RetireOne, a Fee-Based Annuity Distributor, Is Adding Structured Notes

RetireOne will be offering registered investment advisors and fee-based advisors a new way to cope with low, low interest rates: access to structured notes from Halo Investing Inc.

The companies announced the new structured notes and annuity distribution relationship Wednesday.

The companies also announced that RetirementOne will provide back-office services for an annuity marketplace that Halo is building.

RetireOne is a San Francisco-based retirement products distributor that was set up in 2011. It has focused on offering fee-based annuities and fee-based life insurance products.

Halo is a Chicago-based company that has been trying to introduce U.S. investors to the world’s $3 trillion structured notes market.

(Related: RetireOne Acquires Edelman Financial’s Broker-Dealer Unit)

A structured note is a little like the investment component of an indexed annuity, sold without the annuity wrapper.

When a life insurer creates an indexed annuity, it may use its own investments in notes, bonds, and other debt securities to support annuity principal and income guarantees. It may then let the purchaser choose from a menu of investment options, such as the performance of the S&P 500 stock index, to get a chance to earn extra income.

Behind the scenes, the life insurer often uses derivatives contracts to power the annuity contract investment option menu.

Similarly, the issuer of a structured note packages an investment in a note or bond along with an investment in a derivative,

The note or bond is supposed to help protect the purchaser’s principal. The derivative is supposed to help the purchaser earn extra income, based on the performance of the Russell 2000 stock index, the price of copper, or any other indicator that the structured note issuer builds into the note.

The United States has only a $60 billion structured note market.

The U.S. Securities and Exchange Commission has eyed structured notes warily. In 2011, for example, the SEC warned that the arrangements are complicated and that, for example, the bond or note issuers might pay off the bonds or notes early.

Halo and other structured note advocates say a well-designed structured note from a solid issuer can help give the purchaser an instrument that lies somewhere between a stock and a bond in terms of risk and reward.

“Low interest rates are pressuring RIAs to look beyond traditional fixed income for risk-off solution,” RetireOne and Halo say in the relationship announcement. “Given recent market swings, low-cost structured notes have earned a place in client portfolio allocations.”

— Read The ABCs of Structured Annuities, on ThinkAdvisor.

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