MASTERCLASS: Retirement Reset- Protecting Your Client's Portfolio

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  • 01 hr 06 mins 28 secs
Retirement income planning is experiencing growing interest and demand among consumers – particularly the baby boomer generation. This is especially true in our current volatile market environment. Traditional retirement planning and investment portfolios have typically been built on aggressive, moderate, and conservative investments, depending on things such as a client’s age, risk tolerance, and market conditions. A fourth element – protection – should be incorporated into a truly diversified retirement portfolio today. The focus of this class will be on how financial professionals can shift their planning mindset from accumulation and investment-only solutions, to retirement income planning that incorporates protected lifetime income from annuities.

    Moderator:
  • Robert Powell, CFP® - Editor, Retirement Daily at TheStreet (host)
  • Speakers:
  • Aimee DeCamillo - Chief Commercial Officer and President, Jackson National Life Distributors
  • Caroline Feeney - CEO of Individual Solutions at Prudential
  • Ken Mungan, FSA, MAAA - Chairman of Milliman
  • Will Fuller - President, Annuities, Lincoln Financial Distributors and Lincoln Financial Network

Channel

MASTERCLASS



To access the Financial Professional Resource Center, go to resources.protectedincome.org

Robert Powell: Hello and welcome to Asset TV Masterclass, Retirement Reset. I'm Bob Powell, Editor of TheStreet's Retirement Daily. I'll be serving as the moderator of today's masterclass.

Robert Powell: Our subject for today's class is Retirement Reset: Protecting Your Client's Portfolio. Here's an overview of what you'll learn in this masterclass. Retirement income crisis in America, how and why we got here, the status quo in financial planning and retirement planning may no longer be sufficient for most Americans; what the current financial planning ecosystem lacks the most; the big retirement risk that current and near-retirees face; why annuities are so underutilized as a source of protected income. Plus, you'll learn about the changes our experts are seeing in consumer demand and behavior within financial plans, and you'll learn what the implications are for the future of annuities given recent laws that have been enacted. Now I'd like to introduce our experts for today's masterclass.

Robert Powell: Ken Mungan. Ken is Chairman of Milliman, where he founded the financial risk management practice in 1998. Ken has a degree in Mathematics from MIT and he is a fellow with the Society of Actuaries as well as a member of the American Academy of Actuaries. He's globally recognized as an expert in risk management and mitigation.

Robert Powell: Caroline Feeney. Caroline is CEO of Individual Solutions at Prudential, where she is responsible for Prudential's US retail businesses, which include the groups that provide financial advice and develop, distribute, and service annuities, individual life insurance, and other outcome-oriented solutions for consumers. Caroline holds the Chartered Life Underwriter and Chartered Financial Consultant designations, as well as an MBA from Columbia University.

Robert Powell: Will Fuller. Will is President of Lincoln Financial Group, with operating leadership over three business divisions: Annuities, Lincoln Financial Distributors, and Lincoln Financial Network. In his role, Will is responsible for Lincoln's market-leading annuities business as well as its wholesale and retail distribution franchises. He graduated from The Citadel in Charleston, South Carolina with a BS in Business and Finance.

Robert Powell: Aimee DeCamillo, Chief Commercial Officer at Jackson and President, Jackson National Life Distributors. Amy is responsible for leading Jackson's growth strategy and overall product distribution and marketing teams across US business operations. She holds a BA in International Relations from Michigan State University and is a chartered retirement planning counselor. She earned FINRA Series 24, 7, and 66 registrations.

Robert Powell: So the way this masterclass will run is this. Each expert will speak for about five minutes in response to a question I'll ask. After that, we'll have a fireside chat and take a deeper dive into our subject. So, let's start with you, Will.

Robert Powell: The status quo in financial planning and retirement planning seems to be insufficient for most Americans, and at no time has this become more apparent than during our current health and economic crisis. What has changed and how should investors and financial professionals be responding?

Will Fuller: Hi, Bob. Thank you very much. Glad to be here today discussing this topic. It's been said often that this is a retirement crisis, or that we have a retirement crisis that is looming in America. We believe it's right here now and it's been here long before the recent health crisis.

Will Fuller: I think there's a couple of factors that support this. Number one, we have more people entering retirement than we've ever had before, at the same time where less people have access to a pension plan like they've had in the past. A pension plan was one where you get your last paycheck from work and you'd enter your retirement years. The next month, you'd get another paycheck, and it'd be a paycheck from your pension plan.

Will Fuller: I think there are a lot of American families that know exactly how much money they need each and every month to cover their expenses. That's what I think the challenge is for investor, is that now that most Americans don't have a guaranteed income, they're responsible for managing their own savings and having their savings generate maybe through withdrawals or maybe through interest payments, which is really hard when you consider we're at a period of very low interest rates, to cover those household expenses that aren't covered by social security.

Will Fuller: The problem is on their shoulders. It's a very difficult problem to solve. I think it's one reason why we formed the Alliance for Lifetime Income was to really educate consumers directly about the need to think about income planning and think about sources of income in retirement to cover their expenses like mortgage, utilities, and groceries.

Will Fuller: For financial advisors, they play a significant role here because the research suggests that those investors that have a financial advisor are more confident, are more aware of their retirement income. But advisors themselves are impacted because they have to go through a transition from this assets under management and accumulating assets to investment performance to assets under withdrawals or assets generating income for their customers that not only are there more of them without pension plans, they're going to live longer, and the longevity risk is one that's very difficult to manage.

