April 2007

François Gadenne Adds “Guest Blogger” to His Already Impressive Resume; Get Ready For Two Weeks of Brilliant Retirement Income Analysis

fgroundGiven my commitment to publishing new content on an almost daily basis, I did not want you to check-in starting Wednesday and see nothing but a test pattern while I’m away enjoying the sights in Athens and Crete.

Beginning tomorrow my family and I are off to Greece for a two week vacation. I did, however, think ahead. And what a great treat I have in store for you.

I’ve persuaded my friend, François Gadenne, to serve as guest blogger until I return on May 16.

François is the Executive Director and Founding Chairman of the Retirement Income Industry Association. He’ll be taking you on a thrilling intellectual ride through the vortex of retirement income innovation. It’s a trip sure to expand your mind and, potentially, alter your own views regarding the most significant financial event of our lifetimes. No stranger to this blog, François has already shared with my readers quite a lot about his personal and professional history as well as the events that led to RIIA’s creation.

All this and more can be found in my interview with François as part of the Industry Leaders & Innovators series. To read this wide-ranging interview click here.

So, beginning tomorrow, check-in daily as François drives the retirement income discussion to new vistas.

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.

©Copyright 2007 David A. Macchia. All rights reserved.

NAFA Conference Concludes with a Bang; Candor and Insight Overflow

The talks given during day two of NAFA’s Annuity Summit opened and closed strongly with one excellent presentation after another sandwiched in between.

ING’s Harry Stout led off with a compelling analysis of current industry dynamics and challenges. Low rates, a flat yield curve and a 13,000 level for the Dow Jones Industrials conspired to make the first quarter of 2007, “the most challenging in eight or nine years.”

Stout eloquently described the urgency for the annuity industry to, “grow the pie”, while also pointing out that of the $250 Billion in annuity sales during 2006, only 25%- $50 Billion- was attributed to new flows.

In describing the probable impact of Boomer retirement security on the annuity business, Stout said that, “The sleeping giant has yet to awaken.” He cited clarity, transparency and ease of doing business as vital necessities in order for the annuity industry to maximize its potential in serving the retirement income needs of Boomer clients.

In describing the inherent differences among different channels of distribution, Stout said that, “Psychology, culture and expectations change across channels.” He also talked about ING’s efforts to accommodate strategic partnerships between IMOs and broker-dealers, and he followed this with a side-by-side comparison of each channel’s core competencies and respective strengths.

Stout talked about the importance of, “reducing the risk of outliving income” and predicted the introduction of, “new models that help illustrate how annuity products can reduce that risk.”

Stout was quite clear on the point that agents, “must change their competitive positioning and sales practices”, and that their biggest challenge is education on complex products such as indexed annuities. He asserted that the indexed annuity product has been “stress tested.”

Stout indicated that there should be an urgency to, “push indexed annuities into the mainstream”, and called for the industry to embrace new ideas for retirement solutions. He also said that the industry is at the “infancy stage in product innovations and services for upcoming and continuing retirees.”

After his prepared comments, Stout fielded a number of questions. I asked him for his views on the ongoing efforts to recruit annuity agents into RIA status. Stout responded that agents should move into this area with great caution. He said that if the motivations for becoming an RIA have to do with sidestepping regulation and oversight, then such a strategy would not be successful.

While time does not allow for a detailed analysis of all the presentations that followed Stout’s, I want to mention several additional highlights. Lincoln Financial’s, David Kittredge, described the magnitude of the money-in-motion in the context of Boomer retirement. He shared statistics that recognized the assets that Boomers have earmarked for providing retirement income apart from their formal retirement accounts. When these assets are considered Kittredge said that the total volume of money-in-motion becomes a staggering $32 Trillion.

The ACLI’s Carl Wilkerson delivered a comprehensive review of ongoing task force initiatives. And NAVA’s Mike DeGeorge presented an excellent primer on the current menu of living benefits available on VA contracts. A person sitting near me listened to this presentation on VA riders and murmured, “And they say fixed annuities are complex!

An amazingly candid presentation by Iowa Deputy Insurance Commissioner, Jim Mumford, closed the day. Mumford pulled no punches in commenting on many, many contemporary industry challenges. He had no hesitation in citing a lack of cooperation among regulators for worsening the current marketing environment. He reserved special criticism for the North American Securities Administrators Association (NASAA) – of which he is a member- for, “placing turf protection above consumer protection.” Wow.

