter this inflationary period with full coffers, good fundamentals and a very strong labor market.

PLANADVISER: What are some of the key themes you and the team are looking into?

GREIG: One of the net new themes my team is taking on this year is this idea of inclusive wealth-building. Vanguard has an amazing view into low-cost investment products and now also advice. Half of Americans don’t have a 401(k) plan. Of course, that is not the only door that people can invest through in the capital markets. We are looking at what are some of the other doors that we can allow for this engine of wealth over a long time to be accessible to more families and more workers.

Those are some of the themes that I am really interested in: assessing the long-term retirement readiness at a national level, regardless of whether someone is in in a plan or not. What are the financial needs of the bottom half of the income distribution? What are those needs for short-term versus long-term liquidity? What are the problems? What are the leaks in our system when people are falling out of a plan, or changing jobs, and how do we patch each of those leaks?

PLANADVISER: Vanguard is a leader in low-cost, long-term retirement saving vehicles that can build wealth over a person’s working life. But how important is not just the build-up, but also the spend-down, or decumulation, phase of using those assets for you?

GREIG: I do see it as crucial. The notion that you get to your target date, and you have saved pretty well, but then what? One of the first things we’re interested in is literally just describing the current state of how people are acting. What are people doing in retirement, whether in a DC plan or DB plan or not? How are they cobbling together different income sources? How are they transitioning from one glide path to another? By looking at the client data today, then one can really think through opportunities.

Whether that opportunity is something in portfolio construction—such as an annuity construction within the portfolio—or other solutions, those can all be on the table. At this point we are mostly at the starting line. We need to know what individuals are doing today to get to a well-designed decumulation plan. Our investment strategy group and our goals-based investing team are thinking about portfolio construction solutions. They’re creating an income stream in the decumulation phase and actively modelling it from a portfolio construction standpoint. It’s our job, on the research side, to see how clients are behaving and then help figure out what they need to live well in retirement.

Thanks for reading The PLANADVISER Interview. Who in the industry would you like to hear from? Let us know at Editors@ISSgovernance.com.

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