The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
With the passage of the SECURE Act 1.0 and 2.0, agents and advisors have a greater opportunity than ever before to help individuals navigate the complexities of their 401(k) plan. Today on our show, Bonnie Treichel, Chief Solutions Officer at Endeavor Retirement, discusses these opportunities and the requirements to enter this space.
Links mentioned in the show:
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
Ramsey D Smith:
Hi and welcome to That Annuity Show. So today we have myself, Ramsey Smith, and Bruno Caren recording live from Atlanta, Georgia and Montreal, Quebec respectively. And our regular lead host, Paul, is out. So we’re going to see what we can do today. We’re very excited about our guest today, Bonnie Trickel, who is the founder of Endeavor Retirement. As many of you in the audience may know, certainly have talked about it a lot. I personally have the view that the opportunity in in plan for annuities is probably the largest. largest and most important asset gathering opportunity for the insurance industry in the next 10 or 15 years. And more importantly, it’s super important for American consumers and retirees. And Bonnie Treichel has been a real leader in this space. So we’re very much looking forward to chatting with her today. So with that, Bonnie, welcome to that Annuity Show. We’re happy to have you. Tell us a bit about yourself and then about Endeavor Retirement.
Bonnie Treichel:
Wonderful. Well, good morning and thank you for having me. I’m really excited to be here on the show this morning Again, my name is Bonnie Trichol. I am live from Kansas City Where I grew up before spending about 15 years on the West Coast. So I’m really excited to talk a little bit about Endeavor Retirement as well as a new law firm that we’ve launched Endeavor Law. Endeavor Retirement, you know, we were kind of talking a little bit before the show about like what is my why and Endeavor Retirement came out of this idea that really advisors needed an opportunity to have resources that for smaller RIAs who want to stay independent and they need those plug and play resources, that’s really where they can come to our firm and they can get their retirement plans to really serve their plan sponsor clients and participants in the most effective and efficient way possible and that’s why Endeavor Retirement was born. So it’s a consulting firm, we work primarily with advisors. One of the other opportunities that we’ve had is to do a lot of training and that training comes through two different partners in the industry that have been really good partners. The American Retirement Association’s division of NAPA, so the plan advisor section and that’s where we’ve created some training including about coming out soon, probably this summer, which is the retirement income certificate. So advisors will be able to sit through this online training program and then get a certificate at the end, but they’ll really learn the basics, some of which we’ll talk about today in the in-plan retirement income space. The other place that I’ve spent some time with a really good partner in the industry is Broadridge’s FI360. Again, they’ve brought together a consortium, the Retirement Income Consortium, and I’ve done a lot of work with them to that program to help create the prudent practices for selecting in-plan retirement income options. So that’s really where I get kind of my excitement for a lot of what we’re doing right now is creating that training for advisors, trying to take these complex topics, break them down, make them simple so that advisors can consume them, and most importantly, go share them with plan sponsors and participants.
Ramsey D Smith:
All right, well thank you for that. So I can’t resist, you mentioned that you also have a law firm that you just started. So tell us a little bit about the role of the law firm and then the next thing we’ll do is we’ll define in plan for the audience for whoever hasn’t focused on it yet. So first of all, tell us about the law firm.
Bonnie Treichel:
Yeah, absolutely. So we started seeing a need again, you know, all of this comes from where we’re watching the need from clients. And so we started seeing a need from some of our advisors that they needed, uh, access to legal advice for themselves, but also for their plan sponsor clients. So, uh, the law firm was again born out of the same model of how can we have cost effective resources for both advisors and their plan sponsor clients. So the model is really, uh, we make it our business to know your business and become integrated into those really help them to keep their legal costs down. And then on the plan sponsor side, really trying to make it cost effective for plan sponsors to do the right thing. So when you think of a VCP filing, for example, trying to do that in a flat fee environment to really help them effectively correct what they need to and be able to move forward. So it’s been a lot of fun starting to launch that second business and do that with partners in the industry.
Ramsey D Smith:
Well, look, that makes a lot of sense to me because what I found since I’ve gotten into this space is that there seem to be like two or three lawyers whose names keep coming up, right, in webinars, et cetera. So it’s good to know there’s some additional competition there.
Bonnie Treichel:
Competition and collaboration. You
Ramsey D Smith:
Well,
Bonnie Treichel:
know, there
Ramsey D Smith:
yeah.
Bonnie Treichel:
are some great attorneys who’ve been just awesome mentors. You know, I enjoy getting to spend time with like a Fred Rich, right? You know,
Ramsey D Smith:
Mm-hmm.
Bonnie Treichel:
I’m sure that’s one of the names you hear coming up over and over.
Ramsey D Smith:
Like 99% of the time that’s the name we hear.
Bonnie Treichel:
That’s right, that’s right. But you know, some of these are just great, great mentors that you can learn a lot from and then help deploy that to additional advisors and plan sponsors.
Ramsey D Smith:
Got it. Okay. So let’s get into it. In plan. What, what is the, what is the in plan opportunity? What are, what are, what are in plan annuities? What are we talking about here for our, for our, for sort of, for our broader audience?
Bonnie Treichel:
Yeah, good question. So, you know, for advisors, it’s funny, when I when I go out and I present, I’m getting a lot of different questions. Some people are further along on their in-plan journey than others who are starting right at the beginning start line here. And so when we think about it and take a step back, it’s like, what is in-plan annuities? Or what are these in-plan retirement income solutions compared to the retail side? And I think, you know, Ramsey, we were talking about how are we defining these solutions? So maybe I’ll take a step back and ask, I think many people are familiar with some of these options that they’re really not new. They’re just getting a lot of new buzz and a lot of new headlines, right? So many of these solutions, just, for example, like Pru’s income flex, right? That’s been around for a very long time. And there’s many others not to pick on Pru one way or the other, right? But it’s just, that’s a name that many of us are familiar with. That’s the type of solution that we’re talking about for several years. I think the question becomes, and let’s come back to this kind of in plan versus out of plan in a minute.
Ramsey D Smith:
Can I ask one question just very quickly?
Bonnie Treichel:
Yeah.
Ramsey D Smith:
Because I think this is great. When you say advisors, specifically what kind of advisors? Because sometimes it might be insurance advisors, sometimes it might be RAs, when we use that term on the show. So I wanna make sure like, what kinds of advisors, for which kinds of advisors is this discussion most relevant? Yeah.
Bonnie Treichel:
Great question. When we’re talking about in-plan retirement income solutions, this is going to be a conversation for someone who’s working with a retirement plan. So a 401k, 403b, those types of plans where you would be adding this solution in the 401k or in the 403b as opposed to selling it in the retail space after an individual has retired and come to you and said, hey, I’d like to purchase this annuity.
Ramsey D Smith:
And what licenses would they need to have? Like, what is this? Is it Series 65? Is it
Bonnie Treichel:
Ha.
Ramsey D Smith:
just an insurance license? What is with a typical? I don’t want to take this too far off track, but I just want to make sure that we want everybody in the audience to know what they need to do in order to sort of be a player in this space.
Bonnie Treichel:
Yeah, so you’re raising actually a really, really great question, which
Ramsey D Smith:
Yeah.
Bonnie Treichel:
is if I am a typical retirement plan advisor, let’s say I’m at an SEC registered firm, an RIA, and I have, for example, my Series 65, the question keeps coming up, do I need an insurance license to do this? What I will say is first, always check with your compliance department. Second, I’m not giving you legal advice, but in most
Ramsey D Smith:
Unless
Bonnie Treichel:
instances…
Ramsey D Smith:
I pay for it at Endeavor Law.
