Complex Products Justified by Complex Problems

If critics of the financial services industry or the retirement industry in particular say product offerings are too complicated, Prudential contends that’s where advisers come into play.


At a press meeting in New York City this week, Prudential had executives from various divisions – Institutional Investment Solutions, Prudential Annuities, Long-Term Care, Investment-Only Defined Contribution, Agency Distribution and Total Retirement Solutions – explain what they see as key trends affecting the retirement landscape  in the U.S. today (see “Prudential Retirement Reorganizes”). 

Jamie Kalamarides, Senior Vice President, Institutional Investment Solutions, said three key trends he has observed in the industry are:

1) Coverage: 50% of Americans do not have access to a workplace retirement plan. He said this is likely because of the cost of administering a plan and the fiduciary liability the plan sponsor would have to take on. For these reasons, Kalamarides said Prudential supports a proposed bill calling for enhanced access to individual retirement accounts (IRAs) for employees in small companies (see “Mandatory Workplace IRA Bill Returns”). 

2) Increasing savings: Americans are still not saving enough, according to Prudential. However, economic volatility has actually helped in this regard, said Bruce Ferris, Senior Vice President, Sales and Distribution, Prudential Annuities. Employees are recognizing they need help in managing their finances and a financial adviser working through a workplace retirement plan is the best place participants can get advice.

3) The biggest trend, said Kalamarides, is translating accumulation into lifetime income. He said target-date funds have been the most frequently discussed topic of that last ten years, and predicted lifetime income will be the biggest topic of the next ten years. He says it’s imperative that product innovations are incorporated into upcoming regulation.

Part of the concern surrounding lifetime income is in post-retirement healthcare costs. Malcolm Cheung, Vice President, Long Term Care, Group Insurance, said this is the biggest single threat to an individual’s retirement security. In a joint study with the Center for Retirement Research at Boston College, on average, a typical 65-year old couple will incur post-retirement health care expenses (including nursing home care) of approximately $250,000.  However, there is a 5% chance that post-retirement health care expenses could be in excess of half a million dollars.Most people are unaware and unprepared for that risk, he commented.

Going back to the role of the adviser, Ferris emphasized the point that Prudential’s products are sold directly to advisers for a reason; solutions to complex problems tend to be complex themselves. But advisers are trained to help sponsors and participants walk through solutions that are the best fit for them.

One example of this would be the option of including an annuity in a 401(k). While many investors remain wary of annuities, Prudential has found that once they are explained by a financial professional, they are much more likely to be adopted (see “Annuities Can Help Wary Investors Stay in the Game”).