Another way to look at it, says Rosenberg, is that this kind of diversification will reduce the holdings’ standard deviation. “When you have a portfolio that is taking withdrawals, it’s all about having a lower standard deviation,” he stresses. If two portfolios have the same return rate, whichever has the lower standard deviation will ultimately produce greater growth, he says. “One might say that a client is not taking a withdrawal; but remember, with fees somewhere between 3% and 4%, that by itself is a distribution,” says Rosenberg.
Needless to say, all investments should be carefully researched before they are recommended to clients. This may be especially true when international asset managers are involved. “If a fund has been approved by annuity actuaries for use in a product, then advisors should do their research on said manager,” says Snowden Lane’s Leyva. “In many instances, these managers are popular with international investors while remaining relatively unknown in the domestic marketplace.”
Indeed, finding such managers through a VA can be an advantage. “In many cases, direct access to these international managers is easier through the annuity product versus getting the fund approved by the firm’s due diligence team,” says Leyva.