Will Fuller: So that's been around for a while. That issue has been around for a while, and those are the factors associated with the retirement crisis. Now you have the recent healthcare, COVID-19 situation, which, if you think about it, impacts the generation of Americans entering retirement the most. Those are the 55 and over. Those are the ones that are most susceptible to COVID-19 and other type of health concerns. They're the ones that are most dependent upon their savings-generate income, and yet they're the ones that have the most amount of investable assets in America right now.

Will Fuller: So when you see an equity market decline as sharp as we did, they're impacted the most. When you see interest rates fall to levels that we've never seen before, they're impacted the most, particularly if you think about how to generate income over a long period of time and the role interest rates play.

Will Fuller: Again, I think this is the reason why I think what we're doing here today is so important, is to educate consumers' advisors. I think it's a reason why the Alliance for Lifetime Income was established as a nonprofit focused on consumer education and it's one that I think is very important to American public policy.

Robert Powell: So, Ken, next question for you. You talk about the three keys to being financially secure in retirement: save money, make it grow, and make it last. When thinking about the risk Americans face today in reaching their retirement goals, where do you think the current financial planning ecosystem is most lacking and why?

Ken Mungan: Thanks, Bob. The current ecosystem is really lacking on that third piece. As you said, when clients work with a financial advisor, they actually need to do three distinct things. First, save money and make it grow and then ultimately make it last.

Ken Mungan: My point is that those three things actually involve very different steps of professional skills. As a financial advisor works with a client, getting them to save money is all about counseling, establishing the right behaviors so that they're consistently saving money as they're going through their work in years.

Ken Mungan: But that in and of itself is not enough. You've got to invest for the future and make that grow. Financial advisors are fantastic at meeting client needs in that area. Helping them to make relative value decisions as they evaluate stocks, different mutual funds, different sectors of the equity market, if they allocate assets between stocks and bonds, that concept of how can we plant the seed and actually make it grow for the future is where the financial advisory system has really done a fantastic job meeting client needs.

Ken Mungan: But as Will said, now that Americans are getting older and going into retirement, they actually face a completely different problem, which is making it last. Making money last throughout an uncertain period of retirement is a risk management problem. That's completely different from the asset management or investing problem that people faced previously.

Ken Mungan: When you look at that risk management problem, financial advisors need to recognize that that's a problem with several distinct areas, and each one has its own difficulty. So, first is managing market risk.

Ken Mungan: If you look at managing market risk, there are a number of different issues associated with it. First is volatility. As advisors are allocating client assets, they have to recognize the fact that volatility ultimately drags down returns over time.

Ken Mungan: A simple example is if we have a 50% market decline, you need 100% growth to get back to where you started. That mathematical process of volatility just systematically drags down returns, and advisors need to be able to manage that so that they can protect their clients.

Ken Mungan: But then there's the sequence of returns problem. If you look at the marketing information on any investment fund, it assumes a buy and hold investor. But as clients go through retirement, none of them are buy and hold investors. They're spending money every month on mortgage, utilities, groceries, all those big monthly living expenses.

Ken Mungan: So the problem that they face is if the market goes down and they're spending money to meet those needs, they're depleting their portfolio at an accelerated rate. Even if the market were to come back for a buy and hold investor, the portfolio value for that client does not come back because they've depleted it. And so, addressing that sequence of returns problem is part of managing market risk.

Ken Mungan: Now if that were all that there were to it, it would be hard enough right there. But there are three other aspects of the problem. The next is longevity. People don't know how long they're going to live. So, as a financial advisor is planning with a client, do they plan to their life expectancy? Do they plan for some defined period of time? The reality is you don't know.

Ken Mungan: The way I like to explain it is imagine we were engineers and we're going to build a bridge. You would never build a bridge to withstand the weight of the expected number of cars that are going to be on that bridge at any one time. You would have to consider standard deviations, two, three, four standard deviation events that that bridge or that portfolio is going to be able to withstand that.

Ken Mungan: Longevity is the same thing. If your life expectancy is to 83, well, what if you lived to 93? What if you celebrate your hundredth birthday? So, the financial plan has to take that into account. Both market risk and longevity risk can be analyzed and managed in a very mathematical way. But the next two are much more personal.

Ken Mungan: So third is anxiety. When people see the market plummet, as we've just had with the COVID-19 pandemic, they experience tremendous anxiety. When people experience that anxiety, their fight or flight mechanisms kick in and the vast majority of people are going to ... They're going to do something. In the financial world, that means they're going to engage in actions that are almost always value-destroying.

Ken Mungan: The things you do when you're filled with fear and anxiety are not helpful parts of a long-term financial plan. And so, as a financial advisor is putting a portfolio together, here she has to understand how this will respond during a time of extreme anxiety.

Ken Mungan: The last one is one we don't like to think about, but it's going to happen for all of us and for the people that we care about. As we get older, our capabilities are going to decline. We are going to go through a period where our vitality simply is on a downward trajectory, and making complex financial decisions is difficult enough when people have all of their physical vitality and their mental vitality. Imagine having to deal with these uncertainties as you get into your 80s, into your 90s. That's very difficult for people.

Ken Mungan: Also, think about meeting that income need every month. If you're 67 and you just retired a couple of years ago and you have an income shortfall, you could go get a job. You could address the income need that way. But if you're 82, you can't. As you get older, your vitality's declining, some options are closing off and you need to have planned for that in advance.

Ken Mungan: So for financial advisors to address that risk management problem, an amazingly effective way to do that is to allocate a portion of a client's portfolio to an annuity. They're accessing the insurance company's market risk management capabilities. They're getting the pooling on the longevity piece of it. They're putting a portfolio together that addresses the anxiety and the vitality piece in advance. So that risk management piece is really where the focus needs to be today.

