The transcript from this week’s MiB with John Schlifske, Northwestern Mutual CEO, is below.
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This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, once again, I have an extra special guest, John Schlifske. He is the Chairman and CEO of Northwestern Mutual, the insurance giant that’s in the top 100 on the Fortune 500 list. They have over $31 billion in annual revenues, 2 trillion plus in life insurance products and about $200 billion in investable client assets.
This really is a fascinating conversation not just about the insurance industry but about how the entire financial services industry has changed over time, how it’s become more integrated, more holistic, how the concept of the insurance salesmen out hawking policies is so outdated.
John is really super knowledgeable about a variety of things within the industry. Northwestern has been very aggressive in not only their own internal green initiatives but their diversity initiatives. You tend to think of a company like them as a large stayed insurance company that might be a little behind the times.
They are nothing of the sort. They seem to be fairly cutting edge relative to the typical financial services firm. I was fascinated by the conversation. I find Schlifske to be really a fascinating executive and I think you will also.
So, with no further ado, my interview with Northwestern Mutual’s Chairman and CEO John Schlifske.
VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radioo.
RITHOLTZ: My extra special guest this week is John Schlifske. He is the Chairman and CEO of insurance giant Northwestern Mutual. The firm ranks number 102 on the Fortune 500. They have over $31 billion in annual revenue.
Northwestern has $309 billion in assets and $2 trillion in active life insurance coverage. John Schlifske, welcome to Bloomberg.
JOHN SCHLIFSKE, CHAIRMAN AND CEO, NORTHWESTERN MUTUAL: Well, thanks, Barry. I’m glad to be here. I appreciate it.
So, let’s start out talking about some of your beginnings. I read one of your first jobs was scraping paint off of trucks. Tell us about that.
SCHLIFSKE: Well, my — yes. My father owns a very small trucking company in Milwaukee and so when I was 13, I had to start working there and I basically did all the jobs none of the professional truck drivers wanted to do, including things like cleaning bathrooms and cleaning trucks and scraping paint off of things and stuff like that.
So, it was — I think it was my dad’s way of making me want to go to college because I was a — it was a lot of gritty and grimy work in a family business environment. So, it was a great experience and it certainly taught me the value of an education, I’ll tell you that.
RITHOLTZ: So, speaking of education, you go to college, you get an MBA and it looks like pretty much right out of school you started at Northwestern Mutual in ’87. Was that your first job right out of school?
SCHLIFSKE: No. My first job was with MetLife doing similar things. So, I graduated from business school, went to MetLife for four years both in Chicago and in New York and then I got recruited to go to Northwestern Mutual, which is in my hometown of Milwaukee.
So, it seemed like kind of a dream come true for me. And so, I — yes. So, then I did go to Northwestern Mutual and that was 34 years ago, I can’t believe it, back in 1987. That’s right.
RITHOLTZ: Did you always want a career in financial services? Was that the plan?
SCHLIFSKE: What I really wanted to do was be in the in world. I had had a couple of summer jobs in banks and I saw their asset management staff. And when I was in business school at Kellogg at Northwestern, Warren Buffett was speaking in Chicago and it’s for young investment people and he said, if you really wanted a great investment career, you should work for a life insurance company because they have great processes, they’re typically buy-and-hold investors, very analytical in nature, exposure to the entire balance sheet from bonds to equities, all that kind of stuff.
And so, I think that made a huge impact on me. And so, as I was interviewing at business schools, I became increasingly interested in the investment side of financial services. So, looked at some investment banks, looked at some money management firms in Wall Street and things like that.
And I think given my experience and I was relatively young when I got at business school, I think the life insurance jobs were just perfect for me because it was a place where I could build my skills and start out really at the bottom as a junior analyst.
And I really love managing money. I just — I love the game — I love the game and the sense of trying to figure stuff out that other people hadn’t. And so, I was — I think I was always attracted to that sort of analytical framework and that’s why I went to MetLife and then ultimately, Northwestern Mutual.
RITHOLTZ: So, I read an interesting quote from you and I want to get your feedback on this, quote, “What had the biggest impact was the recession of 1973 and ’74. I watched my dad be worried at that point about even meeting payroll. I saw the volatility of being a small business owner and that drew me to want to work for a big company for security reasons.” Explain that thinking there.
SCHLIFSKE: Well, yes. So, as I mentioned, my dad had a small trucking company. Maybe at its peak, it had 30 employees and I was 14 or 15 during the recession in ’73 and ’74 and I didn’t really understand it the way I do now. But I do remember him coming home and hearing him talk to my mom about making payroll for his employees and having to dry his own savings account a couple of times to feed the check account at work.
And I remember one week where he said he made 22 cents, that was what’s left over after he paid all the employees and I — it just scared me, I think, and I just saw that pressure and that volatility. And then, as I mentioned, I had a summer — I worked in a mail room at a bank one summer.
So, imagine, you go from this grimy, gritty trucking company where you never know when the next paycheck is coming from to a bank where everybody’s clean and showered and well dressed and I think that had a tremendous impact on me. And then you had the security of it, which is the bank seemed to be much less impervious to the economic volatility at least to someone working in the mailroom at that time. I’m sure they had their challenges.
