Category Retirement Income

May 7, 2007 by David Macchia

How RIIA Recognizes and Encourages Industry Adaptation: The RIIA Awards

Francois Gadenne has graciously agreed to cover for me until my return on May 16. He will be contributing a variety of essays addressing contemporary and future retirement income opportunities and challenges.

Last week, it became clear that it is too early to pick the retirement income winners. Differentiation is still going on. Market selection is still at a very early stage.

We also saw that a shared challenge for retirement income competitors is to avoid dead-ends. By dead-ends, we mean manufacturing and distributions models that are not favored and selected by the market.

In a meaningful way, we stand on the shoulders of business giants who came before us and avoided dead-ends. Now, we are depending upon our own efforts for future success. What will be our path?

Thinking about paths, you probably noticed that Monte Carlo analysis has become quite popular in the industry. Monte Carlo analysis is a probabilities-based simulation method that can be used to paint a large number of possible paths over a given space. For instance, we can simulate the many paths of returns for a risky asset or the many paths of our customers’ spending patterns.

This notion of path is important. Of all the paths that our businesses can follow, how and when do we know that we are on a winning path? If business success comes from making decisions that keep us on the better business life-paths, how and when do we know that we are following one of our best possible paths?

A daily task for business leaders is to determine if their perceptions are objective and verifiable or if they are subjective projections of their inside-the-box biases. One way to evaluate the goodness of the path that we are following is to look around and to benchmark ourselves against the right number and the right types of competitors. There are many existing benchmarks that we can use if we are focused on accumulation and investment returns. What are the benchmarks focused on retirement income?

The RIIA Awards are designed to deliver independent, objective and cross-silo benchmarking.

In particular, RIIA’s 2007 Awards focus on efforts and contributions that are most helpful to Financial Advisors (FAs) who find themselves “between chairs” during the industry’s transition from Accumulation to Income Distribution. RIIA brings valuable benchmarks to all of its members by recognizing and encouraging institutions that have delivered exceptional efforts and contributions on our collective path of adaptation from Accumulation to Retirement Income.

These Awards, and the judges include:

RIIA’s Practical Research Award.

This Award is part of the Communications Conference that will take place during the afternoon of RIIA’s 2007 Annual Meeting and Awards Dinner (September 17, 2007 at the Royal Sonesta Hotel in Boston).
Bob Tyndall from Research Magazine chairs the Award Committee.
The Committee is looking at recent academic research to identify, from an FA’s point of view, what published research was most practical and useful during this “between chairs” transition period.

RIIA’s Advertising Award.

This Award is part of the Awards Dinner on September 17.
Sean Hanna from InvestmentWires chairs the Award Committee.
The Committee is looking for the most creative and motivating advertising in the retirement income space. The Awards will go to both the advertiser and to the creative agency.

RIIA’s Retail Communications Award.

This award is also part of the Awards Dinner.
Suzanne Siracuse from Crain’s InvesmentNews chairs this Award Committee.
This award will recognize the best in printed materials aimed at planners who prepare themselves and their practices to help clients as they move from accumulating assets to the withdrawal of those assets in retirement. Awards will be made in two categories: Printed materials and new media.

RIIA’s DC Communications Award.

This Award is also part of the Awards Dinner.
Charlie Ruffel from Asset International chairs the Award Committee.
This award will recognize the best in printed materials aimed at DC planners who prepare themselves and their practices to help clients as they move from accumulating assets to the withdrawal of those assets in retirement. Awards will be made in two categories: Printed materials and new media.

RIIA’s membership is still open and we look forward to your participation. If you want to join one of the Awards Committees or if you want to submit material for the consideration of the Committees, please contact the Committee Chairs directly by checking Committees webpage on RIIA’s website, www.riia-usa.org.

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May 4, 2007 by David Macchia

The Frustrations of Transition: Giving Advice Today While Sitting Between Chairs

We saw yesterday that the retirement income industry may be in the early stages of a rapid differentiation phase of an evolutionary change process.

We also saw that this process may be propelled by an irresistible grassroots change caused by the demographics of the Baby Boomers.

The analysis of this (variously called) “tectonic”, “seismic”, or “sea-change” demographic situation and its implications is no longer controversial. Actually, it may even be fast becoming the consensus.

Our common and greater challenge today is how to position our businesses on the winning side of this change. Both manufacturers and distributors need to make hard-to-reverse decisions over the next years. The constant worry in the back of our mind as we look at the various choices: How do we avoid dead-ends?

While this change process will unfold over time, many who need to give investment and retirement income advice to investors feel that they are sitting “between chairs”. The old Accumulation products no longer look adequate. The Retirement Income products have not all appeared yet. We do not know who the winners are. We may not know for a while.

What can we do?

A good answer to difficult questions always seems to be: “It depends.”

Indeed what we can do depends in a large measure on the characteristics of the specific market segments that we serve.

If our market is the top-end of the High Net-Worth (HNW) segment, much of the retirement income discussion is irrelevant. The clients’ assets are many tens of times higher than their annual expenditures. Accumulation focused and efficient asset diversification advice continues to makes a lot of sense for many, if not most, of them. Legacy issues are their next significant concern.

As our clients move from HNW towards the Affluent and the Mass Markets, the retirement income discussion becomes increasingly relevant. This is where we meet the pressing advice needs of client cohorts that cannot wait until the retirement income winners become clear.

