Retirement industry veterans Michelle Richter-Gordon and Mark Chamberlain today officially launched their new company, Annuity Research & Consulting (ARC), as a fee-only consultant to 401(k) retirement plans and their recordkeepers.
The startup’s objective is to transform the defined contribution 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 thesis of this entity is that there are #plansponsors and advisors who would want to safely introduce #annuities via plans, but who may not themselves feel sufficiently expert to make an annuity recommendation in an #ERISA context,” Richter-Gordon said in a May 8 LinkedIn post.
The two operating partners’ combined 60 years of experience is from both the insurance and asset management industries, which is a critical requirement for analyzing what are often complex arrangements. Chamberlain noted they not only read the contracts but interpret them for fiduciaries so they can understand key differences.
“As a fee-only Registered Investment Advisor and/or consultant to 401(k) retirement plans and their recordkeepers, we intend to support the advisors who serve them,” Chamberlain told 401(k) Specialist. “ARC’s goal is to offer an institutional-quality resource to those who feel they need unbiased search capabilities, a rigorous selection process, proper benchmarking for costs versus benefits, and/or prudent monitoring of guaranteed lifetime income solutions.”
With ERISA 3(38) and 3(21) fiduciary capabilities, Chamberlain said ARC will also provide non-fiduciary consulting and education for both sponsors and participants to help them think about ways to integrate annuities with traditional 401(k) investment policy to manage longevity risk.
“Our institutional philosophy and unconflicted business model will bring a new value proposition to a crowded marketplace that is unique in its philosophy and level of detail,” Chamberlain said.
A press release announcing the company’s launch said its disciplined due diligence process follows industry best practices for analyzing risk and return utilizing a deeply qualitative, 10-factor process that is engineered to meet or exceed the current Safe Harbor guidelines in ERISA Section 404(e).
“The Firm is able to make unconflicted and impartial annuity recommendations that are in the best interest of the Plan client since it does not accept commissions or other product-based compensation,” says a Wagner Law Group opinion letter available through the ARC website.
Counterparty risk
One of ARC’s key evaluations is counterparty risk. “It’s something plan sponsors and participants both say is critically important to them,” Richter-Gordon said. “The history of insurers taking risks that were not well understood at the time is sometimes forgotten. Two of the biggest insurance company failures had ‘A’ ratings and top-selling annuity products when they faltered. They took risks other companies did not and ended up in trouble when their models broke. The fallout was painful. Past receiverships were not pleasant experiences and consumers should be spared this stress if possible.”
Richter-Gordon said ARC’s 3(38) fiduciary process focuses on screening for the most transparent balance sheets and the least amount of leverage. “We see this as a prudent institutional approach and a mandate for us as fiduciaries. Members of Congress and the DOL are currently looking at the reinsurance practices of insurance companies so we don’t see how experts can ignore it.”
‘There is no perfect annuity—only tradeoffs’
ARC’s process holds there are no perfect retirement income strategies—only tradeoffs. Understanding them is especially challenging for the universe of annuities.
“We begin from the premise that it’s in the consumer’s best interest for all available tools to be in their advisor’s’ toolbox—from systematic withdrawal to guaranteed for life,” Chamberlain said. “Every retirement income solution can be viewed through Modern Portfolio Theory as a nearly unique mix of capital markets exposures.”
For example, he notes there are different levels of counterparty risk, liquidity, inflation protection, deflation protection, and a number of other factors ARC considers. “This is true not only between annuity categories but also between annuities within each category. While annuities can do things that systematic withdrawal from risk assets cannot, there are tradeoffs between bequests and lifetime security that must be considered,” he said. “We feel it’s prudent to evaluate the opportunity set from a true open architecture perspective, without biases.”
He said ARC’s process applies principles from economic finance that follow the law of one price since CAPM and MPT are based on it. This aligns ARC with a key statement in the UPIA, which states, “The tradeoff between risk and return is identified as the fiduciary’s central consideration.”
How ARC came to be
Co-Founders Richter-Gordon, who serves as Executive Director of The Institutional Retirement Income Council, and Chamberlain first connected in January of 2020 after following each other’s posts on LinkedIn. “We shared a common passion for progressing prudent retirement planning practices for Middle Class Americans,” Chamberlain said.
The two collaborated on a pro bono consumer advocacy project, published as a free e-book online called “LDI For Individual Retirement Planning; Corporate DB Practices Applied to 401(k) and IRAs.”
In 2022, Chamberlain said they were both teaching at The Center for Board Certified Fiduciaries, and “came to realize there will be many RIAs who are likely to never want to become annuity experts, so we decided lead by example and started this company to help them.”
ARC also offers innovative ideas for retirement education. According to Chamberlain, “evolution in retail retirement planning has been hampered by fragile risk tolerance questionnaires. This has worked out well for the industry but not so well for many retirees. It’s time for DC to graduate to the current asset/liability matching model followed by corporate DB plans… we can help.”
SEE ALSO:
• Professional Advice Must Drive Participant Retirement Income Decisions
• Despite Big Concerns, Plan Sponsors Know They Need Lifetime Income Options