Future Winners And Losers In Retirement Portfolios

In the next two years, advisors are expected to tilt client retirement income portfolios toward exchange-traded mutual funds, fixed annuities, long-term care policies, and other investments, a new report concluded.

Variable life contracts, separate accounts, alternative investments and bonds are other options, a Cerulli Associates' report found.

On the flip side, advisors are also expected to shift portfolios away from money market funds, deposit accounts, cash, variable annuities, mutual funds and individual stocks, the report said.

Changes in the product mix are due in part to new Department of Labor regulations that will favor some product categories over others, according to the December issue of The Cerulli Edge.

The DOL regulation, which begins taking effect April 10, raises investment advice standards into retirement accounts.

Variable annuities, which generate higher commissions to agents than other insurance products, are expected to be one of the hardest-hit products under the DOL fiduciary rule.

But many of those dollars that would have gone to buy variable annuities likely will be redirected into buying fixed annuities, bonds and other insurance products, the report said.

Higher interest rates, which make fixed-rate products like traditional annuities more attractive, are also likely to factor in financial advisors' product selection.

Product Categories on the Increase

Cerulli, in conjunction with the Investment Management Consultants Association and the Financial Planning Association, surveyed advisors and forecast that in 2018:

• ETFs will make up a 14.4 percent slice of the retirement income portfolio, an increase of 24.5 percent over 2016.
• Fixed annuities, variable life, long-term care and other insurance products will make up 4.5 percent of the retirement income portfolio slice, up 12.4 percent.
• Separate accounts will comprise 9.1 percent, up 10.2 percent.
• Alternative investments will make up 3.2 percent, an increase of 7 percent.
• Individual bonds will settle at 9.4 percent, an increase of 1.8 percent.
• Other types of investments that are expected to make up only a 0.7 percent sliver of the retirement income portfolio in 2018 will have grown by 3.9 percent, the survey found.

Product Categories on the Decrease

By 2018, the survey forecast, some investment products will decrease their respective slices of the retirement income portfolio compared with where they were in 2016. The declining options include:

• Money market funds, deposit accounts and cash will make up only 4.5 percent of the investment portfolio, a decrease of 12.8 percent.
• Variable annuities will make up 7.6 percent of the portfolio, down 9.1 percent from 2016.
• Mutual funds, including liquid alternatives, will make up 31.5 percent of the investment portfolio, down 8.1 percent.
• Individual stocks will make up 15.1 percent of the retirement income portfolio, a drop of 2.4 percent.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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