And so, I just never wanted to work for a small company and I never wanted to run my own business. I always wanted to work in a big company and I think that notion of security was a key element in it.
RITHOLTZ: Makes a lot of sense. So, from MetLife, you end up at Northwestern Mutual where you start working your way up the ladder. Tell us a little bit about your career path.
SCHLIFSKE: Well, as I said, I started out in what we call our private capital area. So, that was doing private placements of so privately placed debt, privately placed equity, leveraged buyouts. The ’80s were the leveraged buyout glory days and Northwestern Mutua was a huge participant in it.
So, it was a fun experience because we were looking at so many different companies, so many different industries, so many different kinds of capital structures and I was learning so much. So, we had that growth in the company and then I was growing up as a professional and one of the things I’ve always appreciated about Northwestern Mutual and I think it’s still true to this day was the true meritocracy.
And by that, I mean, that I always thought the people who got promoted, including me, obviously, were being rewarded for what we did, what we knew, how we were growing and I never felt it was — there was a club. I never thought connections were the way to the top. I always thought it was doing the right thing and being rewarded for it.
So, I think over my — over — as you’re growing up in your 20s and 30s and 40s, every now and then, headhunters would call. But I always wanted to stay at Northwestern Mutual really for two reasons. One, I love the culture, I love the — what the company stood for. And then the second is as I mentioned, I always felt it was a true meritocracy where you are rewarded for what you did.
And I think ultimately, if you had told me in 1987 that in 2021, I’d be still here, I don’t think I would have believed you. But when you start stringing together year after year of this feeling about — good about the company, its culture and its mission and good about your career and your bosses and the way you’re treated, I just think that growth was amazing.
And so, here I am 20 — whatever it is, 34 years later in 2021, feeling really privileged to have been able to make most of my career at this great company.
RITHOLTZ: Sounds really interesting. And you’ve been CEO for, is it what, seven or eight years already?
SCHLIFSKE: Eleven. It’s eleven years.
RITHOLTZ: Eleven. Wow.
SCHLIFSKE: You can’t believe it. Yes.
RITHOLTZ: That’s a shocking number. So, speaking of how quickly time goes by, Northwestern Mutual has 150-year-old history. How does that affect how you manage the firm? What is that legacy mean to you?
SCHLIFSKE: Well, I would start off with the notion that it’s both an honor and a responsibility. So, it’s sort of like think of your favorite sports team, the Packers, the Yankees, whatever team has this unbelievable legacy. When you’re running the place, you can’t lose sight of not just what a great job it is but the huge responsibility that goes along with it and this notion that we’ve been around for generations.
We’ve taken care of people for generations and that we have to do that for years and years to come. I think — I always like to tell this story, so, we’re a mutual company. That means we’re owned by our policies and we’re not a stock company and we don’t really have an end date. There’s no notion that at some point this company will get sold to somebody else or that we need to find a different ownership structure, anything like that.
We are in business for past generations, our current customers and generations yet to come. Even people who aren’t even born yet. There’s a sense of responsibility to taking care of that.
And I think that’s one of the things I love about this job. As a CEO, you can think in three different time directions. We, obviously, have to deliver — and I call them near, now and far. So, we have to deliver near. We have to do what’s required today to deliver or excuse me, that’s the now, to deliver value to our policyowners today.
But we also have to be effective and relevant both in the near term let’s say two to four years out and in the far, five, 10, 15, 20, 30 years out. We’re selling products today in which people will own them for 60, 70, 80 years. And so, that notion of working over decades, creating relevance over decades, creating economic value over decades, evolving over decades is really one of the sort of legacies that goes with running a company that’s over 160 years old.
And if you look at this company, we started as a life insurance company that we’re now number one in terms of market share in the country and you mentioned, we have over 2 trillion of life insurance in force. But we’ve evolved. We now sell a variety of risk products, including disability income, annuities, long-term care.
But we also are major wealth management player. We have over 200 — close to $200 million — excuse me, billion dollars of assets under management for our wealth management clients. We’re growing swiftly in that business. We’re integrating insurance and investments at our — at the client level to create better outcomes.
And those were all proof points, I think, around how this company has evolved and how it’s the leader. We feel this tremendous responsibility to steward the company for the next generation of employees, policyowners and people who sell our products, which we call our field. They all have a long-term stake in the value of this enterprise.
RITHOLTZ: So, John, let’s talk a little bit about change. You were discussing how the company has adapted over the past few decades. How have the economics of life insurance changed over time?
SCHLIFSKE: Well, the economics have changed in a material way and it’s really tied to what’s going on in the marketplace. The fundamentals that create value for our policyowners haven’t changed. It’s how well the investment portfolio performed. It’s what’s your mortality experience. It’s how persistent are the policies, how long do the policyowners keep their policies. And then ultimately, can you manage the expenses of the business and be a low-cost provider.
So, those things haven’t changed and they’re the core to creating value for our policyowners who happen to be our customers at the same time. But what’s really been — I would say the most dramatic in the last let’s say 15 years or so is the role of interest rates.