This is also the focus of RIIA’s September 17, 2007 Annual Meeting and Awards Dinner.

RIIA organizes its meetings around core topics and themes that appear most important and most urgent to the its members. RIIA’s 2007 Annual Meeting and Awards Dinner is organized around the following theme:

• How can the retirement income industry best help the Financial Advisors (FAs) during this “between chairs” transition from managing probabilistic accumulation investments to servicing retirement income consumers?

With a special focus on customer-facing communications, RIIA’s 2007 Annual Meeting and the Awards Dinner seeks to answer the following questions:

• What can FAs do to improve customer communications during this transition?
• What else can FAs do during this transition?
• What can FAs do to prepare for what happens after the transition?
• What can RIIA members do to support a timely and appropriate industry adaptation?

To add your voice to the discussion, join RIIA or attend the 2007 RIIA Annual Meeting and Awards Dinner on Sept. 17 at the Royal Sonesta Hotel in Boston. Better yet, do both.

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May 3, 2007 by David Macchia

A model to Understand Change in the Retirement Income Business: Differentiate, Select, Amplify

Yesterday, we wondered if traditional retirement income offerings looked too complicated from the investors’ point of view.

We also wondered if the investor was becoming more of a consumer as their needs and wants are shifting from accepting Probabilistic Accumulation to expecting Reliable Income.

To answer such questions productively, it is important that we have a common view of the broader context, starting with a shared understanding of how change happens in business. Having an explicit model of change will help us with finding answers in our continued exploration of these, and other, questions.

Evolutionary change is a model of change that has great explanatory value for business and industry development. Products and companies are born, many fall by the wayside, a few thrive but eventually they too will fall by the wayside and will be replaced by others. Recent news story about the fall of GM and the rise of Toyota come to mind.

For our purposes let’s focus on the following iterative three-step evolutionary change process:

- – Differentiation

- – Selection

- – Amplification

Differentiation is the first step where many solutions appear in close time proximity to one another to responds to exploitable changes in demand. Who the winners will be is far from obvious during this period. For instance, it was not easy to find the early winners when we moved from horseback riding to car driving.

This was true at many levels of observation. Early motive power technology included steam, electrical, diesel, and gasoline. There were scores and scores of car companies. Henry Ford failed before he succeeded.

Placing a bet on the winning technology, let alone the winning competitor, was not an obvious thing to do at the beginning of the transition. There was great differentiation. A thousand flowers bloomed.

During the next step and following the initial differentiation bloom, the market selects the winners. We no longer use horses for daily transportation needs except perhaps in a few places in Pennsylvania. We no longer see steam-powered cars. Electrical-powered cars may or may not become the next generation but certainly they were not the winning generation then. I was born in France and there was a brewery called “Le Coq Hardi” in front of my house. Every morning in the 1960s I would see horse-drawn carts AND electric cars leave the factory to bring the beer to the customers’ door step. Eventually the electric cars went away (so did the horses) when the brewery closed.

In specific situations, once the market selects a winner, the winner takes it all. This is a lesson that we saw in real-time during the Internet Boom. We still see it today, just take a look at Google. The success of the winner is amplified in both growth and profitability until it too reaches a limit.

Where do you think our retirement income industry is in this three-step change mode?

- – Are we at a time of product and process differentiation?

- – Are we at a time of market selection?

- – Are we at a time of winning amplification?

While it is dangerous to confuse metaphor with actual observation, where are our horses, steam, electrical, diesel and gasoline powered offerings? Where are our Henry Fords?

Interestingly, we will most likely not anticipate it correctly until after the market selection has become clear for all to see. Have we not all seen our share of innovations that did not work because our view of reality was not the choice of the market? Who among us bought Betamax, because it was the better technology, over VHS?

In our own space and back to last week’s discussions at the PRC, we may think that the investor should prefer strategies that provide larger monthly income payments but what if the record shows that they actually favor taking lump-sums?

I certainly do not know the answers but we can take comfort in the following observations:

- – This cycle of change was started by the changing demographics of investors. These changes are a grassroots, bottom-up movement that the industry cannot stop. These changing investors may even want to be treated like consumers.

- – It is too early to pick winners. The market has not spoken yet. We even suspect that the larger number of differentiated innovations has yet to come to market. These are frustrating times for those among us who need to give advice today. It feels as if we are sitting between chairs. What are the right questions to ask to avoid leading our companies towards complicated dead-ends?

- – It will take several years for the differentiation and market selection phases to play out. Still we expect to be taken by surprise once things get rolling. These changes are non-linear processes. Nothing seems to happen for a long time. Then, all the sudden, a new manufacturing and distribution model emerges, seemingly out of nowhere.

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May 2, 2007 by David Macchia

The Change Agent’s Greatest Fear: “It Looks Complicated”

Yesterday, David wrote a kind introduction to my guest-blogging while he is traveling. It is a good thing to be a guest-blogger since you get to choose your topics. I will take advantage of this opportunity to write about topics that are important to the Retirement Income Industry Association (RIIA).