Bonnie Treichel:
That’s right. That’s right. You can pay for it and then I will. But not to the masses. So the question becomes, do you need an insurance license for most of these newer solutions? You should be evaluating that on a solution by solution basis and of course, checking with your compliance department. But what I’m seeing with most of these newer solutions coming to market is that they’re getting the insurance license at the solution level. So for example, that I’m gonna call it DCIO or wholesaler, they’re getting their insurance licenses so that the individual advisor is not required to because that individual advisor is not actually, they’re not making that recommendation of the insurance piece themselves. So again, we could go down a compliance rabbit hole,
Ramsey D Smith:
that’s
Bonnie Treichel:
but
Ramsey D Smith:
fine
Bonnie Treichel:
in general,
Ramsey D Smith:
okay but
Bonnie Treichel:
I think
Ramsey D Smith:
they do
Bonnie Treichel:
that
Ramsey D Smith:
have to be the basic issues they have to be a fiduciary
Bonnie Treichel:
Yeah, I mean, I think so well again, it depends on the role they take so I think
Ramsey D Smith:
Okay.
Bonnie Treichel:
some advisors This is a great conversation because some advisors may take an education only approach
Ramsey D Smith:
Okay?
Bonnie Treichel:
and they may just educate on Retirement income right
Ramsey D Smith:
Okay.
Bonnie Treichel:
so they might educate their plan sponsor They might educate participants and they might decide to work with Someone else in the industry who’s actually going to make that recommendation of the retirement income option now more likely is going to be the case where instead the advisor, the retirement plan advisor, is going to act as a 321, for example, fiduciary under ERISA, and they would actually make that recommendation. But I think it could go either way. So I think advisors have an opportunity to take whatever role they’d like and of course reflect that in their agreement and so forth.
Ramsey D Smith:
Okay, great, thank you. Sorry for moving it to that, but I wanted to make sure,
Bonnie Treichel:
Yeah.
Ramsey D Smith:
I wanna make sure that like, I wanna make sure that folks in the audience understand sort of what they need to pursue the opportunity. So, good.
Bonnie Treichel:
Yeah, so I mean, I think if I interject for a second, we
Ramsey D Smith:
Yeah.
Bonnie Treichel:
recap. I think the big point, if I’m a listener and I’m an advisor, it’s, this is a conversation for retirement plan advisors where on a solution by solution basis, they need to make sure they are evaluating, do they have the proper licenses? And third, checking with their compliance department and making sure they’re in line with that, because I think you’re raising a hugely important point.
Ramsey D Smith:
Okie doke. All right. And so then I had interrupted you were on a role before talking about talking about defining in plan. So if I can we can bring get back to where we left off there would love to do that. So we were defining
Bonnie Treichel:
Oh.
Ramsey D Smith:
in plan.
Bonnie Treichel:
Ramsey, I could get on a roll on this topic and talk for three hours. So you’d really have to stop me. So
Ramsey D Smith:
Okay.
Bonnie Treichel:
when we think about in-plan, I think the question is coming up again, language is important, how we define these things are important. And I think in many ways we’re not totally there yet, right? So I think I define in-plan as something where a plan sponsor is going to make that recommend, not make the recommendation, but the plan sponsor is going to make that selection, right? So there’s some sort of fiduciary oversight for having this option in the plan. I think maybe I’ll turn it over to you because I think you have a different definition of what
Ramsey D Smith:
Ha.
Bonnie Treichel:
in plan versus out of plan is. And I think it’s important because it depends on how
Ramsey D Smith:
Sure.
Bonnie Treichel:
we look at that.
Ramsey D Smith:
So for the audience’s benefit, we were having a discussion before we hit record about the definition of in plan because there are lots of different providers in the space and each of them takes a different approach. As I said at the time, I think Bonnie’s definition, strictly speaking, is probably the right one in that anything that occurs inside the plan, right, irrespective of the timing of when an annuity kicks in, either in the accumulation or decumulation period, is subject to the appropriate level of oversight that Bonnie helps people execute. As somebody who’s sort of focused on the product side and trying to see sort of broader and earlier adoption, for me, the definition of in-plan, or I should say the most effective version of in-plan in my view involves bringing in annuities during the accumulation phase accumulation phase. So anyway, that’s my differentiation. But Bruna, let’s bring you in. Bruna, what are some of your thoughts in this space? So I’m gonna remind everybody, Bruna wrote a book on this topic. So Bruna’s insight’s very important here.
Bruno Caron:
Well thanks and
Bonnie Treichel:
and be a…
Bruno Caron:
I want to go back to the income part that you did mention. When
Bonnie Treichel:
win.
Bruno Caron:
everyone retires, people can have multiple foreign case, multiple IRAs, and you brought the word fiduciary. When you’re fiduciary, technically you want to make sure that you take every single step to make sure that you’ve done the right thing. some fiduciaries to go on the very conservative side and let’s say it’s credit quality, or you’ll go at the, you know, AAA, you know, that kind of approach. When we talk about income,
Bonnie Treichel:
about income.
Bruno Caron:
retirement income, it’s all about striking that right balance. I mean, some people have a lot of pension money and, you know, recommending more income is not necessarily the right answer, but at the same time,
Bonnie Treichel:
But at
Bruno Caron:
more,
Bonnie Treichel:
the same time,
Bruno Caron:
a lot
Bonnie Treichel:
more
Bruno Caron:
of people
Bonnie Treichel:
a lot
Bruno Caron:
don’t
Bonnie Treichel:
of
Bruno Caron:
have enough income. And that’s why we have this conversation today. My question
Bonnie Treichel:
My
Bruno Caron:
is,
Bonnie Treichel:
question
Bruno Caron:
in a fiduciary
Bonnie Treichel:
is, and if you do share your…
Bruno Caron:
context, what are some of the boundaries and some of the guidelines in order to strike that right balance?
Bonnie Treichel:
Yeah, I think that’s a great question. So if I’m a retirement plan advisor and or I’m that plan sponsor and I’m making that fiduciary decision to add an in-plan option to the retirement plan, what are those fiduciary considerations? At the highest level, I think you have a consideration of when we think about the income conversation, it’s am I going to go with something that has a for my plan and its participants based on their demographics. And Bruno, you brought up a good point, right? If I’ve already got a DB plan at this company, do I need to add something with another guarantee? If I have no DB plan, like many of the companies out there today, then that’s gonna be taken into consideration. So step one is do I need a guarantee or not? Manage payout or not? Then when we go from there, then we’re going to start looking at things like if we’re going the guarantee route, this if you’re going to utilize the safe harbor, does this meet the requirements of the safe harbor? And then we go beyond that and have to look at things like balancing the cost and what are the services provided. And when I talk about services provided, those are even things as simple as like what is that employee experience or participant experience? How are they going to understand how to utilize this thing that we’re giving them? But you’re exactly right Bruno, you know, in retirement plans it’s so different than the retail space because as a whole, and we deal with this with target date funds too, right? How are we meeting the needs of this diverse population and looking at them as a whole because we still have to make one decision? So when one participant needs one thing, do we change that for the other 300? And so I think that’s what you’re getting at is like, how does that fiduciary overall look at that to then make that recommendation or determination?
Bruno Caron:
Absolutely. And, you know, one, to your point, I mean, that one employee can be there for, you know, two years in their thirties, while other employees can be there for 40 years and are now close to retirement. There’s one decision that needs to be made for everyone where, you know, these are completely different considerations and demographics and, you know, point in time in people’s lives. So the fact that, you know, those options have to be. available universally
Bonnie Treichel:
universally
Bruno Caron:
within that
Bonnie Treichel:
within
Bruno Caron:
one plan,
Bonnie Treichel:
that one plan.
Bruno Caron:
it makes it tricky
Bonnie Treichel:
It makes it
Bruno Caron:
because
Bonnie Treichel:
tricky.
Bruno Caron:
everyone has their own little story within
Bonnie Treichel:
story within.
Bruno Caron:
the plan.
Ramsey D Smith:
So, you know, it’s interesting. I think this feeds into what I think is an interesting tension in this in any place where there’s some kind of innovation, which is that, and Bonnie, to your point, like all the issues that we identify here already in some sense are paralleled in target date funds. But target date funds have been one of the most important sort of vectors for creating sort of retirement solution for millions of people, right? So I guess the… The question is, you know, how we, what do you think are, what do you think are some of the impediments to adoption here? There’s, so there’ve been some, there’ve been some recent articles, there’s an article in the Wall Street Journal about what Infidelity and State Street are doing, and there’s a lot more buzz, which I think we’re all very excited about. But, you know, what do you think, what do you think is sort of the arc of greater adoption for InPlan over the course of the next three or four years?
