“If you’re 10 years away from retirement and you’re still banking on what the market is going to do, I think you’re really underplanned when it comes to retirement. We want to use the market as a tool where we can take advantage of market volatility. But we don’t want to be a victim to market volatility.” - Rich Antonucci

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ROB RICHARDSON
Welcome to Disruption Now. I’m your host and moderator, Rob Richardson.

TUNDE OGUNLANA
I’m Tunde Ogunlana.

RICH ANTONUCCI
Rich Antonucci.

ROB
We are honored to have Rich on the show today, this part of our ongoing coverage to really help you through the COVID-19 crisis.

This thing, Rich, has really shook up people’s confidence and it shook up the markets. The market still seem to be pretty volatile. Some people are kind of getting some guidance but… Right now, you’re kind of dealing in this area. What do you see is the most commonly-asked question right now and how do you advise them for that question?

RICH
Rob, thanks for the question. Great to be with you today. Just a quick reminder on my role. I’m the regional vice president with Prudential and my specialty is retirement planning.

My job is I work with financial professionals, helping those final professionals build plans for their clients when it comes to retirement planning. So the individuals I’m speaking with every day are financial professionals.

ROB
Right.

RICH
I also do a lot of client interaction. We do a lot of seminars and education campaigns with my financial advisors for their clients.

To answer your question about the most often question I get is pretty much, “What’s the market going to do?” That’s kind of the magic question.

ROB
You can say that all the time. “You’re worth you weight in gold, brother.”

RICH
Well I think part of the education we do is we work with people to make sure that their retirement is not so dependent, “I want the market [indiscernible - 02:04] day today.”

If you’re 10 years away from retirement and you’re still banking on what the market is going to do, I think you’re really underplanned when it comes to retirement. We want to use the market as a tool where we can take advantage of market volatility. But we don’t want to be a victim to market volatility. And I think that’s something that can be achieved if you have a sound financial plan and you’re working with a financial professional.

ROB
So what are some ways to do that? I think that’s a really good scope to say like, “You’re not subject to market volatility.” But you have a long-term plan.

Let’s just take myself here -- some ways away from retirement, not in my 20s either. I look at this as the second big volatile event to happen, literally, in my generation, in my lifetime. I started as a working professional was, of course, ’08 and now we got this.

What advice do you give someone looking at the market that is in my shoes right now who still got some time in the market but are seeing a pretty unstable position right now?

RICH
When it comes specific to your retirement, what I would ask you, Rob, is think about your own personal retirement and think about what concerns you when it comes to your future retirement whether you’re 10 years, 20 years, 30 years away from retirement. Is there anything that concerns you when it comes to your retirement?

ROB
Oh you’re asking me back. Oh you asked me that, yeah. Look, my goal of retirement is to really make sure that there’s enough there that I can keep living or maybe even exceeding the current lifestyle I have right now. My goal is to make sure that it grows. So I invested it pretty significantly.

RICH
Okay.

ROB
And you know what? I’ll tell you very directly, what concerns me is how much… I think the market is pretty unstable at this point. I still invest in it. But I think right now I kind of held… I did from the advice of one of my financial planners which is the guy to the left of me.

A lot of my stuff is in stable position and I moved it in cash and then I’m going to invest more because the market is going to… There are still market opportunities and things like that I think people are losing their mind right now.

A lot of my new money will go towards investing because I still believe in the market growing. But I think a lot of people would be… I’m not as nervous because I’m not as risk-adverse. I’m pragmatic, like I said, that’s why I moved some current money into a position that I was like, “Okay, I know I have this.” But for some who might be fearful of this moment because they see what’s happening, what would you tell them in the long run particularly you’re dealing in annuities?

RICH
So the first thing I always encourage everyone to do when it comes to their retirement money is think about what you want that money to do for you. I prescribe to an acronym called “GPS” -- so think of “Grow, Pass or Spend.” -- Grow, Pass or Spend. That covers most people’s three main objectives when it comes to their retirement money. You want to grow and protect it for future use in retirement or do you want to pass it on as a legacy when you die or you want to spend it down as a personal pension giving you income in retirement?