As you know from my April 3, 2007 interview on this blog, RIIA was started at the request of clients and prospects of Retirement Engineering Inc. (REI). Several investment, insurance and distribution companies were actively looking for a place where they could have a sustained retirement income discussion across their traditional business silos. Their need was strong since initial discussions suggested that the changes involved were likely to exceed the traditional business silos’ incremental, inside-the-box adaptation expectations.

RIIA members benefit from “The View Across the Silos” since the membership includes leading firms from all nine industry cells shown in the Opportunity Matrix. (See the 2006 White Paper that you can download from the RIIA website www.riia-usa.org ).

This “View Across the Silos” informs the membership’s discussions as well as the Committees’ work. It also gives members a unique perspective on the latest retirement income developments across most of the financial industry, including established institutions as well as start-ups.

Established institutions are successful and thrive because they are able to exploit a specific economic opportunity at a specific time and at a profit. Success means economic efficiency. Efficiency means loss of flexibility. Loss of flexibility creates an upper bound on their ability to change. Incremental change can be accommodated. Large changes often exceed their incremental ability to change.

This loss of flexibility creates a space where start-ups can emerge. Eventually the start-ups that survive develop ways to exploit their own opportunity most efficiently and thus begin to loose their flexibility. This cycle creates the conditions for the next generation of start-ups as the market moves to create new opportunities that exceed the adaptation abilities of the established players.

It is not a surprise that change generates fear within established institutions. Survival may be at stake if the required changes exceed what can be achieved with incremental adaptations.

On the other hand, what are the fears of the change agent who deals with out-of-the-box changes? Among the many fears that we can think of, what in particular does the change agent fear the most? To understand this greatest fear, we turn to a code word used in the venture capital industry to express grave doubts about the viability of a potential deal: “It looks complicated”.

If something looks complicated, there may be less complicated ways to create the effect. What looks complicated also looks less plausible. This is the greatest fear: Becoming too complicated to survive.

At the invitation of Olivia Mitchell (Professor of Insurance & Risk Management at the Wharton School of Management and Executive Director of the Pension Research Council) and John Ameriks (The Vanguard Group), I joined a panel at last week’s Pension Research Council meeting in Philadelphia. At one point, the discussion turned to the visible complexity of traditional retirement income products, especially annuity-based retirement income products. My discussion point focused on the fact that looking complicated can be good or bad depending upon where the complications are.

If the offering look complicated to the investor, we are likely to have a problem. What type of offering do you think is most likely to receive broader market acceptance: A complicated offering or one that can be understood simply and intuitively by the investor?

On the other hand, it the offering looks complicated to the manufacturer but simple to the investor, this is most likely a good thing. It justifies the manufacturer’s pay at a minimum. It is also an expression of the value-added provided to the market. It was widely agreed that current retirement income products are indeed complicated both from a manufacturer’s and from an investor’s points of view.

Two specific questions came up during the discussion:

Should retirement income offerings look simpler from the point of view of the investor than they currently do?
Are Accumulation-focused investors turning into consumers of Reliable Income?

Let me know what you think about these questions. They have interesting implications that we can explore over the next few days.

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April 29, 2007 by David Macchia

Who Will Emerge as the Apple of Retirement Income Solutions? The Organization That Focuses On the Number One Deliverable: “Confidence”

I believe it was Winston Churchill who said, “A young man who isn’t a liberal has no heart. An old man who isn’t a conservative has no brain.” Leaving behind the politics, I enjoy the symmetry of these words. Churchill’s quote inspires me to fashion my own:

“A new retirement income initiative that isn’t focused on product has no brain. A mature retirement income initiative that isn’t focused on communications has no chance.”

I define a “mature” retirement income initiative as one that is ready to roll-out, set to be unleashed upon a waiting world. Many financial services companies are devoting huge levels of resources to the development of their own retirement income solutions. Which will emerge as the retirement income version of Apple? And which will land with a thud in the junk heap of failed efforts? I won’t predict which will flourish and which will fail; I will predict how success will come to some.

Unique Experience and a Distinctive Perspective from Which to Make Predictions

In terms of my career in financial services, over much of the past thirty years I’ve been like a fish swimming simultaneously in two separate and distinct ponds. The breadth of my work experiences is unusual, to say the least.

For 25 years, one-half of my business life was devoted to the wholesaling and distribution of insurance and annuity products. Call this advisor-centric place, the salt water pond. In the salt water pond large networks of financial advisors were recruited, trained and serviced. Their business challenges became my challenges; solving them, even partially, led to production loyalty, referrals to other advisors, and business growth.

So, when advisors made comments to me like, “compliance is driving me nuts”, “that damn insurance company screwed-up my 1035 exchange”, “I can sell, I just need a way to get in front of more people”, “each seminar is costing me $8,500 but I’m getting only half as many people to show-up as I used to”, “my biggest in-force life policy was just replaced”, “I’m losing annuity sales to (insert name) bank”, “I need a higher commission on this product”, or, “I need a product with higher interest rates”, I understood the pain and frustration behind each of these statements.

The other half of my business life was spent in (and, in fact, is now entirely spent in) the fresh water pond. The fresh water pond is habitat to the product manufacturers and, to some extent, broker-dealers. The language spoken in the fresh water pond is different than that spoken in the salt water pond. Different issue and challenges take form. Whereas the advisor is vexed over the insurance carrier’s or the B-Ds “insane compliance”, the carrier or broker-dealer seeks to limit insane levels of potential future liability.

