RIIA s Market Research Insight Issue

Transcription

1 RIIA s Market Research Insight Issue VOLUME 2, NUMBER 2 SUMMER 2012 The Retirement Management Journal, a publication of the Retirement Income Industry Association, is devoted exclusively to retirement-income planning and management. I N S I D E LETTER FROM THE EDITOR PAPERS: Introduction to RIIA s Market Insight Research Program PAPERS REGARDING SUPPLY: Getting From There to Here A History of the DTCC/RIIA Relationship The DTCC Analytic Reporting for Annuities Service: A Primer on the Possibilities Getting Income Annuities Ready for Primetime Creating a Market Value Income from Assets: The Promise of the Future PAPERS REGARDING DEMAND: How Financial Institutions Can Help Their Customers to Remain Healthy, Wealthy and Wise Defined Contribution Retirement Plan Participants on Retirement What Happened to My Retirement? Can We Predict Long-Run Economic Growth? RIIA provides the space, discussions, communications, research, education and standards that derive from its unique perspective the View Across the Silos to help investors, distributors and manufacturers in the financial industry transition from Investment Accumulation to Retirement Management and Income Protection.

2

3 THE RETIREMENT MANAGEMENT JOURNAL SM VOLUME 2, NUMBER 2 SUMMER 2012 T A B L E O F C O N T E N T S L E T T E R F R O M T H E E D I T O R 4 Editor s Comments by Robert J. Powell, III P A P E R S 5 Introduction to RIIA s Market Insight Research Program by Elvin Turner This paper introduces the RIIA Market Insight (RMI) research program, which is designed to help industry leaders grow their businesses in a changing retirement market through the use of market intelligence concerning firms sales, customers, distributors, competitors and their own strategies. P A P E R S R E G A R D I N G S U P P L Y 11 Getting from There to Here A History of the DTCC/RIIA Relationship by François Gadenne and Adam Bryan This paper details the vision of the two organizations that believe transaction data, beginning in the annuity industry, could be transformed into insightful reports for industry executives. 15 The DTCC Analytic Reporting for Annuities Service: A Primer on the Possibilities by Elvin Turner and Andrew Blumberg This paper presents practical ways that the Analytic Reporting for Annuities program can be used to give users a unique and unprecedented view of their own business as well as the market for annuity products, allowing them to discover key trends and identify opportunities. 23 Getting Income Annuities Ready for Primetime Creating a Market Value by Gary Baker The Income Annuity Standards and Readiness Working Committee is defining the infrastructure and methodology that will make annuitization data and market valuation available across the market. 27 Income from Assets: The Promise of the Future by Larry Cohen and David Blanchett To facilitate the conversation among financial manufacturers, distributors, regulators, associations, financial professionals and all parties interested in better understanding and serving consumers retirement income needs, Morningstar has partnered with RIIA to look at the balance sheets of pre-retired and retired households to better understand their retirement income situation. P A P E R S R E G A R D I N G D E M A N D 33 How Financial Institutions Can Help Their Customers to Remain Healthy, Wealthy and Wise by Anand S. Rao, Ph.D, and Ron Mastrogiovanni Considering that healthcare will be the largest single expense for most retirees, and in light of the fact that the majority of people inadequately prepare for retirement, there is a huge need for informed professional guidance, including on various on-the-shelf investment options that can cover out-of-pocket healthcare expenses. 39 Defined Contribution Retirement Plan Participants on Retirement by Ronald L. Bush This paper examines the attitudes and behavior of definedcontribution plan participants regarding retirement, their perceived retirement readiness, expected sources of retirement income and their interest in an in-plan guaranteed retirement income option. 45 What Happened to My Retirement? by Larry Cohen Retirement is a middle-class problem. The wealthy and the poor have no problem with retirement: The wealthy will retire, the poor won t no problem! But, for the vast number of those in the middle, the other 79%, retirement is a real problem and the questions of if, when and how we retire are huge unknowns. 53 Can We Predict Long-Run Economic Growth? by Timothy J. Garrett It can be a challenge to plan now for inflation-adjusted economic growth over coming decades. This paper argues that there exists an economic constant that carries through time which can help us to anticipate the more distant future: global economic wealth has a fixed link to civilization s total capacity for power production; the ratio of these two quantities has not changed over the past 40 years that statistics are available. Copyright 2012 Retirement Income Industry Association. All rights reserved. No part of this publication may be reproduced in any form or by any means without the prior written permission of the copyright holder. This publication is designed to provide accurate information in regard to the subject matter covered. It is sold and/or distributed with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. The publisher is not held liable for any inaccuracies in this journal Retirement Income Industry Association