He described the recent actions by Minnesota Attorney General, Lori Swanson, against some carriers as “purely political” and stated that regulators’ actions can serve to, ‘harm consumers more than help them.” Mumford also stated that, “class action lawsuits usurp state regulation.” He called for regulators to, “work together.”

In commenting on the NASAA’s intense criticism of annuity seminars, Mumford revealed that in order to test the validity of the criticism, representatives of the Iowa Insurance Department and the Iowa securities regulator have attended more than 20 such seminars. He said that some sales practices problems have been uncovered with only two cease and desist orders issued.

NAFA provided a terrific program today, one chock full of worthy insights. Kim O’Brien and her colleagues should be pleased. Due to the absence of the industry press, this analysis is likely to be the only such reporting of today’s events. It’s too bad; there was much which was revealed that fits the definition of “news worthy.”

* * *
During breaks I was able to corner three different NAFA Board members and give them my view that NAFA now finds itself at a critical juncture. I believe that two years from today NAFA can be either substantially irrelevant, or, indisputably vital. What will drive one or the other possible outcomes will be NAFA’s will or lack thereof to confront some very tough issues.

That said, NAFA cannot accomplish this without the strong support and participation by the majority of insurance carriers that wish to manufacture and market quality annuity products. For these carriers it’s past the time when even benign defense of the industry’s worst practices can be justified. With necessary support, NAFA has the opportunity to step-up and wear the mantle of leadership at this pivotal moment.

©Copyright 2007 David A. Macchia. All rights reserved.

NAFA Meeting Kicks-Off; Press is a No-Show

What if you invited three-hundred people to a party and nobody showed?

While I know that press is highly skeptical of the fixed annuity business, even this jaded observer was astonished to hear NAFA Executive Director, Kim O’Brien, report that only 10 of the 300 reporters invited to NAFA’s Annuity Summit even bothered to reply. All who did responded declined.

If I were a Board member of NAFA I’d be in intense self-examination mode; a total press boycott should send a message about the strategy NAFA has taken in rebuttal of every negative article that’s hammered fixed products. I’ve read a number of NAFA’s formal, written responses to reporters who have criticized annuities-especially indexed annuities- and they all have corrected numerous factual misstatements about annuity products.

While that’s good and necessary, the responses aimed at the reporters have typically conveyed a “put down” feel to them that at times has sounded arrogant, angry and heavy-handed. This is a formula for alienation rather than cooperation that is unlikely to serve NAFA’s interests as indicated by the boycott.

If you are a regular reader of this blog you know that I’ve been on a mission to galvanize leaders to the urgency of confronting the industry’s most endemic, difficult-to-tackle problems: sub-optimal agent productivity, over reliance on high commission, opaque and complex products, suspect sales practices, suitability and archaic consumer-facing marketing. A thorough self-examination is vital so that the industry can set itself on a course for greater success in the future.

The industry needs to find the will to do what it’s never done: “call-out” providers whose products and marketing serve to damage the entire industry. I’ve not been timid about doing this. See my comments about Allianz Life as reported in InvestmentNews on 1/15/07. If, say, three years ago companies committed to consumer-oriented indexed products had attempted to isolate and marginalize competitors whose products are manifestly negative to consumer interests, I doubt that the industry would be facing the challenges it now faces.

This is where NAFA can provide leadership in a vital area. I don’t know, however, that it possesses the will to do so. Compare the strategies taken by NAVA and NAFA.

In February I attended the NAVA Marketing Conference. The conference began with NAVA’s CEO, Mark Mackey, delivering an entirely sober, candid and disturbing “State of the Union” that pointed out the tangible challenges facing variable annuity providers. For instance:

80% of financial advisors shun the product

That VAs have been mis-marketed (igniting criticism in the press over fees and tax efficiency) by comparing the variable annuity to other investment products like mutual funds rather than positioning them as risk the management vehicles they are

That VAs have expense charges that many view as unreasonably high

That the product acquisition process is cumbersome and inferior when compared to other investment choices

That the effectiveness of the VA industry’s consumer marketing has been lackluster

To me, this candid acknowledgement of the VA industry’s challenges by the VA industry’s national association is smart, appropriate, real, and entirely healthy. This self-examination and willingness to address its toughest challenges will lead the VA industry to its greatest success. NAFA, in my judgment, should step-up, mimic NAVA and take an active and relevant leadership role. If it doesn’t it will surely drift into irrelevancy.