In the fresh water pond I originated all manner of marketing tools, programs, strategies and technical innovations that insurance companies and, or, broker-dealers used to boost their value to both producers and consumers. I developed numerous, highly successful marketing programs and presentation tools that collectively ignited multi-billion dollar increases in new sales. I served as one life company’s de facto CMO for 12 years as it navigated through a myriad of mergers and name changes (Commercial Union, CGU, CGNU, Aviva). Over the years I consulted with another twenty or so life companies on a variety of projects.

I delivered hundreds of motivational speeches, training seminars and product rollout presentations. As a consultant to PaineWebber I traveled across the U.S. to provide training on life insurance to its stockbrokers. To jumpstart sales of life insurance in the PaineWebber network, I was sent to major cities to deliver seminar presentations to the clients and prospects of PaineWebber stockbrokers.

I wrote scripts for consumer presentation on many life insurance and annuity products. I then was video-taped as the talking head, delivering the seminar presentations I had written. More than 200,000 duplications of these video tapes were created and distributed to agents who successfully used them to close sales and gain qualified referrals.

In recent years more than 1,000,000 CD ROMs containing sales presentations I wrote covering a variety of products have been distributed to agents by insurance companies. These companies have been rewarded with sales growth as their agents become better educated. The presentations are now being delivered over the Internet through technology I designed that meets rigorous compliance and distribution complexities.

I became an early mover in the retirement income space by developing web-based, time-weighted, open-architecture income distribution solutions that are backed by peerless, compliant communications tools.

Interestingly, for years I used many of the innovations I developed in the fresh water pond to boost sales in my own salt water company.

I tell you all of this not to make myself sound ego-centric, but rather to explain that I’ve accomplished a lot in both ponds, and that I’ve had a lot of success in both ponds. I believe this experience gives me a unique perspective to make some judgments about the future.

Experience also helps me to understand the Yin and the Yang: For instance, the producer wants “higher interest rates” or “higher caps, but the insurance company wrestles with sub-optimal spreads owing to a flat or inverted yield curve, unmovable ROI targets, asset liability matching, hedging, reserving- all of which impact the ability to deliver crediting rates that may or may not satisfy the advisor’s perceived need.

Building a Bridge

Between the two ponds there exists a massive and institutionalized failure of communications. As a result levels of cynicism and mistrust are high. Although the two ponds clearly require each other’s unique capacities, they co-exist in a relationship which is seldom completely satisfying and too often is only temporary and designed to fulfill both the advisor’s immediate need for compensation and the provider’s quarterly need for increased sales.

So, for instance, we have today’s deferred annuity industry where four-fifths of annuity business in 2006 was the result of advisors moving the very same assets from one insurance company to another. This is a maddening and ultimately destructive cycle brought about by low productivity, ineffective marketing and, not uncommonly, gimmicky product innovation made to appear as genuine innovation.

As The Conversation Shifts to Retirement Income, “Confidence” Becomes Your All Important Deliverable

Just as surely as poor communications and its component elements- lack of transparency, lack of clarity and lack of confidence among purchasers- serve to perpetuate the status quo, effective communications strategies will be the linchpin in providing thrust behind newly introduced retirement income solutions.

To all of my friends busy at work developing “your company’s” retirement income solution, take note: your solutions will not realize their marketplace potential unless you wrap them in a strategy capable of conveying clarity and confidence to consumers who will be expecting nothing less. “Confidence” will be the key deliverable in the retirement income phase.

We’re in a period of transition from an era when, in order to gain a sale, it was sufficient for the consumer to have confidence in the advisor. Going forward, the consumer is going to demand confidence in the solution. You will commit your organization’s future success to history’s retirement income dustbin if you believe that you can meet this emotional need exclusively with a product focus.

No issue is of greater importance to you as you work to pin last minute tweaks on your income-generation solutions. Here’s why: The stakes around this issue are just as high for the customers you are targeting, not to mention the advisors you will rely upon.

Based upon my salt water experience, I’m certain that consumers will view their decisions over whether to turn their retirement assets over to you as virtually life or death in terms of its intrinsic importance.

This is not accumulation. A bad purchase decision in accumulation may have resulted in a customer earning, say, 200 basis points less over a few years, not in injury beyond repair.

If you fail to link your solution to communications tools that engender clarity and confidence, you will not make this sale. Moreover, your advisor-distributor will abandon you in favor of your competitor who delivers what you fail to deliver. Write this down.

About individuals who may view this assertion skeptically, I know that you live in the fresh water pond.

About individuals who immediately recognize the accuracy in what I’m saying, I know that you live in the salt water pond.

Each of you needs to merge into an understanding of the other’s pond, with the conduit for that merger communications between you that is satisfying and meaningful. When you merge you will eliminate mistrust and craft a bright future. And your retirement solutions will flourish, perhaps, even, as one or more retirement income versions of Apple.

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April 23, 2007 by David Macchia

Interview with Phil Eckman: President & CEO of Transamerica Retirement Management Cites Lack of Insurance Industry Progress Despite Years of Intense Product Focus; Calls for New Communications Strategies

In this wide-ranging interview, Phil Eckman, CEO of Transamerica Retirement Management, talks about Transamerica’s view concerning the importance of the Boomer retirement income business as evidenced by the company’s decision to create an entirely new business unit. Eckman also addresses the challenges arising out of the inherently greater degree of complexity of insurance products, and stresses the need to develop superior, consumer-facing communications strategies in order to overcome that complexity.