ROB
Got it.

RICH
Typically, what we see for a lot of people, they have multiple buckets, right? If you’re younger and further away from retirement, you’re typically focused on the “Grow bucket.”

ROB
Yeah.

RICH
Right? If you’re very high net worth and you’re not so concerned about running out of income, you’re more concerned about leaving a legacy, that’s the “Pass bucket.” But for the vast majority of us, when we’re focused on our retirement money, we’re focused on that “Spend bucket.”

In the way we deal with retirement today is different than our parents’ and grandparents’. A generation ago, most Americans had a pension on which they could rely. You worked for a company for 30 years, when you retired, you got your gold watch and you got your pension, right? So it was up to the company you work for to make sure you always had money to live on.
ROB
Right.

RICH
Very few Americans had like a nest egg to live on in retirement. If you have a nest egg, you spend it on the kids or the grandkids. Well today, most people don’t have pensions. If you work for a Fortune 500 company, you don’t have a pension. You have an IRA or a 401k, right, which are great vehicles for saving for retirement. But the difference is responsibility. The responsibility is no longer under an employer. The responsibility is on us to determine, “How do we take that investment and how do we convert that investment into a payment stream to give us enough income to live the lifestyle we want to live but not so much income that we run out of money before we run [inaudible - 06:54], right? That’s the challenge.

ROB
Yeah. Tunde, you want to jump on anything?

TUNDE
This is great. And Rich, thanks for joining us. And to expand a little bit on the relationship and even for the audience here, I would be considered a client of Rich and his firm at Prudential.

I own a wealth management firm. We work with individual families, clients and helping them in providing solutions in areas just like this -- income planning, retirement, tax deferral, all that kind of stuff. What happens is, someone like me, I need to have resources, too. And that’s one thing I’ve really appreciated about Rich and his firm at Prudential because they are not only great resources in providing these products but also in providing strategies, ideas and kind of the resources of the firm itself -- you know, the attorneys at the home office level, people like Rich.

So what happens is… Everything he is saying is spot-on. I even wrote a few notes down here. One of the things… And Rich, I appreciated the way you said that about the markets because I find that human psychology, they breed in fear factor. We all know, kind of intellectually “Buy low, sell high” but human psychology usually drives people to buy high and sell low.

And the other thing that I found a lot in my practice over the years is a lot of people have an unrealistic expectation about the stock market, like they’re just going to give some money and it’s a casino and it’s just going to just magically explode into so much bigger multiple.

Obviously, we’re filming this in April of 2020. So this recent COVID scare, the market crash, all that, is just a good reminder. I’ve been telling clients that risk does exist.

One of the things I appreciate about Rich, the relationship that you give us, really, is a solution to things like income and guarantees because what I find is, at a certain point in life, even the most aggressive investors, once they hit their 70s, people get tired at that age of dealing with these ups and downs and dealing with all of these fluctuations.

I think you put it best that talking about these products as streams of income, I think it’s a little bit of a psychological dance. People sometimes need to play because we’re conditioned… We’re all in our 40s here on these screens here so we’re conditioned from the time we got into a job at our 20s to continue to plow money into an account called the “401k” that’s going to keep growing.

And I think that one thing that you guys offer is the education and the reality, kind of looked that you’ll be 75… Rob, talking back to you to pick on you about your retirement, if I can call you a “Client” is--

ROB
Sure.

TUNDE
What are you going to do at 80 years old with millions of dollars just piled up there? At some point, it has to become a stream of income for you. So that’s, I think, the transition that Rich has--

ROB
Which is a problem I’m hoping to have.

TUNDE
Yeah.

ROB
One, I’ll live that long and then [B - 10:09], I have money like that, so yes.