Bonnie Treichel:
The three big things that always come
Ramsey D Smith:
Mm-hmm.
Bonnie Treichel:
up
Ramsey D Smith:
Mm-hmm.
Bonnie Treichel:
are cost, complexity, portability. I think those
Ramsey D Smith:
Yeah.
Bonnie Treichel:
are always the three things that come up and
Ramsey D Smith:
Yeah.
Bonnie Treichel:
we can dig into those a little bit more and then where that arc goes because I think that’s the important question. But the three things that you always hear as the questions or big pushback, you can give a great presentation and talk about it, but then it’s, these are too expensive and or the question of what if someone pays for this but they don’t actually use it? to the question of, am I tied to this record keeper forever if I select this income option on this record keeper? How could I move that later if I wanna fire the record keeper, so the portability issue? And then complexity, hey, these are just really complex. And that applies both at the advisor level and the plan sponsor level. I think one of the questions from advisors that I’m getting is, hey, if I’m not making extra money on this, or how am I gonna make extra money? Like, this is a lot of work to learn all of this. So how am I getting paid to learn all this stuff? And Bruno, go back to what you said about this is, you’re a fiduciary, it’s your job to learn it, and it’s your job to know it and recommend it. But again, we have to really think about, how do we overcome those three barriers? One, I think, yes, it’s complex, but I was doing a presentation, I don’t know if you know Mike Sanders from Cap Trust, but he just had such a good quote from this presentation, which was, these are like target date funds 15 years ago. do your first one, learn as you go, and it’ll get easier over time. And I think that was so true, you know, he’s had some success with implementation of some of these solutions. And I think they are complex, but sometimes we’re making them tougher than they are. And so if we just really, you know, break it down, use some of those tools and resources that are really becoming available, it’s not as hard as it seems. So I think that’s one. The cost aspect, when you look at the cost, in plan versus the retail space or when you look at even just over time the cost of how these solutions they are getting much more affordable from what they were ten years ago. So I think you know the cost we could have a whole discussion on fees and cost but I think that is something that’s becoming much more manageable and the portability I would say when we think about that arc of success the portability is coming. So I think there’s a lot of people doing a lot of work and I’m sure both of you could could speak a lot to that but the through some of the middleware and the technology. It’s awesome to see and it’s coming. Give it, I think, eight to 12 months and you’ll really see some of that start to open up a bit more.
Ramsey D Smith:
So there had been some announcements, right? So T had joined retirement clearinghouse and then there was at least one other announcement. So, I mean, and do all these speak to sort of the increased portability capability that’s coming?
Bonnie Treichel:
Yeah, I think so, because I think as this is starting to kind of, for a long time, my belief, and I’d be curious what you guys think, it’s kind of this chicken or egg, right? So who’s
Ramsey D Smith:
Yeah.
Bonnie Treichel:
going to spend the money to start to build the bridge first? And so someone’s got to start, but who’s going to start first and who’s going to spend that money to do it? And then once it starts, everyone else will follow, but someone’s got to start. So I think those announcements, Ramsey, to your point, that’s demonstrating the start of what’s to come. You know, I think, what does that mean for the retirement plan? advisor, for those who have been saying, I don’t want to spend the time on this, I think it’s the time to say, hey, I don’t have to be ready to implement, but I have to be, and to steal something from Tameco, I have to be at least income curious. I’ve got to at least be curious enough to learn a bit to start a conversation with a plan sponsor.
Ramsey D Smith:
So in my view, maybe people are a little bit early, right? But when this moves, it’s gonna move quickly. And if one wants to be relevant the next five, six, seven or eight, nine years and continue growing their businesses, this is a skill set that’s important to, important to
Bruno Caron:
Thanks for watching!
Ramsey D Smith:
really be focused on. So now you had asked sort of our further thoughts in the space and the other announcement I think was I guess from Empower that was also talking about some things that they were looking to do. You know. The record keepers have a very important role here. They have a lot at stake. They have a hard job and it’s a business that has tight margins and they have a lot of moving parts. And so in my mind, when you start seeing record keepers speaking more openly about plans in this space, that to me sounds like a very, very good part of the fact pattern. And I know what your thoughts are on that.
Bonnie Treichel:
No, I totally agree. I think, you know, so back to the kind of the record keeper chicken or egg thing,
Ramsey D Smith:
Yeah.
Bonnie Treichel:
it’s like record keepers, they do, they have compressed margins, they’re now dealing with secure 2.0 and all the rebuilds there. When they start to pay attention and one of them is doing it, they’ve all got to follow. When you think of kind of the big three or the big five in the record keeping space, once one or two are doing it, the rest have to follow. And so I think it pushes, retirement income space. One of the things, when I first started looking into retirement income, you know, I don’t have the annuity background that both of you do. I have the fiduciary background. So when I first started looking into this space, I was like, oh, is this just kind of the industry’s like flavor of the month thing, right? Like this is the passing thing and you know, you have to learn it because it’s what everyone’s gonna talk about for six months and then we’re onto the next kind of flavor of the month sort of thing, right? The industry kind of goes through things where there’s things that pop up. the legislative and regulatory background pushing this forward. there’s no way to ignore it because it’s here to stay. Like this isn’t the kind of just like fleeting, it’ll come and go. I think there’s so many things pushing it forward and really just looking at that regulatory push that from several years back, we’ve got just so much guidance pushing it forward, as well as with Secure One and Two, you really just can’t ignore it. It demonstrates that it’s here to stay.
Bruno Caron:
And to add on top of that just the fundamental need of people literally aging in that particular demographic without the DB plans. It’s it’s poised to your point to it’s not just something we can’t ignore. It’s just it’s an opportunity for for the industry. And to to to to piggyback on on Ramsey’s point, I you know, we have to take the. the time because it’s your job. It’s not just the flavor of
Bonnie Treichel:
the
Bruno Caron:
your
Bonnie Treichel:
flavor.
Bruno Caron:
month. I like your chicken the egg analogy because you’re right, people won’t have the medal for being the first one but then everybody will have to follow. So on that note, I think you mentioned some sort of training that’s coming up. Would you like to expand a little more on that particular offering?
Bonnie Treichel:
Yeah, absolutely. You know, again, I think the American Retirement Association does a really great job about making training available for retirement plan advisors. So for example, they put out the ESGK program where folks can learn totally for free about ESG, the basics of it, how to run a prudent process. Same thing here, ARA and NAPA again, have brought together some education partners to fund the certificate program that will come out and it will be probably a three or four hour online program where folks can go in, they can learn the basics of, you know, why are we talking about retirement income? How does this apply to my business and how can I use it to, you know, attract and retain clients? And what is a prudent process? How do I run this prudent process? And the nice thing is, ARA collaborated with FI 360 on that. So the prudent practices coming from FI 360 and that group, will be brought in so that if I’m an advisor, I can really get a good understanding of what is the language, what do I need to know, and how do I actually run a prudent process as a fiduciary to be making these recommendations. So I’m really excited about that program. And I think it gives advisors a lot of free resources, like Retirement Income Consortium, they have those prudent practices available. They just released an IPS. So if you needed to make updates to your IPS for retirement income solutions, And so there’s a lot of these things becoming available that are objective third-party not pushing a product. So I’m really excited about that
Ramsey D Smith:
Can you define IPS for the broader audience?
Bonnie Treichel:
Yeah, good point investment policy statement
Ramsey D Smith:
Okay, all right. So an area that I’ve found a bit curious is the sort of the size of plans for which, this is relevant in the first order, and the second order is sort of the who serves each sort of tier of plan by size. So. For example, like for a very large plan, do RAs look with very large plans or more sort of small and mid-sized businesses? How do we think about sort of the advisor audience? Where are they typically aiming to help, help in this case companies build out their 401k plans? What’s a typical plan size?
