A panel on the second and final day of the Insured Retirement Institute Vision Annual Meeting in September shined plenty of light on the issue of retirement income innovation—both the need for same and what the innovations might include.
The panel included Nick Lane of AXA, Philip Pellegrino of UBS Financial Services, Marc Pester of Prudential Retirement and Stefan Hubrich of T. Rowe Price.
Lane, senior executive director and head of U.S. life and retirement for AXA, kicked off the discussion by saying that in retirement planning, “the demand side is well-documented,” but the supply of advisors to help with that demand is the first challenge. To counter the trend of fewer advisors, he called on the industry to “recruit and bring more women into the industry itself; if we had more women we could meet more demand.” (See “Seen and Heard,” Investment Advisor, October 2014.)
Further, Lane called for “the institutionalization of insurance as an asset class.”
Just as “Bill Gross and PIMCO institutionalized bonds are an asset class” among investors, “insurance should be an asset class; a piece of the pie chart” in clients’ retirement plan that’s noncorrelated to the ups and downs of the markets, and provides tax deferral and guaranteed income with better risk-adjusted returns than traditional stock-and-bond portfolios alone.
Lane called insurance “the putter” in clients’ retirement golf bags—“you drive for show but putt for dough”—and that the industry “can’t wait until they’re retired to give them a putter.”
In addition, Lane said that what “we learned from the financial crisis is to make sure you take care of your tail risk.”
Lane lauded the industry’s newfound focus on the outcomes of retirement planning, helping retirees take care of their medical costs in retirement and “being prepared for the unknown.” Lane also noted that the industry must address “financial protection for the modern family; we have to redefine our notion of family to protect it going forward.”
He closed by calling for greater participation by both defined contribution plan participants and individuals, and a warning about increased longevity which will remain a challenge for asset managers and insurers: “the first person who will reach age 150 has already been born.”
Pellegrino, executive director and head of annuities at UBS, said his company’s approach is to “help our advisors position themselves as ‘longevity advisors’” in order to become the advisor of choice for their clients. The conversation about retirement and longevity, he said, begins with a “solid financial plan,” which helps that advisor understand the clients’ needs, including their “living needs and health care needs” in retirement.
Through his experience at UBS, where Pellegrino sits on a monthly annuity product committee, he said “simple is better” when it comes to products and clients. “Even though we focus on the high-net-worth and ultra-high-net-worth client,” some advisors think “the product has to be complex; it doesn’t.”
Pellegrino said that regardless of the sophistication or wealth of the client, “they want simplicity.” So he urged the audience members to ask themselves when considering a new annuity: “Can we explain this in three or four bullets?” In addition, he urged product manufacturers to “remember it’s all about income. That’s our core business; the client is concerned with living 20 to 30 years in retirement” and needs that income to do so.
Pester, senior vice president of Prudential Retirement, shifted the conversation to the defined contribution marketplace. “It’s the primary source for their retirement income,” he said.