Macchia – Phil, let me begin by asking you about your work. Please begin by telling us your title, your role and your responsibilities.

Eckman - My title is President and CEO of Transamerica Retirement Management, which is a new business unit that we’ve created within the AEGON USA/Transamerica Companies. My responsibilities center around building a new business unit that is solely focused on the unique needs of the boomers as they move into this transition called retirement. We’re leveraging what we have to offer from our various companies across AEGON/Transamerica family to help with these unique issues that folks are facing.

Macchia - Okay. I understand. Now, the progression of developing a retirement income solution at a large company can sometimes, if not often times, get bogged down with conflict among silos. Sort of the belief system that it’s my solution…no it’s my solution…no it’s my solution. Is what you’re doing at Transamerica an effort to cross silos in an effort of incorporate the best of all silos?

Eckman - Exactly. I believe that while it may not be an explicit objective, I think implicitly as we build out our group, we will cross silos and take ideas that have been working in one area of the company and have them cross over that line and bring them forward in another part of the company to reach a new consumer base. So absolutely, practically what’s going to happen is we will be taking ideas across silos and exposing them to mew markets that otherwise would not have the opportunity to see them.

Macchia - In terms of Transamerica Retirement Management and how it was developed, what thought process led to the creation of this entirely new business unit?

Eckman - Our CEO of AEGON USA, Pat Baird, about 2 ½ years ago challenged the management team of the organization to look ahead, think forward about this large retirement market that’s going to be coming upon our industry; to think hard about how we as a company can best serve the group, putting aside some of the typical issues around silos and short-term business objectives. A task force was put in place to look into these questions. One of the recommendations was to start a new business unit.

Macchia – And I gather the decision to start a new group implies that the entire retirement income business is deemed to be something of a very high strategic priority for the corporation.

Eckman – Absolutely. It has not been a cultural business strategy within the AEGON group to start new business units like this. We have strong, autonomous growth targets and we have a history of acquisitions, so to start a new group like this was entirely new.

Macchia - Phil, would you describe the introduction of Transamerica Retirement Management as an incremental change to the existing business model, a moderate change to the existing business model, or even, potentially, a large change?

Eckman - I think it’s a potentially large change. If we wanted to take an incremental approach, we would get working groups together, we would have senior management from the different divisions collaborate and then go back to their day jobs.

Macchia – As I observe it, Phil, distribution strategies seem to be evolving along somewhat philosophically- based lines. I often liken this to religions, in the same manner that we have various religions in the world. So, we have religions of distribution planning popping up, such as the religion of systematic withdrawal programs, the religion of laddered strategies, the religion of time-weighted strategies, the religion of lifetime annuitizatioin. Do you buy into this description what’s developing in the marketplace, and if you do- or if you don’t- explain how you see it, and where Transamerica Retirement Management might play in this context.

Eckman – You and I have talked about your description of this sort of religion analogy, and I think it’s a pretty good one. Each manufacturer or advisor is going to have a core philosophy around income management. Just like there are many ways to invest and accumulate assets, there are many ways to convert these assets into income. Some are simple, some are complex. Some are product based, some are planning based. Some offer guaranteed lifetime income, some do not.

We generally believe retirees should build two income streams. The first is guaranteed for life and is made up of Social Security, pensions, and some form of lifetime annuity income. This income stream covers the basic living expenses around food, housing, health care, etc. As retirement may last over 30 years for some couples, they have the piece of mind knowing that these essential expenses are always covered. The second income stream is not necessarily guaranteed and made up of a systematic withdrawal strategy, possible ongoing employment and possible home equity release strategies. This income stream covers the discretionary expenses of travel, entertainment, etc. Of course, the art is working with the customer first to build a plan that meets their unique situation and, second to support them over time to execute and tweak the plan. I guess you could say this is our religion.

Macchia –I did some searching on the internet and read where one of the missions that Transamerica Retirement Management has undertaken is to leverage AEGON’s extensive network of internal and external distribution partners in order to deliver solutions. Is that, in fact, true? And if it is, can you comment or go a little bit deeper into the strategy?

Eckman – Sure. We have to prioritize the opportunities before us as we build this group and march it forward. We’re starting in terms of distribution by connecting with our pension organizations, Diversified Investment Advisors and Transamerica Retirement Services. We are bringing product development, marketing strategies, and an advice platform to these organizations that leverage some of the capabilities across AEGON.

Macchia – I can look back over the period since I came into financial services inn 1977 through the insurance door, and I can remember that the pension business back then was pretty much owned by life insurance companies. Over the course of my career, during the last three decades, we’ve seen life insurers cede away that business to the mutual fund complexes. I wonder if when you look at the distribution opportunity, you see insurers as ready to or potentially able to take back those pension assets, or do you think that there are some fundamental challenges that insurers face that will conspire to hinder their progress in reaching that goal?

Eckman – I think your premise is true. The asset management industry certainly has done a fantastic job serving customer needs within the 401K and general savings space. It’s not surprising because the primary need through the working years is accumulation and investing. But as these investors age and get closer to what we call the third stage of life known as retirement, their priorities and needs change. While investing and accumulation is still important to them, they need to understand the new risks associated with income planning such as longevity and healthcare.

