Industry Leaders Point to Growth and Challenges

Part of the solution, he says, is to offer broader-based products, such as asset allocation funds rather than narrow-focused offerings. And advertising with a focus on long-term issues rather than one-year performance is also important. "This can help investors not hurt themselves so much," Haldeman shares. Rather than encouraging investors to consider buying the latest hot products, for instance, firms could stress ways to help them minimize their underperformance with broader allocations.

As for the market-timing scandal that hit Putnam in 2003, only about five people were involved, according to Haldeman. Putnam, as the first firm on the regulators' radar screen, worked to strike an agreement with the SEC as quickly as possible. That drew the ire of some Massachusetts officials and complicated its work with the SEC.

The future of Putnam, he says, is very promising. "We do not want to do acquisitions," Haldeman explains, though the fund group continues to pursue international distribution partnerships.

John DesPrez, CEO of John Hancock Financial Services (part of Manulife Financial), says financial advisors and planners must help clients confront the health and wealth challenges that come with longevity. This trend should lead to strong growth in annuity sales, which can positively impact mutual funds given their important role as an asset class that's well integrated within the annuity framework, he explains.

The industry leader notes that the life-insurance distribution world is "evolving as the captive, agency sales forces break up." "There's no shortage of intermediaries to replace them," DesPrez says. Likewise, annuity products are changing, with a trend toward hybrid products that combine insurance, principal protection and asset management. Planners, he shares, need to carve up a percent of assets for the "post-85″ annuity that would pay if you lived passed this age.

Manulife — with its strong base of traditional life insurance — is well positioned to write guarantees for such policies, he notes. The company made such a point in May 2005, when it introduced a "lifetime guarantee," rather than a 20-year pledge. Eventually, though, the industry could find that there's "too much risk for us to absorb," and hence the formation of a government agency that would serve as a guarantor for part of future policies is being discussed.

The CEO also explains that the April 2004 merger of John Hancock and Canada's Manulife succeeded for several reasons. First, work on the deal started during the bad credit cycle of 2001-2003, and it was completed before the bottom of that cycle. Second, the deal involved companies that did not have overlapping business, making it "a revenue deal" and not a cost-cutting merger.

A final reason for its success, DesPrez explains, was that the merger was financially well structured and did not involve "flow back," or the selling of the acquirer's shares that then flow back to a foreign market in quantities that can't be absorbed, as with Prudential's attempt to buy American General. In the case of Manulife, regulators in Toronto waived the buyback limit in cash, so the company could protect its shares. Arbitragers stayed away, the CEO says. Plus, the deal was done 100 percent in stock, he adds.

With its AAA credit rating, historically important brand, continuing momentum in net flows and new product development, John Hancock is poised to further strengthen its leadership position in a rapidly changing industry, according to DesPrez.

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Janet Levaux is the managing editor of Research; reach her at [email protected].