Robert Powell: So, Caroline, next question for you. When we think about protected lifetime income, there's only three sources: social security, pensions, and annuities. Economists and experts have long said annuities are a no-brainer to reduce risk and protect retirement income, yet annuities have been the most underutilized in retirement planning. But why is that?

Caroline Feeney: Yeah. Thank you, Bob. Happy to be here. Certainly, a great question and also a very important one. I think Will and Ken both did a great job explaining more about the retirement income crisis we're facing as well as many of the risks and challenges that are inherent in retirement planning.

Caroline Feeney: And so, to that point, why aren't more financial professionals offering annuities as solutions and why aren't more consumers leveraging them as a solution to the retirement income crisis? I'll start by saying that annuities are designed to solve a range of complex needs. And so, they account for many variables. That leads to products that can be robust, but also often intricate.

Caroline Feeney: Compare it for a moment to the evolution of a car. I mean 15 years ago; seat belts were just introduced as standard equipment for a car. Well, just imagine today trying to drive a car without a seat belt or even air bags for that matter. At the end of the day, people want to know that they're going to be able to get in their car and it's going to bring them from point A to point B very safely.

Caroline Feeney: I would say that annuities has been on a similar evolution over the past few decades. Just like the car examples, we've been adding more safety and protection features and continuing to make improvements, it's brought some added complexity to many of the annuity solutions today.

Caroline Feeney: Of course, one of the most complex problems to solve, as Ken just referenced very well, is securing a protected stream of income that lasts as long as a person is going to live is no easy undertaking. The annuity really allows for everyone to invest in strategies available to them to ensure that even if they live a very long life, like Ken was mentioning 100 years old, they won't outlive their portfolio.

Caroline Feeney: And so, our latest innovations, provide investors and financial professionals the ability to really dial in on specific options to meet evolving life challenges when and where they're needed. It's representative of really how we're thinking about product development in the future and making it simpler than ever before for financial professionals and for their clients to see where annuities actually fit into their holistic financial plans, and providing those backstops and the guarantees to help pool and then transfer the longevity risk from the individuals to the actual financial institutions.

Caroline Feeney: Next, I'd also say that understanding the annuity and its guarantees is really essential for a consumer to make a full and effective use of this type of income or investment protection solution. So, helping financial professionals develop strategies to help their clients really determine how much income they will actually need in retirement is equally critical.

Caroline Feeney: Certainly it's not easy and not always a natural connection either to take various pools of money, whether it comes from a 401K, IRAs, pensions, brokerage accounts, or savings accounts and then bring them all together into a holistic income plan.

Caroline Feeney: On top of all of that, language has continued to be a challenge. This is one area in particular where the Alliance is really helping us to tackle this problem. All of us, financial services companies, financial professionals, we have to speak in terms that consumers can understand, because only then are annuities going to be more relatable, they're going to be more understandable, and ultimately that will make decision making easier and it's going to lead to better outcomes overall.

Caroline Feeney: In fact, there was a recent study conducted by Alliance that clearly overall retirement industry jargon isn't easily understood at all. Actually, more than half of the consumers only somewhat understand the language and the terms that are used by a finance professional and that we use in common marketing communications. So here I believe that just small changes in terms of how we speak about annuities can make a really big difference and to understand, which is obviously key to the outcomes that we're all looking for here.

Caroline Feeney: This study also showed that annuities are often less understood than other financial products, and actually 30% less understood to be exact. So, this just simply means when a financial professional is actually speaking to their clients about more than one type of a financial product, which happens often, we know this means that they have to often spend that much more time explaining annuity's features, which just can complicate the overall conversation.

Caroline Feeney: We also learned, and I find this very interesting, I also find it very promising, that most people who haven't invested in an annuity haven't actually necessarily decided against it. About 50% of those people that are undecided, they're still undecided about putting some of their portfolio in an annuity. I believe it's the language here. I believe it's the perceived complexity of annuities, their features and benefits that very often all collectively are some of the reasons why.

Caroline Feeney: But the really good news here is that we can fix this if we work together, beginning with all of us as the product manufacturers. We're also committed to ensuring that we're meeting clients where they want to be met, on their own terms and in the way in which they want to engage with us, whether that's online or whether that's through a hybrid platform that can serve clients through a phone conversation or through video chat or whether that's through a more traditional face-to-face engagement.

Caroline Feeney: I actually call this high tech and high touch. When we get it right, we're actually going to be able to serve a much larger, broader segments of Americans that we haven't actually always been effective in consistently reaching.

Caroline Feeney: This isn't about going direct. It's actually quite the contrary. It's really about us leveraging digital tools that will help our reach and will help our financial professionals build deeper relationships with their consumers. So, educating consumers on their own terms using the simplified language that I mentioned earlier is going to really allow us all to make great strides here.

Caroline Feeney: Finally, I'd like to talk a little bit about some of what I see as the huge challenges that women face when it comes to retirement planning. Research actually does show that working women spend 28 hours per week on unpaid labor. Now that could be taking care of children, it could be taking care of an elderly parent. All really important, but still unpaid work. That's actually 65% greater time on average than working men.

Caroline Feeney: There's also obviously the continued wage gap, where women on average are making $0.81 for every dollar earned by a male worker. So lower earnings during those working years have actually resulted in women earning social security benefits that are 23% less than for men, and overall retirement income [inaudible 00:22:33] said are 42% lower on average than their male counterparts.

Caroline Feeney: Of course, we also know that there's the longevity cap. Ken was speaking a lot around the longevity challenges. So, there's the longevity gap for women that exacerbates the situation because they're living five to six years longer on average than men.

