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Pioneers: A Model Risk Taker

Pioneers: A Model Risk Taker

Tom Terry, FSA, FCA, MAAA, EA, founded Chicago Consulting Actuaries in 1991. The company is an employee benefits and actuarial consulting firm with approximately 150 employees in nine cities in the United States. Terry, an active consultant with several CCA clients, leads the firm's executive and operational leadership team. Terry joined Towers Perrin in Chicago as an associate in 1975 and was a principal and vice president of Towers Perrin when he left in 1991. The Actuary asked Terry a few questions about his career and starting his own business.

What inspired you to start Chicago Consulting Actuaries?

Well, for one thing, I thought it was possible. That might sound like an odd reason, but the perspective is important. I "grew up" in a large, successful multi-national consulting firm. It was really easy to conclude that career satisfaction could only be achieved in such a firm. I thoroughly enjoyed the clients with whom I worked and had no picture that that could be replicated elsewhere.

I recall one of my clients sharing with me a marketing letter from an actuarial software firm espousing the potential for desktop valuation processing for pension and retiree health plans. On the surface, this wasn't so unusual because PCs had been around for several years already. But this letter had not gone to me, the actuary–it had gone straight to the plan sponsor! I was offended, amazed, scared–but ultimately extremely curious. What possible use would a plan sponsor have for actuarial software?

This signaled to me that the future had the potential to be very different from the past. It opened up possibilities that I hadn't envisioned before, including starting a firm to explore alternative service delivery models based on emerging technologies.

What innovations have you introduced?

We've done a lot with technology, but I know that, in different ways, everyone has. Maybe the bigger innovation is in how we use the technology. We've been experimenting with a different way of working with clients. In the pension actuarial field, the traditional game is that the actuary uses the technology, plays the "what if?" scenarios, and builds huge insight and intuition. The actuary then presents to the client as a real expert.

We've been working with an alternative model that looks like this: The actuary shares the technology with the client. The actuary and client then build the insight and intuition together. It's very different from the expert model–it's very empowering to the client and a lot more interesting for us as actuaries. Smarter clients raise more interesting issues to dig into–and we both get a chance to learn. As much as anything, this "learning model" (which is what we call it for lack of a better term) is a different mind-set.

What will the impact of the continued decline of DB plans be on actuaries? What have you done in how you work with your clients and your staff as a result?

I think pension actuaries will be facing a fork in the road in the years ahead. One pathway will be devoted to ongoing work related to legacy defined benefit plans. Even in the worst case scenario for DB plans, there will be a lot of work for pension actuaries for years to come in winding-down pension plans.

The other pathway is more strategic. While it's true that DB plans (as we know them today) are in sharp decline, the need for viable financial security systems remains. I see pension actuaries as vital players in the evolution of such systems.

At Chicago Consulting Actuaries, we're pursuing both pathways. We're aggressively pursuing traditional DB work, but also honing our skills in forecasting, financial economics, new types of modeling and risk management. We're keeping a watchful eye on new opportunities.

What do you see as the new opportunities for pension actuaries?

Pension actuaries have developed a number of disciplines that have a broader applicability than just traditional DB work. We are adept at database management, working with imperfect data, experience analysis and assumption setting, modeling, communicating results of complex calculations and working with auditors who need to understand our numbers.

This skill set is ideally suited to valuing all sorts of contingent comp- ensation programs. A perfect example is the valuation of employee stock option plans. There is a lot of demand for such valuation services right now and we're very excited about our developing practice in this new area.

What are the most significant risks taken in your career and how have they paid off?

The one thing that stands out was leaving the security of a well-defined position with a top firm and moving into an ill-defined role leading a small start-up. Our success was never assured. I look back and realize that we had some good breaks. But what's interesting is that we've been successful in creating good luck ever since.

What about your actuarial training and experience has been most helpful in your career?

I've had access to solid technical training throughout my career and this has certainly been helpful. And, I gained an early appreciation of what it means to be a professional. I regularly attend professional conferences with the objective of meeting new people, staying current and hearing what others have to say about where our practice is going.

What new skills have you had to learn and how did you learn them?

I've had to learn a lot of non-technical skills along the way–listening, providing feedback, creative problem-solving, etc. For the most part, I've learned these by working with others who are good at those things.

I've been fortunate to have identified good mentors. Early on, I had a boss who was good at solving problems where there were no apparent right answers. Retirement plan strategy and design projects present such problems routinely. I went to school on him and I still use what I learned from him today–decades later. In fact, getting comfortable operating in the "unknown" was a critical early lesson for me.

What are the biggest challenges you have had to overcome and how did you overcome them?

Well, an obvious one is that I was never trained to run a business. I always thought that good companies always ran perfectly smooth. So, every time we hit a bump in the road, I took it as a personal indictment. Talking with other successful business leaders has been extremely helpful. I did an about face several years ago when I realized that on some level, my job as president of a company is to deal with problems. I began to realize that if we're going to reach our full potential as a company, we're going to hit lots of bumps in the road along the way. So I started viewing the stream of problems as simply growing pains–evidence that we're stretching into new territory.

What are the three things an actuary should do if he or she wants to start their own business?

First, I'd say talk to people who have done it before. And then, sort through all the advice you get and separate the good from the bad. Second, do an honest appraisal of your strengths and weaknesses. Build on your strengths, but don't think for a minute that you can ignore your weaknesses. Finally, I'd say work on your people skills. As a small business owner, you will be highly dependent on others–clients, other professionals, referral sources and eventually co-workers and employees.

"The theme of the image campaign for the actuarial profession is "Turn Risk Into Opportunity." How did you turn risk into opportunity for your clients?

A risk we took that turned into opportunity was when we started sharing actuarial modeling software directly with our clients. The risk was the client would say "thank you sir, now that we know how to push the button we don't need you anymore." The reality was our actuarial insights couldn't be replicated by modeling software and the client still valued and needed our expertise. By opening the curtains and letting the client behind the scenes we didn't devalue our expertise, but actually broadened it.

Tom Terry can be contacted at:

Sam Phillips can be contacted at: