“The pendulum is swinging our way,” said a variable annuity executive here in a panel on innovation in retirement income products.
Media reports on VAs have moved from focusing on VA expenses and how to get out of VAs to talking about VAs as something that people might want to get into, said Rob Scheinerman, senior vice president, SunAmerica Retirement Markets, Los Angeles.
He attributed this not only to the changing landscape for retirement–IRAs, fraying safety nets, retirement demographics and risks–but also to changes in the VA products.
The products are shifting from focusing on asset accumulation to including asset protection and income solutions too, Scheinerman said. The VA has become a “unified package” of investment choices, liquidity options, legacy planning features and income guarantees, he explained, with multiple withdrawal and income options, and with more innovations on the way.
Christopher Grady, president and CEO-retirement income at Genworth, Richmond, Va., agreed that VAs have excellent features and benefits.
“But, with so many extraordinary features, why does the industry have only $1.3 trillion to $1.4 trillion in assets compared to the $12 trillion in mutual funds?” he asked.
“Mutual funds are outselling us by about 7 to 1,” said Grady. “Where is the disconnect? The challenge?”
He described the industry’s problem as a type of a “if we build it they will come” type of thinking.
“They haven’t come,” Grady said. “For the last 6 years, sales have been flat.”
He urged industry leaders to get back to basics. “Look at the retirement security space, not just the VA space,” he said. “Why not simplify the process and bring the value proposition” to the consumer?
This is what his own company is doing, Grady said, via thought leadership, product innovation, and simplification. Some of the details include education of government leaders “who don’t know our products” as well as of consumers and advisors. The company is also designing products that approach retirement “holistically,” he said, with the understanding the consumers can’t do it alone; they need help.”
The challenge for the industry, Grady concluded, is to “move to the consumer–with great products, marketing distribution and service.”
“If we have the best consumer value proposition but only $1.3 trillion in assets, we need to fill that gap.”
The panel included two executives whose firms are focusing on simplicity in different ways.
Ann M. Soucy, managing director-key accounts, Old Mutual, Atlanta, said her company entered the VA market a year ago, aiming its product at registered investment advisors and other fee-based advisors. “We made it simple and transparent, with zero M&E charges, zero surrender charges and zero commissions, and no 10-day free look; the owner can pickup and go,” she said.
The results: “We’re seeing new consumers come and, and also advisors who typically don’t recommend VAs,” Soucy said. “The average ticket is $240,000.”
Jane Mancini, CEO of 1-Pension LLC, a registered investment advisory firm based in Newton, Mass., said her firm does the risk profiling, asset allocation and money management on behalf of defined contribution plan participants and individual investors and retirees.
The results: “We’ve saved hundreds of thousands of dollars for some of them.”
Most people “don’t manage their own 401(k)s, not even people in the mutual fund industry,” Mancini observed. And the traditional approach of putting mutual funds in the Morningstar grid and then leaving it alone is not sufficient. Many are “astonishingly” over-allocated in small cap and large cap growth, she said, adding: “It’s scary; they go where the names are; they don’t understand.”
Also at the meeting, Catherine Weatherford, the new CEO of NAVA Inc., urged the annuity industry to attack problems caused by today’s economic storms rather than just “hunkering down and waiting it out.”
Weatherford proposed a 3-point action plan for the industry.
First, she said, make it clear to the public that policyholder investments in annuities are safe and sound.
Second, focus more than ever on customer service and policyholder protection, she said, “letting the investing public know that we’re acting on their behalf.”
Third, she proposed creating a new “consumer confidence task force” through NAVA. The purpose of the task force would be to “develop an action plan for navigating through this climate,” she said, adding that this task force would work not only with NAVA’s own public relations and regulatory affairs committees but also with regulators and the public.
Weatherford has regulatory roots herself. She spent 12 years as executive vice president and CEO of the National Association of Insurance Commissioners, Kansas City, Mo., and served a 4-year term as Oklahoma insurance commissioner starting in 1991. In August 2008, she joined NAVA as president and CEO, succeeding Mark Mackey, who retired after 10 years.
This was Weatherford’s first formal address to the association. “NAVA,” she said, “won’t sit by, wringing our hands and let events happen to us. We will attack the problem.”
NAVA’s top officers carried that message forward.
“This industry can go in one of 2 directions,” said outgoing chairman Clifford Jack, who is executive vice president and chief distribution officer of Jackson National Life, Lansing, Mich. “The industry can do what it has done in the past, or it can become a lot more aggressive.”
The annuity companies have the right product at the right time, Jack continued, “but we need to simplify our products and message, and we need your help.”
Incoming NAVA Chairman Mark Casady, the chairman and CEO of LPL Financial Services, San Diego, Calif., said the speed of change in the financial services industry has been “remarkable.”
For example, the country no longer has investment banks, Casady said. “Now, all (banks in the United States) are commercial banks, and it happened in just 2 weeks.”
So, “the trends are accelerating,” Casady continued. This increases the speed required (or companies) to get information and to process information.
Where annuities are concerned, consumers want unbiased advice, he said, and the industry should expect more acceleration here too.
“It’s tough for all of us to watch” the problems in the banking industry and the related developments, Casady allowed. “But it is important for us to get behind whatever the new normal will be.”
In this vein, he said the NAVA board has agreed that the association will be more aggressive about consumer protection issues and promoting the work NAVA members do in providing annuities to clients.