Retirement Income Solutions After the 500 Year Flood Jack Sharry Executive Vice President, LifeYield...

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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http://www.fidelity.com/

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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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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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


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Before the 500 Year Flood…

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…After the 500 year Flood

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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


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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


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Retirement Income Solutions After the 500 Year Flood Jack Sharry Executive Vice President, LifeYield...

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