4 T H E R E T I R E M E N T M A N AG E M E N T J O U R N A L S M L E T T E R F ROM T H E E D I TO R Welcome to the Summer 2012 issue of the Retirement Management Journal. This issue marks a departure from the previous issues in that it represents the launch of RIIA s first-ever research/data book. As you will read, this issue features the work of the RIIA research committee, which is led by Elvin Turner. Elvin, in his role as director of research for RIIA, worked tirelessly on soliciting and editing the papers for this issue, which features ground-breaking reports and updates on initiatives that are certain to change the retirement-income space for many years to come. For instance, this issue introduces the RIIA Market Insight (RMI) research program, which is designed to help industry leaders grow their businesses in a changing retirement market through the use of market intelligence concerning firms sales, customers, distributors, competitors and their own strategies. Created by leading research and consulting firms in the retirement industry, the RMI program widens the view of market leaders and gives them actionable data in a number of areas. This issue also features the vision of two organizations RIIA and DTCC that believed that transaction data could be transformed into insightful reports for annuity industry executives. In this issue, you ll read the result of that vision, DTCC s Analytic Reporting for Annuities. And, you ll read about a novel initiative in which more than 40 financial service organizations are working together to solve a long-standing problem creating a standard for the market valuation of an income annuity (or any annuitized asset). Plus, there s a paper from Timothy Garrett, a professor at the University of Utah, who answers the question: Can we predict long-term economic growth? We won t spoil the end; you ll have to read the paper to find out. So, that s just a taste of what you ll read in this issue. We hope that you enjoy our latest edition of the Retirement Management Journal. As always, think of us as a place to advertise your message. Our publication is now reaching thousands of financial advisers who hold themselves out to be retirement-income specialists. Plus, it s read by leading executives from many firms and organizations. And lastly, let us know if you would like to distribute the pdf version of the Retirement Management Journal to your constituents. Regular and Associate Members of RIIA are able to distribute the Retirement Management Journal to all employees and advisers in their system as a member benefit. R E T I R E M E N T M A N AG E M E N T J O U R N A L VOLUME 2, NUMBER 2 SUMMER 2012 A P U B L I CAT I O N O F R I I A For reprints, contact: Deborah Burkholder deborah@riia-usa.org E D I TO R & P U B L I S H E R Robert J. Powell, III ART DIRECTOR & CRE ATIVE TE AM Robin Taliesin, Raven Creative, GOVERNANCE COMMIT TEE François Gadenne, CFA, RMA Chairman of the Board & Executive Director, RIIA Bruce E. Wolfe, CFA Managing Director, Allianz Global Investors Robert J. Powell, III ACADEMIC PEER REVIEW COMMIT TEE Chair, Michael Zwecher, Ph.D. Author, Retirement Portfolios: Theory, Construction and Management Co-Chair, Rick Miller, Ph.D., CFP Founder, Sensible Financial Planning and Management, LLC Co-Chair, Philipp Hensler, Ph.D. cand., CEFA Executive Vice President, OppenheimerFunds Co-Chair, Michael Finke, Ph.D., CFP Associate Professor and Coordinator Personal Financial Planning, Texas Tech University P R ACTITIONER P E E R R E V I E W COMMIT TEE Chair, Dana Anspach, CFP, RMA Principal/Financial Advisor, Sensible Money, LLC and Writer, About.com: Money Over 55 Co-Chair, Sean M. Ciemiewicz, CIMC, AIFA, RMA Managing Partner and Financial Consultant, Retirement Benefits Group AT- L ARGE PEER REVIEW COMMIT TEE Co-Chair, Clifford J. Jurdi, MS CFP, ChFC Principal, Clifford J. Jurdi, CFP, CHFC and Investment Adviser Representative, Commonwealth Financial Network Co-Chair, Janet Maus, Ph.D., CFEd, CSA President, Branch Financial Strategies F O U N D I N G S P O N SOR Allianz Global Investors All for now and all the best, Robert J. Powell, III, Editor & Publisher, editor@retirementmanagementjournal.org 4

5 VOLUME 2, NUMBER 2 Introduction to RIIA s Market Insight Research Program BY ELVIN TURNER ELVIN TURNER MANAGING DIRECTOR TURNER CONSULTING LLC RESEARCH DIRECTOR RETIREMENT INCOME INDUSTRY ASSOCIATION This paper introduces the RIIA Market Insight (RMI) research program, which is designed to help industry leaders grow their businesses in a changing retirement market through the use of market intelligence concerning firms sales, customers, distributors, competitors and their own strategies. Created by leading research and consulting firms in the retirement industry, the RMI widens the view of market leaders and gives them actionable data in a number of areas. The RMI program is an important resource designed for this unique period of time in the history of the retirement income industry. This is a time when senior managers need to focus on traditional products and services which have been around for years. The issues related to these mature products often involve the firm s ability to honor the commitments made over the many years around investment return, benefits and professional services; these are the supply issues. Yet managers also need to focus on meeting the emerging needs of soon-to-be-retired Boomers. These needs challenge our industry to design products and services around still evolving service requirements and to determine how investments can best be structured to meet lifestyle needs. The answers to these questions require a deep understanding of customer demand. Participating in the RIIA RMI program allows sponsoring companies to explore these issues of supply and demand and to determine how the use of various distribution channels impacts the analysis. We seek to enable our sponsors to quickly see the new opportunities unfolding in the market before those opportunities become common knowledge. As we launch our program we have the ability to analyze certain annuity distribution channels and product offerings in depth. We plan over time to include in-depth analysis regarding other products and services. RIIA Market Insight Household Analysis The RMI initiative is a research program that transcends traditional product and organizational silos bringing together industry leaders, researchers and their collective data to create a 360-degree view of consumer households who buy and rely upon the financial services industry s products and services. At the heart of the RIIA research platform is household segmentation based on age and financial assets. We segment the non-retired households based on where they are in relation to retirement. As a result, the US household population is shown in four life-stage cohort Retirement Income Industry Association