TUNDE
And you’re a good example, too, Rob because as an entrepreneur… You know, one thing that Rich has enlightened me, too… Really, a lot of things in life are language, right? Sometimes, it’s just about the idea that, as an entrepreneur, you don’t have a pension.

So one thing that we describe, you know, the products that Rich offers, is really, these are self-funded pensions. You’re taking a lump sum of money that you had built up over years here and when Rob is 65 or whatever age he decides he wants to retire, he can basically move it to a firm like Prudential and they’ll give him a guaranteed stream of income so that Rob no longer has to worry about the market or other things like that in terms of meeting his retirement goals.

So that’s my two cents here, that it’s a very important topic but it’s not just about the products. It’s about the concepts and understanding how these things fit in to the overall plan. I think that’s the most important thing.

ROB
What do you think is the most important piece of advice you can give your clients -- I guess, with your financial advisors and a lot of those folks? We’re not talking all financial advisors here.

When people see this, Rich, this current environment, it’s probably… Like I said, it’s always ups and downs. Right now, it’s a little more topsy-turvy. And we’ve had a market that’s been steady and people are used to it like this which is also not normal but it’s been like this.

When you guys think about this, how do you plan this out? Do you think of it in 1 10 or 20 years? Do you look at market indexes in terms of how things are going? Like what is your general view from 30,000 feet?

RICH
Retirement planning is a long-term game, right? One of the things I always help advisors stay focused on is teaming up a long term strategy for a long term objective. And one of the mistakes I’ve seen many financial advisors make along with many clients is taking a long term objective and using a short term strategy.

So what we try to do is we try to use the bucket approach. So using that acronym GPS, identify the buckets of money we need to grow, we want to pass and we want to spend and identifying a timeframe for each objective and matching up the timeframe with a particular objective.

ROB
Yeah. That makes sense. It makes sense.

RICH
Tunde mentioned ‘”Annuities.” I happen to specialize in retirement planning and I work for Prudential annuities. So annuities are a big part of what we do.

Annuities are one of those things that you hear a lot of mixed press on. You hear good things about annuities. You hear bad things about annuities. And I think the reasons why you hear both good and bad things about annuities is there are many different types of annuities.

An annuity is just a tool like any other. If you use it in the right place, it works. And if you don’t use it in the right place, it doesn’t. And an annuity is not something that’s right for everyone. It’s not right for everybody.

ROB
We’re assuming everybody knows but why don’t you just say A] What annuity is and then B] Different ways that are some of the better annuities from your perspective and ones that have gone the wrong direction.

RICH
Really, the definition of “Annuity” is “Lifetime payment.” Social security is an annuity. A pension is an annuity. So all annuity means is you’re going to have a payment that’s going to last the rest of your life.

Investment companies like Prudential manufactured types of annuities for clients. And there are dozens of types of annuities. We have immediate annuities, fixed annuities, variable annuities, fixed-variable annuities, fix-indexed annuities. There’s dozens of types.

Now at Prudential, we only offer annuities through financial professionals. You can’t come to Prudential directly and purchase an annuity. And the reason for that is they’re complex products and we want to make sure that you’re working with a financial professional who have professional license.

It’s not really so much a matter of which annuities are better than others. It’s just a matter of using the type of annuity that’s really right for your goal. I will tell you, the most popular annuities that I see used are variable annuities.

A lot of the criticisms you hear about annuities apply to a specific type of annuity. A lot of people assume that if you use an annuity to give you a payment stream, you give up control of the money. That is true in some of annuities but it’s not true in variable annuity.

A lot of people assume that if you give investment company a lump sum of money and they give you a payment stream, you are just spending your own money. And if you live a long time, you win and if you die soon, the investment company wins. And that is true for some types of annuities. It’s not true for a variable annuity.

Of the business that we do at Prudential, we’ve been a leader in the annuity space for a long time. We do most of our business in variable annuities. But there are other types of annuities that are emerging like “Fixed-Variable” annuities.

