RIA perspectives April 2017 issue:

Bringing ETFs and
lifetime income together

With the recently announced launch of Lincoln Core IncomeSM, built with iShares®, the respective heads of BlackRock and Lincoln Financial Group’s RIA teams, Hollie Fagan and Tad Fifer, sat down to discuss what they’re hearing from clients about generating income in today’s markets and to offer insight on some of the innovative ideas
both firms are working on.


Hollie: Income and the risk clients are taking to produce it remains a major challenge facing advisors. Tad, what discussions is Lincoln having with advisors about producing retirement income?

Tad: I agree risk is a big issue right now. Managing longevity risk and generating a sustainable lifetime income for clients has been extremely challenging for advisors, especially in a suppressed interest rate environment. At Lincoln we talk about the role that guaranteed income can play in helping to not only provide the client with a stream of income they cannot outlive, but also the flexibility it gives them when managing their other assets. Creating a guaranteed income stream allows the client to adjust their investment risk to their comfort level. And while guaranteed lifetime income solutions have been around for some time, they really haven’t been designed with the fee-based advisor in mind. Lincoln is committed to building income solutions that are engineered specifically for the fee-based advisor.

Tad: Hollie, what is BlackRock hearing from RIAs about their approaches to solving for income?

Hollie: RIAs are definitely expressing some challenges to us. It’s apparent that there is a need to step beyond traditional sources of income, but many advisors don’t recognize the unintended risks they’re taking on when reaching for yield. According to Cerulli, 68% of advisors report using fixed income securities to generate retirement income for their clients, but a larger percentage (89%) are using dividend-paying stocks to generate higher yield.1 This is making many portfolios riskier than their benchmarks. Advisors will need support from custodians, as well as from asset managers, to tackle this complex retirement income environment because, ultimately, demand for income solutions only continues to grow.

Hollie: Tad, how do you see the income environment evolving over the next few years and what innovative ideas does Lincoln Financial Group have to support advisors through this time of change? Can you explain a little bit more how RIAs can benefit?

Tad: Lincoln Financial Group is at the forefront, addressing advisors’ concerns around cost and the quality of underlying investment options within insurance products. Advisors have clearly identified pricing and investment selection as the most important considerations when selecting an annuity.1 Our goal is to bring planning-based RIAs and planning tools like annuities closer together. We think we can do this by using cost-effective, transparent ETFs within an innovative wrapper that is priced for the fee-based advisor. This allows investors who like the benefits of ETFs to access them through a variable annuity that offers a lifetime income guarantee.

Tad: Are RIAs asking questions about expected changes to product structure given the shifts in the regulatory environment?

Hollie: Certainly, we’ve heard that larger RIAs will expect to have access to a wider range of products as manufacturers and competition adjust to price pressures and regulation. BlackRock strives to make it easier for advisors to have meaningful income conversations around the one essential retirement problem we are all trying to solve: that is, how do you build an asset base that can sustain retirement income for life? This may involve thinking about a broader set of investment options. One way we’re helping is through iRetire®, which addresses this problem for advisors and their clients both before and in retirement. Whether through iRetire or the underlying investments of Lincoln Core IncomeSM, our cost-effective iShares ETFs, our robust risk platform and portfolio construction capabilities help advisors build portfolios geared toward driving income. While many RIAs have shied away from insurance contracts in the past due to high fees and commission structures, they are excited by the prospect of new product innovations helping them over this hurdle.

Hollie: One of the reasons why BlackRock has co-developed with Lincoln Financial Group in the retirement income space is because of the power of Lincoln’s risk platform, as well as your firm’s expertise in institutional trading and hedging capabilities. How can RIAs benefit from that?

Tad: I think RIAs can benefit from our deep knowledge in building income-generating tools and understanding how they can help their clients achieve better outcomes. Lincoln has a long history of effectively managing risk throughout market cycles and market crises. This ultimately comes down to the advisors time, resources and expertise. Instead of advisors investing their time and capital into trying to manage portfolio risk, we’re confident that if they transfer some of that onus to Lincoln it will allow them to focus their efforts on gathering new assets and spending time with clients.

Hollie: Tad, Lincoln has been providing solutions for RIAs for several years now. What are some of the things you have been hearing from your biggest RIA clients?

Tad: The first thing we hear when we talk about the genesis of Lincoln Core IncomeSM is how enthusiastic advisors are that companies like Lincoln Financial Group and BlackRock are committed to designing cost-effective guaranteed-income solutions that fit the way they run their business. Lincoln understands the RIA business model and we’ve spent the past several years simplifying our process and enhancing our technology to make doing business with us easier. RIAs recognize we’ve been a leader in the insurance industry for over a century, investing considerable resources to support advisory businesses.

Continue the conversation…

As the advisory business continues to grow, we believe so too will the use of ETFs. This creates a new opportunity for the insurance provider able to deliver a cost-effective fee-based solution. To learn more about Lincoln Core IncomeSM, built with iShares, please contact the Lincoln Financial Group RIA team at 855-831-7067 or lincolnria.com.

Hollie Fagan
Head of BlackRock's RIA, Sub-advised and Direct Businesses
Head of RIA Sales, Lincoln Financial Group