6 T H E R E T I R E M E N T M A N AG E M E N T J O U R N A L S M categories: Starters, Builders, Pre-retired and Retired. These cohorts are delineated by the age of the household s primary head as follows: Starters Under Age 35 Builders Ages 35 to 49 Pre-Retired Ages 50 to 64 Retired 65 or older In addition to relevant life stages, the segmentation looks at the levels of wealth of the various households. Our ability to look at the assets and income of households by segment allows us to evaluate the very different financial situations of the households. In order to evaluate a resource component in each of these cohorts the RIIA segmentation divides each age group into four levels of wealth based on their total household assets. This is a form of financial triage where many households in the top wealth market segment are fully able to achieve their goal to retire, most households in the bottom marginal segment will be unable to even consider retirement, and most households in the mass middle and affluent segments require further focus and major changes in course. For each segment, we want to add a delineation to separate those that, with reasonable guidance and assistance, should be able to achieve some semblance of their retirement goal from the remainder who will need radical intervention in order to even come close to their objectives. The first level is the top 5% of households in each cohort. Any household whose mean total assets places them in the top 5% for that cohort is assigned to this resource level which we call Wealthy The next resource level is set at the next highest 15% of households in each cohort, which we will call Affluent As the majority of households are reputed to have inadequate savings the next resource level is the next 50% of households in each cohort, F I G U R E 1 : R M I Q U A N T I F I C AT I O N O F VA L U E S I N T H E R I I A C U S T O M E R S E G M E N TAT I O N M AT R I X 6

7 VOLUME 2, NUMBER 2 which we call the Mass Market The final level is the bottom 30% of households in each cohort who have the lowest level of assets, whom we call Marginal This segmentation of households relates to the RIIA Customer Segmentation Matrix that is presented in the RIIA Market Analyst (RMA) certification program. The graphic in Figure 1 (on the previous page) shows these connections. Using these connections we identify the average financial assets of households by segments and compare the assets to the same households mean annual disposable income (the income remaining after a household s fixed expenses are paid). Where pre-retired and retired households are moving into the years where a portion of their incomes come from their assets, this analysis becomes an extremely useful measure of the households that are constrained, over-funded or under-funded. Our ability to make connections like these among household wealth-age categories increases the power of this analysis for leaders in financial services firms. The deeper insights into their customers help them make wiser strategic decisions. Further, we can apply these insights to particular types of firms and markets because we use multiple research firms, who are each an expert in their field, and carry them through an over-arching analysis that uses a series of focused insights to paint the larger picture. The next section provides the details of the over-arching research program. RIIA Market Insight Research Program The RMI program draws insights from research firms in four areas of the customer experience: (1) household financial profile (income, assets, etc.) now, (2) household financial profile in the future, (3) household experience with financial products, distributors and companies, and (4) household experience with their investments. We present the F I G U R E 2 : R I I A M A R K E T I N S I G H T P R O G R A M Retirement Income Industry Association

8 T H E R E T I R E M E N T M A N AG E M E N T J O U R N A L S M multiple insight perspective in Figure 2 (on the previous page), where the insights surround the target households in a 360-degree view of the customer market segments. The Research Firms and Their Expertise In the RIIA RMI research platform we divide the F I G U R E 3 : F O U R A R E A S O F F O C U S AREA OF FOCUS FIRM EXPERTISE Household Strategic SBI has a commercially financial Business available database that profile Insights describes the financial now (SBI) profiles of U.S. households. Larry Cohen This data is presented by the RIIA age and asset segments. Household Pricewater- PwC has proprietary programs financial housecoopers that can project current profile LLP (PwC) financial profiles of U.S. in the Anand Rao households into the future. future PwC s data can help us describe the future retired world of households that are currently pre-retired. Household Depository DTCC s database currently experience Trust tracks flows of annuity with Clearing contracts, database is financial Corporation extremely versatile and has products, (DTCC) a growing ability to show distributors Adam Bryan/ views of annuity data not & companies Andrew currently available in the Blumberg market. Households Morningstar, Premier firm presenting data and their Inc. on investment offerings in Investments David the US. With this firm s Blanchett involvement in the RMI, we now have the ability to look at household investments from an income provision and sustainability point of view. vendors into those that look at household demand and those that look at the industry supply of financial products and services. SBI and PwC present research and insight regarding the issues in the household experience that influence the demand of financial products. Morningstar and DTCC present research and insight regarding the products and services offered by financial services firms that impact the supply of such products and services offered to household segments. Other vendors provide more focused analysis around their databases that enhance our ability to understand demand and supply for most types of industry firms. The roles of vendors that analyze demand and supply issues are shown below. Partner Research Firms with Expertise in Household Demand Three research partners provide data and insight that relate to households demand for financial products: Strategic Business Insights (SBI) provides information on households current financial profiles, including their current ownership of financial products, average incomes, financial and non-financial assets and debts. SBI provides this information for each of the nine household segments. In addition, SBI integrates information from the Bureau of Labor Statistics Consumer Expenditures Survey (CEX) which provides information regarding household spending. PricewaterhouseCoopers (PwC) takes the information provided by SBI and projects it into the future. As a result, their data will provide information on households future financial profiles, including their future ownership of financial products, average incomes, financial and non-financial assets and debts. PwC also provides this information for each of the nine household segments. 8

