Post on 17-Dec-2015
Retirement Income Solutions After the
500 Year Flood
Jack Sharry
Executive Vice President, LifeYieldChairman, MMI Retirement Solutions Committee
September 16, 2009September 16, 2009
Copyright 1998–2009 FMR LLC
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A Brief History
1970’s• Stocks & bonds• Standardized commissions• A simple business
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Retail Investing: A Brief History
1980’s• Packaged products/IRAs emerge
– Cash Management Accounts, mutual funds, UITs, annuities, tax shelters
• Discounting/discount brokers arrive– Product, price and advice are segregated– Negotiated relationship emerges
• Savers become investors– March & October, 1987
• Performance did not match expectations
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Retail Investing: A Brief History1990’s
• Information overload leads to confusion– Money, Kiplingers, SmartMoney, USA Today– Morningstar
• Load vs. No-Load argument rages– Advice wins
• Managed Solutions emerge– SMAs, Mutual Fund Wrap – next generation packaged
product
• Asset allocation evolves• Variable Annuities with guarantees launch
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Retail Investing: A Brief History
2000’s• Irrational exuberance…until May, 2002• Boomers reach 60• 500 year flood hits in late 2008• Changed retirement mindset
– Delay and/or work in retirement
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Retail Investing: A Brief History
What Now?
UMH > UMA > > >
Platforms > > >
> Programs > > > > > >
>Products > > > > > > > > >
1970 1980 1990 2000 2010
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MMI Retirement Solutions Committee
White Paper
Understanding the Strategic Landscape of Retirement Income
Solutions:
A Survey of Products, Programs, Platforms and Processes to Deliver Retirement Security
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Why We Did This
• Significant industry interest, inquiry & discussion• People save and invest to produce retirement income
• Advisory-oriented research didn’t exist
• Constituents are trying to figure out: • “Where do we fit?” • “How do we play?”
• Convergence of asset management & insurance product development gaining momentum
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Key Findings
• Retirement Income Solutions represent challenge and opportunity for:
• Investors• Advisors• Asset managers• Insurance companies• Sponsor firms• Distributors • Software providers
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Key Findings
• Demographic trends• Baby Boomers are aging and living longer• Investors increasingly “on their own”• Growing concern and desire for risk management
• Changing complexion & complexity of industry• Shift to multi-product/program solutions• Move toward fee-based advisory programs
• Investors and advisors need help• How to grow and optimally draw on their nest egg
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Key Findings
• MMI White Paper:• Frames current retirement landscape• Underscores complexities of income distribution• Highlights currently available income strategies• Identifies requirements for tomorrow’s solutions• Explores operations, technology, regulatory, compliance
& suitability issues• Spells out hurdles firms need to overcome
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The Retirement Income ProcessStrategy
Products/Programs• Develop product & asset allocation strategy• Stocks/ETFs/Annuities• Advisory Programs
UM
H P
ortfol
ioReporting
Discovery • Inventory holdings• Determine risk tolerance • Determine income needs• Create Financial Plan
UMH Income Management • Income Management Utility• Tax optimized withdrawals
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Key Findings
• Conclusion• Opportunity is clear – but, there are impediments• Comprehensive retirement income solutions will be
managed on a platform– By necessity
• Unified Managed Household (UMH)– Platform of the future
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Key Findings
• What’s taking so long?
• Major stumbling blocks:1. Lack of clear retirement income enterprise strategy
» Shortage of senior executive commitment
2. Organizational structures – who’s in charge?» Funds? Advisory? Annuities? Retirement?
Financial Planning?
3. Constrained resources and budgets» Difficult before» Far more difficult now
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Where We Are Headed:
Case Studies of Retirement IncomeThought Leaders
Copyright 1998–2009 FMR LLC
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Investor Sentiment
• Investors have experienced a major blow• 5 years before investors return to 2008 levels
• Not going to have retirement income they hoped for
• Those nearest retirement – scrambling to revamp plans
• Would like to know if there is an answer
• Urgent need and opportunity to engage investors
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Source: MHC/FUSE Research Network, Consumer Insights on Retirement Income: The Keys to a Competitive Advantage in Retirement Solutions, March 2009.
