New Firm Seeks to Advise Plan Sponsors on How to Incorporate Annuities

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. 

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.” 

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. 

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.…”