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No Guarantees For Guaranteed Income

Investors Want Steady Retirement Payments, But Shy Away from Annuities


BOSTON - Retirement income planners, along with mutual and insurance fund executives, are wracking their brains to come up with new products that are low cost, easy to use and easy to sell.

So far, that is the $70 trillion-dollar question which no one looking at the rollover potential of the Baby Boomer market has been able to answer.

"We're always trying to bring the best products to the market," said Ken Hevert, vice president of annuity product management for Fidelity Investment Life Insurances Inc., speaking at the Retirement Income Distribution Evolution Summit held at the Harvard Club here April 29-30, presented by Financial Research Associates.

"We're looking for big ideas we can do efficiently and better than anybody else," Hevert said.

Many leading firms have special brainstorming groups that cull top employees from product development, marketing, legal and compliance departments. From these "yes" meetings, the company can "whittle down ideas into sound bites you can sell to the customer," said Keith Golembiewski, assistant director of market research, individual annuity product management for Hartford Life.

Coming up with new ideas and trying to stay ahead of the competition is "almost like being in the middle of an arms race," Golembiewski said.

"All of us have to decide where to play," said Srinivas Reddy, vice president and head of retirement income strategy for ING U.S. Financial Services.

"Product development is mostly a packaging and positioning issue," Reddy said. "You're not going to be able to create something that different. Changing your DNA and how you approach product innovation is going to cause a lot of confusion in the marketplace."

Rather than listening to focus groups, where customers, be they internal or external investors, tell you what they think you want to hear, firms should put more emphasis on product identification and brand loyalty, Reddy said.

"People have a preference for brands," Hevert said. "As an industry, we can do a much better job of helping consumers have a better understanding of what the brand means."

A handful of experts have echoed the same sentiment about the perplexing lack of strong branding by fund companies, in the advertising, sales and marketing editorial pages of MME.

"Annuities are complex because they are unbundled, but we don't think annuities should be that complex," Hevert said. "We need to continue to help providers understand the nuances and help them get over their concerns. We ask them, What are the characteristics and attributes of an annuity that you'd like to include in your product?'"

Retirement income providers can offer some of the benefits of annuities by bundling an annuity to a regular retirement product, but they have to be careful in how they market the idea.

"There is a big risk in people selling a product they don't understand," Reddy said. "If you don't believe 100% in the product you're selling, don't do it."

New features-like incorporating annuities into structured products-run contrary to trends, but reflect a growing desire among consumers for guaranteed-income products.

"Plan sponsors are looking for guidance for employees who want some kind of guaranteed income in retirement," said Matthew Russell, director and senior investment specialist for Principal Global Investors.

"There is a lot of confusion out there about what is a guarantee," he said. "Confusion leads to inaction."

There is a stigma attached to annuities, said Russell, who added that annuities' performance leaves much to be desired. Annuties are also well known for their high fees, firm lock-up contract periods and confusing bells and whistles. But their ability to provide a guaranteed income stream could be just the answer to the longevity question facing millions of Baby Boomers.

Because people die at different ages, no one knows how long their retirement savings will need to last.

"Structured products can take away volatility, but they also give up some market return," said Jason Hubschman, vice president of structured products for DWS Scudder Distributors Inc. "Structured products are good products, but if they are miss-sold, they are never going to get anywhere."

Communicating new products and added features to advisers can be complicated and time-consuming, but if advisers don't understand the nuances, they won't be able to get the right products to the right consumer.

"There is a lot of obscurity to some of these products," said Kathryn Lund, president of Mosaic Financial Advisors LLC. "We need to be able to understand and communicate these products to our clients. If I can't understand it, I'm not going to recommend it. If it takes me two days to understand it, I probably won't use it. I don't have the time."

"The nomenclature in retirement income planning will have to change," said Jonathan Shelon, portfolio manager of the Global Asset Allocation Group with Fidelity Investments. "I don't think there is a one-size-fits-all solution."

Many investors who are in their 80s are no longer interested in spending conservatively," Shelon said. In fact, many older retirees say they regret they didn't spend more when they were younger, he said.

"Education is almost hand-to-hand combat," Hubschman said. "You need to be speaking at conferences and distributing reading materials, getting in front of advisers and providing education."

The advisers' role is to combine the building blocks to satisfy the investors' needs, Shelon said. "The products don't need to be overly complex. The complexity resides in the relationship with the end user."

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