Bonnie Treichel:
Oh, good question. You know, I think that… Retirement plan advisors and consultants who are coming from RIAs really can go all sizes of the market, right? So they might work with a billion dollar plan. They might work with a million dollar plan. In my background, I was an ERISA attorney and then I was at an RIA and that was before I started Endeavor. But when I was at the RIA, you know, I had a book of business where I had a startup plan. I had a couple of really small plans and then I had a couple that were billion dollar plans. So I think when we think about RIAs and who they’re targeting or independent advisors or any retirement plan advisor, it’s all sizes of the market. Certainly once you get up market, it’s a bit of a different kind of process, but there’s a large range of where retirement plan advisors can focus. When you think about that in the retirement income space and those recommendations, again, there’s application to all sizes of the market. I think different products and solutions fit better. different market segments depending on some of those solutions but absolutely retirement plan advisors you know it’s more about finding like what is your space and then going after that you know are you going to be in the micro market and really leverage secure and all of those opportunities or are you going to be more in that 20 to 50 million market and kind of stick stick there and be really efficient so it’s about finding your space
Ramsey D Smith:
Right, super. So is there anything else that, we’re almost out of time, is there anything else that
Bruno Caron:
Thanks for watching!
Ramsey D Smith:
you think we’ve missed Bonnie? Any other elements we wanna make sure we leave our audience with? Like look, we’d love everybody in the audience to get certified in your program and start marketing the implant opportunity over time. Are there any other things that we should be, we make sure that we leave them with?
Bonnie Treichel:
I think one thing I would just mention is that this is take the product side out of it. When we think about retirement income and in-plan retirement income options, I think sometimes the product piece is leading the conversation and not, I think going back to Bruno, a point you made. Let’s start with what is the need of the plan and its participants and then go from there to determine, okay, what is the type of solution we need and how can we meet that, as opposed to starting with the product conversation and then fitting that into the need. So when we think about this just from what is the action step from an advisor who listens today in the retirement plan space, it’s really, you know, one, just start to get educated, two, learn about the language, and three, start having some of these conversations with your plan sponsors to understand what is the need, start looking at the demographics of those plans and figure out if there’s going to be a fit in the future. But think about it from a need aspect, not a product aspect.
Ramsey D Smith:
That is such an important point and and unfortunately many of us guilty as charged you know as financial services professionals being product focused we sometimes default to that in a way that we shouldn’t so thank you for thank you for bringing that up so Bruno any any parting thoughts.
Bruno Caron:
The last thing, I love the other word you mentioned, the collaboration. And I think that we’re all, you know, if everyone’s trying to do this on their own, I think that’s going to be perceived for better, for worse as, you know, oh, you’re just trying to sell a product. But the fact that there’s association consortium and alliances that are coming together. to bring that message forward and bring it across. Final thoughts, do you care to offer some thoughts on how that collaboration took place? How much did it require to bring sometimes competitors at the same table and try to join force and collaborate?
Bonnie Treichel:
Yeah, that’s a great point. But. I do think the collaboration aspect is what’s critically important to making this happen. And one of the reasons is going back to that idea of consistent language, because if we don’t collaborate and get our head around what is the language and the industry doesn’t have consistent language, then they cannot train advisors. Advisors cannot train plan sponsors, and this will never be adopted. So it really does start with how do we get all these folks on the same page from the industry perspective to have that trickle down effect. that collaboration happen, you know, it really, from my perspective, it’s these, you know, strong leaders like Brian Graff at ARA, getting people to come together to, to put a program in place, as well as John Faustino at Broadridge FI 360, really just reaching out and explaining that same story, right? Hey, there is a need. We really have this need. How do we bridge that gap? And then showing the way, oh, we can have this, this program where everyone’s going to benefit. lift all ships. And so I think a lot of people have bought into that, that if we all come together and do it together, it’s going to have a better outcome. You know, if someone buys solution A and starts actually implementing and seeing adoption, then employer B is going to say, oh, yeah, okay, this is working. And even if they don’t select solution A, they’re still going to like it’s just going to push it forward for everyone. And that’s really what’s going to make it happen.
Ramsey D Smith:
All right, well, thank you very much. And I firmly agree with you, both of you, on the broader point that at this early stage of this particular business model. Um, we need as broader adoption. So, you know, there’s a thin line between competition and collaboration, right? Cause really what we’re trying to do is sort of change, change the overall paradigm. Well, Bonnie, thank you very much for, for spending the time with us. And I’m sure we’re going to want to have you back sometime again, soon. Uh, Bruno, always great to have you. It was great to see you and,
Bruno Caron:
Likewise.
Ramsey D Smith:
uh, and, uh, Paul and our other friends will be back. I’m sure. Uh, on. on the next episode. And so Bonnie, actually before we leave, what is the best place for people to get in contact with you? What’s the best ways to work with your law firm, with Endeavor Retirement, et cetera?
Bonnie Treichel:
Yeah, well you can always follow me on LinkedIn or on Twitter, but my email address is bonnieatendeavor-retirement.com.
Ramsey D Smith:
All right, well, thank you very much. Okay, would love to get feedback from the audience on this and any other episode that we have. We’re always constantly trying to improve and we’d love the support you’ve given us and we look forward to seeing all of you again on that Annuity Show. Take care. Let me stop this.
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
Returning guest Barbara Matthews, Founder and CEO of BCMStrategy, Inc joins us for a timely discussion of the public financial policy and the ability of machine learning to separate signal from noise. We cover crypto-currency intermediation, SVB, interest rates, COVID subsidies and the early insight that her machine learning model provides.
Links mentioned in the show:
https://www.linkedin.com/in/barbaracmatthews/
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
Paul Tyler:
Hi, this is Paul Tyler and welcome to another episode of That Annuity Show. And Ramsey, good to see you.
Ramsey D Smith:
Always good to be back.
Paul Tyler:
Yeah, well, we had a great guest on, and I’m looking at the date, this was December 28th, 2020. I’m thinking that was the deep,
Barbara C. Matthews:
Pandemic.
Ramsey D Smith:
Is that, is that
Paul Tyler:
dark,
Ramsey D Smith:
really the last time?
Paul Tyler:
that was the last time we were in the, like, throes of the pandemic. And we were talking about… policy, monetary policy, how to read it better, how to under interpret it better, and oh this thing called machine learning and like how to take un-text and turn it unstructured data into data. That isn’t the news at all, but fast-forward to the day we actually do have incredible policy issues we’re all kind of dealing with in the financial and economic issues that we’re dealing lot of different issues today and machine learning is suddenly on the tips of everybody’s tongue. So Ramsey, do you want to do the intro and set up the discussion?
Ramsey D Smith:
Sure, first of all, I’m just blown away that it has been that long. And again, it’s another sign of sort of the pandemic time warp. I can say that as we were thinking about just what a crazy macro environment we’re in right now, Barbara Matthews, our guest, came to mind very quickly as one of the first people we wanted to talk to to help us decode everything that’s going on. So she joins us today again. So great to have you back, Barbara. founder and CEO of BCM Strategy, Inc. And we look forward to having a great conversation about any number of things that have been going on, certainly this year, and importantly, helping us sort of better understand what we’re being told. How should we interpret the messaging and the words that we’re getting? So welcome back, Barbara.
Barbara C. Matthews:
Well, thanks for having me back. You guys ask great questions and this podcast is just fabulous. I’m delighted to be back.
Ramsey D Smith:
All right, so let’s get into it. So we were ahead of the show, we were chatting a little bit about some of the many things that have been going on and one of them was really around Fed policy and bank solvency. Those are two separate issues, but obviously they’ve also been pretty closely related in recent months as well. I remember sort of as there was a lot of messaging coming out of the government handle each of those issues, trying to figure out, well, everyone’s trying to figure out what are they really going to do, and now we know. Help us understand how you looked at that whole process and what were the things you saw as things were unfolding.
Barbara C. Matthews:
Absolutely. Thanks for the opportunity. It might be helpful for your listeners to explain what we do. Because
Ramsey D Smith:
Sure.
Barbara C. Matthews:
people are accustomed to thinking about looking at any policy suite, and they expect to hear a human provide analysis, or do their equivalent of the crystal ball. And we do something very different. And so it might be helpful to level set for a moment.
Ramsey D Smith:
Absolutely.