The industry is always evolving. And I’ll tell you, Rob, this will be my 19th year with Prudential. I’ve never seen more innovation than I’m seeing right now by Prudential and the other companies that we compete with. I mean this pandemic that we’ve seen is changing a lot of things.

ROB
It is, isn’t it?
RICH
It changed our social interactions. It certainly charged the markets. It’s also changing the investment landscape.

ROB
What’s you thought on that? Do you think this COVID-19 is going to make permanent changes? You’re going to see some innovation come out that’s going to be lasting or do you think it could just revert back?

RICH
The COVID-19 pandemic really concerns me in terms of how it’s going to impact the country, how it’s going to impact the economy. I think a lot of things are going to change. I think a lot of things are just not going to be the way we once knew them to be.

In terms of the investment landscape, I think there’s no question that the products and solutions we have available to us will be different. And the main driver of that, Rob, is interest rates.

When an investment company is building a product to give someone guarantees, that company needs to build a plan to be able to offer those guarantees. And that’s done through hedging strategies. That’s why you typically see the bigger investment companies that have more assets under management more scale, typically have much more competitive products -- because they have more buying power in hedging markets. And the price that a company pays for hedges is based on interest rates.

So a way to think about it is, in general, when interest rates are higher, it’s much easier for insurance companies and investment companies to build products to give people guarantees.

ROB
So you expect it to go up, I assume.

RICH
Well what I’ve seen is, in terms of the interest rate environment--

ROB
It’s been astronomically low for a really long time anyway.

RICH
Well in [indiscernible - 17:36], if you look at what’s happened over the last six weeks, when we look at interest rates, we’re looking at the 10-year Treasury. The US 10-year Treasury is really the barometer for fixed interest rates in the investment industry. The high so far this year was 1.84%. That happened in March. The low was 53 basis points. That’s about half of a percent. And right now, we’re sitting at 60 basis points.

It’s a lot of pressure on investment companies and I think, as a result, we’re going to see the products and solutions change. We’re also going to see the players change in investment business. Now that doesn’t necessarily mean that these products are going to get better or worse, they’re just going to be different as companies need to adapt to the low interest rate environment.

ROB
Do you think the low interest rate environment sticks though?

RICH
The short answer is “Yes.”

ROB
Okay. Interesting. All right.

RICH
Yeah. Prudential is one of the largest asset managers on the planet. We manage about $1.7 trillion. We’re one of the largest fixed income managers on the planet. We manage about $850 billion.

So we have one of the largest fixed income teams on the planet. I have access to individuals who are much smarter than myself, much more seasoned than myself. And I’m always picking their brains on what the markets will do but more importantly to us, what will happen in the interest rate environment -- what interest rates are going to do.

And Prudential’s prediction is we are in a low for a long interest rate environment. When we look at demographics, we look at the pressure on the U.S. 10-year Treasury and how even though it seems low to us, when you compare it to Germany and Japan -- those are kind of the three bellwethers for the world in terms of safety -- so U.S., Germany and Japan -- [worth - 19:29] 60 basis points but Germany and Japan are negative. So we’re seeing a lot of money flooding to our Treasury system, keeping our rates low.

ROB
So with that, what are your concerns? Well I have two questions. One, you talked about some general concerns of the COVID-19 crisis. I’d like to ask you that question. The second question I’d like to ask is, “Do you have any concerns about how much money is flooding in the market and how that’s happening?” I mean I kind of knew but just from a common-sense point of view. But I’d like to hear your takes on those.

RICH
So in terms of what concerns me about the pandemic, we’re seeing a lot of disruptions in the economy and I think -- talking specifically about equity market now -- I don’t think a lot of what is happening is being considered in the equity market.
I think a lot of people have been at home. We’re finding ways to work from home. We’re limiting our outside activity. But I think what’s going to happen is once the next quarter’s numbers come out and we see how devastating it’s been, once we continue to see unemployment rise and once people come out of their shells a little bit and go down the Main Street and realize, “Oh my dry cleaner is closed. My favorite restaurant is closed. My favorite bar is closed,” as a lot of these businesses continue to close up and… I just think it’s going to be very difficult for us to continue moving forward at the rate of growth we have been.

