Despite a series of layoffs and the discontinuation of two product lines, American Skandia insists the company will get bigger.
Last week, the Shelton, Conn.-based financial services firm announced that it will stop selling its defined contribution and flexible premium variable life products. The move is expected to affect approximately 40 employees, but Skandia says it will realize an overall gain in staff as the firm gears up its marketing and distribution teams to focus more strongly on its variable annuity and mutual fund products.
"The raw size of the company will probably expand, but it will be different," said Chief Executive Wade Dokken. In particular, the firm will add wholesalers for banks, key accounts, and especially independent broker-dealers, giving Skandia the largest sales force in that channel, according to Dokken.
Shortly before Skandia's announcement, the firm initiated an executive search to fill the position of director of sales, left vacant when Bayard Tracy resigned from that post.
In addition, Skandia will be spending money on technology upgrades in the variable annuity area as well as on variable annuity research and development efforts. "The core message in what we're doing is, we believe that there are product designs that consistently bring more value to the customer that haven't been done in variable annuities. And we're going to do them," said Dokken. He cited the recent release of XTra Credit Six, a 6% bonus annuity with a step-down in mortality and expense after a 10-year period, as one example of the firm's ongoing innovation.
Innovation and product design have resided at the core of Skandia's market strategy and will continue to remain there, Dokken says. "Innovation is clearly a sustainable strategy, particularly if you're a focused company; if you're a focused company, you wake up every morning trying to figure out if you're going to win."
Variable annuities, mutual funds, and wrap products (which use the Skandia funds) currently constitute 93% of sales, according to Dokken. By sharpening the company's focus and paring its product list, Skandia is bucking a broader industry trend in which financial services firms are getting bigger and offering more products. Dokken acknowledged that merger and acquisition activity supports that trend, but says it isn't necessarily the best way to go.
"There's not a lot of evidence that [this trend] creates either excellence to the shareholder or to the product. The best companies are the ones that are focused," he argued. Skandia's own focus will be on "large aggregation products," including variable annuities and wrap products, where Dokken predicted significant growth for the firm.
Too Much, Too Soon?
Thirteen-year-old American Skandia experienced a meteoric rise in assets first with its variable annuities, then with mutual funds. Many competitors viewed the firm's rocky performance last year as a comeuppance of sorts and have questioned whether Skandia grew too quickly, too fast.
Dokken says the answer is no. In the case of flexible premium variable life, Skandia's product design did not synch with producers' desires, he claims.
"We tried to create a product structure that was low fee and [provided] high investment returns," said Dokken, who explained that the contract failed to find favor with broker/dealers. The firm's strategy was to generate a high volume of sales through a lower-fee structure with more modest commissions.
In 2001, total variable life sales for the complex were $25.6 million according to VARDS, an annuity and insurance data tracking service in Atlanta. While VARDS does not track all variable life policies and therefore does not provide rankings, company spokesperson Frank O'Connor said those sales figures do place Skandia among the bottom ranks of its peers.
In the case of qualified plans, Dokken said the company experienced steady and not disappointingly slow growth. However, the 401(k) wholesalers had to market to an entirely different channel, qualified plan specialists, rather than integrating with the rest of the sales force, thereby diluting the overall effectiveness of Skandia's distribution.
Others have criticized the firm for its overemphasis on a growth style. Dokken disagrees. The firm's investment mix, he argued, has always been balanced, but investors and their advisors opted to invest heavily in more aggressive investment options.
Planning for the Future
Dokken remains optimistic about the future and says American Skandia still plans to introduce its own retail managed accounts platform. "Our strategic plan in all likelihood involves acquisition," said Dokken, who would not elaborate on timeframe or potential acquisition targets. The firm is still considering building its own managed accounts platform, but with an array of firms for the taking, an acquisition seems likely.
But given Skandia's recent history of shrinking sales and layoffs, some competitors have speculated that the firm may be an acquisition target itself rather than a buyer. "We're not going to have any problem being here for a very long time and growing," said Dokken, throwing cold water on the possibility of a takeover. "I'll take all those side bets."