9 VOLUME 2, NUMBER 2 HealthView Services (HVS) is contributing to the analysis on the demand side. HealthView Services is a data analysis and technology firm with a retirement cost analysis software which filled a key void in the financial planning process by pioneering the industry`s first income flooring analysis tools. It is being used by some of the world`s largest brokerage firms, annuity providers and life insurance companies. HVS modularbased suite of interactive calculators is customized and branded for institutions and is designed to seamlessly integrate into an existing adviserfacing or customer-facing web-based reporting system. HVS will partner with PwC to project pre-retiree health care costs into their retirement years. A paper by Ron Mastrogiovanni, from HVS, and Anand Rao, from PwC, is included in this issue of the RMJ. Research Partners that Provide Research Regarding the Supply of Products and Services Offered to Financial Services Customers Providing the supply side of the analysis are: DTCC is an industry-owned clearinghouse that clears and settles the vast majority of securities transactions in the United States. In 2011, $1.7 quadrillion of securities transactions passed through its operations. Also in 2011, its insurance business unit processed over $156 billion in annuity inflows and outflows. DTCC launched Analytic Reporting for Annuities last year an online premium flow aggregation and reporting service. This service is a key offering of the RMI program. A paper regarding the DTCC service is published in this issue of the RMJ. Morningstar, Inc. is a leading provider of independent investment research with an international clientele across North America, Europe, Australia and Asia. The firm provides data to a variety of customers on more than 380,000 investment offerings, including stocks, mutual funds and similar vehicles. Morningstar is analyzing the income producing characteristics of household s portfolios for the RMI program. A paper by David Blanchett, of Morningstar, and Larry Cohen, of SBI, is published in this issue of the RMJ, as well. Sagence Group is a consulting firm whose principals have the unique ability to understand and analyze challenges and opportunities from multiple perspectives, ask the right questions and drive strategic change in the financial services industry. They bring a cross-functional view with expertise in operations, finance, sales and marketing. Sagence is analyzing annuity sales and distribution trends for the RMI program. Gallant Distribution Consulting (GDC) is a research firm with deep expertise in the distribution trends in the retirement market. The firm conducts independent and syndicated leadership research on various research trends impacting the marketplace. GDC will work together with Sagence to analyze annuity distribution trends. CANNEX is a data collection and analysis firm that compiles data and calculations about a variety of guaranteed annuity products and makes that information available to subscribers. Their core expertise in the U.S. market includes Single Premium Immediate Annuities (SPIA s), Deferred Income Annuities (DIA s), Fixed Deferred Annuities (SPDA) and Living Benefit Guarantees for Deferred Annuities products. CANNEX brings insight to the RMI program regarding all aspects of the fixed annuity market. Brightworks Partners is a research-based consulting firm focusing on product, service and distribution issues in retail and institutional financial services. They have deep expertise in advisory work and the institutional retirement markets. Brightworks brings insight to the RMI program regarding all aspects of the institutional retirement markets Retirement Income Industry Association

10 T H E R E T I R E M E N T M A N AG E M E N T J O U R N A L S M Community Senior Capital is a firm that specializes in providing liquidity solutions for older Americans. Dan Osterhout, the principal of this firm, chaired the National Reverse Mortgage Lenders Association s Product Development and Capital Markets Committee. This firm brings insight to the RMI regarding the use of reverse mortgages in the retirement market. Ernst & Young (E&Y) is a global leader in assurance, tax, transaction and advisory services. Its worldwide staff of 152,000 people is organized into a globally-integrated professional services entity with deep and broad expertise across industries. The insurance organization within E&Y works with the RMI program focusing on the ability of the insurance industry to support the retirement income needs of current and future generations. Conclusion For the leader who has aggressive business plans, sponsorship of the RMI program will bring new and different views into the retirement markets. This powerful research platform will enable an industry leader to have a broader view of their strategic opportunities through the structured use of household and market analysis. The RMI program does not replace a strategic business analysis, rather it aligns top research firms with analysts in a structure that surfaces and then focuses on opportunities in the retirement market. Leaders who sponsor the RMI program will have a wider strategic view than they have ever had before. They will be able to make the connections and create value propositions that fulfill their retiring customers unformed desires. Mr. Turner can be contacted at Turnerconsultllc@ comcast.net or by calling Stay on the cutting edge of the Retirement-Income Industry s latest thinking, research & innovation. Single or institutional subscriptions available for non-riia members Paper reprints available For RIIA associate or regular members: Take advantage of a member benefit you are entitled to distribute the electronic version of the Retirement Management Journal to your constituents. Please contact Deborah Burkholder at deborah@riia-usa.org for more information.