Caroline Feeney: Finally, there's also an investment gap. Women have a tendency to actually invest in markets less than men do. So, the lifetime income that's provided by annuities can really help guarantee that protected income stream for women, which really helps with these four reasons that I just articulated.

Robert Powell: So last question for you, Aimee. So, we've heard how the environment has changed, how risk have changed and products have changed. What changes are you seeing in consumer demand and behavior within financial plans, particularly among those close to or in retirement? Additionally, what is the industry doing to better support advisors and reduce friction?

Aimee DeCamillo: Yeah. Thanks, Bob. Great to be here with you all. Thanks for those that are tuning in on this important topic. Will hit on it at the top of the call here that, overall, many of us here on the video today have been really studying and focused on this overall shift that Americans have been going through in terms of the notion of needing to self-fund their retirement through their own personal or through workplace savings and investing programs.

Aimee DeCamillo: We know that investors, and in particular pre-retirees and early retirees, continue to be concerned about those risks that are out there, and Ken touched on many of those too, whether it's longevity risk, just that fear of outliving their assets, whether it's sequence of return risk or income, having the right income out there.

Aimee DeCamillo: So there's multiple risks that ... In particular, those that are nearing retirement, and especially given this global lockdown situation we're in now. We're even seeing accelerated retirements. And so, those risks continue to compound.

Aimee DeCamillo: I would say there's been some interesting positive trends in terms of behaviors that are out there. One of the things that we are seeing is that investors are staying the course. And so, we've been tracking this, I know, across the industry through the volatile cycles that we've been having. I think its good news and a good reflection on the conversations that advisors are having with their clients, as well as investors being more educated and having more access to information.

Aimee DeCamillo: The Alliance recently conducted some research in March, just post going into this recent period of historic volatility. 67% of investors said that they plan to stay the course. And so, that's encouraging. I know within Jackson we're seeing similar behaviors in terms of we don't see that irrational investing taking hold. So, I think that's a good thing.

Aimee DeCamillo: Another good thing is the fact that we're seeing more investors that are looking to protect those risks by seeking forms of guarantee and income. The industry last year saw its highest year of sales of annuities in the past decade. And so, I think that's a reflection of the fact that advisors are getting more comfortable with the products.

Aimee DeCamillo: As carriers, we're all, I think, doing a better job of simplifying the products themselves. Then we have the consumers who are really looking to ensure that their retirement income has some level of guarantee around those non-discretionary items that Will mentioned, the mortgage, the utility, the groceries. Those are critical things we all need, and we feel them even more so now, I think, during this global lockdown for sure.

Aimee DeCamillo: Then, lastly, I would just point out that we are seeing, which I think is another good behavior from an advisor perspective, but also an interest from consumers in terms of planning. We know there's still more work to do and more individuals need not only a financial plan, but an income plan. But we're seeing more of those out there in the market and we're seeing them not only through advisors, but I would say an increase of access to those types of conversations even through workplace retirement plans, where I think the reach is even broader than it can be just through the advisor population.

Aimee DeCamillo: So all good, but trends from a consumer perspective, from that point of view. In terms of friction, you asked about what the industry can do. I mean annuities are notorious for being very difficult products to sell, being too complex.

Aimee DeCamillo: I think that one of the main things that industries have been focused on is certainly educating, looking at how do we simplify products. But also leading the way around how do we integrate the products more wholly into the tools and the platforms that the advisors use so that protection can be part of the conversation and part of the portfolio construction overall and not feel like it's a sidecar to the rest of the client's assets.

Aimee DeCamillo: So we made a lot of progress as an industry, whether it's tools like eMoney or MoneyGuidePro or working with platforms like Envestnet to ensure that those integration points are starting to happen. I think as a result of that, we're starting to see a lot more usage with advisors that wouldn't normally have reached for an annuity solution, as well as just the feedback that we're getting has been really positive.

Aimee DeCamillo: I would also say that, in general, on client experiences, the insurance industry has a lot to learn from other industries, as does most of financial services. And so, there certainly is, I think, ample opportunity for us to continue to invest and to create more user-friendly experiences like we all have in our daily lives, the infamous Amazon example or Zappos or other retailers.

Aimee DeCamillo: And so, how can we just ease that burden and take the friction out of the process, whether it's with the advisor from becoming appointed to sell all the way through to actually writing a piece of business or to the consumer who today still receives potentially large piles of paper that we could certainly do away with and digitize over time. So, lots of opportunities, but lost of progress being made across the board.

Robert Powell: So it's now time for our fireside chat. To a degree, Caroline and Aimee, you've already answered this question, so maybe Ken and Will could take a stab at it. But knowing the important part annuities play in retirement portfolios, why haven't more financial professionals use them to protect their clients from the risk that you mentioned, Ken? Ken, why don't you start maybe laying on that?

Ken Mungan: I'd say when a client is in their 30s and 40s, the focus is on helping them establish savings behavior and investing for the future. But then as they age, as they get within 10 years of retirement, as they are retired, it's time to start using annuities. So, in many cases, it just simply wasn't time yet. But now it clearly is. The peak of baby boomer retirement's coming up in the next few years.

Ken Mungan: Also, I talk about how investing and risk management are different professional specialties. A lot of financial advisors, their focus in developing their professional expertise was around investing, and risk management was a topic that they knew was important, but it wasn't their particular field of expertise.

Ken Mungan: I liken it to kind of when I go to my doctor, I'm going to a general practitioner. But if there's something wrong, she's going to send me to a specialist. She'll send me to a heart specialist if have cardiac problems. And so, the system is very much the same here, that risk management is a bit of a niche, specialized area of expertise, and so the system, so that grouping of financial advisors, has started to really come to appreciate that and realize that they need to tap into the expertise that insurance companies have with the particular products that focus on risk management.

