Lets Talk About The Never Ending Retirement Plan
Between 1992 and 1994 alone, insurers’ share of 401(k) plans slipped from 34% to 30%, while mutual funds’ share leaped from 26% to 37%. Tax-deferred annuities sold by insurance companies fell in share of Americans’ total retirement assets to 16.61% in 1996 from its peak in 1990 of 22.56%. In individual retirement accounts, while banks’ market share fell dramatically from 61% in 1985 to 18.4% in 1996, insurance companies saw mutual funds and brokerage houses gain the fattest slices of the banks’ loss.
First of all, retirement planning is a huge and growing market. Contrary to reports that have appeared in the past, baby boomers are saving more rapidly than their parents. And, face it, they have to: The decline of defined benefit plans, which Americans once counted on so heavily for their golden years, demands that they look to other financial instruments to protect their futures. That opens up new sales opportunities for group and individual retirement plans sold by financial companies, including insurers. And annuities, which are insurers’ biggest retirement-oriented product, are growing in importance as a share of Americans’ wealth. Moreover, annuities have remained stable as a percentage of retirement assets.
The annuity market represent insurers’ best hopes to retain a significant share of the retirement market. In 1993, annuities represented almost 20% of the market, following IRAs’ 23.4%. Insurance companies’ share of this huge financial stash stood at almost 76% in 1993, equal to more than $1 trillion, of which about $734 billion was earmarked for retirement.
Life insurance carriers, then, are likely to retain significant sales and profit growth in the retirement market. Still, the industry needs to find new ways to grow. Its recent binge of mergers and acquisitions has improved cost efficiency and diminished competition among carriers, but is scarcely enough to offset inroads by brokers and mutual funds. Even banks have declared their intentions to market competitive new instruments in the annuities market.
When a 1966 article in Fortune magazine highlighted an obscure investment that outperformed every mutual fund on the market by double-digit figures over the past year and by high double-digits over the last five years, the hedge fund industry was born. By 1968, there were some 140 hedge funds in operation.
In an effort to maximize returns, many funds turned away from Jones’ strategy, which focused on stock picking coupled with hedging, and chose instead to engage in riskier strategies based on long-term leverage. These tactics led to heavy losses in 1969-70, followed by a number of hedge fund closures during the bear market of 1973-74.
With media attention still focused on the recent failure of some hedge funds, there has been an increasing move towards their regulation. In 2004, the Securities and Exchange Commission adopted changes that require hedge fund managers and sponsors to register as investment advisors under the Investment Advisor’s Act of 1940. This greatly increased the number of requirements placed on hedge funds, including keeping up-to-date performance records, hiring a compliance officer and creating a code of ethics. This was seen as an important move in protecting investors
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