11 VOLUME 2, NUMBER 2 Getting From There to Here A History of the DTCC/RIIA Relationship BY FRANÇOIS GADENNE AND ADAM BRYAN FRANÇOIS GADENNE, CFA, RMA SM CO-FOUNDER, CHAIRMAN AND EXECUTIVE DIRECTOR RETIREMENT INCOME INDUSTRY ASSOCIATION ADAM BRYAN MANAGING DIRECTOR INSURANCE AND RETIREMENT SERVICES THE DEPOSITORY TRUST & CLEARING CORPORATION The pages that you are about to read unfold the vision of two organizations that believed that transaction data could be transformed into insightful reports for annuity industry executives. This paper discusses the DTCC organization, its Analytic Reporting for Annuities Program, the RIIA views of the DTCC data and your opportunity to receive additional information. The DTCC Organization Through the operating facilities and data centers of its subsidiary companies around the world, The Depository Trust & Clearing Corporation (DTCC) automates, centralizes and standardizes the post-trade processing of financial transactions for thousands of institutions worldwide. With close to 40 years of experience, DTCC is the premier post-trade infrastructure for the global financial markets, simplifying the complexities of clearance, settlement, asset servicing, global data management and information services for equities, corporate and municipal bonds, government and mortgagebacked securities, derivatives, money market instruments, syndicated loans, mutual funds, alternative investment products and insurance transactions. In 2011, DTCC processed securities transactions valued at approximately US$1.7 quadrillion. Its depository provides custody and asset servicing for securities issues from 122 countries and territories valued at US$39.5 trillion. DTCC s global OTC derivatives trade repositories hold records on more than US$500 trillion in gross notional value on transactions across multiple asset classes globally. DTCC s Insurance & Retirement Services (I&RS), launched in 1997, is the division that processes annuity and insurance transactions for the industry. I&RS is the central messaging connection for annuity and life insurance transactions, enabling insurance companies to provide broker/dealers with daily financial transaction information. In 2011, I&RS processed approximately $156 billion in annuity transactions. The creation of DTCC s Analytic Reporting for Annuities Program was motivated by a corporatewide initiative to leverage existing data within DTCC to realize efficiencies for the financial Retirement Income Industry Association

12 T H E R E T I R E M E N T M A N AG E M E N T J O U R N A L S M industry. Given the industry demand, I&RS conducted a comprehensive needs analysis with its users and also worked with RIIA. Based on the analysis, Adam Bryan, Managing Director of I&RS, initiated the development of an online application to transform millions of bits of data into information that would provide a unique view of the annuity market to allow users and customers to see trends, helping them in identifying opportunities and make decisions for their businesses. The Analytic Reporting for Annuities Program DTCC s Analytic Reporting for Annuities service is an online solution that helps insurance companies and broker/dealers better understand their business and business relationships. It allows users to view their market share, rank themselves within a carrier, understand their relationships with carriers or broker/dealers, rank partners and products and use benchmarking information to gain a new understanding of their market and positioning. F I G U R E 1 : R I I A V I E W S A N D T H E I R O B J E C T I V E S POTENTIAL RIIA VIEWS Inflows, outflows and net inflows organized by insurers and annuity products the benchmarking view STRATEGIC QUESTIONS What is the production of annuity business by insurers and specific annuity products? Which annuity products are infusing inflows into insurers businesses? Inflows, outflows and net What is the production of insurers flows by distribution channel by distribution channel? the benchmarking view Which channels are infusing inflows into insurers businesses? Inflows, outflows and net flows by type of marketretail, contributory IRA, IRA Rollover, 401(k) the benchmarking view What is the production of insurers by market? Which markets are infusing inflows into insurers businesses? Unlike other services, DTCC s Analytic Reporting for Annuities uses information extracted from actual transactions processed by National Securities Clearing Corporation, a DTCC subsidiary. DTCC offers a free one month trial of Analytic Reporting to management at insurance companies and broker/dealers that process transactions through DTCC s Insurance & Retirement Services. I&RS also provides online and on-site demonstrations. A trial or meeting can be arranged by contacting your I&RS Relationship Manager. A listing of the Relationship Managers can be found at More information about Analytic Reporting is available at The RIIA Views Through the relationship with RIIA and DTCC, RIIA members will have the added benefit of new benchmarking views of the annuity distribution market, such as seeing annuity activity by distribution channel and product type, as well as by qualified and non-qualified plans. DTCC and RIIA are working together to develop a series of benchmarking reports for RIIA member companies that will be accessible for download from the RIIA website. The work of developing these views will be undertaken by a working group of financial services companies through our newly formed RIIA Market Insight Advisory Board. The RIIA Views listed at left are an initial list of potential views. The group will take this list and test it with companies and distributors in order to gauge industry interest and incorporate industry input. The group will then work with writers, graphic designers and systems associates to craft cutting-edge presentations that give senior leaders within companies and advisory organizations clear compelling snapshots of their industry that concisely communicate the important messages that lie within the data; these views will be insight pieces 12

13 VOLUME 2, NUMBER 2 that can first be read and digested by senior leaders and then passed on to associates and even more senior leaders and board directors. Since the data is so powerful, the presentations do not need to be complex. The RIIA Views will be designed so that senior stakeholders who only periodically review the annuity business can understand the trends that frame their company s position and enable their business opportunities. While these high-level presentations may not answer every question, at least one will not feel compelled to question every answer. These presentations replace conjecture and opinion with market facts and can direct your further analysis into the truly important areas that impact your business. The starting list of potential RIIAViews is as shown in Figure 1 (on previous page). Knowledge is power. BE THE HERO. The RMA certification is the definitive advanced, professional financial designation designed specifically to help advisors and other financial professionals provide better retirement income solutions. It is a rigorous educational and ethics training curriculum that focuses on the key concepts and practical applications of retirement-income planning and management. The RMA curriculum fills a critical gap in available advisor training for retirement-income planning that is not met by otherformal training programs orprofessional designations; it is designed to complement these otherprograms ratherthan replace them. Otherbenefits include: Extend your education through complementary entry and discounts to select RIIA meetings & conferences and a monthly webinar series Network with retirement industry leaders and innovators Access proprietary materials and research/surveys through RIIA Knowledge drives business: Gain a competitive advantage by educating yourself about the new, cutting-edge retirementincome planning financial models. ACT TODAY! To enroll or get more information about the RMA program, go to: riia-usa.org/rma

