New York Life Investments is about to begin selling a line of ETF-based investments that could compete with annuities — though they are not insurance products.
The company this week disclosed that it reached a deal to become the sole U.S. retail distributor of unit investment trusts provided by Connecticut-based MPlus Funds. The products, which the companies describe as “defined-outcome strategies,” seek to limit losses through put and call options. The investments have relatively short terms, about two years or less.
“It has a beginning and an end,” said the firm’s U.S. head of distribution Jac McLean. “You buy in knowing exactly how long you’re in it, and you know what the outcome is going to be.”
The investments will have limited upside — if the S&P 500 is up by 30%, for example, investors might only see a 20% return, he said. But that is the tradeoff for downside protection, he noted.
By placing limits on returns and losses, the products function similarly to indexed and structured annuities, though they are fully liquid, according to New York Life. However, one product prospectus clearly notes that “[t]here is no guarantee that the fund will be successful in providing [its] investment outcomes for any defined outcome period.” And unlike insurance products, the MPlus funds do not annuitize payments for retirees.
For advisers, a benefit is that the 1940-Act product does not have an insurance component, and therefore does not require an insurance license to sell, McLean said.
“The beauty of the unit investment trusts is you can buy it in a brokerage account, and you can buy it in an advisory account,” he said.
And while a related concept, structured notes, are not new, they have generally been considered complicated products with relatively high fees, and have only been available to high-net-worth clients, he said.
“What we’ve tried to do is democratize that and bring it to the rest of us,” he said.
The MPlus ETF strategies are designed as preservation, buffered or growth varieties. The growth strategy provides “enhanced upside, with no downside protection,” the announcement stated.
The MPlus products, which have previously been distributed to RIAs and family offices, represent about $250 million in assets, McLean said.
The design could work as a collective investment trust in a retirement plan, though the firm has not planned to develop a strategy in that format, he said.
Given this year’s market volatility, the target audience for the product “is really everyone,” he said. “In this environment we’re in, certainty prevails.”
“The ultimate client is someone who says, ‘I need equity exposure, but I’m scared of the volatility it presents,’” he said.
Fees for the products will vary, though one of the new unit investment trusts will average 90 to 95 basis points over a roughly two-year term, he said.
An earlier version of this story incorrectly referenced the type of product the firm is distributing. New York Life Investments is selling unit investment trusts, not structured notes.