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Rating:Skandia's New VA Product Provides 1% Bonus Not Rated 3.0 Email Routing List Email & Route  Print Print
Tuesday, May 18, 1999

Skandia's New VA Product Provides 1% Bonus

Reported by Jason Shank

While many fund companies try to soften performance comparisons, by stressing management, style continuity, and relative performance to its peers, all of which are obviously important, one company is saying, "Wait, it isn't everything, but yes we should stand up and be counted for performance."

American Skandia is putting its money where its mouth is, offering a new variable annuity feature, called Performance Advantage, which will provides a 1% bonus on all purchases made during the first year of the contract.

"Variable annuities are not wealth transfer vehicles, they are retirement and investment vehicles," Wade Dokken, President of American Skandia marketing, told the MFWire.com. "And of the product innovations in variable annuities in the last few years, most have been gimmicks."

With the patience of investors shortening, with regard to their returns, the company needed to extend the amount of time that people leave their investments in an account. And with the average variable annuity investor at age 57, the company wanted to add a younger demographic to its investor mix. So the emphasis needed to be put squarely on the shoulders of the investment manager selection process.

While the younger investors might not know American Skandia, the names of the funds' sub-advisors should sound familiar, including Janus and Alger, which have managed Skandia funds for years, and newcomers AIM and American Century, which recently replaced Putnam.

The company's belief in the lack of conflict of interest inherent in its funds' management, as all the funds are sub-advised, and belief in its process of selecting those advisors, led to the current addition of the Performance Advantage feature.

Here's how it works:

The company is essentially guaranteeing a return of 7.2% percent for the 10 years necessary for the bonus to be vested.

    If an investor makes a one time purchase payment of $100,000 to an American Skandia variable annuity and makes no additional payments and no withdrawals, the "Target Value" of the annuity would be $200,000 -- $100K accumulating at 7.2% per year for 10 years. On day one the investor receives a 1% investor credit making the total $101K, increasing the money.
    If after 10 years, the account does not reach the $200K target value, the investor may select from two options. If the investor chooses to annuitize, American Skandia will provide a one-time bonus of 10% on the end account value. For example, an account that had grown to $190K would receive a bonus of $19K, upping the new account value to $209K upon annuitization. Alternatively, investors may choose to receive an annual 0.25% cash credit on the account value.
There are certain circumstances in which the 1% bonus would be taken back -- if an investor pulls his money out before the 10 years, the bonus would be recovered by American Skandia, and if an investor dies within the first year, the same would be true. In addition, if an investor is 70-80 years of age, and dies within the 10 years, the 1% would be recovered.

Although a death benefit option exists with the program, Skandia characterizes it as a "scaled-down" feature, and adding the benefit requires a 30 basis point fee.  

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