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RBJ 75: For Manning & Napier, the sum has many parts

When U.S. consumers think about health care, they think of it as expensive, complex and wasteful, a recent survey shows.
Manning & Napier Inc. wants to change the opinion of those that responded to a 2012 survey by the Deloitte Center for Health Solutions.
"We believe the solution for health care is consumerism," Manning & Napier CEO Patrick Cunningham said. "When people take control of their own health and their own spending, that’s when costs will come under control."
Manning & Napier has taken that approach with its roughly 500 employees, implementing a high-deductible plan with a health savings account.
"We have a team of people who do health-plan design that will help people migrate from traditional plans to these consumer-oriented plans, and we’ve seen cost curves come under control," Cunningham said. "You can control those things if you have the right tools."
Health care is the greatest cost for those taking the annual Deloitte survey, and services do not measure up to what is spent, respondents said. Some 22 percent of those in the latest survey said they are satisfied with their health care coverage, up from a satisfaction rate of 16 percent in the 2011 survey.
The concept of saving for post-retirement health care is comparable to Manning & Napier’s life-cycle funds, developed in the late 1980s and early 1990s to transition savings to a less-aggressive philosophy as retirement approaches.
"Health and wealth are converging," Cunningham said.
"There will reach a point, in my opinion, where companies will say, ‘Here are your benefit dollars. You can put all of those in your 401(k) plan. You can put them in your high-deductible plan. You can use them to pay the premiums on whichever health plan you want; or if your spouse covers all your benefits, you can take a cash bonus."
Manning & Napier implemented a high-deductible benefits plan for its employees in 2006. Its health plan designers can help other companies and employees make a similar transition, Cunningham said.
"When you work in a high-deductible plan, you’re a consumer," he said. "If I have a health savings account that I can keep till I retire, when I retire I can take money out without paying any taxes. It’s just like an IRA.
"We have consultants on staff, high-caliber people with secondary degrees, who are experts in the industry of retirement plan design. We have clients who, after we showed them a new plan design, were able to put away three times the amount of money they previously were. They could shelter that from taxes by putting it into their retirement plan."
Among the health plan concepts is a cash balance plan. Cunningham calls it a hybrid of a defined benefit plan and a defined contribution plan.
A typical cash balance plan provides a participant’s account with a pay credit each year from the employer and a fixed- or variable-rate interest credit, information on the U.S. Department of Labor website states. Changes in the value of the plan’s investments do not directly affect the benefit amounts promised to participants, making the employer solely responsible for the investment risks.
Annual benefits received from a cash balance plan can be defined by the amount of money in the account, or a retiree could take the account balance as a lump-sum payment and roll it into a tax-free IRA, the website adds.
"Our business, of course, is to manage money," Cunningham said. "That’s ultimately the core of our business, but we’ve always been a firm where it’s not just money management. You need more than money management to solve problems."
The Affordable Care Act has made health care even more problematic for employers, employees and retirees.
"It is a reality, and it is a huge challenge for most employers to decide what they should do, whether to pay or play," Cunningham said. "We have tools to help them decide that at the front end."
The U.S. Treasury Department this month said it would postpone for one year the ACA mandate requiring employers with more than 50 full-time employees to provide health care coverage for their workers or pay fines.
"Consumerism was coming, but the Affordable Care Act put it right in the spotlight," Cunningham said. "Fortunately, some of the implementation was delayed for a year. And that’s good because, in my opinion, people like us need more time to help them understand what their options are and how to implement those options."
Designing health plans produces a small piece of Manning & Napier’s revenue, but Cunningham compares it to his firm’s portfolio of life-cycle funds.
"We were managing life-cycle funds in 1993 when almost no one else was," he said. "We saw it coming, and we were ready. We see (health care savings) coming as well. You can’t predict what the trajectory will be, but we firmly believe those are the problems our clients face."
Manning & Napier employed 498 people at the end of March, with some 390 working at the firm’s headquarters on Woodcliff Drive in Perinton. The company has satellite offices in Dublin, Ohio, and St. Petersburg, Fla.
Some 100 employees have been added since Jan. 1, 2012, most of them in Perinton, Cunningham said.
"We’re adding in some areas more than in other areas, but it’s pretty much across the board as our business has grown," he said. "We want to make sure we are staffing ahead of the business. We’re a service business. We work with people on their problems. When you call us, a person answers the phone."
Manning & Napier (NYSE: MN) became a public company Nov. 18, 2011, trading at $12 a share. It reached a high of $20.45 a share in early June; more recently, the stock has been trading in the $17 range.
Revenues hit $339 million in 2012, compared with $255.5 million in 2010. In the same period net income attributable to controlling and non-controlling interests rose to $76.4 million from $53.1 million. Economic income-a non-GAAP measure of operating income-totaled $156.9 million in 2012, versus $156.7 million the year before. 
The firm has added seven home-based sales and client services representatives in seven locations nationally. The sites are determined by the location of Manning & Napier clients and by market potential, Cunningham said.
"We have clients in all 50 states and in Europe as well," he said. "The ideal location is where we have clients, particularly a marquee client, a well-recognized name in a particular geographic area."
The sales and client services reps have qualities that are difficult to find, Cunningham said.
"Our salespeople are the ones who initially meet the clients and tell them what we do and how we do it," he said. "Once they become a client, they service that business. They’re talking in-depth about the investments. They’re talking in-depth about all types of benefit plans. They’re talking about estate planning.
"Those are unique individuals, and I interview every one of them because they represent the firm to the marketplace. We have someone in California, in Texas. We’ve added people on the East Coast as well.  One of the ways to grow the firm is to increase the number of representatives that represent the firm."
The firm continues to hire, but Cunningham expects the pace to slow considerably from that of the last 18 months.
"We continue to develop products and services," he said. "It’s our clients who tell us. We don’t care what’s popular in the industry. We care what our clients’ needs are, what their concerns are."
The life-cycle funds are the result of that philosophy, Cunningham said.
"Our clients were saying they have a 401(k) plan but were having a very hard time making decisions between stocks, bonds and cash. Why don’t you delegate that?" he said. "That was back in the 1980s and early 1990s.
"In the last decade, there are two areas we’ve been concentrating on," Cunningham added. "One is taxes, frankly. We work with a lot of small and mid-sized businesses and professional organizations, and taxes have gone up significantly, particularly for the owners, who are the principals of those businesses. The second is health care costs."

7/26/13: RBJ 75 Special Supplement (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email [email protected].


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