It's called the standalone lifetime benefit (SALB) and it aims to bring together the best of the asset management world with the best of the variable annuities universe. It is, retirement finance experts say, just the kind of product that people who have seen their nest eggs blown to smithereens need, and that's why experts believe that the SALB – a hybrid product through which investors in mutual funds can avail of the lifetime benefit guarantee offered by an annuity – will become more popular going forward.
"Everyone wants to look for solutions as there is an overriding need for guarantees for retirement income," says Tamiko Toland, chief researcher at mutual fund research and consulting company Strategic Insight (which has recently published an in-depth study on SALBs), and editor of its publication Annuity Insights. "Over the past several years, we have been hearing asset managers saying they want to get involved in the guarantee business, but not knowing how to do it. This product allows for a different set of asset managers to get involved and it also provides an opportunity for mid-level variable annuity players that are making living benefits and are currently seeing a compression in their market."
In essence, SALBS extend lifetime income guarantees, the most attractive feature of an annuity, to assets outside of annuities. "The availability of additional options means that more investors will have access to predictable and sustainable income in retirement," Toland says.
Currently, only four insurance companies are offering SALBs, and it's not likely that that number will increase for a while, since the market collapse has spooked people into staying away from new products (no matter how good these may be), and insurance companies continue to receive a lot of negative press. However, the momentum toward creating innovative, hybrid products is certainly there, says Ed Friderici, managing director of alternative retirement solutions for Hartford, Connecticut-based Phoenix Wealth Management, which pioneered the SALB product with its Guaranteed Income Edge for managed portfolios.
"If we go back three years ago, we were already looking to create something new and innovative, and apply insurance benefits to the fee-based world," Friderici says.
Indeed, the last major market downturn in the wake of the dotcom bust proved that investors really needed to diversify more, and this resulted in the proliferation of target date and lifecycle funds. Now, it's also clear that investors need to have some kind of guaranteed income stream to guard against severe market downturns, Friderici says.
