Lets Talk About The Never Ending Retirement Plan
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At first glance, the life insurance industry appears to be in trouble as it faces the millennium. As the large baby boomer market ages, these consumers have shifted their financial focus away from life insurance and towards assuring their future comfort. Although the industry has long recognized that its future lies in more in financial products than in life insurance, it has lately been losing its share of the retirement market
There has also been a decided shift in the nature of the nation's retirement assets. In 1980, total defined benefit assets in the U.S. were 2.5 times defined contribution assets (mostly, 401(k) plans). By 1993, the latest date for which figures are available, total funds of both types of plans were almost equal. From 1984 to 1993, total U.S. 401(k) assets alone grew from about $92 billion to $616 billion, increasing from 0.74% of Americans' total wealth to 2.18%. As a share of total retirement capital, 401(k)s rose from about 7% in 1984 to 16.6% in 1993, according to the U.S. Department of Labor.
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.
For the life insurance industry, the stakes are clear. While its decline in competitiveness is not as serious as widely proclaimed, its share of the retirement market has been falling by more than 1% a year in recent years. Because its income from annuities has surpassed its income from life insurance since 1985, clearly it must continue to pursue the retirement segment. Now, however, it also needs to look to ways of solidifying and perhaps expanding its share of the 401(k) and IRA niches.
The industry was relatively quiet for more than two decades, until a 1986 article in Institutional Investor touted the double-digit performance of Julian Robertson's Tiger Fund. With a high-flying hedge fund once again capturing the public's attention with its stellar performance, investors flocked to an industry that now offered thousands of funds and an ever-increasing array of exotic strategies, including currency trading and derivatives such as futures and options.
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
Article Source: Articlelogy.com
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