Those sorts of issues obviously play into insurance industry strengths, and our capacity to build solutions to help these folks manage these risks that now have come and moved up the list of priorities as they have moved along in their own life. The insurance industry is in a position to certainly help folks with these important issues.

It’s going to be a lot of work for us, particularly on the marketing side and on the education side. These types of issues, these risk management issues, by their nature are more complicated. So, how can we help people understand the issues and questions? How can we help them make the right choices? Those are going to be the key issues that will determine how the insurance industry, as a whole, and how individual insurance companies will succeed in this opportunity ahead.

Macchia - I think that’s a very insightful observation. You indicated that the very nature of the products that are going to have to be distributed and explained in the future are more complex by definition. Does this make you think that new strategies for communication are going to be in order, and if it does, where does technology play into that? How important do you think technology will be in the coming months and years? How do you see the whole customer communications issue fleshing out in the future?

Eckman – I think it is going to more complicated and it’s going to be challenging. Whether we in the insurance industry are trying to come up with new ideas to help advisors carry the load and get this point across with their customers, or, whether we’re talking to a customer directly. We have to make it clear, transparent and understandable.

Trying to reach people differently, trying to leverage technology to help explain products is definitely an opportunity for the industry. The other point that we haven’t talked about are the compliance issues. With the more complicated suite of products that need to come of the fore, we need to make sure that advisors are able to clearly explain what they need to with their customers. We must have the right tools in place to deliver compliant, clear presentations so that customers fully understand the issues and the options available.
Leveraging technology to help with this challenge is a real opportunity. Video, electronic presentations, those sorts of things, by their nature, can be controlled more effectively.

Macchia – Phil, when I think about the role of consumer-facing technology in the future, one of the issues aside from compliance, and aside from consistency in message- and a myriad of other advantages- when you get down to the very basic question, you realize that there are gigantic numbers of individuals that are going to need to be contacted and provided guidance in the distribution phase of their lives, with a relatively small base of advisors to reach them. Is this something that you at Transamerica Retirement Management have thought about and if it is, what do you foresee as potential strategies that you may use to address this very issue?

Eckman - It is something we’ve thought about and wrestled with. We are like a lot of companies in our position. We have a large advisor community that we distribute through, and they are always looking for help in good, compliant presentation and educational programs that allow them to bring value to their customers.

We’ve got work to do with some sister groups to put that type of tool together in the short and long term. I think that companies like us are going to have to be very successful on that front if we are going to get the time and the attention of the advisor base moving forward. Beyond the advisors there is certainly an opportunity to more effectively reach those individuals that either are not working with an advisor today, or prefer to just do it themselves.

There’s a chunk of the Baby Boomer population that are going to want to do it themselves, and providing more avenues for them via the web and other technological tools so that they can understand, become educated and ultimately make the right decisions for themselves, is going to be an opportunity for the industry, for sure

Macchia – Phil, I’d like to ask you next about products. In our industry there is no end to the talk about new types of products that are being developed, may be debuting in the near future, and may transform the way that products work. It’s stated by many that these new products are going to be very important in meeting Boomer needs.

There is another philosophy that’s sort of out there in parallel that says- and this was reflected to me most recently in an interview that I hadwith Jeremy Alexander- that we’ve got longevity insurance, we’ve got lifetime annuitization, we have products that guarantee principal and simultaneously provide upside potential, we have lifetime annuitization products, and guaranteed withdrawal riders. We have mutual funds, we have equities, we have bonds. In other words, the products are already there. It’s a matter of figuring out how you package them to work synergistically to deliver good long term results for the consumer. I wonder how you feel about this issue.

Eckman – I would agree with it. The product innovation on behalf of the insurance industry is never going to stop, and I don’t know if it will ever slow down. But I think we’ve seen, looking back over the last five years or more, that most of us in the industry are not terribly happy with the results that we’ve had in really driving the growth in all of the income product innovation that’s taking place.

We’re making progress, but in the big picture of things, relative to the mutual funds and other more traditional accumulation focused investment solutions, I don’t think any of us are comfortable with where we’re at. Which then leads you to the question as to yes, products are important, but is it the communication, is it the method or context in which we’re describing them. Do we need to look harder at that?

Macchia – You bring up something that I’ve talked about and written about a great deal. In fact, I’ve said quite publicly that the winners in Boomer retirement are not going to be those companies that necessarily even have the best products, but rather will be those companies that are the best at communicating their value to a large and fluid market place. Does this strike you as true?

Eckman - It does. I’ve heard you say it a couple of times and every time I hear it it rings very true to me. It’s something that is easy to say, harder to do, but the more I think about it the more I realize we must become better communicators.

I think this is coming back to us as feedback from a lot of advisors that we work with in this organization. They want to be more effective in the way that they communicate to their end customer. Let’s not over complicate the product so that we can’t clearly explain its value and ability to solve a customer’s need.

Macchia - When you look forward in the context of your position of heading up this business unit, what do you define as your greatest challenges?

Eckman – I think there’s an inherent education gap that we as an entire industry need to focus on. It’s making a connection between savings and income. In all of the focus groups we’ve done, every consumer understands the notion of a nest egg.

