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Retirement Investors Want Products, Not Processes

The financial services industry has made great progress in recent years developing products that make the process of receiving investment advice accessible and affordable to participants in retirement savings plans. The problem, says Francois Gadenne, is that investors want to buy products, not processes.

"About 20 percent of participants are active investors who are involved in planning and investing, and like self-direction and having fund choices," Gadenne said at the SVIA's 2003 National Forum. "The remaining 80 percent are reluctant investors who are uninvolved in the process and did not ask for, and do not like, the responsibility to plan and manage their own retirement funds."

For that vast majority of investors, Gadenne said, the financial services industry needs to come up with products that obviate the need for investment advice and offer them concrete outcomes rather than requiring them to input information. What is more, he said, they want those outcomes presented in terms of the dollars they will have in their wallets during retirement, not the percentages they will earn on their portfolios.

Gadenne's criticism of the investment advice industry carries some unusual weight, and, to be fair, a business bias. He was one of the industry's pioneers, having co-founded, in 1996, Rational Investors, an independent provider of investment advice for the defined contribution plan market. That firm was sold to Standard & Poor's in 1999, where Gadenne then worked for two years. His latest venture, Retirement Engineering, is trying to create defined benefit securities for defined contribution plans. Such products, he says, would offer participants a guaranteed retirement income, much the way a traditional defined-benefit pension plan does. In short, they would offer outcomes as opposed to demanding inputs.

Gadenne said that because the US population is aging-76 million baby boomers born between 1946 and 1964 are fast approaching retirement age-investors in defined contribution plans are increasingly interested in finding new products with Stable Value characteristics. Stable Value funds and products with similar characteristics have a tremendous opportunity to find favor among American investors as they transition from the asset accumulation phase of their lives to the asset distribution and preservation phase.

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