Yesterday’s kickoff speakers demonstrated that some in the fixed annuity industry remain in a bit of a time warp. The first two speakers, Bob Williams, of Old Mutual, and Barb Cole, of M&O Marketing each presented with skill and passion. Yet, I was left with the feeling that they were missing the mark in terms of providing attendees the timely guidance they need to succeed; each presentation seemed slightly out of context in light of the undeniably hostile marketing environment annuity agents are facing.

I liked Cole’s exhortation to annuity agents to lay down their “credentials” early on in the interview process. She advised audience members that they should proudly tell their prospects that they belong to organizations such as the National Ethics Bureau, or carry designations such as Certified Senior Advisor, or possess any of the many other “certifications” agents typically acquire.

As I heard this I was left to wonder- in the context of the complaints issues in Massachusetts by that state’s securities regulator- if what’s being advised here is arguably illegal in one or more states. The National Ethics Bureau and the Society of Certified Senior Advisors were specifically alleged to be elements of unethical and dishonest marketing activities that agents use to “prey” on the senior population.

Moreover, the presentation techniques illustrated were likely to place the agent in a situation where he or she could be charged with acting as an unregistered investment advisor.

It’s clear to me that yesterday’s marketing techniques and presentation strategies are in need of complete overhaul.

Kudos to Richard Kado of Genesis Financial Products who delivered what, for an actuary, was a riveting presentation on new developments in indexed product design. Genesis’ research has shown that longer indexing periods (multi-year) deliver the best interest growth over time. He also enlightened the audience on the tough balancing act providers face in terms of providing annual liquidity balanced with the attempt to maximize cash value accumulation.

Aviva’s Mark Heitz presented a splendid albeit brief overview of the current annuity market and made some positive predictions about adoption of indexed products by broker-dealers and banks. After the meeting I had treat to share dinner with Mark and found him to be a very humble, classy and passionate industry leader. Mark also agreed to be my interview subject for an upcoming “Leaders & Innovators” piece

I’m anxious to find out how Day Two of this conference unfolds. More tomorrow.

©Copyright 2007 David A. Macchia. All rights reserved,

NAFA Meeting Convenes at Critical Time for Fixed Annuity Industry; Business Leaders and Regulators Slated to Address Tough Issues

Now reporting from Scottsdale…

I’m in Arizona this week to attend the National Association of Fixed Annuities annual Annuity Summit. NAFA Executive Director, Kim O’Brien, and her team have put together a program of very high quality. This meeting is occurring at a pivotal moment for the fixed annuity industry.

Speaking of interesting (and timely), Aviva’s President of Annuity Sales and Distribution, Mark Heitz, will deliver his vision for tomorrow’s fixed annuity marketing and product strategies. Mark will present the keynote address on Wednesday.

On Thursday morning it’s ING’s , Harry Stout, President of the company’s annuity business, who is slated to deliver a morning keynote address. Harry will be speaking about synergies between IMOs and B-Ds in terms of the marketing of indexed annuities.

Both Harry and Mark are strong leaders in the fixed annuity business; their views matter.

My old buddy, Richard Kado, of Canada’s Genesis Financial Products, will talk about the latest in fixed annuity product development. This is something about which Richard is truly an expert. He contributed to the invention of something called the equity-indexed annuity.

One of my interview subjects, Beacon Research’s Jeremy Alexander (see Industry Leaders & Innovators), will deliver the latest fixed annuity industry data. It’s going to be fascinating to see what the numbers reveal about the current marketing environment.

And Lincoln Financial Group’s, David Kittredge, will keynote on the topic of “The Income Revolution.” Regular readers of this blog will know that this is a subject near and dear to my heart. I’m anxious to learn about Lincoln’s take on the issue.

Although the event here in Scottsdale is dedicated to a focus on fixed annuities, NAVA’s General Counsel, Mike DeGeorge, will deliver, “A View of the Industry from the Variable Side.” Discovering NAVA’s perceptions of the fixed annuity world is something to really look forward to. After all, the two product philosophies have borrowed a bit from each other.

Two additional sessions hold special interest, in my judgment. The ACLI’s, Carl Wilkerson, will talk about ongoing task force initiatives. I need to learn exactly what’s in development here. And Iowa Deputy Insurance Commissioner, Jim Mumford, will explain where the regulators are headed. It will be good to know the direction.

All in all, and excellent program is about to be unveiled here in the land of Saguaro Cacti. It’s more than likely that some interesting insights will be revealed over the next two days.

©Copyright 2007 David A. Macchia. All rights reserved.

