Jack Sharry: Hello, everyone. Thanks for joining us on this week’s edition of WealthTech on Deck. Looking forward to our conversation today with David Blanchett. As I’ve said many times, I’ve had the good fortune of talking to the best and brightest in our industry about the work they do and about what they’re so passionate about. David is all of that and a real student of our business, an impressive list of credentials, I must say. I think, David, you might qualify as our smartest guest on WealthTech on Deck. But you have a PhD in financial planning, you have an MBA, a CFA, and a CFP, so that’s: Thanks for having me.: Maybe before we get into each of these, which are all important and good topics that we want to talk about. Why don’t you describe your role at PGIM DC solutions? What do you do, just a frame for our listeners to understand the role that you play. And then we’ll get into those three things that you, that you highlight.

David Blanchett: Sure. So currently, PGIM is part of the DC solutions group. So we’re focused on kind of creating typically multi asset solutions for defined contribution plans. In my role, I wear two hats. Currently, I’m a portfolio manager of our targeting series. I’m also the head of retirement research, which probably occupies most of my time, where not only am I kind of actively thinking about research and thought leadership around how to build strategies, but also how do we apply that into our products and solutions. So we’re developing a robo advice tool currently, and thinking about kind of other ways that we can design things that you know, improve outcomes, mostly in the defined contribution space, but also just for investors in general.

Jack Sharry: So let’s start with the first thing that you mentioned in terms of improving contribution plans with a specific focus on creating in plan retirement solutions. What are some of the things that you’d like to see done that aren’t being done? What are some of the impediments? What are some of the, what are the… I know there’s progress being made on all fronts? But why don’t we start there?

David Blanchett: I think that there’s, there’s really some interesting perspectives on kind of the general efficacy of defined contribution plans like 401ks. There are some people, who I won’t name, that call them things like failed experiments, others kind of are much more positive on the effect they’ve had on Americans. And I think the one thing that is pretty clear is that if you don’t have a retirement savings plan at work, you’re probably not saving for retirement. We can kind of quibble about have we been selecting the right default savings rate, how we do things, but I think that that having access to a plan is an incredibly important way for Americans to save for retirement. So in that sense, they are, they are a success. Like unequivocally, if you have a plan, if you’ve got a, you know, a target date or a good default investment, default savings rate, you’re probably on a decent track towards retirement success. It could be better, right. But I think first there’s this notion of coverage. And I think we were improving that. I think like the state run IRAs are a possibility, we are seeing more and more companies kind of create solutions that are competitive for startup and smaller plans. So I think that we are kind of collectively addressing the coverage gap in the defined contribution 401k marketplace. I think that kind of the other end of the spectrum that we need to kind of work on is how to get folks through retirement. If you work for, you know, a really large company, odds are you’ve got a really good 401k plan, you know, generous employer match, high quality investments, all these great things help you accumulate wealth. I think that we should more proactively encourage people to stay in the plan, though, in retirement. You’ve, in your 401k, you’ve got an institutional fiduciary who can help you make better, smarter choices around how to decumulate your wealth. I’d like to see more folks actively take that path inretirement versus rolling out of the 401k into an IRA.

Jack Sharry: So talk a little bit, if you would, about the sort of the state of where things are. One of the things I observed from following more closely, this whole, what I call the convergence of workplace and wealth, where 401k plans are getting better. There’s a real arms race, if you will, for who can build better tools and who can help the consumer with all sorts of different tools. And I look at firms like Empower and Vestwell are two examples of firms that have figured some things out very well. So give me your assessment. There seems to be good progress being made, because… never fast enough, of course. But talk a little bit about that, then we can talk about them, now that the tools are being put in place, how, how people can take full advantage of what they’ve been offered through their employers and through these firms.