Robert Powell: Will, any thoughts to share on that topic?

Will Fuller: I think one factor is that annuities often get compared to mutual funds or other asset management products, and it's really an apple to orange comparison. Annuities are meant to play a particular role and solve a particular need, protecting an asset, for instance, providing protected lifetime income over one- or two-people’s entire life. It's a tool.

Will Fuller: And so, looking at an annuity and asking it to compare favorably to another product who doesn't provide protection for those types of things is like asking a wrench to do the job of a Phillips screwdriver. Annuities were designed precisely for those investors that are in the 55 to 75-year-old age cohort, that have saved for retirement, that have accumulated assets, and now want to make sure those assets are protected and preserved for retirement and even translated into monthly income or a monthly paycheck that replaces their paycheck from their career after they've retired to pay for the expenses associated with lifestyle that that family would choose to live.

Robert Powell: Aimee, Caroline, any thoughts? Any desire to amplify why finance professionals aren't necessarily using them to the degree that they could be?

Caroline Feeney: No, I think Ken and Will are spot on. I do think it's also incumbent upon us to continue the education purveyors that have not been involved with annuities to make sure that they're really understanding the value that annuities provide relative to the cost, because I think sometimes in addition to perceived complexity, there's also a perception expense and that they're costly, but they're not really understanding the value that's provided relative to the cost. I think that would be one other specific thing that I would mention.

Aimee DeCamillo: Yeah, I mean I would just add to that. Certainly, the value, right? There's plenty of research out there that would say that when you ask consumers whether or not they would be interested in a guarantee on their financial assets, they absolutely all say yes. For some reason, though, they feel that insuring whether it's the house, whether it's the car, whether it's life insurance, those types of assets sit in a different market than their own financial assets.

Aimee DeCamillo: And so, it's this trade-off, and there's value conversation that I don't think is being pulled through all the way that we need to help our advisors with. I would just encourage those that are watching that, to Will's point, if you haven't looked at the products for a while and the solutions that are out there, contact any of our firms, any of the carriers out there, and just see what's out there in terms of getting up to date because it has changed substantially in the last 24 months in particular.

Robert Powell: So the next question, what are Americans close to retirement thinking about when it comes to their savings and investments? What concerns them most about the decumulation phase?

Ken Mungan: I think what concerns me most is these terrible events that we've seen. We're going through the COVID-19 crisis. We saw the Standard & Poor's 500 Index drop 34% in response to that. Then takes the best laid plans and throws them out the window if adequate protection wasn't included.

Ken Mungan: I think that's really what financial advisors have to recognize, that it's not appropriate to really think about the risks that their clients face as spread uniformly across time throughout their entire retirement period. Events happened that are devastating, and that really shows the difference between where risk is being managed properly and where it hasn't.

Ken Mungan: So I just look at my career. There's been three major events. We've had now COVID-19, massive drop in the equity market. Before that, we had the global financial crisis, which was absolutely incredibly challenging for people from a financial perspective. Then 2000, 2001, 2002, the internet bubble burst. That's three years of consecutive declines in the stock market. So basically every 10 years, we've had a dramatic significant event that can derail a financial plan if it isn't structured properly with adequate protection.

Caroline Feeney: Yeah. I think the only thing I would add there is, yes, when you start talking about decumulations, it's also a complex topic. How do you have the right savvy financial techniques to draw down on all the various pools of money that one has accumulated heading into retirement? But then there's also the reality, unfortunately, that so many people aren't even thinking at all about decumulation, in fact haven't even thought necessarily properly about how much money they'd even need in retirement.

Caroline Feeney: So I think when I think about all the great work that Alliance has done, a lot of it is around the consumer education industry, and the program is an example of conversations of a lifetime, really starting to have those very real conversations about how people need to be thinking and preparing and planning for all those phases, accumulation and then ultimately decumulation.

Aimee DeCamillo: Yeah. I think that's right, Caroline. I would just add, well, maybe not specific to pre-retirees and retirees. I think that all Americans, what we see also is just a lack of just fundamental savings behaviors and the need for even an emergency fund. I think that's going to be an acute conversation coming out of this COVID-19 global lockdown, is folks just don't have enough saved. I mean we've all seen the stats that nearly half the population doesn't even have $400 saved for an emergency.

Aimee DeCamillo: And so, it's difficult to get to the conversations around investing if you don't even have the fundamental savings behaviors that are out there. So, it starts with that, the education, I think, absolutely, and the protection.

Robert Powell: Will, last word?

Will Fuller: Nothing to add. Well done to everybody.

Robert Powell: All right. So, let's turn our attention back to financial professionals for a second. There are many who already think that they're doing retirement income planning for their clients. Ken, you seem to suggest that what they've been doing is accumulation planning, but maybe not necessarily income planning. What's the disconnect there?

Ken Mungan: Oh, well, I could start the ... A lot of times the focus is on the near-term income needs and not really recognizing how to plan for income over a 25, 30, 35-year retirement. And so, that's a different challenge. So if you go from talking about, well, let's just make sure we have some cash set aside for your expenses over the next year in case there's an event, that's very different than saying we need a portfolio, including annuities, that is going to be certain to last over however long your retirement lasts. When people shift their ... When they change their mindset and say, "That's the problem I'm trying to solve," then they realize that they need to do a better job at income planning.

Will Fuller: Yeah. I would just say that there's many, many financial advisors in the industry that do comprehensive financial planning and do an excellent job of transitioning from savings and accumulation into income and thinking about the types of very personal, customized situations that Aimee just talked about, whether it's caring for an aging parent or a unique healthcare, or unexpected healthcare, needs that someone might have in retirement that needs to be planned for.