The Preventable Demise of the Fixed Annuity Business: Part Four of a Multi-Part Series

In the first three parts of this series I offered a historical context for the present challenges confronting the fixed annuity industry. In this fourth installment I’ll present a vision of tomorrow’s practicing annuity producer: an agent who is more productive, who is selling a more diverse lineup of annuity products, who is financially successful, and who is compliant by definition.

Meet Ben Harrison, Future Annuity Agent (with 40 Assistants)

Imagine an early morning in the not too distant future. An annuity producer named Ben Harrison, arrives at his office, logs on to his computer and checks his email. Among the messages he finds are three from individuals not yet his clients.

The first email message is from Sydney Atwood, a 62 year-old employee of VestiTech Manufacturing. Upon opening the message Ben soon realizes that Sydney has 1, during the previous evening visited his Retirement Income Strategies microsite, 2, viewed the movie entitled, “Transition Management Planning Using Fixed Annuities”, and 3, requested a telephone appointment with Ben to discuss one of retirement asset principal protection concepts presented in the movie.

Next, Ben sees an email from Frank Poretta, a 73 year-old retiree who had, at 9:42 PM the previous evening, visited Ben’s Fixed Indexed Annuity microsite and watched the presentation called, “Longevity Insurance: Income Security You Cannot Outlive.”Frank’s message to Ben includes these words: “Thank you for sending me the link to your website. I watched the movie and I feel that this product may be right for what I’m looking for. Please call me a 1-555-465-1103 so that we can arrange to meet and talk about this.

The third message is from Jennifer Wolfe, a 47 year-old single mom who has visited Ben’s Saving for Retirement microsite. After viewing the movie entitled, “Long Term Savings with Tax-Deferred Annuities”, Jennifer has decided to contact Ben to talk about her desire to increase her personal savings. In part, Jennifer’s message stated, “I feel it’s time that I begin to save regularly, especially in light of my company cutting back on matching contributions to my 401(k) plan.”

Ben utters to himself, “Forty active microsites and only three leads today?

Ben’s Multiple Markets & Increased Productivity

Sydney, Frank and Jennifer are individuals with entirely different needs requiring diverse solutions. By virtue of his licensure, industry knowledge, practical experience and product manufacturer representation, Ben Harrison is an annuity agent well-equipped to meet the needs of each of his new prospects.

After closing Outlook, Ben thinks to himself, “It’s a lock that I’ll reach my goal of four sales this week.” Any why not? It’s only Wednesday and Ben has already made two sales; an income-generation indexed annuity with a $125,000 premium, and a MVA annuity with a $215,000 premium. It’s going to be a very good week! Says Ben, “I’m definitely going to reach my goal of 200 cases this year!

In fact, by week’s end Ben’s sales have topped $600,000. Ben likes his “new approach” to the annuity business: He’s selling many more annuities, and his gross income is significantly more than in the past. That the commission on each annuity sale is less on a percentage basis doesn’t concern Ben. He’ll settle for a much greater volume, any day.

The Next-Generation Annuity Agent

Ben Harrison is a modern annuity agent. He doesn’t shrink from what he is, he doesn’t camouflage his identity – he doesn’t have to. He proudly broadcasts to the buying public that he is an expert in the multiple financial needs where annuities play a potentially central role.

Ben Harrison is web-enabled to a super extent. He has forty live microsites, each strategically aimed, and each capable of delivering compliant, state-of-the-art video presentations on each and every product and solution covered in his practice.

Ben Harrison has learned the power to be found in empowering his prospects and clients. He’s learned that consumers enjoy “taking control.” Ben knows that his prospects enjoy learning about and evaluating his products on their own terms: when and where and how they choose. Ben’s come to know that all that really matters is that they call him when they’re ready to talk or meet. Ben’s learned that the power of technology personalization keeps the prospect in his circle of influence.

Ben Harrison has learned that his capacity to cross-sell and up-sell successfully has finally been realized through his ability to aim his microsites at different, needs-based customer segments. Ben has learned that his microsites’ ability to deliver highly-effective sales presentations on a wide spectrum of products has resulted in his ability to earn commissions on a much wider spectrum of sales.

In the context of his prospecting and sales activities, Ben has come to see his microsites as “clones” of important parts of himself. Each performs a limited number of vital functions: engaging clients; educating prospects on products and solutions; asking for an appointment; asking for a referral.

No individual microsite can equal Ben’s own abilities, knowledge and experience. Collectively, however, the microsites create a combined prospecting and sales capacity that Ben could never hope to equal.