David Blanchett: I mean, I think to your point, we are making progress. I think that there’s, I think the larger issue is, is the kind of fear of change. I think that DC plan sponsors are a relatively risk averse bunch, and it makes sense. Like you’re, you’re a fiduciary who’s personally liable for the ongoing monitoring of your plan. And so it like there’s pros and cons there, right? A pro is that it really requires individuals to do things that are in the best interest of participants. On the downside, though it makes plan sponsors very risk averse. It makes them very weary of doing things that are proactive or kind of really forward thinking, because it’s kind of like, if it doesn’t go well, you’re gonna get sued. Right. That’s just kind of the way things work. And so I think that, that we’re making progress. I think that I’d like to see more plan sponsors, you know, maybe be more proactive on trying newer solutions, but I fully understand the hesitancy in the industry. So I think that we’re moving at a good pace to your point, we could move faster, but we are seeing progress.

Jack Sharry: Gotcha. Let’s talk a little bit about the process of it, and how we can improve it and others, there’s various elements starting, you talk about the need for a financial plan. Everyone agrees, it’s one of those things that it’s a great idea. But then when it comes to doing it, it’s a lot of work. It’s confusing, people get lost. Why don’t you make the case for not only why it’s important, but how it feeds into making for better retirement outcomes, talking about that process? And maybe a little bit about how, as an industry, we can make it easier, better, faster for the consumer to, to embrace?

David Blanchett: Yeah, I mean, I think that every, every single American needs a financial plan, okay. But not every single American needs a financial advisor. Right? People do things different ways. They have different interests, you know, and I’m okay with that. I think that there are some people that love to read up on personal finance, that are highly educated, they can do it themselves. Others don’t ever want to touch it. And then this exists across like every domain, every decision that people make. So I think, I think the key is, is how do we, as an industry, create avenues for individuals to get advice and guidance where they want to be. Right, if we go back, I don’t know, a decade. There’s two paths. Either you do it yourself or you hire an advisor who charges you 1% of your portfolio. I think what we’re seeing today is an emergence of paths individuals can take who want to get advice. There’ll always be do it yourself. They’ll always be the holistic copies of advisor. There’s other paths too, there’s robo advisors, there’s hybrid advisors, there’s advisors who do things hourly, etc. I don’t have a strong preference on what someone utilizes, but I like the idea of, is having different ways individuals can get and seek advice. And we’re seeing a lot of great evolution in that space where now there are different ways individuals who want to get advice can receive it, because there’s lots of evidence that you know, if you can’t get advice and you do it yourself and you don’t want to, you’re going to make mistakes. These can be very expensive mistakes, so… So giving individuals access to advice the way that they want it, I think will be, you know, a huge success long term for America.

Jack Sharry: So one of things we talk a lot about on this podcast is the the confluence of digital and human advice. Love to have you comment on that, because a lot of it is, frankly, way back in the old days, yellow pads and people winging it one way or another in terms of providing advice. Now, the financial plans keep improving, the various tools that can be used to help make decisions are improving, on a variety of fronts, budgeting, and there’s all sorts of ways that it’s, especially in the DC space where there’s more and more tools to make it easier, and so on. So weigh in, if you would, where are you… How are we doing as an industry? And where do you see that going?

David Blanchett: In terms of digitizing advice, we’ve made significant strides. Yellow pads are fantastic taking notes, like can you do more in an automated fashion using technology? You definitely can. And so I think that there’ll be different ways individuals want to interact with digital tools, a lot of folks won’t want to touch it. There’s a very strong difference in acceptance of digital tools, for example, among younger and older Americans. And that’s okay, right. But I think that the key is, it’s kind of akin to me to like, like investment management. Like, buying mutual funds 20 years ago, like was in itself, like a value add. Like, if you had information on how to do investment planning, that was a big thing. Like, you can get that online for free today. Like that, like, that’s everywhere…

Jack Sharry: Sure.

