Modern day meetings

On March 3, the Money Management Institute ( held its second Executive Roundtable for leaders of the Annuity and Insurance industry, the “retirement income” leadership.

My kickoff session to the meeting was “The Outsider’s View” about the opportunities and challenges facing the industry right now. Here’s a recap of my key points from yesterday’s meeting.

Money Management Institute Insurance and Annuity Executive Roundtable

My theme was that we are on the cusp of an unprecedented opportunity for “retirement products” because of the sheer size of the cohort, the assets they control and the relative liquidity of those assets (highest cash levels ever, value of home equity exceeds value of investable assets, etc), BUT that we face well established, entrenched “opposition and inertia”: Complacency. Much of the advice industry has become complacent due to the incredible 17+% annualized return of the stock market since March 9, 2009 and the similarly unprecedented 11+% annual gains in the bond market. Both clients and their advisors have been floating on the rising tide.

The Size of the Market. The assets of the demographic have exploded. Investable assets exceed $30 trillion. But note also that home equity is even higher at $32+ trillion. 37% of the homes in the US have no mortgage. This equity is a currently untapped source of incredible potential for the retirement income industry (see more at The potential for investment in retirement income products is the home equity plus the available cash — nearly $40 trillion — exceeding the value of all other currently invested investable assets.-

The Role of Rising Anxiety. Fear is widespread among the target retirement income market. Redemptions from traditional investments have been steady since the December 2018 market crack. Cash levels among HNW and mass affluent Baby Boomers has never been higher. And we believe that once an investor sells their fund or managed account, they are not going back. So what will they buy in a marketplace where bond yields are below 1%??

Ignorance of the Demography. The retirement market demographic has shifted dramatically. In 2009 the median age of advice clients was about 55, now it’s about 65. There is a world of difference between a 55 year pre-retiree at the peak of their earning potential and a 65 year old at “retirement age”. What once was an abstract objective is now reality. Confidence has been replaced by anxiety. Planning is Mostly Talk. We talk a lot about “planning” but real planning is not performed by more than 10-20% of “financial advisors” — and advisors are having the wrong conversations, avoiding longevity planning for the most part and being unprepared to support client life events

Client Experience is Mostly Not Even Talk. We talk a lot about “client experience” but at least 80% of the clients of “full service” advisors do not receive an appropriate level of attention from their advisors so clients have diversified relationships and the firms are now looking at the potential to centrally manage clients. But advisors could score huge wins with better engagement strategies that target the flip side of that “80/20” reality. We think the key is to talk about what advisors are generally not talking about — longevity planning.

The Need for the Right Planning is Not a Fun Topic. Longevity planning is tough — and a lot tougher than “retirement planning”. So many advisors — and clients — avoid the subject. Complex, complicated and emotional. Many of the advisors selling products don’t have the emotional tools to counsel people IN retirement. They will struggle to add value.

We’ve Seen This Movie Before — and Won. The parallel is the shift from stocks and bonds to professional management beginning in the mid-late 1980s. This same cohort was beginning to save and invest. Stockbrokers and high commissions and churning abuses were gradually replaced by managed mutual funds, managed separate accounts, then lower priced entries of same. And VAs. The packaging of professional management replaced the stockbroker norm. And the managed account world, now led by the Money Management Institute and the ICI and the IRI and the ALI has consolidated those gains. Importantly, not all stockbrokers survived this transition.

Simple Tools Make it Happen. The key to the transition is a combination of 1) very simple tools to help advisors engage clients differently, like the investment policy questionnaires developed in the 1980s, 2) different key performance indicators for the business — share of wallet, share of market, net asset flows, referrals, net promoter score — more aligned throughout the organization instead of specific product line sales that are an insular approach, 3) organizational commitment to the ease of doing business for advisors/clients and the supportive technology to attack the scale and reserve the people to do work that machines cannot do. But start with the tasks for the machines as the default, not wait for the humans to get “full” and dump the rest on “digital”.

Punchline — it’s a new day with immense new opportunity, but also a very different business than the one we have managed to date. It will require fresh thinking, different metrics, different skills, different management. But the Prize is worth the effort!