But, when you start asking questions about, “How are they going to put that nest egg to work to replace an income stream or how will they develop an income plan to manage a 30 year retirement?” They have no answer. They have not thought about it. We, I think, have a big job to just close that educational gap and help people to think about income earlier on as they approach this transition so they can start to plan and really understand the issues at stake, and sort of change their way of thinking. They’ve got to begin to think, “Now, I need to move into more of an income management and financial risk management mindset.” That’s a big task.

Secondly, I think it really gets back to your communication point that our products within the insurance industry are going to be more complicated, making it even more critical for us to succeed on the communication front. Finally, we have to understand that to the end consumer, retirement isn’t in their minds primarily a financial event. We come from the financial services industry, so we think of it as a financial event, but they don’t. First and foremost, it’s a life event to them.

We need to understand that reality, and help them with this whole life transition, and help them understand how the financial part of it is certainly an important component, but it doesn’t start with that. When they come to a meeting with an advisor, when they are talking with an advisor on the phone, or when they are going online to a website, they are coming to that meeting or they are coming to that website not wanting to jump right into financial planning, but to just get some general perspective around this life event that’s coming their way. Once this context is laid, it’s easier to weave in the financial aspects of the transition.

Macchia - That’s a very… reality-based take on the issue. Which reminds me of advertising. The advertising that’s been done to date to the Boomer audience has struck me as very odd and, arguably, disingenuous. On the one hand you have all manner of statistics that indicate that the typical Boomer is not well positioned to generate a significant retirement income over a retirement that may last a very long time. Social security is uncertain in terms of what may happen to it in the future, the national savings rate is very low, and typically Boomers have more debt than net assets.

So this is a mixture of facts that doesn’t bode well for mass market retirement security. At the same time, we’ve seen advertising that consistently describes retirement as a time to enjoy all of the exotic activities that you’ve never been able to previously enjoy; that retirement is the time to learn to snowboard, for instance, or parachute, or take an around-the-world cruise. I’m wondering if you feel that financial services companies, thus far, have been real and candid? If you feel that the current trend in advertising is misguided? I’m wondering how Transamerica Retirement Management will view the issue in terms of its own advertising?

Eckman - Within our organization we have made it a point to be realistic with all of the content and images we use in our literature and on our website.

It’s possible to be both realistic and optimistic. From a planning standpoint, our group is committed to helping the middle market/mass affluent retiree understand how Social Security, possibly a pension, supplemented by some other form of ongoing lifetime income, and, realistically for a lot of people, some sort of ongoing employment on their terms, can all work together to form a sound income plan.

Let’s face it; the typical picture of the couple on the yacht or in front of the second home on the beach is not realistic for a lot of people. Nonetheless, these folks have the potential, if they do the right kind of planning up front, to have an incredibly fulfilling and financially secure retirement, which is what it’s really all about.

Macchia - Phil, I’d like to ask you three questions that are entirely personal in nature. I’m going to, starting with this interview, include these questions in every interview going forward. The first one is this: if I could somehow convey to you a magic wand, and by sweeping this magic wand you could instantly institute any change that you want to see occur in this industry, what are the first two changes you would make?

Eckman – that’s a tough one. So any two changes within the industry…

Macchia - Anything, this is virtually the power of God I’m describing.

Eckman - Other than tripling everyone’s investible assets to put towards retirement, I presume that’s off the table!

I think number one….I just think a general increase in awareness of the issues and risks- and I don’t mean risks in that scary, negative sense- but just an awareness of the issues that people need to be thinking about when it comes to retirement.

If we can wave the wand and implant that knowledge in peoples’ minds, I think that obviously would be an enormous benefit for all of us.

Secondly, I think there are a lot of things, clarifications that need to be addressed from a regulation standpoint between the groups that govern equity products, insurance products and pension products. There’s a lot of confusion and red tape that needs to be resolved, that slow us down from putting the right kind of education and solutions and guidance in place to help people. So, if I could wave the wand and clarify a lot of issues and get some consistency across all of these different regulatory organizations that govern the various parts of our business, I think that would ultimately be a big help to the end consumer.

Macchia - Good answer. Next question: If you were not CEO of Transamerica Retirement Management but you could have any job at all, in any other industry, doing anything you wished, what would it be?

Eckman – I think that I look back at my career and experiences, some of the most rewarding work I’ve done involves working individually with people on their own issues. Honestly, if I could actually get into the chair of the advisor and truly help individual retirees successfully plan and make this transition into retirement, I think that would be incredibly rewarding.

Macchia - Lastly, I would like you to imagine your own retirement in its most conceivably perfect form, where perfection is anything you want it to be. Tell me what you’d be doing.

Eckman – I think I would be engaged with my kids’ and grandkids’ growth and lives, hopefully in a very active way. I would be enjoying, certainly, time with my wife doing the things we like to do together. I think I would also be engaged in some kind of ongoing professional endeavor or volunteer work.

Macchia - Sounds like a pretty nice vision. I want to thank you for your time and for your answers. I’ve enjoyed it.