David Blanchett: You can go to morningstar.com, or wherever else you can go and get it. So like, what I see is this, we’re creating more automated ways for advisors, for individuals to get advice the way that they want it. It’s faster. I mean, like, to me, I think the fundamental value of an advisor is not the investments, it’s more of the behavioral financial planning coach. And so I think that investments are an important part of that. I think about you know, all the steps required to get someone to accomplish a goal, the investments are becoming largely or increasingly commoditized. And so having tools that help advisors relay those services to clients, and do it for them faster, allows them to spend more time doing what they’re, I think, best at which is helping people make good choices.

Jack Sharry: So let’s talk about that. This is probably outside of your typical realm, but I think it’s critically important. So there’s all sorts of tools that are being improved over time, ways to kind of leverage this whole movement in our industry toward a fully digital, but a largely digital experience, so that there’s time left over to have that behavioral kind of discussion. Where do you see us in that? Because it’s one of those things to say, well, we can find out what the investor wants. The habit, though, of so many advisors, the habit is around building portfolios. And there’s a shift underway there that probably as an industry, we don’t talk enough about. And I know you spend a lot of time on this topic. So how do we make that transit… How do we help advisors make that transition? Because their habit is to talk about my own advisor, right, his habit is to tell me about the models that we have and how they’re operating and markets and blah, blah, blah, which I don’t give a hoot about. But he loves it. So that’s, you know, I try to remind him that it’s not what I’m interested in. But, but how do we make that shift? Because I think it’s critically important to say, yes, it’ll be more about the behavior that takes place over a 20, 30, 40 year timespan of saving for retirement, then, and then ultimately, what you do once you get there, which is a whole new kettle of fish. But anyway, where do you see, where are we now? What do we need to do? How can we make it better?

David Blanchett: I mean, I think we’re making lots of progress. Right? So I think back when I first did my internships in this industry, I don’t know 20, 25 years ago, and you could have called me a stockbroker. And it meant the same thing as a financial advisor.

Jack Sharry: Yep.

David Blanchett: Right. Someone could say, you know, like, like the term financial advisor that was like, well now I’m a stockbroker. I, I buy and sell stocks. And so I think that, you know, now though, if you were to call a financial advisor a stockbroker, they’d be like, what are you talking about? That’s not what I do. Now, there are still some that do that. But increasingly, I think we are moving away from that kind of investment sales to even investment focused planning. Now, to your point, though, it does take education. If I’ve defined my value prop over the last three or four decades, or however long it is, as I pick really good funds, I build good portfolios, I might not be prepared to talk about things more holistically. And I do believe that while those advisors may be able to survive for a while, they’re not going to thrive. That’s not where I think the industry is headed. If you watch these commercials now, from insurance companies, financial firms, it’s all about comprehensive, holistic, some kind of planning terminology. So I think that you can choose to be, I don’t want to say a dinosaur, but you can choose to say, “I just build good portfolios.” But I think increasingly, what you’ll find, if that’s all you do, is you are going to lose out on clients to other advisors who are using these tools, using these services to help their clients more kind of, more proactively address their financial goals than just building good portfolios.

Jack Sharry: So let’s delve into what to do about it in terms of you do the planning, you understand the behavioral issues around what the client is trying to achieve, family situation, etc, etc. Let’s say we’re doing all that and we’re doing it well. At the end of the day, we have to implement what we’re talking about. And, for most advisors, they sort of have grown up in this portfolio management kind of way of thinking and operating. And more and more we’re finding, at least I’m, the way I’m reading the marketplace, annuities are less of a bad word than they used to be, they still have some more to go, I would argue. But it makes sense. Because frankly, when you talk to people, I’m of a certain age where I talk to people who are retired and, or soon will be. The idea of having at least part of their portfolio protected is, is appealing. And not all advisors are in the same place, if you will, shall we say. You’ve probably encountered this once or twice. So talk about that. What’s that balance of investment portfolio around protected income or protected growth or whatever? Basically, an annuity. We consistently come up with new ways to not say that word, but let’s put it, let’s just call it what it is. It’s a way to protect the client and make them feel more comfortable. Talk about it, if you would. Where are we? Where do we need to go? Where do you see things… How do you see things playing out?