14 PROFITS WITH A PURPOSE POSE At American Century Investments we offer our clients an alternative to many traditional investment companies. As a privately-controlled fi rm, our independence lets us take a long-term view in the best interest of our clients. We focus exclusively on managing money and apply a time-tested, fundamentally driven approach to investing. But it s not just our commitment to superior long-term performance that makes us unique. Through our company s ownership structure, more than 40% of our profi ts fund research for the prevention, treatment and cure of gene-based diseases such as cancer, diabetes and dementia. Since 2000, American Century Investments has directed more than $900 million to the Stowers Institute for Medical Research. It s what we call profi ts with a purpose. americancentury.com. stowers.org 2012 American Century Proprietary Holdings, Inc. All rights reserved. CO-ADV

15 VOLUME 2, NUMBER 2 The DTCC Analytic Reporting for Annuities Service: A Primer on the Possibilities BY ELVIN TURNER AND ANDREW BLUMBERG ELVIN TURNER MANAGING DIRECTOR TURNER CONSULTING LLC RESEARCH DIRECTOR RETIREMENT INCOME INDUSTRY ASSOCIATION ANDREW BLUMBERG DIRECTOR, ANALYTIC REPORTING FOR ANNUITIES BUSINESS INITIATIVE DTCC INSURANCE & RETIREMENT SERVICES On June 20, 2011, the Depository Trust & Clearing Corporation (DTCC) Insurance & Retirement Services (I&RS) division launched Analytic Reporting for Annuities. Analytic Reporting is an online information solution containing aggregated data from transactions processed by I&RS. Because it is based on transactions and not surveyed data, Analytic Reporting gives users a unique and unprecedented view of their own business as well as the market for annuity products, allowing them to discover key trends and identify opportunities. With updates approximately two to three weeks after each month-end, Analytic Reporting allows users to assess their business and access industry intelligence to understand and improve their place in the market. The application provides actionable information and intelligence to support management decisions about sales, sales management, marketing and product offerings. Analytic Reporting provides a turnkey technology solution through an online interface, available anywhere, anytime. Users do not have to store or manage the data, and they don t have to develop applications or run SQL queries to obtain the information and intelligence they need for decision making. An ID and password are all that is needed to access the information, putting it at the fingertips of business intelligence analysts, marketing and sales managers, product managers and senior executives. What differentiates Analytic Reporting from other offerings is the fact that the information is based on actual transactions processed for the industry by National Securities Clearing Corporation (NSCC), a DTCC subsidiary, anchoring the reporting in reality. The information covers all types of annuity transactions across various channels, products, insurers and consumers, thus supporting the ability to meaningfully interpret and compare results across different segments of the market. The rest of this article provides examples from Analytic Reporting for Annuities that highlight some of the types of information it places at the fingertips of decision makers. They illustrate information that is critical to understanding a company's competitive position. The catalog of uses presented here is not comprehensive the Retirement Income Industry Association

16 T H E R E T I R E M E N T M A N AG E M E N T J O U R N A L S M F I G U R E 1 : I N F L O W S, O U T F L O W S A N D N E T F L O W S F O R T O P 1 0 I N S U R E R S J A N U A RY, T H R O U G H D E C E M B E R, IN B I L L I O N S Carrier Inflows Outflows Net Flows Metlife Investors USA Insurance Company Jackson National Life Insurance Company Pruco Life Insurance Company The Lincoln National Life Insurance Company Riversource Life Insurance Company Nationwide Life Insurance Company Western National Life Insurance Company Transamerica Life Insurance Company John Hancock Life Insurance Co(Usa)/Group Pension Pacific Life Insurance Company "Inflows, outflows and net flows calculated from transactions processed by DTCC Insurance & Retirement Services. Note that not all industry transactions are processed by DTCC." data can be used in nearly unlimited ways to meet the specific needs of different business purposes. Over time RIIA will create a series of on-going presentations, called RIIA Views that present information from Analytic Reporting for Annuities in innovative and useful ways. For purposes of the presentations in this article, some fictional industry data was included in order to complete the presentation without using any company s confidential information and to show the DTCC information in proper context. Where fictional data is used, its use will be noted. In all other cases the data used is derived from actual market transactions. Top 10 Insurers Annuity Sales by Gross Flows, Redemptions and Net Flows The information shown here represents transactions processed by DTCC that occurred in the insurers non-captive channels. According to a reliable industry source annuity sales through non-captive channels account for about 75% of total annuity industry sales. DTCC does not currently capture all annuity activity in noncaptive channels. However, Analytic Reporting does provide a strong view of non-proprietary distribution channels. In 2011, DTCC I&RS processed over $156 billion in annuity transactions for over 124 carriers and 128 distributors. Figure 1 (above) presents the top 10 insurers ranked by inflows processed by DTCC for the full year of Inflows for the top insurers range from $13.1 billion for MetLife to $2.4 billion for Pacific Life. outflows for eight of the top ten companies are lower than their inflows, ranging from a high of $4.4 billion to a low of $700 million. Net flows (inflows minus outflows) ranged from $11.2 billion to negative $1.5 billion. Net flows can vary among companies for a variety of reasons which will be further analyzed by RIIA and DTCC, including: Product Type Sales growth and persistency may differ based on the mix of fixed vs. variable annuities. Fixed annuity contracts often have surrender charges or market value adjustments that discourage redemptions; while variable products have surrender charges, they sometimes do not discourage contract holders from surrendering their contracts if the 16