Will Fuller: We just need more of them to be proficient and to adopt those best practices. These aren't best practices associated with the annuity industry, they're not best practices associated with the insurance industry. They're best practices associated with holistic financial planning, that look at the types of assumptions and scenarios that individual investors have about the amount of income they might need based on how much they've accumulated, based on the types of scenarios.

Will Fuller: Ken just talked about [inaudible 00:41:33] the unfortunate unexpected events, one that we're all living through right now. There are 80 million American households today that do not have any former protected income other than social security. So, what that tells us is there's a lot of financial advisors that do an exceptional job and a lot of investors that are benefiting from protected income, we have room to do better, to improve.

Robert Powell: Caroline, did you have anything to add?

Caroline Feeney: Yeah. I think everybody said it well. I think what I would say in all my years of working with financial professionals, I firmly believe they have their client's best intentions in mind. I do believe ... And Ken referenced through his career living through three major market events. I actually believe many financial professionals who are newer to the industry have seen one. Now some have seen two.

Caroline Feeney: I do believe that there's going to be some finance professional behavior changes in terms of how they're thinking about what they're doing for their overall plan, their overall clients, because, at least in my experience, I do believe that so many of them are rooted in the why and the purpose of the mission orientation of this business. That's why they're in the business to begin with. I think they feel right along with their clients, the angst that they start to see those portfolios come down. And so, will they view this differently in terms of protecting income for their clients and really giving them that piece of mind for their retirement?

Robert Powell: So I'm working on four events, if you include the 1987 crash in there as well. But I'm dating myself.

Will Fuller: Salty veteran.

Caroline Feeney: There you go.

Robert Powell: It's natural. Speaking of financial professionals and the industry and the opportunity that exists, what's the industry doing to help professionally to address the demand for retirement income while responding to this market environment? What are some of the educational things that are being done or other activities?

Aimee DeCamillo: I would say, initially, there's been multiple phases, I would say, even in the short eight weeks that we've done in this new temporary normal, at least I hope it's temporary. Initially, I think advisors and financial professionals were just trying to move from their offices that were in them to their home offices, get set up, talk to their clients, answer questions. Then it moved into, okay, now we're going to be here for a while.

Aimee DeCamillo: We've seen a thirst for information. We've been certainly hosting, and I'm sure everyone here on the call, whether it's webcasts, one-on-one meetings virtually, but bringing whether it's asset management professionals to bear, whether it's experts around insurance, whether it's consumer behavior experts. There's a thirst for knowledge.

Aimee DeCamillo: And so, making that accessible to advisors so they in turn can then provide insights and perspective to their clients who are so thirsty for that right now. I mean it's all about right now connections and cultivating and continuing to maintain those relationships that are so important.

Caroline Feeney: Yeah, I think, in addition to all those things that Aimee mentioned that obviously all of our companies are doing, Prudential included, I mentioned earlier an Alliance program on conversations of a lifetime and the efforts that we've had underway to simplify the language that helps as an industry create an easier pathway for financial professionals.

Caroline Feeney: Then not to mention all the innovation that we've been doing across our respective companies to diversify our product portfolios so that we can meet different nuances of clients' needs. Then also making products simpler. So, I think those are a few other things that we're doing as an industry to help financial professionals.

Will Fuller: Yeah. I would say that maybe I'll talk about the product dimension, which is, one, innovating to become more consumer-friendly and simpler along the lines that you've heard, but also recognizing that there's protection, there's multiple forms of protection, that individual investors are seeking. Some are protection of the assets. Some are protection of the income.

Will Fuller: Protection of the assets is this notion that I've saved, I've accumulated, I'm getting close to retirement. I can't afford or I don't have the time to live through an extended period of that. I want some protection. The insurance industry has been very responsive to bring forth solutions that provide that type of downside protection while still being invested in equities, in programs like index variable annuities.

Will Fuller: They've done, I think with the SECURE Act that was recently passed, the ability to take guaranteed lifetime income and embedding it inside a retirement plan, so that participants in retirement plans have the opportunity to avail themselves of some form of protection and protected income inside the 401K plan.

Will Fuller: I think the industry is working hard to also form resources like the Alliance for Lifetime Income, which has the ability to engage independently with academics, with noteworthy media representatives that have an emphasis or following on financial literacy and financial planning and really have a voice to bring greater awareness to the issues that we're talking about here, which is income planning and protected income and protecting assets, as well as having a fact-based conversation on the annuities.

Robert Powell: Ken?

Ken Mungan: I'd just echo Will's comments on the important work that the Alliance for Lifetime Income is doing. So that just really creates a fantastic portal for financial advisors to learn about the problems that their clients face generally and go through all the research that the Alliance is able to coordinate, because very often the conversation seemed to get very quickly into the details of specific products or specific solutions. I think it's important to just step back and look at this problem holistically. The Alliance for Lifetime Income has done a fantastic job at taking that approach and helping people from that perspective.

Robert Powell: So we've talked about the need to simplify annuities in terms of explaining them to consumers. But at the moment, some folks consider them to be hard to explain to clients. Why is that? Will, you want to start first? Or go ahead, Caroline.

Will Fuller: Go ahead.

Caroline Feeney: Go ahead, Will.

Will Fuller: Go ahead. No, go ahead.

Caroline Feeney: Okay. I think actually a portion of this stems from a number of years where annuity manufacturers have been adding features and benefits to make sure that we're responding to unique client needs in a broad set of consumer needs. But sometimes by adding the features and benefits, we've layered on some complexity.

