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Rating:Fund Execs Should Care About Retirement Income, Here's Why Not Rated 3.1 Email Routing List Email & Route  Print Print
Monday, May 14, 2007

Fund Execs Should Care About Retirement Income, Here's Why

Reported by Sean Hanna, Editor in Chief

Have you heard of retirement income yet? If you are like most in the mutual fund industry you already have, if you somehow missed hearing about it, the ICI's General Membership Conference held in Washington, D.C. last week was the place to be to learn what all of the hype is about. Indeed, at one point Friday morning two of the three sessions were addressing the topic.

If mutual fund executives left the sessions literally scratching their heads over what all of the fuss, and hype, is about, they should not be blamed. No one knows how the nascent retirement income industry will play out, no one knows what kind of products will be gain wide appeal and no one knows the role of mutual funds in generating retirement income.

What is clear is that retirement income may very well be the next emerging threat to the way most funds gather assets today. Many of the top insurers -- including, MetLife, Prudential, Genworth, Lincoln National and others -- are using the concept to reintroduce annuity products into the retirement asset stream.

At stake are the $16.4 trillion in retirement assets as measured by the ICI itself. Mutual funds hold just $4.1 trillion, or one quarter of that amount. Most of those retirement assets are flowing into defined contribution plans and IRAs.

As to what role mutual funds will play in the retirement income game, not even the Wall Street Journal's coverage of one of the sessions found a link. Instead, the paper focused on the changing role of the advisor, not how funds will be used in the products. Brock Johnson, vice president at Morningstar Associates, was one of the speakers stressing that angle. "Seventy-five percent of advisors' book of business today is held in pre retirement market," said Johnson.

Steve Deschenes, Fidelity's representative on the panel, notably represented the fund behemoth's newly created insurance business and not its mutual fund arm. Earlier in his career, Deschenes was the CEO of mPower, an Internet-based startup focused on providing advice to 401(k) investors that was eventually sold to Morningstar.

Tom Johnson, a senior vice president at MassMutual Retirement Income, was the third panelist. Johnson also represents one of the few insurers in the retirement income game that are marketing themselves as fund friendly.

The MassMutual product entry allows investors to allocate their portfolio between an immediate annuity and mutual funds. They are even allowed to reallocate assets back to the funds. Johnson says that while the product only offers mutual funds from MassMutual affiliate OppenheimerFunds today, he expects that a open-platform version of the product will debut down the road.

If retirement income does take off, products like the MassMutual one may be one of the few ways mutual funds can hang on to their assets. As Tom Johnson explains, products like MassMutual's may be one way for mutual funds to hang on to their customers, and those customers' assets.

Johnson is used to explaining this to mutual fund executives.

"One executive at a major mutual fund asked me, 'Why should I care about retirement income?'"

The answer, replied Johnson, is "because at the end of the day you have more equities to manage, and you have a longer relationship with your customer."

"By having a base level of guaranteed income you are freer to invest in equities," he added. In fact, Johson contends that products structured like MassMutual's would allow investors to keep 70 to 90 percent of their portfolio invested in funds.

That is, of course, the same pitch insurers made in the 401(k) arena when they found their stable value products losing out to mutual funds. This time, there may be a chance that the pitch works much better.  

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