What's a Personal Actuary?

Glenda Maki

Candidates have many choices to make-property & casualty, life, health, pension, insurance, consulting... throw some nontraditional opportunities into the mix and actuaries actually have quite a few areas from which to choose a career. Personal actuary is just one of these options. Learn what the personal actuary is all about.

There are personal trainers, physicians, psychiatrists, dentists, lawyers—many professions provide services to individuals. Actuaries have the skills to serve individuals on a personal level as well. A personal actuary is someone who performs actuarial services for individuals. These actuaries work directly on behalf of specific individuals with their clients' best interests in mind.

What do personal actuaries do?

Some areas in which personal actuaries are involved, but are not limited to, include:

• Personal evaluations
  • Life expectancy
  • Health expectancy
• Personal risk management
  • Pension options/decisions
  • Dividing pension assets, stock options, in cases of divorce
  • Life insurance decisions
• Health insurance/Long-term care needs
  • Assisted living contract advice
  • Impact on risk tolerance
• Matters involving claims and entitlement
  • Early retirement, stock options, personal injury
• Investments
  • Evaluating individuals' future income and net worth
• Taxes
  • Estate and gift tax consequences, deferred taxation

How does one become a personal actuary?

Having a willingness to learn is a good start. Actuaries obviously have the hard math skills. They also need the "soft" skills, such as knowledge of Social Security, accounting and basic legal knowledge.

Paul Richmond, president of Richmond Retirement Services in Bethel, Pa., was a pension consultant for several years when he says he decided to evaluate how he wanted to play out the rest of his career. He took a look at the skills he already had and looked at ways in which he could apply them to the marketplace, arriving at the decision to make a career as a personal actuary.

His first "unofficial" client was a friend of the family, 53 years old, who was marrying a man in his early 70s, and both of them had children from their previous marriages. The couple had a number of issues around wanting to preserve their own assets for their families and Richmond helped them set up a way for them to do just that.

His next case—what he considers to be his first "real" case—was that of a 78-year-old woman whose husband had passed away. The widow had never written a check in her life. They ended up finding $10,000 in cash in her house and helped her find $70,000 in assets that she had no idea existed. People told me, "You can't do that; you're not an attorney. You can't do that; you're not an accountant."

Not knowing what to charge for his services, Richmond says that he did a lot of free work at first. "I told clients, I'll do it for nothing, or you can pay me what you think it's worth at the end of the day."

There is a big learning curve—especially in a field that is in its infancy. Personal actuaries end up having to figure out a lot of things for themselves that may already be taken care of in the corporate world. They need to learn how to run a business and determine details such as what kind of legal entity to be—a partnership, sole enterprise, sole proprietorship or whether to incorporate. There are government forms to fill out and taxes to pay.

As he works to overcome these obstacles, Richmond's client base is growing. Currently he has 14 personal clients and two business clients for whom he manages business finances. In 2004 his business revenue was about $80,000. "I didn't make a lot of money, but I gave away a lot of work. That was my training ground," he says. He expects this year that revenue will approach $120,000 and his income will approach $60,000. "I pay my son who works for me close to $30,000, so there's real growth and no shortage of opportunities."

Learning to network

Many actuaries who don't think of themselves as primarily personal actuaries will find themselves performing personal actuarial services from time to time. Jim Brooks, owner of Brooks Financial Management, realized there was a need for personal actuaries when he began to get questions for assistance from people who were dealing with personal risk or situations involving future contingent payments. They didn't know how to evaluate the many different options, he says.

Brooks has found that most of his business has been referred to him by people he knows. "They've come to me because they've received recommendations about what I can do." The network he's built up allows him to reach out for questions he can't answer. "Communication is very important—even with the most sophisticated and intelligent clients."

Helping people evaluate

Many people jump to the conclusion that actuaries are financial planners, but their work is actually a lot broader than that. "The work of the personal actuary isn't so much financial planning as it is helping people to evaluate things," says Brooks.

Challenges

Probably the biggest challenge is that there is a lack of public recognition and understanding about the work done by personal actuaries.

Obtaining insurance coverage is another challenge, whether it's liability insurance or other coverage. "I've been asked to do litigation support, but if you're a small, single proprietor, nobody is going to sell you personal liability insurance or professional liability insurance. It's not a question of expense-they just won't sell it to you," says Brooks.

Sometimes unfavorable situations can be rewarding. Says Paul Bruce, vice president of Cap Pro Brokerage Services in Minneapolis, Minn., "The work I find most instructive and least pleasant is expert witness work. When you're explaining what you've done to opposing counsel, that's pretty tough peer review. They tend to find the flaws in what you've done. You have to think to yourself, 'If the other side asks me about this I'd better be able to explain and understand it and have a good answer.' That's part of what makes this challenging and interesting."

Perhaps the biggest benefit actuaries bring to this area is an unbiased perspective. "If you're a broker, insurance agent or financial planner, your ultimate goal is to sell something," says Bruce. "We don't care whether you go with Plan A, Plan B, buy life insurance or not—we're going to help you get to the right answer."

One of the "actuaries of the future?"

The personal actuary is just one type of "actuary of the future." The SOA has established a Task Force on the Personal Actuary to include:

• Development of a Web site with information and a registry of personal actuaries
• Exploration of legal matters such as standards, state recognition (on par with other professionals)
• The possibility of a campaign to inform the public about the availability of personal actuaries

Be on the lookout for more information on this career path in the near future.