Seeking To Transform Retirement Advice, RIIA Could Have Great Influence On The Financial Advice Profession In The Years Ahead

Friday, March 02, 2012 09:57
Seeking To Transform Retirement Advice, RIIA Could Have Great Influence On The Financial Advice Profession In The Years Ahead

Tags: advisor industry people | CFP Board | profession | retirement planning

The Retirement Management Analyst could help transform the financial advice profession over the next decade as retirees struggle to create secure income streams as their assets decline. RMA has positioned itself to become as influential a professional body as the CFP Board.

While CFPs may look at it as a return of the “CFP-lite” designation from a decade ago and while the RMA will add to the designation proliferation already confusing investors, the Retirement Income Industry Association (RIIA) says it is trying to find solutions to America’s retirement problem by challenging the status quo.

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“We can't find answers by going to traditional associations because they are lobbying organizations and their job is to preserve the status quo,” says Francois Gadenne, founder and executive director of RIIA. “RIIA’s mission is to be a view across the business silos, with no lobbying agenda, and everyone with a stake in the issue is welcome under this big tent — wherever it goes.”
After interviewing Gadenne several times about RIIA, the organization he founded in 2006 to license the RMA designation, I believe this group will earn the trust of consumers and financial advice professionals. But it won’t be easy.
Leading thinkers in the financial advice profession — A4A readers — are, as usual, showing a healthy skepticism. Like me, their initial reaction is that RIIA’s ties to product manufacturers leave the group susceptible to control by Wall Street giants that have for decades invested and sold bad solutions to invetsors.   
For example, an A4A member Wednesday posted a comment about RIIA saying, ”A cursory look at their website leads me to believe this is just another designation mill--possibly designed to sell product. The training appears to pale in comparison to the CFP® designation.”
I asked RIIA’s founder and executive director, Francois Gadenne to respond, and here is what he said:  
Eric's comment shows commendable passion and I certainly agree with him if he were describing:
- a group representing a specific industry silo,
- a group lobbying for a specific product type,
- a group with an legacy list of designations of various value,
- a group showing up into this area as a Johnny-come-lately, me-too player, etc.
 On the other hand, RIIA was purpose-built to be:
- cross-advisor, cross-profession, and cross-industry silos ("The View Across The Silos")
- non-lobbying (all constituencies are represented in the membership, allowing for the smaller voices to be heard as well),
- think-tank (with a de-novo, open-minded approach to the topic), and
- first mover in the retirement income planning space.
Our mission is to
- explore,
- define,
- educate, and
- benchmark the emerging specialty of retirement income planning.
We work to establish high quality, product neutral specializations within the financial advice profession.
We identify, validate and document evidence-based strategies that go further than the more general courses of study that we have reviewed while maintaining their level of rigor and high standards.
RIIA's RMA brings the following to the specialty of retirement income planning:
- Depth because it is based on science,
- Breadth because it is built by the "View Across the Silos",
- Range because it makes the science practical across the full range of distribution channels,
- Objectivity because we do not lobby or represent a specific position, and
- Adaptability because we are not tied to legacy processes that slow down the recognition and adaptation to changes in the environment.
We fill a void in the industry and we seek to cooperate with all silo-focused players that want to extend their offering in this space.
Gadenne is our guest speaker today at our weekly webinar today. Please register.
Gadenne, who grew up in a rural French province near the Belgian border, impresses me as someone who is incapable of obfuscation. After interviewing him for two hours, he is a rare breed of subject—a compulsive truth teller.  
Gadenne says he was raised by Jesuits from age four to 18, when despite his poor financial station in life he was able to break through French society’s “caste system” because he had excellent grades and tested well. He was accepted to one of France’s “great schools,” a college outside the main framework of the French university system that traditionally produces France’s leadership.  
But because he was a born-entrepreneur, Gadenne left France at age 22 because it was socialist and “literally killed” its entrepreneurs. He came to America to study for an MBA at Northwestern University’s Kellogg School of Management.
Poking fun of himself, Gadenne says his “claim to fame” is that he led the team at Arthur D. Little that built NASA’s weather forecasting after the Challenger disaster in 1986. He says weather data and financial data are a lot alike and went on to build financial software using artificial intelligence in a venture that was acquired by Standard & Poor’s in 1999.
“After the earn-out, I retired,” says Gadenne. “Then my wife told me that she married me for life and not just for lunch, and she told me to go do another one.” Gadenne started another company working with insurance companies on annuity products. It was his work there that drew Gadenne into creation of the RIIA in 2006. The product companies were the initial backers of RIIA and after a year of working on the start up of RIIA, Gadenne was asked by them to run RIIA full time. He placed his interest in his software company in a blind trust.  
“Under the investment management model, you sell to clients a probabilistic return and the way you make money as an advisor is to gather AUMs and basically feed off them,” says Gadenne. “But you’re really selling an outcome that’s measure in dollars and you better deliver on that. But you have to deliver even when you are emptying bathtub, where you must make payments as opposed to collecting AUMs going in.”
“You’re selling something that has great fiduciary implications and it is much easier at the client level to measure whether you are meeting expectations,” says Gadenne. It completely changes the business model of advisors because you must learn how to make money as money is flowing out and AUMs are decreasing.”
“RIIA is not here to preserve the status quo or kiss up to the product people,” says Gadenne. “We want to bring all the people with a stake in the issues, identify them, research them, and publish solutions.


