In Practice March 4, 2007

Retirement Income Space Offers Opportunities, Challenges

James McCarthy, Managing Director, Retirement Solutions at Morgan Stanley said there are two approaches to retirement product development.
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Those approaches are (1) a retirement experience “around” a product and (2) retirement income “within” a product. Firms that offer product around a product “own” client relationships and have existing relationships with participants so there is already contact. A question here, McCarthy said, speaking at the Securities Industry and Financial Markets Association (SIFMA) Savings and Retirement Symposium in Washington, DC last week, is whether simply knowing the client by being a point of contact on the retirement plan is enough. Currently, that connection point seems to be the hurdle, and so being the provider is enough to connect with the participant. The question, McCarthy said, is whether that will continue to be enough.

Products offered “within” are those designed to be offered in or on the platforms of other distributors, McCarthy said. They might be supposed to be used as a component of an overall solution – but, depending on how they are positioned on the platform, they might not be used that way.

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There are some unique benefits to working at insurance company when it comes to addressing the retirement income market, James Brockelman, Executive Vice President at John Hancock Retirement Services, said; insurance companies will be in a good position moving forward and they have a capacity to create products for the Baby Boomer generation. Insurance companies can give people downside protection which, although participants will have to pay for that added level of protection, can really help secure retirement. “The whole retirement income initiative is a huge opportunity for providers,” Brockelman said.

In the retirement income marketplace insurers are leading the way currently, but structured product manufacturers are converging McCarthy said; insurers may have a head start of decades, but that might only be worth another 12 months of being ahead of the curve, he predicted.

Steve Ulian, Senior Vice President with Fidelity Institutional Retirement Services Company said he believes that there will be a place for annuities, whether they are fixed, variable, or some other type, in a retirement income plan. He said that putting these type of products within plans is not as simple as most investment options. Fidelity has one plan going live with a generated income product in May, he said and operationally there is a significant amount of work necessary to put these types of products into a defined contribution plan.

In Practice March 4, 2007

Six Trends to Shape Business in the Next Century

There are six unstoppable trends that are driving the economy today and that will shape business tomorrow, according to one academic.
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Speaking at the 401(k) SUMMIT in San Diego last week, Barry Asmus of the National Center for Public Policy Analysis said the six trends are:


1. Demographics
The aging population, which has led to 75 million people in the United States between the ages of 45 and 65 years old has led to huge needs for support in the continuing accumulation and distribution phase, Asmus said.

2. Population Growth
As the 21st century unfolds, Asmus said, the population will probably grow about 30%. It is hard to have development without population growth, so the U.S. is in a much better position than areas like Western Europe, which Asmus said is in a position of “demographic suicide” and Russia, which has a loss of about 2,000 people per day.

3. Stable Price Level
As a result of good monetary policy, digitization and globalization, which all drive down prices, the U.S. has had mild inflation, he said. A stable price level is vital to an economy, Asmus commented, because “inflation does to the economy what amphetamines do to the body.”

4. Taxes
Even the lowest and fairest tax affects consumer behavior and leads to less GDP, he said. The significant business expansion, apart from a few minor bumps, since the 1980s can be attributed, at least in part, to tax cuts made under President Ronald Reagan, Asmus said. High taxes can be devastating to economic growth.

5. Productivity
In the last 10 years, American productivity has grown 3% to 4% per year. With less than 5% of the world’s population, Asmus said, the U.S. still produces one-third of the world’s wealth.

6. Globalization/Entrepreneurship
What America wants is solutions, Asmus said. Advisers are entrepreneurs and need to connect with clients by building an experience that builds a story with clients.


These trends will continue to influence the world economy and everyone will see them affect their business. Advisers can take this information and be proactive about embracing these trends, using them as a competitive advantage over others, Asmus said.

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