An Alternative to Annuities in a Fiduciary World

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REAL SPEND: An Alternative to Annuities in a Fiduciary-Focused World

The Department of Labor’s fiduciary rule has given pause to some financial advisors considering the use of variable annuities with their clients. Will the costs and commissions traditionally associated with VAs put advisors who use them at risk of being seen as not serving their clients’ best interests?

Advisors who worry about the possible liabilities of using VAs might consider seeking out alternative retirement income options that they feel fit better in the new fiduciary landscape.

One such alternative is Real Spend, Horizon’s retirement income and growth solution. Similar to VA sub-accounts, Real Spend offers a series of investment portfolios with different asset allocations. These portfolios are designed to target specific retirement spending rates, with asset allocation targets that range from moderate/balanced (55% equities/45% fixed income) to more growth-oriented (79% equities/21% fixed income). Unlike most variable annuities, however, these Real Spend portfolios come with a management fee comparable to a traditional separately managed account.

In addition, Real Spend portfolios have greater freedom to pursue the long-term growth of clients’ capital than do many annuity sub-accounts. (Because of annuities’ guarantee features, the sub-accounts tend to be invested conservatively in order to protect the insurance companies who sponsor annuities.)

Therefore, Real Spend can give advisors more flexibility in helping retired clients balance their twin needs of current income and long-term growth for combating longevity risk—the possibility of running out of money while still in retirement.

Real Spend does this in part by actively seeking investment opportunities designed to add value over a more traditional 60% stock/40% bond “balanced” portfolio. For example, Real Spend currently pursues above-average yields by investing a portion of portfolios in ETFs focused on municipal bonds, preferred stocks, and stocks paying relatively high dividends. Real Spend also seeks to deliver below-average volatility through strategies such as emphasizing short-duration fixed-income securities.

While Real Spend is not a guaranteed insurance product, both Real Spend and annuities nonetheless have the same goal: providing investors with the amount of retirement income they need and want. Unlike annuities, however, Real Spend does so while placing a greater emphasis on growing clients’ wealth for the future, with transparent expenses. For clients seeking a moderate or growth-oriented portfolio with an income focus, Real Spend may be a worthy alternative to annuities in the brave new fiduciary-focused world.

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