Advisors Waiting to See How Bolt-On Annuity Income Spigots Work

David Anderson, the CEO of Merit Life Insurance, has a tough job: Persuading advisors and their clients that letting retirement savers attach an annuity spigot to just about any sensible, diversified asset portfolio will work.

Merit Life is a Shelton, Connecticut-based company with backing from the investment firm 777 Partners; just 14 employees in its corporate offices in Charlotte, North Carolina; and an opportunity to help create the small — but closely watched — market for "contingent deferred annuities."

A CDC contract is a product that can attach the benefits guarantees, income-generation tools and other features of any ordinary annuity to just about any eligible investment portfolio.

Anderson has been in his post since October. Before that, he was the chief operating officer at National Guardian Life. He also has been a senior vice president at Thrivent, the CEO of TIAA-CREF Life Insurance and a faculty member at Queens University, in Charlotte, North Carolina.

Here are seven things Anderson said about Merit Life and the CDA market in a recent interview.

1. Merit Life wants to offer a variety of products, not just contingent deferred annuities.

"We're here to build a business," Anderson said. "We don't want to be a one-trick pony."

New products the company develops could be different types of CDA contracts, but they could also be other types of income planning products, he said.

2. The company's Banyan CDA contract has been available for sale since June 2021.

Anderson described the sales as being "modest," but he added that, in some ways, low early Banyan sales are helpful.

"It allows us to make sure the processes and systems we have in place are working," he said.

Modern CDA contracts have been on the market in the United States for more than a decade, but Anderson said that he believes industrywide CDA sales are also still relatively low.

3. The Banyan CDA has regulatory approvals in 33 states, the Virgin Islands and the District of Columbia.

Some regulators want Merit Life to address specific concerns, and others want to see how the product performs elsewhere before letting the company issue it in their states, Anderson said.

4. Advisors and their clients are also cautious.

For now, Merit Life is aiming mainly at fee-based financial advisors, not traditional insurance agents.

Anderson believes interest in the CDA concept is strong. "No one says this is a bad idea," he said.

He sees advisors' and clients' wariness of being early adopters of a new concept as a bigger obstacle than lack of interest, pricing issues or other concerns.

5. No one has tried to attach the Banyan CDA to a portfolio that includes fine art, baseball cards or cryptocurrency.

Merit Life states in the product prospectus that an eligible portfolio must meet the company's investment portfolio standards.

In typical cases, for example, the maximum equity allocation in an eligible portfolio is 60%.

But the company does raise the possibility that up to 10% of an eligible portfolio could consist of alternative investments.

In the prospectus, the company lists the kinds of alternative investments it's thinking of are mines, mills and other assets associated with commodities-based industries.

At this point, no advisors have actually tried to use the Banyan CDA with especially unusual types of alternative investments, Anderson said.

6. The hedging arrangements and other machinery surrounding the Banyan CDA are about the same as the arrangements surrounding ordinary variable annuities would be.

One difference is that Merit Life has to monitor the performance of assets held in advisors' accounts, rather than managing and monitoring its own investments.

But, for the advisors, the monitoring programs are similar to other types of monitoring programs they have to deal with, Anderson said.

7. The portfolios inside the CDAs are still new, and small.

One open question is whether the client-supplied portfolios will perform any differently than the typical investment portfolios in the general accounts and separate accounts associated with annuities.

For now, Merit Life is too new to have that kind of comparative performance data.

"It's something we'll be looking for as we grow," he said.

David Anderson. (Photo: Merit Life)

Advisors Waiting to See How Bolt-On Annuity Income Spigots Work

1. Merit Life wants to offer a variety of products, not just contingent deferred annuities.

2. The company's Banyan CDA contract has been available for sale since June 2021.

3. The Banyan CDA has regulatory approvals in 33 states, the Virgin Islands and the District of Columbia.

4. Advisors and their clients are also cautious.

5. No one has tried to attach the Banyan CDA to a portfolio that includes fine art, baseball cards or cryptocurrency.

6. The hedging arrangements and other machinery surrounding the Banyan CDA are about the same as the arrangements surrounding ordinary variable annuities would be.

7. The portfolios inside the CDAs are still new, and small.

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Advisors Waiting to See How Bolt-On Annuity Income Spigots Work

1. Merit Life wants to offer a variety of products, not just contingent deferred annuities.

2. The company's Banyan CDA contract has been available for sale since June 2021.

3. The Banyan CDA has regulatory approvals in 33 states, the Virgin Islands and the District of Columbia.

4. Advisors and their clients are also cautious.

5. No one has tried to attach the Banyan CDA to a portfolio that includes fine art, baseball cards or cryptocurrency.

6. The hedging arrangements and other machinery surrounding the Banyan CDA are about the same as the arrangements surrounding ordinary variable annuities would be.

7. The portfolios inside the CDAs are still new, and small.

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