David Blanchett: Yeah. So you know, a lot to unpack when you, when you bring up the “a word.” Right? I think that, so when I think about annuities, what I usually think about are products that provide longevity protection. Okay, so the annuity is actually the most, the broadest term you can probably use today in the financial lexicon. It’s, it’s income, it’s not income, it’s fixed, it’s variable, all these things. So like, let’s just, just to kind of keep things you know, so we’re on the same page. When I think annuity, I think it’s a product that is designed explicitly to provide longevity protection. Now, every American effectively already has some form of an annuity via something like Social Security, right? So you already receive some kind of benefit that is fixed or guaranteed for life. The question really, for everyone is and should be, do I need more? Right? Is it worth it to convert my savings into some kind of product that will provide me some kind of lifetime income benefit. Now, there’s lots of ways you can do that. There’s variable annuities, fixed annuities…

Jack Sharry: Sure.

David Blanchett: You know, there are these, all, you know, all this stuff, okay. And to me, at least, you know, maybe I’m not very smart, but retirement is incredibly complex. You don’t know how long you’re gonna live, future returns, all this stuff. It’s really hard to figure out what you should do. And what I worry about it, and what we see is a lot of people in retirement, they under consume. They could spend more, but it’s really hard to deplete your savings when you don’t know how long you’re going to live, more returns, all this. So I’m, you know, like ignoring kind of the economic arguments that I’ve often made about lifetime income, I really do believe that at a minimum, like every American, I don’t care how well funded you are, should have their like based, you know, non discretionary expenses, essential expenses in retirement covered from an income source that is effectively guaranteed or protected for life. And I think what that does is it changes the conversation around risk and how you’re going to fund your outcome, your portfolio. Now, there’s lots of ways we can do that. We’re seeing innovations around things like what are called contingent deferred annuities. And I understand to some extent, why advisors don’t, don’t like annuities, if you, if you exist, charging based upon AUM. But you know, even if you’re an advisor, and you do a really good job, you cannot guarantee your client they’re not going to outlive their savings. So I really do think that we need to have, you know, more advisors, actively consider using them. If you look at, I do surveys on this all the time, either advisors, like love them or hate them. There’s this, kind of, it’s a very kind of bimodal distribution, and they use them all the time. And we need to kind of, kind of move that to like the middle where there’s like, you know, all advisors are actively considering them, not either you love them or hate them, it’s where can they fit for a client? You know, I’ve talked to a lot of advisors. And, you know, a point that I’ll make when I’m giving a presentation is that if you have 100 retired clients, and you haven’t recommended an annuity to a single one, you are not doing the best job you possibly could. I find it highly unlikely that if you haven’t… you don’t have a single client that could benefit from allocating these products. Now, like they can be complicated, but a SPIA isn’t complicated, right? They can have high fees, but certain products don’t have high fees. And a lot of advisors, I think dismiss them because they don’t understand them.

Jack Sharry: Yeah.

David Blanchett: I think that like, you know, I’ve done research here too. The more that advisors understand them, the more that they tend to like them. So I think that, you know, for the folks who are listening, I would say hey, you know, if you’re not using them, you don’t pick bad funds for your portfolios, you pick the best investments out there. There are very good annuities out there your clients could use. You have to learn how they work, though, and how to identify them. That does take work. But if you do that you can create better outcomes for your clients than if you’re just focused on the portfolio alone. So I think, I think we are making progress. But there’s a ways to go before we get to a point that I think that advisors are really giving, like the best possible comprehensive guidance to their clients.