Comments (5)

I believe that at a minimum skepticism is warranted when their founder's experience is helping insurance companies with their annuity products and thinks RIA's "feed" off their clients.

I suspect their research will offer a lot of "proof" of the value of annuities.
bramsay , March 02, 2012
Unfortunately the weather will have me rounding up kids this afternoon, so I cannot be on the call.

I did come across the RMA body of knowledge

Access here:

While I haven't studied it completely, the following sounds as though it was pulled directly from VA (with guarantees) marketing literature:

Goal 1: Build a Floor
Goal 2: Create Upside

I imagine the conversation to so something like this:

RMA Advisor "Tom, I've taken you through an exhaustive process, but let me focus you again our our goals:

Goal 1: Build a Floor
Goal 2: Create Upside

Tom: Yep, that's what I want! Safety AND Growth

RMA Advisor: "Tom,I'm hearing you say you want Safety AND Growth. Is that Right?"

Tom: You Betcha!

RMA Advisor: "I've go a product that does both! Our principal protected growth guaranteed money back guarantee product will do everything you want!

Tom: What are the drawbacks? What are the fees? What about my heirs? What happens if the company goes bankrupt? Is this irrevocable? Are their any downsides? You've combined an insurance product with an investment product so you get to play off best features of each. If the market does well the guarantees are of little value. If the market does poorly--for a long time--how will the company afford continue paying benefits?

RMA Advisor: ...
ericm205 , March 02, 2012
Wow that was fast, thanks Eric. No surprise. Its too bad that lots of people seem to believe that insurance companies can magically transform volatility that is inherent in all long term investment and savings options (regardless of whether you are accumulating or withdrawing), into steady income and still be able to provide extra return when saddled with very high expenses.

Every living (and dying) annuity benefit rider we've evaluated for new clients that had them weren't worth the cost- even when the stated funny money benefit "value" was higher than the surrender value. The last one we looked at would have required underperforming the 2.5% cost annuity subaccounts AND living past age 102.
bramsay , March 02, 2012
Duncan Williams
I am noticing a healthy skepticism, and it is quite understandable given the propensity for insurance products to be misrepresented by some advisors. But as advisors, we are all tasked to come up with solutions for our clients. I am interested to know what approach you would take.

Let's suppose that you have 2 households as new clients. Household A consists of a married 65-year old couple, who are retiring next week. They have no savings and did not participate in Social Security, but do have a DB plan that will pay them $55K/yr, inflation-adjusted, until the second spouse dies. They have a one-time option to cash all or any portion of the DB plan out. If they cash out 100%, they will have $1 million in a rollover IRA. What is your recommendation?

Household B is also a 65-year old couple getting ready to retire, and they too are not eligble for Social Security. All of their retirement assets are in DC plans totalling $1 million. They want to know if they should buy an immediate annuity with some of their money. What do you recommend?

Is there any amount of risk in retirement that should be pooled or transferred, or do you think that all of it should be retained?
Duncan Williams , March 04, 2012
Those two cases would be interesting, though I've never encountered such an extreme case where there is no social security. I'm sure they exist, I just haven't seen any.

Case A doesn't seem to be reality based since a $55k/year inflation adjusted 100% joint life annuity can't be purchased for $1million with current market conditions.

Case B while extreme on no social security, is more realistic. A quick check online shows a $1mil non inflation 100% joint life payout of $57,660 per year. Of course that is probably with a not so high rated carrier, so lets assume a high rated company would be $52,000. If one of the clients lives to age 95, then the rate of return is 3.15% for the 30 year period. If they live longer it will be slightly higher and if they live shorter, then the return goes down, and is negative if one of them doesn't live at least 19 years. Beating 3.15% over the next 30 years doesn't seem like a very difficult hurdle.

That annuity quote doesn't include inflation adjustments, so if they wanted to compensate for inflation they'd have to save some of the income each year so they could use it later as prices rose. Which ultimately could make the actual amount they could spend from their annuity income below a very sustainable withdrawal rate from a $1million portfolio reasonably well managed.

Or they could buy an inflation adjusted one, but I suspect the income rate would be substantially below the fixed payout quote, once again likely putting it below safe withdrawal rate from a balanced portfolio.

I probably would spend extra time discussing an immediate annuity if I did encounter someone with no social security, but I don't think I'd insist on it if I and the client felt they could adequately control their expenses to make running out of money very unlikely.

I've had cases where I encouraged an immediate annuity, which a couple of them chose to do. But insurance companies do not have magic money making machines, and most clients will likely do better without annuitizing their assets. Life annuities essentially lock in current interest rates for the rest of your life. When rates are low like now, that actually seems risky. And when rates are high, future returns from investments are typically very high.

bramsay , March 06, 2012

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