A conversation with the head of New York Life’s retail annuities business

After 15 years at New York Life, eight of which he spent working in the company's annuities business, Dylan Huang was recently named senior managing director and head of the company's retail annuities business.

Huang's deep experience in the annuities industry includes building retirement products available through New York Life agents and third-party advisors, including the company's Guaranteed Future Income Annuity, which had the strongest sales introduction of any new annuity product in the company's history. He holds patents for products developed under his leadership, and his research on how guaranteed income can optimize retirement portfolios won the Retirement Industry Association's Practitioner's Thought Leadership Award in 2012.

Huang will now lead all aspects of New York Life's retail annuity business, including product development and management, marketing, sales, service, strategy, and research and analytics.

New York Life has taken a strong focus on the fixed annuities business. The company ranks first on LIMRA's list of fixed annuity carriers with sales of $3.2 billion during the first quarter. Retail annuities is New York Life's second-largest line of business.

"We believe in the simplest and the most transparent form of annuities — single premium immediate annuities (SPIAs) and deferred income annuities (DIAs)," said Huang. "Back in 2003 or 2004, we recognized there was going to be this massive baby boomer wave coming ashore over the next five to 10 years and it was going to be here for the next few decades. Recognizing that there was going to be a massive demand for lifetime income, we really believed in the power of immediate annuities and deferred income annuities."

The company offers other types of annuities, including variable annuities, but focuses mainly on simple and transparent annuity products.

Huang sat down with LifeHealthPro to offer his thoughts on the challenges retirees and pre-retirees face as well as the state of the annuities industry.

LifeHealthPro: What are the most significant challenges facing consumers today regarding retirement planning?

Huang: I think retirement planning is a very complex mathematical equation. It's very dissimilar to accumulation where the goal is to grow your assets as much as possible. In the decummulation years you have to rely on that nest egg that you've built to generate income for life, and not only income for life but also to achieve other retirement goals, perhaps legacy for your kids and grandkids or maybe you want to buy a boat.

There are many dimensions of risk that you don't have while in accumulation years. There's the risk of withdrawing too much money so you might not sustain for your entire lifetime. There's longevity risk. There's inflation risk. You don't know how inflation will be in the next 10 years, or 20 years or 30 years down the line. Then the risk most people don't understand is the sequence of returns risk. Retiring into a good market has a much different impact to your portfolio and the sustainability of your portfolio than retiring into a bad market.

It's a very complex process, so recognizing that it is difficult is probably the most important thing for retirees or pre-retirees to accept and to understand they need help. This is not arithmetic; this is calculus. You need a trusted financial advisor to help you with your math problem.

LifeHealthPro: Why should consumers consider annuity products as part of their retirement income planning?

Huang: Annuities address a couple of the primary risks in retirement. There's no other financial vehicle in the world that could perfectly match up with your life expectancy. If you live for 50 years, the annuity will pay for 50 years. If you live 30 years, it will pay for 30 years. Annuities basically hedge that risk completely. Annuities also come with inflationary increases that address your inflationary concerns.

The way I view annuities is as what I call insured assets. In accumulation, traditional assets such as stocks and bonds and mutual funds, those are the bedrock of your portfolio. You should buy life insurance, especially if you have children. But in the decumulation stage, really you should view insured assets such as annuities as the bedrock of your portfolio. Then you would supplement the portfolio with traditional assets. In the decumulation world, the foundation of your portfolio is a little different because the risks are very different.

LifeHealthPro: What are some of the myths and misinformation you see in the marketplace about annuities?

Huang: The number one misconception that I see is that annuities are expensive or have high fees. Just like mutual funds, there are many flavors of annuities in the industry.

We like the very simple version of an immediate annuity, there are no explicit fees of any kind. It's basically "This is the premium and we guarantee to pay you this amount for the rest of your life no matter what." It's just premiums in exchange for lifetime income amounts. And those are the ones that we like. Those are the ones that we are a leader in.

Some annuities do come with a higher cost. Let's take a variable annuity, for an example. Generally VAs offer consumers participation in equities and are purchased as an accumulation vehicle with an option for income. Offering consumers optionality comes with a cost. The insurer has to offer a guarantee on the equity market which is more expensive to hedge.

There are probably some bad actors out there that have too much fees. I'm not going to disagree there. But there are many different types of annuities, and you've got to figure out with the help of a financial advisor, which one should live at the foundation of your portfolio.

LifeHealthPro: What are some of the trends in the annuities marketplace that you are seeing?

Huang: The high-level trend is variable annuities down, fixed annuities up. And remember fixed annuities come in two different categories, there's the fixed rate annuities and there's income annuities. What is, I guess, not surprising is the explosive growth of income annuities over the last several years in spite of interest rates declining. If interest rates are higher, you would expect annuities sales to go up. If interest rates were in a decline, you would expect annuities sales to go down. But fixed annuities sales have been growing very rapidly over the last couple of years in spite of the low interest rate environment and this is really driven by the overall demand for lifetime income guarantees. So even though the interest rates are coming down, people understand that the payout rates on income annuities are rates they cannot get elsewhere in other vehicles. I think there's been a trend that has helped drive the growth of the market.

Another trend that we've seen about the last year and a half is the growth of the qualified longevity annuity contract (QLAC) market. A lot of retirees don't want to withdraw money from their qualified assets because they have to pay taxes. The IRS came out with a rule that really endorses a deferred income annuity category that basically says we will allow a purchase of a deferred income annuity or a longevity annuity and have that asset not be part of the required minimum distribution calculation. So basically it's getting a tax preferred status. We are seeing sales of QLACs grow pretty quickly since the rule came out.

LifeHealthPro: How is New York Life addressing the U.S. Department of Labor's fiduciary rule and what impacts do you expect to come from this rule?

Huang: The DOL rule is a headline across the industry, and it does impact the variable annuities more than fixed annuities, depending on how you decide to position your product portfolio. I would say that New York Life has always been committed to the best interest of our policy owners and will continue to do so. I don't anticipate much change in our business practice because we wholly believe that we already are doing what the rule is requiring. There are additional disclosures and paperwork that needs to be done, but I don't see this impacting our business much at all.

LifeHealthPro: How do you think the DOL rule will affect the overall annuities market?

Huang: I would say for the independent marketing organizations, there's a challenge there. Generally the broker-dealers are still in the process of trying to understand the rule and how they intend to comply with it. I would say VAs and indexed annuities will probably take a hit, but because of the demographic trends, the demand and the need for income is not just going to go away. I see a large pivot to fixed annuities, particularly the ones that provide lifetime income, such as the immediate annuities and DIAs. Those will continue to shine, and I see a pretty large wave of support there.

LifeHealthPro: What are some of the other challenges the annuities market faces?

Huang: The macroeconomic environment. We have some regulatory uncertainties from the DOL, but I think if you run your business the right way, you probably shouldn't have that much of an impact from the DOL rule. What is really happening to the annuities industry and us is the macroeconomic environment — the low rate environment, the global economy, Brexit, all these different events bubbling up across the world, shaping the global economy. Macroeconomic trends I would say are not necessarily a concern but something to watch out for.

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A conversation with the head of New York Life’s retail annuities business

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A conversation with the head of New York Life’s retail annuities business

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