Caroline Feeney: But I also think that's part and parcel because we are doing this as part of a highly regulated industry. And so, we're also in an environment, from a regulation perspective, where we've had to create certain language in perspectivism.

Caroline Feeney: I think, through the years, and obviously we're changing a lot of that, and all of us have spoken about that during our time together today, but I think it was easier at one time to just say it's in the prospectus language. Let's take some of that language and let's just parlay that into marketing materials.

Caroline Feeney: And so, I think it's really a combination of both. It's layering on features and benefits over the years. I think it's because of the fact that we're in a highly regulated industry, but I remain very encouraged by what I've seen lately in terms of our partnership with regulators to be part of a social with us so that we are all on board with one mission to simplify the language so that we put it in a context in which it's really very easy to understand for consumers, because at the end of the day, we all want to make sure that consumers absolutely understand what they're purchasing as a solution for their retirement future.

Will Fuller: Yeah, I would only add that it's important to look at what is available today, which is different to what might have been available a decade ago. So, one question or one objection may be, "Why here in annuities I have long dated surrender charges, 10 years?" Well, today there are annuities available where you have 100% access to your account value from the first day.

Will Fuller: There's another objection that says, "Well, I don't like annuities because of high commissions." There are many annuities that pay zero commission. There are other examples where they'll say annuities are too complex and too expensive. Well, today there's many annuities that are basic designs and have expenses that are very comparable to the mutual fund industry.

Will Fuller: So when I started saying take another look, there's been so much innovation that's happened. Oftentimes the word innovation gets construed as engineering, and there has been a lot of engineering in annuities because it is a product that can be customized for different consumers' needs. There's also been innovation to make them simpler and easier to understand for advisors and their customers. That's why we think they should take another look.

Aimee DeCamillo: Yeah, I would agree with Caroline and Will. I do think we've made tremendous progress as an industry, and I'm a relative newcomer to the annuity portion of the industry. I know, Bob, we spent time talking over the years about retirement plans, which institutional has really been my background.

Aimee DeCamillo: I will say I still think we have work to do as an industry. Being a relative newcomer, I see inconsistencies in language, to Caroline's point, like I've never seen in other parts of financial services. I'll use as an example the simple registered index-linked annuity. Is it a RILA? Is it a buffered annuity? Is it a variable index annuity? I mean we have so many different names for the same product type.

Aimee DeCamillo: So I do think we as leaders across the industry owe it to all financial professionals out there to pick a lane and stick to it and to try to be more consistent in the language that we use. I think that alone will help to simplify.

Robert Powell: Ken, any thoughts?

Ken Mungan: I'd just add the trend that I've seen over the last 10 years has been simplicity and transparency. Each successive generation, the focus is on now how do we create a simple elegant solution? How do we make it more transparent so that clients are more comfortable, confident, and they can completely see what the product is doing for them as part of their portfolio?

Robert Powell: So, Aimee, I'm going to direct this one to you to start, the studies ... Caroline's already talked about it to a degree, but we'd love to have your thoughts on it too, that studies show that women are particularly vulnerable to running out of money in retirement, yet financial professionals don't seem to recognize that many unique challenges that face women in retirement. Why is that and what needs to change from your perspective?

Aimee DeCamillo: I think the good news is that we are seeing more increased discussion about it, and I think financial professionals are certainly taking note. We're also starting to see slowly more diversity in financial professionals, which I think certainly can help move things along as well.

Aimee DeCamillo: The reality is there's just tremendous opportunity with women-led households here in the country. I mean by the end of this year; the projections are that women will be in control of upward of $22 trillion by the end of this year. So, if you just think about that, females are making the decisions in a lot of households across the country, tremendous opportunity.

Aimee DeCamillo: As Caroline said, there's just gaps in terms of serving that population, whether it's the approach in terms of communication, whether it's understanding where they're coming from, whether it's including them in the dialogue and in the conversation. We continue to see that there's opportunity there to continue to make sure that the needs, from a female perspective, are being addressed by financial professionals. It's just a tremendous opportunity for everyone out there, because there is a need. There's a lot of research that shows that women appreciate advice. They appreciate the guidance of a financial professional and want to engage in that way.

Aimee DeCamillo: Also, there's the generational wealth transfer aspects too with this conversation. I mean typically it is the female daughter who is taking care of the aging parents and handling the liquidation of the assets when that happens. If those professionals don't have a relationship with that daughter, those assets tend to move to another financial professional at that time.

Aimee DeCamillo: So there's multiple dimensions to this, and I would just encourage all the financial professionals that may be watching to really take a step back and to reflect on what could they be doing differently to serve that part of the population within that [inaudible 00:56:27].

Ken Mungan: If I could add just a couple of comments on that. I just want to give my own analysis. The income planning problem is so much a woman's problem, because if you think about longevity, anxiety, vitality, the longevity risk, when a couple is working with a financial advisor, is much more manageable than after one of the partners has died and now it's just one person by themselves facing that uncertainty alone. Typically, because women live longer than men, the woman is going through that by herself.

Ken Mungan: And so, when you go from two people to one person, that uncertainty associated with longevity shoots through the roof. Also, because of the age at which that happens, that vitality level is going to be already on a downward trajectory. That compounds the anxiety problem. All of these things just combine together for women in a toxic way. That's why it's so important that the income planning process thinks forward all the way through retirement for both of the partners together and separately to make sure that this is done properly.

Caroline Feeney: Yeah, actually just on that point, I know I spoke about this earlier, but to Aimee's point and Ken's point, the Women Institute for a Secure Retirement actually found that 80% of men, when they die, they're married. 80% of women, when they die, they are single. I mean that just really underscores Ken's point.