Ben has come to value the end of “wheel spinning
.” Until the rollout of his microsite-based prospecting strategy, Ben wasted considerable time with prospects who really weren’t prospects. Ben has learned that it’s more efficient to meet only with individuals who are pre-qualified. Or, as Ben likes to say, “…half sold already.”

Ben has learned to translate the power of “reach” into higher personal income. His forty microsites are able to reach-in and engage prospects even at great distances. Previously, Ben would tend to ignore prospects that live 50 or miles from his home. Now, he regularly acquires clients who live more than 50 miles from his home.

Ben likes to hear his clients tell him that they enjoy the educational and entertaining experiences he provides them through the video presentations he streams from his forty microsites.

Ben likes to hear praise from his clients, not criticism. He is glad for their trust rather than their skepticism.

When Will Ben Harrison Emerge?

In short, he already has. In fact, the technology to create personalized, compliant, streaming video microsites for Ben-and thousands of other annuity agents- is already in use with several visionary annuity providers including SunLife Financial, Aviva and National Life.

These companies are in the vanguard of a movement that will combine compliant video educational content and web-based technology to deliver engaging experiences to consumers’ web browsers; all while strengthening the central role of annuity agents.

Personalization, compliant educational content and agent-centricity are the three indispensable components of the next-generation communications strategy which will help to solve today’s market conduct related problems and liabilities.

To help agents as much as they can, insurance companies must begin to move away from the “all-encompassing, enterprise website mindset” to a new strategy, one that focuses on the creation of dozens of small, strategic and personalized websites for each licensed agent. Only then will today’s problems begin to vanish due to agents who are vital, productive and financially successful through their marketing of annuity products that convey consumer value that is obvious to all.

©Copyright 2007 David A. Macchia. All rights reserved.


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

philipeIn 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.

©Copyright 2007 David A. Macchia. All rights reserved.

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

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.

Soliciting Annuity Agents to Grow the Ranks of Registered Investment Advisors: Road to Salvation? Or A Path to Destruction?

“A fiduciary duty is the highest standard of care imposed at either equity or law. A fiduciary is expected to be extremely loyal to the person (the principal) to whom they owe the duty. They must not put their personal interests before the duty, and must not profit from their position as a fiduciary, unless the principal consents. The fiduciary relationship is highlighted by good faith, loyalty and trust.”

“When a fiduciary duty is imposed, equity requires a stricter standard of behavior. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where their fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from their fiduciary position without express knowledge and consent. A fiduciary cannot have a conflict of interest.”

Just when I feel that I’ve seen everything, along comes something that surprises even this jaded soul. This development, however, strikes me as one with potentially disastrous consequences for unsuspecting fixed annuity producers whose desire for a way out of their current business turmoil may prove to be the first step in a career-ending, bad decision. Is the “Wild, Wild West” of annuity-land now setting its sights on the rarefied world of Registered Investment Advisors?

A few days ago I received a spam email from an organization called Registered Independent Advisors. As I read this email it struck me as quite clearly designed to exploit the present high levels of anxiety and frustration among annuity agents. If you are a regular reader of this blog you know that I have written at length about annuity agents who are been battling a generally hostile marketing environment as well as the intensified scrutiny of securities regulators.

Many who are also registered representatives have seen their broker-dealers intercede in their equity indexed annuity sales and marketing activities with the result that certain of the products most favored by some producers have been deemed by their broker-dealers’ guidelines to be unsuitable.

While the message from Registered Independent Advisors was both coy and somewhat different that so many other creative solicitations I’ve read since 05-50, it was also quite similar. In fact, the message’s first bulleted question states, Do you write over $1,000,000 in EIA premium regularly?” It then goes on to ask, “Are you concerned about the SEC’s Free Lunch seminar sweeps?” And, “Are you unhappy with BD restrictions and haircuts on EIA business?” These are classically Independent Marketing Organization (IMO) themes.

The email message also goes on to state that “we”, meaning Registered Independent Advisors, is not a “marketing organization” but instead is seeking to provide “a real business strategy for 2007 and beyond.”

I’m not sure what “real” is meant to imply. The relevant question is, in my judgment, will taking on the fiduciary obligations of a Registered Investment Advisor prove to be a viable strategy for annuity agents already dealing with a level of complexities they never expected?

An effort to entice both non-registered annuity agents as well as registered reps into the world of Registered Investment Advisory- and all that that implies- strikes me as a topic worthy of exploration. I’ll have much more on this in the days ahead.

©Copyright 2007 David A. Macchia. All rights reserved.