Simplicity is key to analyzing complex products

By Dan Hallett on May 11, 2011

In the May 2011 issue of Investment Executive, I wrote about how I approach the analysis of complex products.  In short, when analyzing products – particularly complex offerings – the most insight is often obtained via the simplest analysis.

To illustrate, I tell the story of how I approached Portus back in the fall of 2004.  I never spoke with the company.  I never delved into their process.  I simply focused on the most basic issues to quickly conclude that this was not a company we wanted to recommended to our advisor-clients.

I then demonstrate a similarly simple framework when speaking of Guaranteed Minimum Withdrawal Benefit products.  One way to evaluate GMWB products is simply to compare to another product offering a similar benefit – i.e. a minimum guaranteed lifetime income.  It’s a pretty straightforward thing to do for those who need to generate an immediate cash flow.

But for those who are some years away from needing the income, I offer a two-year-old article by Dr. Moshe Milevsky.  In this article, Milevsky equates GMWB products to a standard interest rate so that investors can more easily evaluate them in a familiar context.  Click here for more recent columns by Dr. Milevsky on annuities, GMWB products and the like.

About Dan Hallett

Dan Hallett is Vice President and Principal at HighView. With over 20 years of industry experience, he is widely recognized as an investment expert. His professional opinion is regularly sought by print, TV, radio, and online media publications. He has also contributed to several best-selling personal finance and investment books.
See Beyond

Receive Market Commentary + Stewardship Insights.