Caroline Feeney: Then I think, to Aimee's point still, the importance of financial professionals is really building that relationship with both husband and wife, for both partners in a relationship, because, at this point, the numbers haven't changed much. Two-thirds of women actually fire their financial professional and go out on their own and find a new one within two years of their spouse's death. That number really hasn't moved much. And so, I think it really is one of those attention-grabbers to say this is an important area. We need to change the way in which we're supporting women in their retirement planning and building a relationship with them and understanding their needs as well.

Robert Powell: So, Will, I'm going to save this question for you, or at least you could be the first to start answering it. It's, I think, one of the more interesting questions about how portfolio construction shifts from accumulation to income planning as people near retirement age?

Will Fuller: Well, I think the first thing that should shift is having a comprehensive financial plan. Portfolio construction is meant to achieve objectives, and objectives go beyond just simple diversification, benefits of portfolio construction. But as you start to add into investing or financial planning specific objectives, and that objective might be income or that objective might be planning for a downside event or an unexpected healthcare event, portfolio construction follows that plan.

Will Fuller: You really are transitioning from an assets under management view to an assets under distribution or an assets under income view and you're bringing in to the construction process and philosophy risk like sequence of return risk that Ken talked about, longevity risk that is being spoken about.

Will Fuller: I think you have to think about using different sorts of solutions as a part of portfolio constructions, ones that do provide protections for those investors that need protected assets or protected income for those that would like a source of income protected beyond just what social security is providing.

Aimee DeCamillo: I'll come at it from two perspectives. One is as approaching retirement; I think it's really important to continue to maintain a level equity exposure that's going to address the longevity risk that certainly is present in the majority of individuals. And so, you don't want to just all of a sudden day of retirement move into fixed income products and have no exposure to the market. I know that's a difficult thing to say right now, but it certainly is an important aspect.

Aimee DeCamillo: I'd also say there's a component of when you're in accumulation, it's all about asset allocation, and it's pretty easy to, from a risk perspective, be aggressive in terms of how you're constructing the portfolio. As you're transitioning into retirement and then living in retirement, I would encourage not just an allocation from an asset perspective, but thinking about the risk allocation as well.

Aimee DeCamillo: So what portion of the portfolio, to Will's point, do you want to have protected? What portion of the portfolio is generating income? What portion of the portfolio do you maybe want to continue to maintain equity exposure because that's the part that's going to be left to the kids and the grandkids and is there for the long term? So, I think there's a risk overlay that starts to become more important as you transition in particular in those early years of retirement.

Robert Powell: So that is the end of the questions in our fireside chat. I'll ask if anyone has some closing thoughts, anything that you wanted to say but didn't, or anything that you wanted to emphasize for our listeners?

Caroline Feeney: Yeah. I would just say thank you for those tuning in and also thank you for having this conversation. I do believe a big part of this, for consumers and for financial professionals, is just making sure that we continue to create the awareness of how important annuities are as part of somebody's overall retirement planning. And so, very much appreciate the opportunity to be part of this conversation.

Will Fuller: Yeah, I'd say I appreciate the opportunity to talk about what is on the mind of investors and what will be on the mind of investors after we've gone through something as unprecedented and troubling as we have recently, and thinking about encouraging advisors to go beyond the traditional savings and accumulation orientation. But really thinking about financial planning, thinking about the types of real-world stress and concerns, that investors have to stay the course through periods of extreme volatility that are unsettling to them. And so, I'm just happy to be a part and excited to be a part of the conversation today. So, thank you.

Aimee DeCamillo: Yeah, I'll just add my thanks as well, Bob, to you. It's been great to be here with all the panelists. I think Will said it well in terms of we're living through unprecedented times. So now more than ever clients and investors need their financial professionals. And so, however we can help you in your practice, please know that we're there as an extension of you.

Ken Mungan: I'll just close with a note on relationships. This is a very challenging problem that we talked about today, and working with clients on a challenging problem is a sure-fire way to develop long-lasting relationships. So, while I'm a math guy and I focus on the analysis, what I've noticed over and over again is when you're actually engaging with people on these difficult issues, even though it's tough, people just tremendously value that type of assistance and will then stay with you for the long term.

Robert Powell: Well, I think we've covered quite a bit of ground in today's Asset TV Masterclass. Here are the top three things I've learned at least. Retirement has changed dramatically over the last thirty years: we’re living longer and healthier than ever before and redefining living and retirement.But Americans used to have retirement security with social security, pensions,savings. Today,pensions have disappeared, leaving about 80 million Americans unprotected according to a major research study by the Alliance for Lifetime Income. That means, Americans face a big risk of running out of money in retirement, unless they considered including a retirement annuity in their portfolio to fill that gap in protected income. Retirement planning should be redefined as Retirement Income Planning. Though accumulation and saving are important,financial professionals should be shifting the focus to decumulation and structuring a portfolio to provide income that will last throughout the clients life.

Robert Powell: To structure a truly diversified portfolio, that can withstand the type of market downturns or market volatility we’re seeing right now, financial professionals need to consider including annuities to protect their clients with a source of guaranteed monthly income. Surveys show that the number one concern of clients is running out of money in retirement. Annuity products have changed a lot in the past ten years, and today, offer the protected income people are looking for.

Robert Powell: Financial professionals who are not considering these new annuity products may be putting their clients at risk and should be looking for ways to diversify and structure retirement portfolios to provide protection from longevity and market risk.

Robert Powell: So on behalf of Asset TV, I'd like to thank our experts Ken Mungan, Caroline Feeney, Will Fuller, and Aimee DeCamillo for sharing their knowledge and insights. I'm Bob Powell. Thanks for watching Retirement Reset: Protecting Your Client's Portfolio.