David Macchia Interviews New York Life's Chris Blunt

Macchia: It’s difficult to find positives in the economic meltdown. In terms of retirement income planning, however, I’m wondering if there may be one long-term positive. That is, many financial advisors are beginning to look at investing for income generation as both more nuanced and more complex than they had previously thought. Do you agree? And do you think that over time this may be beneficial for both advisors and their clients?

Blunt: Yes, I think it will be a long-term positive for both advisors and clients. I like your word nuance a lot. I think what they’ve figured out is that the process for generating income and the old rules of thumb are radically different than they were in the accumulation phase, and more complicated.

I also think you’re going to see a greater appreciation for guarantees and some form of partial annuitization. Obviously, as an insurance company, we’re trying to position ourselves for exactly that development. Having said that, for the longest time, what appeared to be intuitive to both the academics as well as the students of financial planning, that is the use of annuitization to offset longevity risk, ran headlong into the business model of most advisory firms.

We are all shaped by what we were taught when we first started in the financial services business. I started my career as a financial advisor with Shearson Lehman Brothers in ’86 and they pounded into everybody’s head: accumulate assets, and put clients in fee-based accounts. And the industry got pretty good at that.

Macchia: Your comments imply a more thoughtful appreciation for the products offered by insurance companies. But think about recent decades. It’s clear to me that life insurers lost the competitive battle to the investment management industry.

Now that the weaknesses of asset allocation have been exposed, and considering that many investors may now crave stability over gains, do you think we’re at an inflection point? One where insurers may win back market share?

Blunt: We are. I’d say absolutely yes to both. I’ve positioned this opportunity to our board of directors by saying that I believe we’re going to look back on this and say this was one of those two or three monumental inflection points for our industry. And I do think it bodes well for insurers, but we also have some challenges. As insurance companies, we’ve got an inherent product edge, in that we can make guarantees and offer risk pooling to clients. But I think part of the challenge for the insurance industry has been a distribution disadvantage.

As you and I both know, distribution is king in financial services. And so I think for insurance companies to truly take advantage of the opportunity, a big part of the challenge we’ve got is to convince distributors that they need to think about the business a bit differently.

One of my biggest frustrations of watching this whole retirement-income industry develop, has been that too many of the providers viewed it through the lens of their existing product set and tried to retrofit their existing accumulation products into a one-size-fits-all retirement income solution.

In the money management business, you’re talking a lot about Monte Carlo analysis, and systematic withdrawals and 90 percent confidence levels. If you are a big variable-annuity writer, you talk about living benefit riders as the answer for all the baby boomer’s hopes and dreams. And in our case, we’ve led with immediate annuities because we thought that was the purest, most elegant, true income solution. The lesson we’ve hopefully all learned is that there is no one answer to providing individuals true retirement income security.

What clients most need is a process. And there’s a place in everybody’s portfolio for everything we just mentioned. And the real key is, are we viewing it through the lens of the client? Are we seeing it through the client’s eyes with a model that we can all step back and agree will get consistent results? But also, is it one that we can actually communicate clearly? Sometimes when you stretch for that last 10 percent of perfection on the product itself, you can introduce too much complexity and therefore the client doesn’t completely buy into the solution.

Macchia: The notion of reliance upon an insurer’s lifetime guarantee to provide continuing retirement income is, perhaps, more questionable today in the minds of potential buyers, given the failure of AIG and the concerns over the health of some insurers that have seen their share process drop off a cliff. How does New York Life successfully differentiate itself in the present environment?