Two years ago, at a conference Fran?ois Gadenne hosted on the emerging shift from asset accumulation to retirement income distribution, a man got up and accused him of marketing hype.
“It was very clear, even back then, that we were far from consensus on this transition,” says Gadenne, 51, the founding chairman of the Retirement Income Industry Association. “As recently as 2005, many didn’t think this shift was real — let alone building products aimed at it.”
What a difference two years make.
Fran?ois Gadenne, Founding Chairman; Retirement Income Industry Association; BostonSound Bite: “Think of us as Switzerland. This is a place where everyone can get together and have this view across business silos. Here you can entertain thoughts and have discussions that might not otherwise happen.”The Challenge: “Accumulation approaches are no longer adequate and income generation approaches are still in development. What can an advisor do when investors need retirement income advice now?”
Gadenne’s response was to found the Retirement Income Industry Association, or RIIA. Today, forward-thinking companies are rushing to develop retirement income solutions. Research firms are pushing out white papers on the retirement income challenge. And advisors, at least those on the cutting edge, are rethinking ways to deliver their personal best to their clients.
Gadenne, regarded as one of the industry’s most insightful thinkers on the subject, believes that the solution to the retirement income challenge lies in tackling the issue across business silos. For that reason, RIIA, representing just over 100 member institutions, covers a wide reach — not just product manufacturers, financial advisors and technology solutions providers but plan sponsors, academics and research firms, among others.
As Gadenne frames it, the demographic shift of aging boomers marching into retirement has fundamentally altered the industry’s “center of gravity.”
“It’s not a binary event; it’s a little more fuzzy. But business as usual is no longer sufficient. The industry is now recognizing that this isn’t nonsense, it’s real,” he says. “What the industry must also realize is that what needs to be done must occur across business silos. Typically, the reaction has been: All we do is what we know. That won’t work here. Putting a layer of makeup on something doesn’t fix it.”
Gadenne, an entrepreneur born and raised in France, has always worked at the intersection of computer technology and finance. After getting an MBA from the Kellogg School, he pursued an interest in artificial intelligence by joining a start-up involved in the development of expert systems for the financial industry. After that start-up failed, he joined Arthur D. Little’s artificial intelligence section, leading the team that built a weather forecasting system for NASA following the Challenger accident.
“Weather data. Stock data. If you don’t label it, you really don’t know which is which,” he says. “You’re working with the same mathematical properties.” Gadenne’s next gig? Working as a resident entrepreneur at the Bank of Boston, where his accomplishments included launching the 1784 mutual funds family and developing a technology-focused investment advisory unit for the firm’s private bank.
In the early 1990s, he co-founded Rational Investors, which provided advice in 401(k) plans over the Internet. In 1999, Standard & Poor’s bought the firm and Gadenne became the general manager of S&P’s retirement services division. After his own “retirement,” which lasted 59 days, Gadenne co-founded another start-up, Retirement Engineering, Inc. The firm is developing products, planning methods and advice software for financial institutions that compete in the retirement income market. This past July, REI received its first U.S. patent for investment products the firm has pioneered.
Gadenne organized RIIA after hearing persistent industry chatter about the need for an association that would address retirement income issues across the traditional product, process and business silos. It got to work fast. RIIA has already introduced an education and training program that will result in a new designation: Retirement Income Expert.
As David Macchia, a RIIA committee chairman, notes: “I think Fran?ois’ voice is one of the most important in all of financial services. He’s had some important insights, including understanding early on that the need to have an organization to come together across industries is essential to creating the future of retirement income security.”
Already, Macchia sees progress.
“We have financial services companies which are viewing the retirement income opportunity in a different way than they probably would have absent Fran?ois’ vision,” says Macchia, CEO of Wealth2K, a strategic marketing consulting firm in Massachusetts that focuses on the financial services industry. “More and more, they are looking at their role in retirement as less of an incremental change to an existing business model, but more as a fundamental change, if not a new business model. Now that’s a key insight.”
At the moment, Gadenne says advisors are “sitting between chairs” and that progressive companies have begun to realize that they need to do a better job helping advisors become experts at retirement income distribution planning. That doesn’t mean only product, he says, but process.
“It’s still a muddle. The first reaction of players is to do the first wave — basically see if they could make incremental changes to their business model. Insurance [companies] put income riders on variable annuities. Mutual funds went with target-date funds. Software firms came up with systematic withdrawal plans. It’s all first-wave. It is meeting some level of success, but it’s not meeting all the success one would like to see,” notes Gadenne.
“The question now is how do we go from Phase One to Phase Two? What the heck is that second wave? Those are things we’re putting squarely on the table,” he adds. “I don’t think there will be a solution, but lots of solutions. Do I think one size fits all? No. But we are getting there. We’re getting there.”
Freelance writer Ellen Uzelac is based in Chestertown, Md.; the former West Coast bureau chief and national correspondent for The Baltimore Sun, can be reached at [email protected]