American Express Financial Group (AEFG) has opened a master suite of new variable annuity products, and is bringing a tool that marries ease-of-use Internet navigation with investment risk assessment. It hopes the combination scores big with the scores of brokers that hawk Amex's investment products and other financial services to consumers.
AEFG is making available an on-line asset allocation program developed by a unit of Morningstar. The program will be used in conjunction with new variable annuity products that AEFG initially launched in May-American Express Innovations Select, American Express FlexChoice Select, American Express Signature Select, American Express Signature One Select and a number of private label products. All of these variable annuities are available through American Enterprise Life Insurance Company. AEFG is the service arm of American Enterprise Life (AEL).
The asset allocation program, called Portfolio Navigator, was developed by Morningstar Associates specifically for AEL's annuities; the idea was to provide its clients with professional asset allocation expertise from an unbiased third-party source while simplifying the investment process through easy Internet navigation. "We made a decision to put more tools in brokers' hands in the way they want to receive them," says Lynn Abbott, vp of national sales for American Express Financial Group.
Long an important component of wealth management, linking risk tolerance to an overall investment strategy has taken on greater importance over the past few years, with the stock market declines and corporate scandals of 2000 and 2001 leaving consumers feeling more vulnerable.
These consumers are demanding more protection, as are the advisors and brokers who serve them, leading to a bevy of new products aimed at assuaging those fears, typically through attempts to at least mitigate risk. Creating a greater sense of the right investment strategy based on a specific person's age and their short- and long-terms goals also plays a role.
Amex also hopes trusted brands, both its own and Morningstar's, along with an easy-to-use interface, will allow it to build the kind of goodwill and credibility that's become a necessary part of luring consumers back into investing.
Abbott says the interface between brokers and their clients, allowing for a high-level exchange of client goals and corresponding money management strategy, has ramifications far beyond an improved relationship strategy between Amex, brokers and consumers. "It's an important sales tool, which can be used when the brokers do their annual review with their clients. That's going to be critical when doing a cross sell and giving them more share of their customer's wallets."
Using Portfolio Navigator's asset allocation program, sales reps go on-line and work with their clients to complete an investor questionnaire. A customized report is generated based on the client's responses, which is then used to structure a diversified portfolio, tailored to the client's needs and investment goals. The report incorporates graphs and pie charts so the client can understand how assets should be allocated.
Investors have the option of choosing from five asset allocation model portfolios based on risk tolerance, investment objectives and time horizon-conservative, moderately conservative, moderate, moderately aggressive and aggressive.
They can then diversify their investments in 55 subaccounts from a wide variety of fund families, such as American Express, American Century, Franklin Templeton Investments, Fidelity Investments, Van Kampen and others. Patrick Reinkemeyer, president of Morningstar's institutional investment consulting group, says factors such as performance consistency, portfolio management turnover and stock selection are part of the mix in building the models.
Geoff Balzano, senior product manager at Morningstar Associates, says the goal behind the Amex rollout is to provide a streamlined workflow or an easy way for the user to complete the questionnaire and tie it in to a model, then link that model into actual investment choices. "It provides a clean way of doing that and seeing how the models tie into risk tolerances."
Morningstar has similar projects in its institutional investing consulting group, producing asset allocation models for the likes of Prudential, MetLife Investors and Nationwide. "This (Amex) project is distinct in the ease in which the advisor can get inside, see the model and its characteristics and communicate to the investor what it's going to be," says Todd Poddporter, chief investment strategist for Morningstar Associates.
Poddporter says the product-which encourages diverse investing by electronically matching risk to a strategy-dovetails nicely with his firm's investment philosophy. "Our philosophy is driven by maximizing diversification. We want to be broadly diversified across asset classes, manager types and sectors, both internationally and domestically," he says. "We think that strategic long-term diversification is a sound way to invest for long-term investors."
Abbott says Amex's decision to make this move followed market research that began about a year ago. She says her firm looked into what brokers were looking for in their own business. The combined challenges of keeping current with client needs and keeping client investment holdings diverse added up to a strategy that's resulted in rolling out risk-related advisory services as part of the overall on-line mix. "We want to be easier to do business with, to provide quality tools to brokers and clients so they can meet long-term goals," Abbott says.
Amex hopes the rollout of these new variable annuities coupled with the Morningstar unit's participation will boost its share of variable annuity market that's been growing steadily for years, though it's apparently cooled off over the past few months.
According to Kenneth Kehrer Associates, which compiles variable annuity data from LIMRA International, variable annuity premiums through all channels has grown to $35.1 billion in the second quarter of 2004 from $28.6 billion in the second quarter of 2001. Volume grew steadily to a peak of $35.6 billion in the first quarter of 2004, before tailing off slightly. Banks' share of that market has also largely grown, increasing from 9.8 percent in the second quarter of 2001 to a peak of nearly 16 percent in the second quarter of 2003; it has fluctuated ever since, settling at a level of 13.4 percent in the second quarter of 2004.
So far, Abbott says adoption of the new program has been positive, with about 80 to 90 percent adoption among brokers. Abbott would not divulge how many total brokers Amex does business with, though reports estimate the total to be well into the five figure range. Abbott did say the product can give it a leg up on its competitors by giving brokers an extra reason to look in Amex's direction in an environment where brokers are looking to sell fewer fund families.
It's not the first time Amex or one of its business units have entered into a partnership with either Morningstar or one of the firm's units. Last year, the two agreed to allow Amex's advisors to use a customized version of the Morningstar Workstation-a fully integrated set of Web-based investment planning and advice tools. American Express has also agreed to offer Morningstar Advice on-line and call center services, powered by Morningstar ClearFuture, to its 330 retirement plans, representing more than one million individual investors.
These services have given millions of investors access to advice tools from across multiple delivery channels-on-line, over the phone or face to face with an American Express financial advisor.
American Express Financial Advisors has also integrated all four modules of the Morningstar Advisor Workstation-including research, planning, clients and portfolios, and sales-into its own proprietary platform providing a tool for its financial advisors.
Abbott says linking the Amex brand to the widely recognized Morningstar brand doesn't hurt. "We're asking ourselves how we can be one of those fund families and how can we answer their consumers," she says. "Consumers and brokers know Morningstar as a company that reviews funds and reviews them well."
