Eric Henderson has a unique view of the retirement income industry. As senior vice president of individual investments for Nationwide Financial, he’s responsible for both the consumer and plan sponsor sides of the business. He knows what works and what doesn’t, what’s needed and what’s in demand. We asked him if, as an industry, we’re making any headway in addressing the ongoing retirement crisis (destined only to get worse as baby boomers turn 65 in 2011). He had a lot to say.
Where are we in the retirement income crisis?
A number of studies have recently shown the percentage of people who are confident they’ll have a comfortable retirement dipped further in 2011 than in 2009 at the bottom of the market. With 401(k) balances well above where they were in 2009, you’d think it would pop back up. The take-away is that it’s not that people are less prepared than they were two years ago, but that people are finally realizing just how unprepared they are.
So it’s still about effectively educating the public?
Yes, it’s an education thing. We’ve worked with the Boston College in the past and their retirement risk index shows 51% of Americans face the prospect of not having enough money to maintain their current standard of living in retirement. That’s half of Americans, and that’s amazing.
Part of that is because they haven’t saved enough, but what about from a product standpoint? Are they looking for different products in the wake of the downturn that are better at getting the job done?
From a product standpoint consumers don’t know what they want because they still really don’t know what’s out there. They know more [about what they need] from a benefit standpoint; having income that will last a lifetime and dealing with health care. Those are two things that rise to the top in any of the consumer survey work that we’ve done.
A number of annuity manufacturers didn’t hedge their risk properly, and as a result rattled the entire industry during the economic crisis. Have those concerns been addressed? Are you seeing renewed interest in annuities?
We’re definitely seeing renewed interest, the difference being that before the crisis advisors didn’t ask about solvency concerns, or hedging, or risk management. Now we’re seeing a lot more of those questions from advisors. One of the things Nationwide has done is gone out and worked with our wholesalers to educate advisors about risk-based capital and hedging.
Are you seeing more interest from high-net-worth advisors, specifically those that might have shunned annuities, but now understand the power of the embedded guarantees?
Yes, and we at Nationwide are very interested in a fee-based advisor space. We actually launched the fee-based advisor initiative in September 2008. We’ve made some changes, but overall have kept it consistent, and we’ve steadily gained market share over every quarter since mid-2008. While a lot of companies have good products, what Nationwide has hung its hat on over the last couple of years is, in most situations, we provide the highest guarantee. So that has worked really well for us. Both the value that the rider brings to clients and the fact that we’ve been able to weather the storm very well. We didn’t have to take government money, we really didn’t have to go out and get extra money. The variable annuities at Nationwide actually contributed capital to the company in 2008 and 2009. I don’t know how many other companies can say that.