17 VOLUME 2, NUMBER 2 contract holders believe that they are moving to a superior investment brand. However, in extended low interest rate environments such as we are now experiencing, fixed contracts may be less attractive and subject to being surrendered. Variable contracts are sometimes more difficult to sell during bear markets. RIIA will look at sales and persistency patterns for companies with similar fixed and variable books of business. Distribution Channel Selection Carriers sometimes find that the persistency of their contracts differ by distribution channel, regardless of product type. Some carriers offer different products through different channels, which likely contribute to different rates of redemption. But whether the same contracts or different contracts are offered, persistency by channel is an important metric for companies to track. RIIA will measure redemptions as a percentage of gross sales by channel. Market Type The type of market (qualified vs. non-qualified) into which the annuity is sold has a direct impact on the ability of the company to retain assets and grow sales. For example, redemptions are typically lower in the qualified markets since the employers plan provision may not allow employees to withdraw their assets until certain triggering events occur. This benefit is counterbalanced by the ability of an entire plan to leave the company if an employer decides to retain another company to manage the plan. In some cases the redemptions of a company experiencing high sponsor turnover may be higher than those of a retail-focused annuity company. Redemptions are redemptions, but entirely different analysis is required for qualified and non-qualified sales. RIIA will measure sales and redemption patterns by type of market. F I G U R E 2 : N O N - Q U A L I F I E D S A L E S A S A P E R C E N TA G E O F Q U A L I F I E D S A L E S in Figure 2 (above, right), the data shows that qualified plan accounts have much lower outflows than non-qualified accounts. Qualified plan accounts made up over 90% of positive net flows in In addition, the data shows a trend of increasing inflows into qualified plan accounts and decreasing inflows into non-qualified accounts, and that gap has been widening. Looking at the two account types with the greatest inflows, we can see that qualified accounts are attracting over 60% of inflows, while the share of inflows going F I G U R E 3 : A N N U I T Y I N F L O W S BY A C C O U N T T Y P E Looking at information from Analytic Reporting Retirement Income Industry Association

18 T H E R E T I R E M E N T M A N AG E M E N T J O U R N A L S M F I G U R E 4 : I N F L O W S, O U T F L O W S A N D N E T F L O W S F O R T O P 1 0 I N S U R E R S F U L L Y E A R, IN B I L L I O N S Market Market Carrier Inflows Share Outflows Share Metlife Investors USA Insurance Company % % Jackson National Life Insurance Company % % Pruco Life Insurance Company % % The Lincoln National Life Insurance Company % % Riversource Life Insurance Company % % Nationwide Life Insurance Company % % Western National Life Insurance Company % % Transamerica Life Insurance Company % % John Hancock Life Ins. Co(Usa)/Group Pension % % Pacific Life Insurance Company % % All Others % % "Inflows, outflows and net flows calculated from transactions processed by DTCC Insurance & Retirement Services. Note that not all industry transactions are processed by DTCC." into non-qualified accounts has dropped to under 40%. The chart in Figure 3 (on previous page) shows the trend. F I G U R E 5 : N E T F L O W S F O R T O P 1 0 I N S U R E R S T H R O U G H J U N E, IN B I L L I O N S ( $ B ) Carrier Net Flows Metlife Investors USA Insurance Company Jackson National Life Insurance Company 7.78 Pruco Life Insurance Company 8.32 The Lincoln National Life Insurance Company 2.17 Riversource Life Insurance Company 4.48 Insurer No Insurer No Insurer No. 8 (0.05) Insurer No Insurer No. 10 (1.53) All Others (12.72) TOTAL "Inflows, outflows and net flows calculated from transactions processed by DTCC Insurance & Retirement Services. Note that not all industry transactions are processed by DTCC." From an insurance carrier s perspective, the retention of assets under management is very important. Seeing where the money is going and where the assets are sticking helps industry participants organize and manage their efforts. Top 10 Insurers Annuity Sales by Inflows and Market Share Figure 4 (above) presents the top 10 insurers inflows and outflows, and their market shares as a percentage of total inflows and outflows processed by DTCC in the full year Annuity market inflows are highly concentrated, with the top 10 insurers capturing 68% of inflows. The top three insurers MetLife, Jackson National and Pruco had higher inflows and market share than the bottom 101 insurers. Interestingly, annuity outflows are not as highly concentrated among the top 10 insurers, with those companies only accounting for 38% of total outflows. The top three insurers MetLife, Jackson National and Pruco accounted for 36% of inflows and 8% of outflows. 18