Barbara C. Matthews:
So what my company does, we have a system have patented technology that measures the momentum and the volatility in public policy. And so our machine reads every day more than any human could in a 24 hour period in general, but then it puts a number on it and it measures it without using sentiment analysis. So we’re measuring, if you will, if you think about the old where there’s smoke, there’s fire. So we’re finding the smoke. numbers from language, that’s what the patented process does, it turns words into numbers, because we’re doing that predominantly, but not exclusively, from the official sector. It means you can also see the difference between what is going on in the media, what the journalists are reporting. We do take in, we have data mining licenses with Thomson Reuters and Dow Jones, strategic partnership with Dow Jones. 95-90% of our inputs are what policymakers are actually saying and doing, because we think what a policymaker says matters. It matters a lot. And they will tell you what they want to do and what they’re going to do. You just have to learn how to listen. And because I have been in public policy, I have trained my machine to listen for the signals hiding in plain sight. policymaker. Our machine listens like a senior policymaker. And so that’s why we are able to identify a number of signals instead of just repeating back to everyone the echo chamber of what’s happening on Twitter and in the headlines. So your question specifically was about regulatory policy, monetary policy, and I can give you some examples from our own. We started a substack podcast this year in January. I’m inspired by you guys.
Ramsey D Smith:
Tell us the name of it, please.
Barbara C. Matthews:
It’s measuring policy volatility.substack.com. So Fridays, it’s once a week. So Fridays, it’s digital currency policy. Saturdays, it’s climate finance policy. Sundays, it’s monetary policy. And we use our data, we read our data, we point out to people what our data shows you. And so what that meant was, because we started in January, January, we identified right away, I think we were the first to identify, that the new regulatory stance of the federal banking regulators was going to dramatically decrease liquidity for cryptocurrency intermediaries. They issued a big statement January 3rd, our system caught it, I podcasted about it. They said effectively, they actually said it. You
Paul Tyler:
Cue,
Barbara C. Matthews:
don’t
Paul Tyler:
cue,
Barbara C. Matthews:
actually
Paul Tyler:
cue.
Barbara C. Matthews:
have to outlaw crypto intermediation. All you have to do is say, hey, heads up, bank examiners are gonna view this as an unsafe and unsound banking practice, and that just sends a chilling environment. And then they did it again in February.
Paul Tyler:
Okay, so maybe just stop there and
Barbara C. Matthews:
Yeah.
Paul Tyler:
we’ll just make sure everybody who is listening hears this, because what you said is really significant. Disintermediation, what was the word you used? How do you describe the
Barbara C. Matthews:
Chilling effect.
Paul Tyler:
chilling effect of the cryptocurrency intermediaries? And this is interesting, what makes our currency work? I mean,
Barbara C. Matthews:
Yep.
Paul Tyler:
I should ask you, but my definition is you’ve got a central bank, I’m in here that sets monetary policy and controls lending rates, sort of makes sure a currency is stable. You don’t have that in cryptocurrency. Now effectively some of those companies were, right? Coinbase, you know, go through the list. They effectively were market makers, Barbara. Am I misinterpreting this or
Barbara C. Matthews:
No,
Paul Tyler:
would you say it better than I did?
Barbara C. Matthews:
not at all. And that’s actually a great point about the market makers. Because although most people think of the crypto space, and it’s not just crypto, it’s also stable coins that maintain a one-to-one peg with the US dollar. But these are not hermetically sealed environments. There are on-ramps and off-ramps to the US dollar, and that goes through the banking system. In addition, They actually need US dollars or some hard currency to buy the computers, to pay the people. You know, people still need some kind of hard currency to pay for food. You can’t use crypto to pay your grocery bill, your utilities bill, your mortgage or your rent. So there are on and off ramps between the crypto space and the banking system where there are US dollars. you know, our system basically set up this big alert, said, heads up, you know, it’s an unsafe and sound banking practice. We’re going to see a constraint on access to credit for a range of crypto intermediaries and market makers, like you said, like, and, you know, and sure enough,
Paul Tyler:
Yeah.
Barbara C. Matthews:
you know, Coinbase has been in the news. Not a
Paul Tyler:
Right.
Barbara C. Matthews:
surprise. They’re not the only ones, but, you know, Binance is having trouble getting their bank account. I mean, it’s an issue.
Paul Tyler:
So Ramsey is a client of mine, I’m Coinbase or competitor. Ramsey says, Paul, I wanna cash out my Bitcoin, one of my currencies, but I don’t have somebody on the other end of the transaction. I’m gonna have to borrow money to pay him, correct? And
Barbara C. Matthews:
That’s
Paul Tyler:
where do
Barbara C. Matthews:
what
Paul Tyler:
I borrow
Barbara C. Matthews:
you could, yeah.
Paul Tyler:
the money? So that’s the point where if I’m Coinbase and I want to go get money, you’re saying policy makers said, maybe charge Paul with more money. how it happened.
Barbara C. Matthews:
Yeah, well, so it was kind of banking regulation is this. It’s a lot about nudge. And there’s a whole field of economics associated with nudging. But basically, the the policymakers said was really, we’re going to view with suspicion and we’re going to think it’s an unsafe banking practice if you provide intermediation services. So that’s deposit act. Intermediation is broad. It’s deposits. You you brought up the lending use case. of some kind of a loan, you know, it’s a big deal. And then they did it again in February.
Paul Tyler:
February.
Barbara C. Matthews:
They did it again in February, the second
Paul Tyler:
So you
Barbara C. Matthews:
time.
Paul Tyler:
saw it in January, you saw it in February,
Barbara C. Matthews:
Yeah.
Paul Tyler:
and one of those blow
Barbara C. Matthews:
Yeah,
Paul Tyler:
up.
Barbara C. Matthews:
so fast forward then to March, a crypto intermediary, Silvergate, declares bankruptcy. They’re like, we can’t. We’re done. We’re done. And it’s not like the crypto industry was doing well. I mean, last year was legendary in terms of the number of implosions. And that’s when the monetary policy problem kicked in. Because when they went down, the Silicon Valley Bank And then on top of it, you know, the crypto space has been financed in large part by a lot of venture capital companies and venture capital individuals, all who banked at SVB. And they’re like, oh, we want our money. We want our deposits back. And the reality is, is that no bank can actually withstand a run period. Doesn’t really matter. I mean, it wasn’t quite a run yet. SVB was like, okay, fine. We’re going to liquidate our secure our treasury securities. because those treasury securities weren’t worth as much as they were when they originally bought them. Why were they not worth as much? Because interest rates started going up. So the value of a sovereign fixed income instrument, the value of it decreases over time when interest rates go up, because someone can buy a new bond with a higher interest rate. So the value of your old bond with low interest rate kind of goes to the… Then this is super important in the annuities business. this, of course, I don’t have to tell you that. So there’s SCB. They start liquidating their Treasury securities at a loss, but this only spooks the market more, accelerates into a full-on deposit run. And then for good measure, the FDIC closed Signature Bank at the same time, which was the other major intermediary in the crypto space. There’s a massive implosion in crypto, banking system. And then the question became, because this happened right, like two weeks before the next monetary policy meeting, the question became, will policymakers raise interest rates again in the middle of a financial stability situation? So we looked at the data. We looked at the language data. We looked at what policymakers were saying. We also looked at actual data. So this is something an analyst could do. And part of what we’re doing is we’re people how to, you know, it’s a leap for people to think of words as data, words as numbers. So we’re teaching people in Substack how to do this. And so we were like, well, look, you know, you guys, our audience is a lot of portfolio managers, a lot of advocates, portfolio managers, they’re going to do some research. I was like, oh, well, let’s see. Let’s see what the utilization rate is for that support structure that they created, the bank term funding program. Let’s look at the support structure they created to provide dollar liquidity to the international financial system. Well, utilization rates were really high. The market had calmed down. So we put the actual data together with the language data, and we told people on the Sunday, yes, the Fed is going to raise interest rates. And not just them. I mean, it was all the central banks, actually. They all did the same thing. But we used the data to tell them to say, look, you have to listen to what they’re telling you. And what they’re telling you is they want to hold firm. inflation, they’re still worried about a hot labor market. If you only looked at Twitter, if you only looked at social media, I don’t want to single out just one company, if you only looked at the headlines, the echo chamber, none of this really made it into the news. Reporters can only report so much. and illuminate a signal. Because
Ramsey D Smith:
So.
