As the investment world grows for retail investors, new tools are necessary to help clients understand what they own to meet their goals. Showing people how structured notes and annuities offer protection works better than numbers on a spreadsheet. In the past, cookie-cutter risk assessment tools simply looked at the historical data of stocks and bonds to determine various possible future outcomes. That computer-based Monte Carlo simulation was then paired with client risk questionnaires to establish the right mix of assets.

Customized Investments Demand Customized Risk Assessments

That was all well and good then, but now investors desire different investment solutions to weather today’s financial storms. Current stock market volatility and bond market declines is a wealth-destroying tandem most people have never experienced. And let’s not forget that inflation is running at a 41-year high, eating away at everyone’s purchasing power. According to a recent survey on behalf of CAIS published in RIA Intel, today’s wealth managers and retail investors want the same alternative investment products and portfolio protection that are available to the ultra-wealthy.

Sophisticated Risk Management Tools

And those solutions are coming. Halo is at the forefront of bringing inexpensive structured notes, annuities, and defined-outcome ETFs to the average investor through RIAs. As more people hold these investments, though, better risk assessment programs will be needed. Halo is developing technology to help RIAs include annuities and notes in portfolio simulations and scenario analyses.

A Better Tech Stack

At Halo, we understand that advisors demand alternative investments, but we also recognize the need for RIAs to have the right tools to map out client portfolios. New risk management tools will bolster our advisors’ tech stacks. Let’s walk through an example of how state-of-the-art risk software can be used with one specific annuity type.

Managing Portfolio Risk At The Most Important Time

Recently, Halo began offering fee-based Multi-Year Guaranteed Annuities (MYGAs) through our Outsourced Insurance Desk (OID). This type of deferred annuity offers impressive guaranteed rates through both a three-year and five-year period. Virtually any investor can access this product – the investment minimum is $10,000 and MYGAs are issued to people ages 0 to 90. MYGAs are used to help mitigate the sequence of returns risk for pre-retirees and those just starting their retirement.

Reducing Clients’ Financial Anxiety Using The Best Tools

Emerging tools to better gauge a client’s ability, willingness, and need to accept risk help everyday investors have confidence in their financial plan. New portfolio risk technologies can also include and exclude annuities and structured notes to assess what portfolios might do with and without those product types. The power of showing clients what risk reduction looks like in chart form, along with the right story, can help risk-aware individuals and couples sleep at night. Financial peace of mind is always important as the stress of simply keeping up with the cost of living is top of mind.

MYGAS For Risk Management

What’s great about a MYGA is that risk can be reduced at just the right time – when people hit their retirement date. Research suggests that portfolio losses are most devastating when they take place in the initial retirement years. It’s just harder to recoup big drawdowns when there is little to no income during that time. 

Unfortunately, that’s the reality for so many people right now. The last year featured a wave of retirements as investment accounts swelled and real estate values surged. In 2022, however, stock and bond market losses have been so severe that the traditional 60/40 portfolio is on pace to post its worst-ever annual performance, according to Compound Advisors. A MYGA’s guaranteed yield, above 4%, provides the income those nearing and in retirement need to weather turbulent stock and bond markets.

Demand Keeps Climbing

More broadly, structured notes and annuities also help reduce longevity risk. With interest rates still well below the inflation rate, it’s no secret that bond income just does not go very far. As a result, annuities are increasingly being used to reduce the risk of running through portfolio principal. 

Consider that 2021 was a huge year for growth in annuities – total annuity sales were $254.6 billion last year, up 16% from 2020. That marked the best year since 2008 for the industry. Research firm LIMRA finds that 2022 is shaping up to be another period of massive demand as the first quarter featured more than $63 billion in U.S. annuity sales, a 4% advance from the same period a year earlier.

Conclusion

Looking ahead, advisors who have the right tech solutions and investment management tools to not just analyze risk, – but also to show (and tell) their clients how protective investments manage long-term risk – will be well positioned to grow their businesses. 

Please see our Halo Disclaimer for other important disclosures.