19 VOLUME 2, NUMBER 2 Analytic Reporting allows users to drill in to the data not only by company but also applying other criteria like product, account type and geography. That helps insurance companies focus and target their wholesaling activities for greatest effectiveness. Top 10 Insurers Annuity Sales by Net Flows and Market Share Figure 5 (on previous page) presents the top ten insurers ranked by net flows processed by DTCC in the full year The results shown in this chart are the logical extensions of the counter trends operating between inflows heavily concentrated among the top 10 insurers and outflows, which are under-represented among the top insurers. The concentration among top insurers with inflows becomes even more concentrated with net flows. The top three insurers MetLife, Jackson National and Pruco account for the bulk of the total net flows. This is massive concentration among a relatively few dominant insurers. Single Insurer Inflows by Geography Figure 6 (above, right) presents the inflows processed by DTCC for a single insurer for the full year 2011 by the geographic location of the contract-holders who brought that insurer s nonqualified annuity product. The chart lists the top ten states, ranked by the level of inflows, and then provides one number for the combined inflows of the other states. Even looking at geography, the sales for this insurer are concentrated, with average gross sales of $231 million per state for the top ten states vs. average sales of $42 million per state throughout the rest of the country. While the absolute amount of inflows in other states exceeds the inflows in the top ten states, the top ten states are extremely productive geographic areas for this insurer. In Figure 7 (at right), the RIIA geographic overlay is applied to this fictional insurer s inflows. Each of the top ten states is assigned to one of six F I G U R E 6 : I N F L O W S F O R A S I N G L E I N S U R E R BY G E O G R A P H Y F U L L Y E A R, IN M I L L I O N S Owner State Inflows California $ 527 Florida $ 349 Texas $ 283 Pennsylvania $ 253 New Jersey $ 208 Illinois $ 150 Ohio $ 149 Michigan $ 142 Virginia $ 124 Massachusetts $ 120 Rest of states $ 1,703 This data is for illustration purposes only. F I G U R E 7: I N F L O W S F O R A S I N G L E I N S U R E R BY G E O G R A P H Y RIIA G E O G R A P H I C OV E R L AY, F U L L Y E A R, 2011 IN M I L L I O N S NORTHEAST MID-WEST NJ $208 PA $253 MA $120 OH $149 IL $150 MI $142 Total $328 Total $694 Average $164 Average $174 Avg. all Insurers $54 Avg. all Insurers $83 SOUTHEAST SOUTHWEST VA $124 TX $283 FL $349 Total $473 Average $237 Avg. all Insurers $100 Avg. all Insurers $91 WEST COAST NORTHWEST CA $527 Avg. all Insurers $118 Avg. all Insurers $27 This data is for illustration purposes only Retirement Income Industry Association

20 T H E R E T I R E M E N T M A N AG E M E N T J O U R N A L S M F I G U R E 8 : I N F L O W S, G R O S S F L O W S S I N G L E I N S U R E R BY M A R K E T T Y P E, T H R O U G H F U L L Y E A R, IN B I L L I O N S One One Insurer s Insurer s Account Type Inflows Sales Share + IRA $ % + Non-Qualified $ % + ROTH IRA $ % + SEP-IRA $ % + Money Purchase Plan $ % + 412I Inherited IRA Plan $ Non Qual Stretch Plan $ % + 401(k) $ % + 403(b) $ % + Simple IRA $ % 15 Others $30 0% TOTAL $7, % "Inflows calculated from transactions processed by DTCC Insurance & Retirement Services. Note that not all industry transactions are processed by DTCC." geographic segments around the country. Inflows are summed in every segment and then an average inflow number is calculated. The analysis highlights superior results as groups of states and large geographic regions like California and Florida are shown on a comparable basis. While the inflows for this fictional insurer are interesting, the data that could compel some action is the comparison of those numbers to the average inflows for all insurers in the regions. Therefore the average inflows for each state divided by the number of states in the region is included. Benchmarking an individual company s inflows against overall trends in each region gives a true measure of performance, region by region, and lets company planners know where help is needed and resources should be allocated. Single Insurer Annuity Inflows by Market Type Figure 8 (at left) presents the annuity inflows for a fictional single insurer processed by DTCC for the full year 2011 by the type of market retail, contributory IRA, IRA Rollover, 401(k), etc. This chart is, in effect, a profile of this insurer s DTCC book of business across the markets. Different companies can use this profile in different ways. Some insurers have objectives for specific markets. They, for example, may want to grow the Rollover IRA business and may want to see the available inflows for that market. Other insurers may just want to measure their current performance against the competition. F I G U R E 9 : VA R I A B L E A N N U I T Y C O N T R A C T S F U L L Y E A R, IN B I L L I O N S In Out Net Company Variable Annuity Flows Flows Flows Jackson National Perspective II 05/05 $ 5.98 $ (0.75) $ 5.23 Jackson National Perspective L-Series $ 3.53 $ (0.51) $ 3.02 Metlife USA Series VA $ 6.02 $ (0.40) $ 5.62 Metlife USA Primelite IV $ 1.50 $ (0.18) $ 1.32 Nationwide Destination B $ 2.28 $ (0.05) $ 2.23 Prudential Pru Premier Retirement VA B Series $ 4.00 $ (0.10) $ 3.90 Prudential Pru Premier Retirement VA L Series $ 2.73 $ (0.06) $ 2.68 Prudential Pru Premier Retirement VA X Series $ 1.28 $ (0.03) $ 1.25 River Source RAVA 5 Advantage Variable Annuity $ 4.10 $ (0.05) $ 4.05 River Source RAVA 5 Select Variable Annuity $ 1.33 $ (0.01) $ 1.31 "Inflows, outflows and net flows calculated from transactions processed by DTCC Insurance & Retirement Services. Note that not all industry transactions are processed by DTCC." 20