Barbara C. Matthews:
you can see it mathematically, you can see it jump, you can see the volume go up. And you’re like, oh, well, gotta pay attention to that.
Ramsey D Smith:
So where are all the various sources that you’re drawing your verbal data from?
Barbara C. Matthews:
Yes.
Ramsey D Smith:
Is it just direct policymaker language? Is it also Twitter? Is it also the mainstream media? What is the, yeah,
Barbara C. Matthews:
Great questions.
Ramsey D Smith:
where do you start with to filter down to what you think is the true signal? Because if you’re looking at everything, you’re gonna pick up some of the bias signals as well, right?
Barbara C. Matthews:
Yeah,
Ramsey D Smith:
filter this out.
Barbara C. Matthews:
exactly. Well, we start from the proposition, like I said, that what policymakers say matters, and people don’t
Ramsey D Smith:
Yeah.
Barbara C. Matthews:
hear it enough. And we are very committed to not having bias. On occasion, people do ask us to interpret or provide some normative analysis, and I resist that. I’m one of the few startups, I think, that actually turns down business, because I don’t want to corrupt the data. So we just take the language from policymakers, it’s publicly available. And I’d say that’s easily 85, 90% of our inputs. And that’s global. So every day we take a measure of what policymakers are saying around the world on the same issue. We do have data mining licenses with Thao Jones, who’s a strategic partner for us, and Thomson Reuters. And so what that means is that we’re not just generating one number. And for the quants in your portfolio managers and your listener base, what we actually generate a multivariate time series that permits the user to compare what policymakers are actually talking about with what major media is reporting. And the delta, the difference between the two, is a measure of your informational advantage when rhetoric media coverage is low, but policymaker activity is high.
Paul Tyler:
So it’s a little bit like Google Trends meets arbitrage.
Barbara C. Matthews:
I guess so. I guess
Ramsey D Smith:
I mean,
Barbara C. Matthews:
so, yeah.
Ramsey D Smith:
I guess my.
Barbara C. Matthews:
Yeah, but I don’t know exactly how they do Google Trends, so I don’t want
Ramsey D Smith:
Yeah.
Barbara C. Matthews:
to overdo
Paul Tyler:
Yeah, okay,
Barbara C. Matthews:
Paul Tyler:
okay.
Barbara C. Matthews:
a principle you get. You can compare different activity streams as it works.
Ramsey D Smith:
So my question is that, you know, how much does that delta vary over time? And
Barbara C. Matthews:
It’s
Ramsey D Smith:
do
Barbara C. Matthews:
really
Ramsey D Smith:
they ever meet?
Barbara C. Matthews:
interesting.
Ramsey D Smith:
Are they ever on top of each other? Is the delta
Barbara C. Matthews:
Yeah,
Ramsey D Smith:
ever
Barbara C. Matthews:
you know
Ramsey D Smith:
zero?
Barbara C. Matthews:
they
Ramsey D Smith:
Okay.
Barbara C. Matthews:
cross they cross I have come to the conclusion that when they when the when the lines cross We’re at an inflection point So for example if action levels are going up and they exceed rhetoric levels and it’s intuitive if you think about it But we patent we’re the first ones to do it and we patented the process to attach the numbers No one else can do it so I can tell you about it It was intuitive policymakers act and what happens next? So the dynamic, when something is really going on, action levels are gonna go up, and then it takes, depending on the issue, anywhere between a day to two weeks before the media coverage spikes. And conversely, but then there are some other patterns that are really interesting. So in digital currency, media coverage is always really high. you and persistently, I mean we’ve been generating this data since 2019, media hardly reports on central bank digital currencies. PS is a major competitor to the cryptos and they’re only just starting to get to a point where they’re actually going to compete in the market. So there’s this all this universe and we do that we do that and Ramsey I think you you’ve seen some of these charts. So The media coverage will be all over here for crypto. And in the meantime, policymakers are doing a lot of stuff to compete with cryptos by issuing, preparing to issue sovereign digital currency. And it’s like not in the news. Now, having said that, there are some crypto-specific news outlets that do a good job of covering this. But if you’re not a crypto fanatic, you have your pension and you have your annuity and you’re paying attention and you just want to know that you’re you’re and you want to engage in an intelligent way with your asset managers. You’re not going to be reading the crypto news coverage. You’re going to be reading the Wall Street Journal, Barron’s, you know. Anyway, so we’re measuring what everyone’s talking about.
Ramsey D Smith:
So then looking out sort of over the horizon a bit, right? So what are the some of the things that we should keep an eye out for? Where there’s that meaningful delta between what’s being talked about generally and kind of what we might expect? So central bank digital currencies, that’s interesting. I still remains to be seen whether or not they’ll be successful, I don’t know. But the first part is like, what’s the level of intentionality on the part of the central banks to actually try to make them successful? And then the next thing is inflation interest rates. Do you have some thoughts on any of those three?
Barbara C. Matthews:
All of the above and climate finance too, but anyway, all the above.
Ramsey D Smith:
All three, okay good. Oh,
Barbara C. Matthews:
Well, so you’re right, but all of the major reserve currencies now have very significant
Ramsey D Smith:
all right.
Barbara C. Matthews:
pilot programs underway. And they’re thinking very concretely, the ECB has promised they will have a decision in the autumn of this year about whether or not they’re going to try to issue a sovereign digital currency. I think the central banks are very serious. great job of exposing all of the faults and failings and vulnerabilities and frailties of the system. So yeah, pay attention to this because, you know, even if you’re invested in the FX market, you know, you wouldn’t price against it right now, but if you know it’s coming, there will come a moment when you’re going to want to pounce. You don’t want to miss that moment. You want to be in early enough where it’s smart but not so early that it’s, you know, risky. The monetary policy. I have taken in the podcast to putting together the language data related to financial stability and the language data related to inflation. And so right now we’re in the middle of the IMF World Bank spring meetings, G20 spring meetings. I will tell you, today’s a great week to be generating language data. I can’t exactly answer your question today because it’s only Tuesday. We’ve got a bunch more language data that has to come out. But the economic growth rates that the IMF released suggests strongly significant economic slowdowns in a lot of advanced economies. And that’s of course what the Fed wants. And what every central bank wants, they want to, ironically enough, they want to slow down the growth rates so that the pressure on prices comes down. And so I will be listening very carefully and more importantly, my system will be listening very carefully what they’re saying about whether financial stability issues or monetary, you know, the inflation rates are the driver. And then as a bonus, I’ll tell you that bank term funding program, it’s slated to end at the end of April, and the next monetary policy meeting is at the beginning of May. So I am personally, and this is just because I’m a geek, and I am at heart an analyst matter expert as well. Personally, I’m going to be watching like a hawk utilization rates. They’re published every week by the Fed. And because that’s what’s buying us financial stability. And so I will be looking at do they renew the program? Have utilization rates gone down? And then how are policymakers talking about financial stability? It’s enormously
Ramsey D Smith:
So do you think that there’s some likelihood that it will be extended? It’s just, I guess, for the audience’s
Barbara C. Matthews:
I don’t know
Ramsey D Smith:
benefit.
Barbara C. Matthews:
the short answer is I don’t know. So this is the thing about the language data.
Ramsey D Smith:
Yeah.
Barbara C. Matthews:
It’s not exactly a crystal ball.
Ramsey D Smith:
Sure.
Barbara C. Matthews:
The crystal ball comes from applying that data in machine learning artificial intelligence. We could have a really good conversation about that.
Paul Tyler:
We’re going to.
Ramsey D Smith:
Okay.
Barbara C. Matthews:
So I will tell you the narrow question about, will they raise rates or not? The last time I looked at the language data before Easter. Spoiler alert, Easter weekend, Christmas, New Year’s, not even worth it to look at it because nobody’s doing anything anyway.
Ramsey D Smith:
Yeah.