Jack Sharry: Yeah, I’m encouraged, I’d like to get your thoughts on this… I’m encouraged by seeing that the industry recognizes all that you just said. I think that’s point one. Point two is that advisors don’t like to talk about stuff they can’t explain or might get questions where they can’t, they don’t have an answer. I think that’s just been true as long as I’ve been in the industry. And then maybe finally what the the issue at hand is that we as an industry need to do a better job of helping them build portfolios that include annuities, not as the end all be all, but rather as having, playing its role. So I know there’s a lot of good work underway, a lot of things coming down the pike, so… many presently available. But it’s, I think we’re moving in a direction where it’s less about whether you should, it’s like saying should you sell a fund, or an ETF, or a SMA, or a UMA. And with an annuity, it’s, should, you know, all the different permutations of annuities. But really comes down to, what’s the appropriate mix, given where you’re already own, given what the tax ramifications are about making any adjustment? And then how do you put it together in such a way that there’s a greater deal of security, of protection? So, your thoughts on all that? I mean, that’s just my two cents. But, I think we’re moving in a good direction. We…

David Blanchett: Yeah. I mean, there’s tons of barriers today, like, like, a lot of these products, you can’t model in your financial plan, you can’t easily include in your financial statements, you can’t build on it. The products change, how do you model them? So like, I do see there are a lot of technical and operational roadblocks to utilizing them. And I get that, okay, so, and I think that the industry is where, you know, it can be a colossal pain with all these applications, it can take way too long. So I think that there’s a recognition of the industry, that those are issues, but those barriers are going away. And so I would just say, I think that excuse, maybe it still works today, I’m not sure that it will work in three to five years. I think that a lot of these issues will be addressed, you know, very comprehensively. And so, to some extent, an advisor, it gives you a, you know, a runway to say, hey, you know, maybe, I don’t, you don’t know anything how these work right now, you… maybe you do have some time, like there are, if you’re passionate about using them, like I think you should go ahead and do it today. But if you’re kind of perspective is, “Oh, I can’t model it, I can’t get paid on it.” Like, you know, like those barriers are coming down. And in the future, I think other advisors that have figured that stuff out and companies that can help them with that, it’s just becoming less of an issue. So an issue right now, I think it probably is for a lot of folks, but it’d be less of one of the future.

Jack Sharry: Well, David, this has been a great conversation. I’ve enjoyed chatting with you. It’s been a while since we’ve had a chance to get together like this. So thanks very much. Any key takeaways you’d like to share with our audience from what you’re seeing and hearing and learning as you’re out in the marketplace each day?

David Blanchett: You know, I think the biggest thing for me is just the increased role of education and knowledge. Think about other kind of, you know, similar professions, whether it’s law, whether it’s accountancy, etc, it really requires a strong base of knowledge. And that base of knowledge, I think, per our conversation extends beyond just building good portfolios. So I would just, I would just challenge any advisor, anyone in the industry that’s listening, you know, to up your game as much as you can around education. Go out there, learn more, do more, because I think it does change the way that you perceive certain things. No surprise here, but you can’t trust everything you read in the newspaper, right? Or that you see in a white paper, like having the ability to effectively understand how these things work, how they interact, how to build better retirement plans, I think will position you better. Maybe not for today, but for the next 10 or 20 years, as I think we shift more in that kind of holistic planning direction.

Jack Sharry: So, David, it’s been a pleasure to spend this time with you. I’ve enjoyed our conversation very much. My favorite question we like to end the WealthTech on Deck podcast is, what is something you do outside of work you’re excited or passionate about that people might find interesting or surprising?

David Blanchett: You know, I don’t know if it’s if it’s interesting or surprising, but I’ve got four relatively young children, they span ages between four and 11 years old. And I would say that that that dominates all the time I have outside of work. I like to run whenever I can, I go to the gym. But, you know, being with them and my wife, I think are the things that I enjoy most when I’m not working.

Jack Sharry: That’s great. Well, as someone who has four sons, now in their 30s, good luck. You’ve got your hands full. It all turns out, though, hopefully.