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Lessons Learned As a Personal Actuary

The Independent Consultant

Lessons Learned As a Personal Actuary

by Carol Bogosian

Recently, I was engaged by a senior executive as a personal actuary to assist in his severance package negotiations. I was engaged to review the U.S. qualified and nonqualified plans and his specific benefit determinations, discuss key issues with him and assist in negotiations for his benefits. I was concerned with not only the accuracy of his benefit determinations but also the reasonableness of any assumptions and full recognition of his service with the company. Complicating the situation, he had worked for various subsidiaries and outside the United States for the company. I was also concerned with the coordination of his U.S. benefits with the total severance package and any tax liabilities.

While the task seems straightforward for a pension actuary, the ability to consult with an individual on their personal finances is not. From my prior consulting experience in corporate pension plans, I was aware that an advisor needs to gain the client's confidence and convince them that the advisor has the necessary experience and knowledge. I had worked with executives at companies before – I knew how to exhibit my ability to provide the needed services. However, when an individual is discussing their personal finances versus a corporation's finances, gaining their confidence is a different matter. My training in financial planning was helpful in dealing with their personal financial issues.

Let me share with you some of the skills I needed to be a personal actuary.

Gain the Confidence of the Individual

Know your area of expertise very well. You will be called upon not only to present your ideas but also to defend them. You may be speaking with the individual, company management or legal counsel. I was often asked to consider ideas that would not be allowed under current regulations. Your expertise should enable you to know when to stay strictly within the boundaries and when to stretch to the edge.

Learn to discuss complex topics in basic language. You will be presenting complex ideas to others who do not have full knowledge of the topics. You may not know the knowledge level of the intended audience. Technical jargon and complex explanations will not work here. You need to explain concepts in basic terms and be ready to repeat your explanations. My experience in education indicates that adults learn from repetition and not immediate recognition.

Deliver on time and with full accuracy. Your reputation will depend on this. You may miss deadlines provided all affected parties are made aware early and agree. You cannot deliver poor accuracy though.

  • Negotiate reasonable deadlines. Expect delays when requesting personal financial data. I needed to request individual information that I was not entitled to receive. Human resource management was rightfully hesitant to provide me this information. However, the request was too specific and difficult to convey through the individual. You should resolve this issue quickly with senior company management and legal counsel and obtain permission to request data.
  • Communicate when delays occur. Often delays occurred as information passed between management and legal counsel. While I was unable to control these delays, I was able to inform others and work to resolve the issues quickly

Have true empathy for the individual and their specific needs. You will be discussing sensitive information concerning an individual's personal goals and values - including their marriage, career options, and lifestyle choices. You will need to integrate these goals into your solutions in order to have a successful engagement.

Maintain full confidentiality with the individual. You must maintain a high standard of conduct concerning confidentiality. You are given personal financial and lifestyle information. You should be sure to safeguard not only your conversations from others but also your documents, files and e-mails.

Take Financial Concepts and Develop Alternative Scenarios

Reduce numbers to simple exhibits and graphs. Most people are not comfortable with numbers. Individuals want an answer of one number. However, you may need to present numbers in a range or set of results. You will be more effective if you reduce the numbers into simple exhibits and graphs that focus strictly on the issue and resolution without any extraneous information.

Think ahead and develop alternatives before asked. For an individual, you can address their issues better if you have considered alternative solutions. You may also save time in setting negotiation strategy if you have developed alternative scenarios. However, be aware that not all of your alternatives need be presented to resolve the issue.

Speak and write in terms that can be understood. As when discussing complex topics, your spoken and written correspondence should be devoid of technical jargon and theoretical discussions that only cloud the discussion. Again, consider that you may not know the level of knowledge of the intended audience. If in doubt, present your ideas to the lowest knowledge level.

Drill down only to those options relevant to the individual's needs. Often you will have many solutions to a given financial issue. However, considering the individual's preferences, only a few of these solutions will actually work best. Focusing on the relevant solutions and drilling down on those options will be helpful.

Return often to explain concepts and verify outcomes as your proceed. New ideas create new directions. Your task is to incorporate these new directions, if possible, into your current strategies. You should continue to return to basics, explain concepts, and verify outcomes. Remember – adults learn by repetition rather than immediate recognition.

Analyze Plan Details to Enhance Negotiations

Consider negotiation positions of both the employer and individual. You may have the best solution from the individual's perspective. However, the company will also have a best solution from their perspective. Your task is to present solutions that bring these positions together. Be reasonable and remember both sides need to give and take for a successful negotiation.

Learn to coordinate benefits in a larger compensation package. Think beyond the task of reviewing current benefits. When limited by regulations, actuarial assumptions or plan specifics, look to other sources of income in the package for negotiations.

Understand the risk / reward profile of the individual. Every individual has a certain amount of risk they are willing to accept for a given amount of reward. They may not express their financial wishes as such – but you can discern the trade-offs as you work with them. In negotiations, their risk / reward profile will affect the process. Don't be surprised if your best advice is not heeded by the individual.

I hope these points offer you some insight into the issues of being a personal actuary. My experience was that familiar skills from my corporate consulting experience were very helpful throughout the engagement. However, new additional skills in handling a personal financial situation are needed as a personal actuary.

Carol Bogosian, ASA, EA, is an actuary with more than 25 years of experience working with both defined benefit and defined contribution plans. She is knowledgeable about financial planning after completing the coursework for the CFP program.