Barbara C. Matthews:
Activity levels are low. So last time I looked at it was right before New Year’s. And I was at the IMF World Bank. I’m a member of the Bretton Woods Committee. I was at the Bretton Woods Committee session on climate finance yesterday. You know, I’ve been at these events, I’ve been at these meetings foot. It does not have that vibe at all. There is, if anything, and this is just totally reading between the lines, I have the impression that so far a gentle decrease in growth rates, most economists will view that with a bit of a sigh of relief and they’ll say, okay, maybe for good measure they’ll increase one more time just to solidify the trend. and then stop. Because the mood in these meetings so far, it’s really still in the week, but the meetings so far, there’s no panic. In fact, when the IMF managing director yesterday kicked off the climate finance sessions at the Bretton Woods Committee, and this was a public session, broadcast, when she kicked it off, she ended with kind of striking note, she said, we can survive inflation. We can survive a recession. So, head of the IMF, you’d be thinking that way, is stunning to me in general. And then the third part of that was, but we cannot survive climate change, very dour.
Ramsey D Smith:
Is that how it went? It went
Barbara C. Matthews:
That’s what she
Ramsey D Smith:
A,
Barbara C. Matthews:
said,
Ramsey D Smith:
B, and then C? Wow.
Barbara C. Matthews:
A, B, and then C. And that tells
Paul Tyler:
Interesting.
Barbara C. Matthews:
you, that sequence tells you a lot too,
Ramsey D Smith:
Sure does, yeah.
Barbara C. Matthews:
And then the last part of it was to make the case for informed policies that ensure we can both survive and thrive despite a shift in the climate. I thought it was enormously interesting, not just as a rhetorical device, but for those economists, and I’m sorry to stray into the substance here, but for those economists that believe the necessarily requires higher pricing, not just higher pricing for carbon, but just higher energy prices in total because it’s not as efficient. It’s, you know, it is more expensive. It may be renewable, but it’s more expensive and it’s distribution issues are not anyway, but either way it’s gonna be more expensive. To have the head of the IMF thinking in those ways, I thought was just illuminating.
Paul Tyler:
Well, maybe we just double click on that topic because climate is one of these issues that has massive ramifications, especially with the financial services market. I put climate with ESG trends. We’ve had a lot of noise, Barbara. Read the papers, states taking on companies for investment policies, controversy back and forth. If you looked at the policy statements probably the leading question based on what you just said. Are we serious about making these… are these changes going to happen or do you see noise in the policy in terms of how we may implement some of these climate mandates, climate directives that we’ve seen coming out in the last few years?
Barbara C. Matthews:
Well, that is a leading question. Well, you know, I worked in Congress, and I worked at the Treasury Department, and I worked at the State Department. I’m gonna tell you, there’s always noise in public policy. Always, always. But you are right to ask the trend question. One of the things that I like to do is I like to see where the money goes. It’s because I’m a Treasury person, what can I tell you? Where’s the money going? You know, all of the billions, if not trillions really, in subsidies under the Inflation Reduction Act and the COVID Relief Act in Europe are, as they deploy into the economy, yes, they are inflationary. So the title of the act is a complete misnomer. But they are going to change the landscape for energy and not just energy, but consumer vehicles and really all transportation. that that is permanent. I think there’s a bigger, within finance itself, we have much harder issues that the central banks have been grappling with. This is actually where we do generate data. It’s a very niche area though. If you want to calculate the net present value of an asset, and then you want to identify your risk around changes in that value, you need to have some assumptions about the future. And this is a tremendously difficult challenge that pits finance again. Even the finance people that want to be forward-leaning here, it pits them against a lot of activists. Because the science, math-based process for estimating risk of loss… is very different from a political promise, we will decrease temperature rise. As a former policymaker, I know it’s important to be ambitious, but that’s such a, you know.
Ramsey D Smith:
ideas versus
Barbara C. Matthews:
Policymakers
Ramsey D Smith:
execution.
Barbara C. Matthews:
used
Paul Tyler:
you
Barbara C. Matthews:
to like make promises they could actually deliver on. This is a, you know, it is an ambitious thing to say and then work backwards from there. So anyway, this is going to be a jagged line. Policy is path dependent, but it is not a linear path. And we might want to talk about that another time, just because the climate issues are and even the process of disclosing to investors and the role that investment advisors have in either servicing the needs of their savers that seek to have a forward-leaning, creative positive incentive, the market for green bonds. There’s a universe in here that language. And so we measure when there’s momentum behind the language.
Ramsey D Smith:
So
Paul Tyler:
Play of… Yeah.
Ramsey D Smith:
Paul, I know you wanted to talk about chat GPT. And so I think we’re probably going to
Paul Tyler:
Yeah,
Ramsey D Smith:
do that
Paul Tyler:
we’re
Ramsey D Smith:
quickly
Paul Tyler:
probably
Ramsey D Smith:
before
Paul Tyler:
there.
Ramsey D Smith:
we run out of time. Yeah.
Barbara C. Matthews:
Yeah.
Paul Tyler:
Yeah, well, let’s open the hood
Barbara C. Matthews:
Yeah.
Paul Tyler:
a bit, and I’ll kind of set this up for machine learning. We’ve all been, it’s been around forever. I mean, forever since like the 80s. You know, it was, probably in my mind, machine learning was, gee, why do I see the orange button on the website versus the blue one? Oh, we’ve kind of trained the machine to figure out which people click more on. recommendations, product recommendations. Oh, I kinda like that. Netflix comes along, wow, that actually was a good movie. Ramsey must have watched it and it showed up in my
Barbara C. Matthews:
Thank
Paul Tyler:
feed to, oh
Barbara C. Matthews:
you.
Paul Tyler:
my God, what’s happening here? But machine learning is very basic, is about training. And I think of Google as a product, I’m trying to think what it’s called, now they’ve changed the name a couple times, but you go to a website and I wanna do a registration. Google has this great free service for me to put up This is not a bot coming in, and I have to go and check all these pictures and identify fire hydrants. Now,
Barbara C. Matthews:
Yeah.
Paul Tyler:
isn’t Google using that to basically train their driving service, Barbara? Isn’t that sort of the
Barbara C. Matthews:
Yeah,
Paul Tyler:
guts of this?
Barbara C. Matthews:
oh yeah, absolutely. And by the way, it’s not free. It’s not free. It is only free in the sense that you have not provided them cash or crypto. It’s not free. You’ve given them two things that are super valuable. One is your time and the second is your knowledge. Your knowledge. So you’re right, machine learning. Absolutely. It’s pattern recognition. It’s statistics. And so But the better the pattern recognition, which is intuitive actually. There’s a lot of very fancy language and very complicated computer architecture that does it. But at its core, it’s just pattern recognition. And it can be very personalized, so that’s the third thing that you’re giving up is your privacy. Because it’s not just Google. The, you know, you’re giving them a lot of information. The value proposition to use, you’re going to get back really good automatic recommendations. But you’re also letting them use your data in the pool for others. And so you can also see a center of gravity. The downside is if you are an outlier for whatever reason, you’re just going to be funneled into the medium and the median. You know, for some people that’s not optimal. The other issue with the training is bias, potential bias, and there’s a lot to talk about there. But when CHAT GPT kind of made a big at the start of this year, people started seeing that you could actually use it as a research assistant. I mean, that is tremendous. So it can go out and it can read everything. And this is why I said wait into this off of bias. Because you have to really know what the model was trained on. So people laugh that there are times that chat-chip-y-t will give a crazy, erroneous answer. Well, that’s not because there’s a problem with the machine necessarily. That’s because there’s a problem with the training data. It trained on the wrong thing. So it does really well, systems for over a decade have been doing really well on medical documents because medical documents don’t really have your medical research that’s not very normative it’s not very subjective it’s very science based the minute you start talking about other things that are more subjective it becomes a lot harder so ask Chad GPT to tell you about the Soviet Union depending on your political priorities and your perspective what you get back you may That’s a challenge when you think about public policy, which is very values-based. it becomes even harder. Which is why when we set out to do what we do, we deliberately did not include any normative filters at all. We are only measuring momentum. And we don’t tell, you know, we don’t tell the machine, well, this is a good thing or a bad thing. But there are people who will, they’ll use sentiment analysis to tell you, well, and then to see the challenge with training data. So there are many people who will just kind of say, okay, fine, we’re going to, policymakers say matters, so we’re gonna take sentiment and we’re gonna figure out are they feeling good, are they feeling positive, and monetary policy, are they feeling hawkish or doveish? And they kind of missed the boat, having written a lot of these speeches for myself and for various ambassadors, cabinet level people, chairmen of those committees on Congress. The formula, I love it, I love it, I love it, I love it, but I’m sorry, I’m going to do the opposite. Sentiment analysis is gonna say, oh, they loved it! Conversely, it’s a challenge, it’s a problem, there are risks, do it anyway. Sentiment analysis will tell you, oh, they’re negative on this. So we chose not to use any sentiment analysis. It’s a unique decision. Not a lot of people in the industry have taken that route. There’s a lot that we could talk about for other kinds of bias. Geolocation data, mortgage rates data.
