SMAs can be a huge boon to your overall retirement strategy. As you start getting serious about finding higher yield opportunities in today’s markets, alternative asset classes can start to be a very attractive option. But it’s critical to have a least a basic understanding of what an SMA is and how it works in order for you to make an educated decision about whether it’s right for your situation – take a look at SMA Pros & Cons.
Let’s take a look at how SMA expert Nathaniel Pulsifer describes them:
Secondary Market Annuities are existing in-force annuity backed payment streams from structured settlements, lottery awards, and annuities that people seek to sell for cash today.
We are on the buying side, purchasing payments from originating companies nationwide.
Through our wholesale firm we buy these guaranteed payment streams from diverse origination sources in a strictly regulated and court ordered transfer process. Our firm process and reviews every case to produce the highest quality income streams for clients, at a high yield unavailable from other fixed income sources.
While SecondaryAnnuities.com caters to individual investors, we are also principals in the wholesale firm serving advisers around the country. We manage the court ordered transfer process and that makes you the new payee of an existing payment stream.
Here’s a short video (about 9 minutes) on the topic of SMAs from the Mr. Annuity Radio show based in Phoenix, AZ. This is a terrific explanation in simple language of this asset class and will be well worth your time to watch through to the end.
Alan Lavine highlights a couple of sample SMA deals at WeathManagement.com, and discusses the need for securing a true professional broker to handle these types of deals, as there is no doubt they are best suited for the sophisticated investor.
These annuities usually originate as a guaranteed stream of income from a personal injury or medical malpractice lawsuit, or lottery winnings. Recipients that need cash up front sell the guaranteed income to a factoring company—often through a court-ordered process. Yields may be 1 to 4 percent higher than annuities in the primary market due to the deep discount the buyer pays.
Currently, one can buy a MetLife annuity with a 25-year term for a $232,000 investment that yields 6 percent. The return on the contract over 25 years is $1 million, according to DCFExchange.com, a secondary-market annuity website.
Over a shorter term, a client could earn 4.5 percent from a 10-year Berkshire Hathaway annuity for a $33,000 investment with a return of $50,000.
Buying or selling an annuity on the secondary market is not easy. Stan Haithcock, an annuity consultant, says there may be about $1 billion worth of annuities for sale on the secondary market, but hedge funds, private equity and institutional investors swoop in and buy 80 percent of them. See full article wealthmanagement.com
As with any investment, take your time and perform your own due diligence. SMAs have a simple premise, but are quite complex in terms of the legal maneuvers that are required to secure them as a secondary asset. Seek the advice of your investment advisor, and take a look at our home page for the best broker in the Secondary Market Annuities industry.