MassMutual shuts down its retirement income unit

Industry pioneer shifts courses, merges groups

Dec 20, 2009 @ 12:01 am

By Jessica Toonkel Marquez

Almost five years after Massachusetts Mutual Life Insurance Co. entered the retirement income market, the firm has shut down the division devoted to the business — indicating how difficult it is to break into. In 2005, MassMutual was one of the first insurance companies to announce formally that it was building a business designed to target investors near or at retirement. Today, all of the major insurance companies are launching products, as they see this as a growing business opportunity. Total in-vestible assets for retail investors 55 to 70 are expected to grow to $24.2 trillion by 2012, from $9.1 trillion last year. But MassMutual's stumble has many experts noting how important it is for companies to be patient with seeing a return on investment with this market.

“I think a lot of firms underestimated how much it would cost them to run a successful retirement income and distribution business,” said Moshe Milevsky, an associate professor of finance at York University in Toronto. “So some firms are refocusing their attention on their core business and throwing out things that would have worked with time.”

GOLDEN OPPORTUNITY

MassMutual launched its retirement income group in 2005, when it acquired Jerome S. Golden's business, Golden Retirement Resources Inc., which was based on a mutual fund wrap program with an immediate-income-annuity option.

The product was ahead of its time, according to industry experts, but may have been too complicated to catch on with investors. MassMutual said that it is considering tweaking the program to make it easier to understand and next year plans to launch three products to help investors on both the accumulation and “decumulation” sides of retirement. But observers said it could be too little, too late for a company that once was considered ahead of the game.

After acquiring Mr. Golden's firm, the insurer brought on Gary F. Baker, an 18-year veteran of GE Capital Assurance Co. (now Genworth Financial Inc.) as a vice president in the retirement income business division; Stephen L. Deschenes, who had helped manage Fidelity Investments' retirement business, as senior vice president and chief marketing officer; and Tom Johnson, a former retirement executive at Federated Investors Inc., as senior vice president for retirement income and strategic business development.

But over the past several months, still smarting from the market turmoil and a credit ratings downgrade, the company has tried to sell the business it bought from Mr. Golden — to no avail — according to people familiar with the situation. MassMutual has folded its retirement income group, which had 380 employees, into its insurance group and has seen the departures of Mr. Johnson and Mr. Deschenes, and Mr. Baker, who left last Friday.

“It is unfortunate to see a company that made such a strong commitment to retirement income backing off,” said Tamiko Toland, editor of Annuity Insight.

But MassMutual executives said that they aren't backing off from the retirement income market, but rather are shifting course.

“MassMutual is still absolutely committed to the retirement income market,” said Michael Fanning, executive vice president and head of MassMutual's U.S. insurance group.

The challenge that MassMutual faced was in the product it was offering to this market, Mr. Fanning said. The company's Retirement Management Account, which it had bought through the acquisition of Mr. Golden's business, was just too complicated for customers, Mr. Fanning said.

At the time, industry experts heralded the product as ahead of its time, which may have been its downfall.

“As we went through the development and the launch of the product on our system, it became evident that it was probably too complex to solve the needs of our customers,” Mr. Fanning said.

But people familiar with the situation fault MassMutual for not giving the product enough time to gain traction before shifting course.

“RMA brought in $100 million in assets in the first 18 months,” said a person familiar with the situation, who asked not to be identified. “It was on track to do very well.”

That isn't to say that the product didn't have its problems.

When launched, it included portfolios only from MassMutual affiliate OppenheimerFunds Inc. and was being sold only by the insurer's captive fee-based advisers.

However, MassMutual was working on these issues when the company started to rethink the product, people familiar with the situation said. And then the market turmoil of 2008 hit the insurance company, they noted, causing it to lay off hundreds of employees and lose its triple-A credit rating last August. Those conditions led the company to question the risk involved in the Retirement Management Accounts.

“MassMutual is one of many firms that invested in their retirement income initiatives during the good times but had a hard time justifying it when the markets started to turn,” said an outsider familiar with the situation, who asked not to be identified. “This is a business where it is difficult to measure the return on investment.”

The failure of the Retirement Management Account may have been due largely to the fact that it was the first of its kind in the market, said one person familiar with the product, who asked not to be identified.

“The no-load-managed-account marketplace that they were trying to appeal to might still be several years away from a real marketplace,” the person said. To that end, New York Life Insurance Co. is launching such a program next year.

Mr. Fanning declined to comment about the firm's efforts to sell the Retirement Management Account business but did say that the firm isn't closing it down completely. “We think we need to re-look at the RMA and the concept behind it, and figure out how we can make it simpler,” he said, declining to elaborate.

MassMutual is planning three new retirement products for next year, said Dana Tatro, vice president of the annuities group. He declined to go into detail.

And the insurer still has its single-premium income annuity offering as well as a number of variable and fixed deferred annuities, Mr. Tatro said.

But many wonder if MassMutual can remain a significant player in the retirement income market after pulling back.

“The fair question now is: Are they late?” said Elvin Turner, managing director of Turner Consulting LLC. And the other issue that remains to be seen is whether MassMutual will provide its reps with the training that they need to address this market, he said.

And many industry observers wonder if MassMutual has the expertise it needs to make a dent in the retirement income market.

“With all the high-quality people that have left, who is left to move them forward?” said Jack Sharry, chief marketing officer of LifeYield LLC, a tax optimization software provider.

But Mr. Fanning said that he isn't concerned by the exodus of expertise. “I do not think we have missed a beat in terms of talent,” he said.

E-mail Jessica Toonkel Marquez at jmarquez@investmentnews.com.

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