Paul Tyler:
you
Barbara C. Matthews:
that you’ve got to be really, really, really, and then if you take the position, and many in finance do take the position, that for example, many types of mortgage lending have been biased for a long time. If you train on the market data, you’re just gonna perpetuate. And that’s the last thing about public policy that I think is really important for people to understand. The purpose of public policy is to make a change. It is to create a break in the time series to do things differently. And that’s why the signal matters. And that’s why when you’re training data in the mortgage market, you’ve got to really think about whether you want to stay with the trend, even though in finance, the trend is your friend. Sometimes it’s not going to be. And when the trend conflicts with the policy makers you’re saying, and you go with the trend, you are setting yourself up Big risks to be on the wrong side.
Paul Tyler:
Let’s see, Ramsey, how are we doing for time here?
Ramsey D Smith:
I think we’re actually over the allotted time, unfortunately.
Barbara C. Matthews:
So sorry.
Paul Tyler:
Yeah, no, Barbara, we’ve gotta talk more. A lot of questions on that topic for you, but you’ve got a very, if I were to net it out, tell me if I’m right or wrong, you’ve got a very unique set of data that has been trained by some people who really understand how to mark up or make sense of the words. And it must be unique. You must be in a unique position in the marketplace at this point.
Barbara C. Matthews:
think we’re pioneers. We’re on the innovation frontier and that’s an exciting place to be. We are what happens when policymakers understand how to use the technology. That’s how I think about it. And we don’t actually mark it up. The machine marks it up automatically. You know,
Paul Tyler:
Yeah.
Barbara C. Matthews:
there are companies who pretend they’re in AI, but what they really have is an army of graduate students in the back room marking up text. That’s not what we’re doing. Our system actually marks
Paul Tyler:
Interesting.
Ramsey D Smith:
to.
Paul Tyler:
Okay.
Barbara C. Matthews:
also ask great questions. I’m happy to come back whenever you like. And
Paul Tyler:
Thank you.
Barbara C. Matthews:
I’m a great I love your podcast. So I’m happy to listen in as well. Thanks for having me.
Paul Tyler:
Excellent. We’ll put
Ramsey D Smith:
sure.
Paul Tyler:
all the links to your show and your sub stack in the notes. Ramsey, thanks.
Ramsey D Smith:
Pleasure.
Paul Tyler:
It was great. Barbara, love to have you back and continue these discussions. So anyway, listen, give us feedback. We love it. And join us again next week for another episode of That Annuity Show. Thanks.
Barbara C. Matthews:
Thanks so much.
I try to avoid political debates in my writing, but sometimes it’s unavoidable. Discussing Social Security and how to maintain its solvency is clearly a highly charged subject. It’s also timely, and I propose a new way to think about Social Security and how to leverage its administrative and actuarial support infrastructure.
My criteria for program changes are quite simple: (1) Social Security should be fair to all beneficiaries without the ability for anyone to “game” the system, and (2) Social Security’s ability to deliver lifetime cost-of-living protected income should be leveraged and made available in the private marketplace.
Well, I am trained as an actuary, one of those people who understands longevity and investment risk in the case of retirement and then uses that understanding to determine, for example, what consumers should pay for insurance, or for lifetime income. It’s more interesting than it sounds. My aha! moment came early in my career, when I was introduced to payout annuities and realized they offer an elegant, and fairly priced, solution to the risk of a retiree living longer than their bank accounts.
To put the Social Security financial challenge in perspective, by 2050, people age 65 and older will comprise 22% of the U.S. population, according to the Census Bureau(opens in new tab). The total was about 14% in 2012. That doesn’t sound like a lot, but it represents more than a 50% increase in the prime benefit-receiving population.
The Social Security Trust Fund releases a report each year that estimates when the fund’s reserves will be depleted and benefits — without intervention — would have to be reduced. The latest report(opens in new tab) predicts that the cuts to 77% of expected benefits would come in 2033.
The Office of the Chief Actuary of the Social Security Administration(opens in new tab) prepares an exhaustive analysis of multiple ways to adjust benefits, retirement age, payroll taxes, etc., to make sure we don’t fall off that cliff. With apologies to the diligent actuaries in that office, I would also propose some changes in how we view the purpose of Social Security. Perhaps some combination of those financial adjustments and my program changes just might work.
I am talking about modernizing Social Security and not privatizing it. In fact, I’m suggesting we expand it in new ways. Here goes:
While I don’t have the models that the actuaries at the Social Security Administration use, these proposals would increase the net cash flow into the system. As important, it might take the discussion back from a political dogfight.
Here’s a stepwise approach to designing a plan for retirement income and bringing in Social Security benefits at the right time.
First, look at how much income your retirement savings can generate. As I indicated in my article Doing Your Retirement Planning in the Right Order Matters, it’s important to tackle the design of your plan in logical steps. Get comfortable with the plan’s assumptions, the percent of safe income and the ability to respond in real time to market volatility and life issues.
Second, look at your Social Security claiming options. It’s relatively easy to determine at MySocialSecurity.gov(opens in new tab) what you will earn at 70 vs. claiming earlier. While our actuarial analysis shows the fair tradeoff between claiming options, you may have personal considerations, like budget needs or your health, that change the calculation. This article on Four Ways Claiming Social Security Early Can Be Smart lists some of the questions to ask if you think you might benefit from claiming early. The article Why Wait Until 70 to Take Social Security Benefits? discusses the benefits of waiting as long as possible.
Third, create a plan that combines your income from savings with your Social Security benefits. Compare your budget and adjust the claiming date, or the need to withdraw savings to make up any shortfall. We call this your strategic plan.
Fourth, in virtually all cases, you need help from a financial adviser who can look at tax strategies like Roth conversions, insurance strategies like long-term care and implementation options in transition to the new plan.
Let me give you an example for a plan that we just developed for an individual who visited our Go2Income(opens in new tab) planning website.
As you can see from the graph below, the investor age 60 is retiring before she can claim Social Security, and so we deducted the first two years from her retirement savings.
This plan worked out almost perfectly, which out of the (literally) zillions of possibilities is pretty amazing.
To wrap up this clear-eyed discussion of how to save Social Security and design your plan today, let’s consider what would happen if no one listens, and in the early 2030s, benefits are cut by nearly 25%. In our example above, the retiree would see her $2,800 per month Social Security benefit cut by $700 per month in 2034. (This assumes everyone’s benefit is cut by 25% all at the same time.) Well, how would our retiree fare? If she wanted to be very conservative and overfunded her income annuity purchases by around $50,000, she’d cover her lost income or have bonus income.
In this scenario, the legacy to her heirs may be lower than originally planned, and the initial payment she makes to purchase the annuity will, at the beginning, reduce her available cash. Overall, though, she will still be in good shape.
I’m not proposing this, just planning for the contingency. Must be the actuary within me.
I’ve given you a lot of information to consider. But at Go2Income, you can research all the different aspects that will make up the best plan for you and your family. You can also receive a no-obligation plan(opens in new tab) that will show you how to make your own retirement the best it can be.
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
That Annuity Show
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