Eckman – I have too, David. Thank you.

in 401(k) & IRA Rollover / Retirement Income / Technology & Improving the Sales Process / The Interviews: Industry Leaders & Innovators 4 comments

April 20, 2007 by David Macchia

Blog Excerpts Book Available for Download: Thought-Provoking Interviews, Vision and Insights on Major Financial Services Challenges and Opportunities

Now, just in time for your weekend reading pleasure…

In just a short time some of the best minds in financial services have contributed a wonderful collection of insights to my blog. In addition to my own ruminations, I’ve taken some of these contributions and published them in the form of a downloadable book. You may download the book at no cost. Download the PDF here.

You will see that the book is organized into three distinct sections:

• The Annuity Industry: Challenges & Opportunities
• Retirement Income
• Interviews with Industry Leaders & Innovators

From time to time I’ll aggregate future content in this format for you to be able to conveniently retain and reference. Download by clicking here…

in 401(k) & IRA Rollover / Annuity Marketplace Challenges / Downloadable Blog Excerpts / Retirement Income / The Interviews: Industry Leaders & Innovators 0 comments

April 19, 2007 by David Macchia

Phil Eckman, President & CEO of Transamerica Retirement Management and Fred Conley, President & CEO of Genworth’s Institutional Retirement Group to Appear in Industry Leaders & Innovators Series: Retirement Income Industry Leaders to Address Broad Range of Strategic Opportunities and Business Challenges

I am pleased to announce that two of the retirement income industry’s leading lights will be the subjects of interviews in my Industry Leaders & Innovators Series. Phil Eckman and Fred Conley are articulate and talented individuals charged with significant strategic responsibilities within their respective organizations. Their visions and insights will be welcome by all who are concerned with the future of U.S. retirement security.

in 401(k) & IRA Rollover / Retirement Income / Technology & Improving the Sales Process / The Interviews: Industry Leaders & Innovators 0 comments

April 12, 2007 by David Macchia

SunLife Financial Goes Live with Advisor-Personalized Microsites and Streaming Media; Advances the State-of-the-Art in Compliant Agent Marketing and Consumer Education

Yesterday SunLife Financial unleashed the next wave of compliant agent marketing and consumer education. To support its agents’ ability to present a compliant and balanced explanation of its new income-oriented indexed annuity, SunDex Advantage, the company has offered thousands of distributors unique personalized microsites that serve as virtual agent assistants. The microsites, which carry all required broker-dealer and, or carrier disclosure language, stream engaging and educational multimedia presentations to prospects’ web browsers.

Delivery of the product “story” to the web browser creates a significant marketing process advantage for Sun Life’s agents as well as compelling benefits for consumers; prospects gain the ability to learn about and evaluate the new product when and where they wish, while also eliminating sales pressure. After watching the multimedia presentation a prospect may conveniently click on a link to send an email message to the agent indicating his or her wish to set-up a meeting to discuss the annuity.

SunLife Financial’s agents gain the ability to reach more prospects at lower cost while delivering a much fuller, more meaningful and consistent explanation of the new income product.

There are actually five separate movies available at the agent microsites: a 30-minute, needs-based presentation which educates on multiple risks retirees face combined with an in-depth exploration of the annuity product. There is also an 8-minute, abbreviated version as well as three, 3-minute case study movies.

With the new microsite capability Sun Life’s agents will be able to engage more prospects, more conveniently while delivering an engaging “experience” to the web browser that is compliant by definition, and consistent with the quality that other large industries routinely offer in support of their intermediaries (think auto manufacturers, health care, retailing, etc.). All of this amounts to an important competitive not to mention compliance advantage for Sun Life Financial and its agents.

Click here to visit a sample SunLife Financial agent microsite.

in Annuity Marketplace Challenges / Retirement Income / Technology & Improving the Sales Process 0 comments

April 11, 2007 by David Macchia

Moshe Milevsky to Participate in “Leaders & Innovators” Interview Series

I’m very pleased that Moshe Milevsky has agreed to have me interview him as part of the “Industry Leaders & Innovators”series.Moshe is the Executive Director of The IFID Centre and is an Associate Professor of Finance at the Schulich School of Business at York University in Toronto, Canada. He has lectured in the joint Kellogg/Schulich EMBA program, as well as at the University of Leuven in Belgium and ORT University in Uruguay.

Moshe’s expertise is on the interplay between financial risk management and personal wealth management. In addition to teaching he also works as a consultant for a variety of financial services companies and pension funds. He has been interviewed by Business Week, The Wall Street Journal, The New York Times, Barron’s, Fortune and Money Magazine.

Moshe is one of the world’s leading experts on retirement income issues. He has published over 40 scholarly research articles, is the founding co-editor of the Journal of Pension Economics and Finance, and is the author of the 1999 Canadian best seller Money Logic: Financial Strategies for the Smart Investor (Stoddart Press). In 2003, a series of articles he wrote for the National Post Business were honored with National Magazine Awards. His most recent book, The Calculus of Retirement Income was published by Cambridge University Press in 2006.

In conjunction with Research Magazine, Moshe has created the Retirement Income University series, twelve monthly lessons for financial advisors covering key insights and financial dimensions of retirement planning.

Moshe was born in Toronto, but grew up in Latin America, the U.S. and the Middle East, and thus brings a unique multicultural perspective to his research and presentations. Moshe currently lives in Toronto with his wife Edna and four daughters, Dahlia, Natalie, Maya and Zoe.

in Retirement Income / The Interviews: Industry Leaders & Innovators / Variable Annuities 0 comments

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