Now, there’s a lot of talk about the recovery. “Will it be a U-shape recovery? Will it be a V-shape recovery?” I’m very optimistic that we will have a V-shape recovery because overall, we still have pretty strong fundamentals. But concerning the employment numbers, you concern me and not just the productivity. The drop in productivity concerns me.

ROB
Yep. Second part of that question, “What about the money in terms of it being…” We have a lot of money out there. Is that adding value to the system or is it just propping it up for the current being? Totally, just hypothetical question. I’m just curious about from your point of view.

RICH
So I’m going to give you my personal opinion which is not a represented opinion of Prudential. [Crosstalk - 21:44].

ROB
Okay, that’s fine. I like that.

RICH
In short term, yes. I think in the short term, what we’re doing, adding all of these trillions of dollars into the system is good. But over the long term, I think it’s very bad.

ROB
I’ll agree.

RICH
It’s concerning--

ROB
I’m just thinking [inaudible - 22:01] as just math. It doesn’t seem like it works.

RICH
In the short term, it works.

ROB
Yeah, absolutely.

RICH
The question is like, “What do we need to change to make sure that long term, it doesn’t collapse the system,” I think.

ROB
That’s my question. It sounds like it’s going to be… To me, it seems like our taxes is going to be through the roof because I don’t know how… At some point, these things are going to have to get paid for. But that’s just me talking, too. Eventually, you have to pay for things, I would think, because… What I think 2008 taught me is that bubbles are real and eventually, you have to pay things.

RICH
Yeah.

ROB
That’s probably true with governments, too.

RICH
To your point, Rob, I agree with 100%. So we add all this money into the system. That’s fine because we’re at a point now where we’re getting everyone to agree. The thing that concerns me is now, okay, we get through the pandemic. We start to open up things. We’re going to have to make real systemic changes to the system to adapt all the money we flooded into the system. And my concern is they’re going to be able to get consensus and nothing is going to get done.

ROB
That sounds like us. [Laughter]

TUNDE
It sounds like the modern American political system.

RICH
It’s true. It’s true.

ROB
That’s funny. I guess, as kind of finishing up because I don’t have a whole lot… what kind of gives you some hope, I guess, about the future in this where we’re clearly in a dark moment? We’re clearly in an uncertain moment for folks. What gives you some hope about the future?

RICH
I’m an optimist by nature especially when it comes to the investment world and retirement planning. For the last 19 years, I’ve really dedicated my career to working with financial professionals, helping those financial professionals build plans so their clients can retire with certainty.

And if there’s one silver lining out of this pandemic, I think a lot of people’s eyes have been open to… You know, there’s real value in working with a financial professional. I know a lot of people are saying, “I don’t need to work with a financial professional. I’m going to go to Vanguard or E-Trade. I’m just going to do it myself.” Either because they didn’t think they needed the advice. They didn’t want to pay for the advice. They didn’t think they could afford it. But based on what we saw happening in the first quarter, the people who were working with financial professionals were prepared and the people who weren’t working with financial professionals, by and large, were not prepared.

I think the biggest value I see in working with a financial professional is really having someone who helps you stay on track.

Tunde referenced earlier that everyone knows the objective is to “Buy low and sell high” but the vast majority of people do the opposite.

So I’m hopeful that, as a result of all this, more people will be working with financial professionals, more people will be getting financial advice.

And I do think the products and services available to those financial professionals will be improving. I mean we’re seeing at [branches - 25:03]. Right now, we’re [engaged - 25:04]. We’re designing new products and we’re launching new solutions over the coming months that I think are going to be really impactful to Americans who are planning for retirement.

ROB
Rich Antonucci, I appreciate you coming on the show, man.

RICH
Rob, I appreciate it. Really great to be with you guys. Hope to be back soon.

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