Investor Sentiment
• Affluent investors are re-calibrating• 60% of pre-retirees likely to seek new sources of
retirement income advice• 50% of pre-retirees moved assets before retirement• 68% of retired have consolidated
• What’s the compelling motivation to consolidate to one firm vs. another?
• This is the emerging battleground
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Source: MHC/FUSE Research Network, Consumer Insights on Retirement Income: The Keys to a Competitive Advantage in Retirement Solutions, March 2009.
Advisor Sentiment
• Advisors are re-calibrating• Lost up to 30% of AUM, income…and confidence
• Fundamentals of investment advice didn’t work as planned
• Investment alpha is elusive
• Wondering how to position themselves while re-growing their business
• Recognize need to demonstrate a distinctive value in the face of marketplace skepticism
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New Retirement Realities/Opportunities
• Retirement income drivers• Retirement saving is about securing income over a
retirement lifetime – “outcome”• Contributors to “outcome”:
– Investment Alpha» Recent experience suggests investment alpha is elusive
– Cost Alpha » An important contributor to overall outcome
– Tax Alpha» Powerful, predictable contributor to outcome
– Guarantees» Provides protection and comfort to the risk averse
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New Retirement Realities/Opportunities
• Retirement income drivers• Innovation:
– Less about new products– More about smart ways of combining products
• Competitive advantage will come in managing income • And, building platforms
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Source: MHC, FUSE Research Network
Case Studies of Retirement IncomeThought Leaders
Copyright 1998–2009 FMR LLC
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Morgan Stanley Smith Barney
Select Retirement UMA
• Stand Along Living Benefit (SALB) on a UMA
• MSSB manages the money
• Nationwide provides guarantee
• Maximum Equity allocation: 50%
• Costs: Similar to a variable annuity• Objective:
• Guaranteed income on a UMA provides downside income protection with upside investment returns
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New York Life
New York Life Lifetime Wealth Portfolios
• Lifetime income annuities as an asset class
• Fully integrated managed account combining mutual funds and lifetime income annuities• Ibbotson does asset allocation• Morningstar does fund selection• NYL built operational platform
• Objective: • Turnkey asset management with guaranteed income
that produces more robust retirement portfolios
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AllianceBernstein
AllianceBernstein Secure Retirement Strategies
• Target date funds plus guaranteed annuity withdrawal benefits
• Multi-insurer guarantee platform
• AB manages asset allocation, possibly funds
• Built operational functionality between insurance companies, asset managers and record keepers
• Objective: • Personal, portable pension in a DC plan
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Envestnet
Envestnet Retirement Planning
• Product-independent income planning tools; asset & product allocation on TAMP platform
• Outcome-based approach educates investors on risks across entire portfolio
• Implementing more tax management strategies
• Objective: • Turnkey, tax smart asset management, variety of VA
choices to help manage risk and meet income targets
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SunTrust
SunTrust Retirement Optimized Income
• Managed at the household level – UMH
• Comprehensive Plan/Invest/Manage approach• Plan: Fidelity Retirement Income Evaluator (FRIE)• Invest: SunTrust, Advisorport, funds, annuities• Manage: LifeYield
• Objective: • Turnkey approach offering: planning, tax-smart
accumulation & de-cumulation; and, management of investments, income, and cash disbursements
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SunTrust Retirement Optimized IncomeStrategy
Invest• Create product & asset allocation strategy• Stocks/ETFs • Funds/Annuities• Advisory Programs
UM
H P
ortfol
ioReporting
Plan• Inventory holdings• Determine income needs• Determine risk tolerance• Create Financial Plan
UMH Income Management• Income Management Utility• Tax optimized withdrawals
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Retirement Income Solutions After the
500 Year Flood
Jack Sharry
Executive Vice President, LifeYieldChairman, MMI Retirement Solutions Committee
September 16, 2009September 16, 2009
Copyright 1998–2009 FMR LLC
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