They, obviously, have a huge impact on pricing when interest rates go down, the cost of life insurance goes up. Not necessarily the premium per se but for permanent life insurance, a huge component of the value is the cash value that builds over time. And when interest rates are low, that cash value builds it at a much slower rate.
And so, that’s what I mean when I say it becomes more costly. So, with rates coming down in the dramatic way they have really over the last 15 years, that’s had a very important sort of headwind on the value of life insurance.
And so, if you think about it this way, policies issued in the mid-90s had interest rates in the eight percent range and now, were in a period where interest rates are down around three percent. So, that’s a huge difference in terms of the value that’s greater than these policies over time.
The good news is from Northwestern Mutual’s perspective that we really have recognized this and have stayed ahead of the curve. I remember going to Japan in the late 2000s, right around 2008, 2009 and I visited with a number of Japanese life insurance companies at that time and they, of course, have been going through the same sort of decline in interest rates for the past couple of decades in Japan.
And I think the two takeaways I had there were one, it never stops and you have to be prepared for a very long period of low interest rates and you have to get your financial house in order, which we’ve done. And the second is you have to continue to evolve, you have to continue to show value to your policyowners because what may have been the key value, which is higher interest rates, goes away.
So, I’m really proud of the way Northwestern Mutual has navigated this period. But ultimately, it’s — low rates have been the biggest headwind on the company and they’ve had the single biggest impact on the economics of our industry.
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RITHOLTZ: Really interesting. You mentioned mortality as another factor. There are two issues I have to ask about. One is the impact of people living longer in general. We tend to see lifespans extend but at the same time, we’ve had over a half a million COVID-related deaths. How do those two factors play into the economics of the insurance business?
SCHLIFSKE: So, the increased longevity of Americans over the last century has been a huge positive for the life insurance industry and mortality continues to improve although not at the same pace it did let’s say in the 20s and 30s. But in general, Americans tend to be living longer, living healthier lives, and that has a huge benefit to the value of their policies obviously.
And that’s one of the — and one of the reasons Northwestern Mutual stands out is that our mortality experience is actually better than the industry average. We underwrite very well.
And so, all of that mortality improvement really is returned to our customers, our policyowners in the form of dividends. We paid out over $6.2 billion in dividends in 2020 and that’s a huge proof point on the economic value that we create and mortality is a huge component of it.
COVID, of course, is a tragedy for this country and obviously, many, many, many hundreds of thousands of deaths due to COVID. What we found for our company is that the average age of our COVID claim has been around 80, 81 years old and the average duration of those policies is over 40 years.
And so, what that is telling us is by and large, at least for Northwestern Mutual’s policyowner base, the COVID impact has been relatively negligible. These are, obviously, much older people who had these policies in force for a long period of time.
And if you look at sort of the difference just in terms of death rates with COVID and who’s dying versus let’s say the Spanish flu back in the 1919, 1920 era, it tends to negatively affect much older people rather than much younger people. And so, that’s muted the mortality cost let’s say at the mortality expense of COVID as it relates to our policyowner base. And so, as we’ve told our board, we’re in business to pay claims. We paid death claims because people need that, their families need it, their loved ones need it and we’re proud to pay out our COVID claims. But at the end of the day, it’s been something that hasn’t been nearly as bad, from a financial perspective, as many people thought a year ago today.
RITHOLTZ: So, you’d mentioned other forms of insurance like disability and long-term care. I know a number of other carriers have run into some problems with that. What seems to be the difficulties with those products? Is it they’re just harder to price or did they simply underwrite the wrong group of people?
SCHLIFSKE: There’s no doubt that some products in the insurance world are harder to price than others. If you think about insurance in general, you’ve got a group of people paying premiums upfront and then collectively, they’re sharing in the risk of loss.
And when it comes to long-term care, there’s a number of assumptions that were really, I think, mispriced from an industry perspective. I’m glad to say Northwestern Mutual didn’t fall into that trap. But without getting too esoteric, the single biggest mistake that many companies made with pricing long-term care was what’s called lapse rate.
And so, this is the percent of the policies which lapsed in which people stop paying premiums on and many long-term care products were basically lapse-supported pricing. In other words, they overestimated how many people would pay premiums for a while and then let the product lapse before any benefits were ever paid on it.
And what the industry found out is that long-term care is in fact a product that people — once people have, they don’t want to give up because they know how near and dear it is to their financial security. And so, yes, the industry had some rather significant mistakes when it comes to pricing that product.
I’m proud to say that Northwestern Mutual has been sort of much more conservative with our pricing. We don’t do lapse-supported pricing in the long-term care market and as a result, we’ve had much better experience with our products.
I do think long-term care is an example of a product that is — what’s the right to say it, it’s — people need that product. It’s really, really important for the let’s call the average American to think about how they take care of their long-term expenses postretirement.
And I always the example, people have no problem insuring their home even in retirement after the mortgages paid because they can’t imagine losing a physical asset to a fire or something like that and yet, the odds of making a claim on long-term care are much higher than the odds of your house burning down in retirement and yet, people don’t assume that that risk is something they should insure against.
And so, long-term care insurance is a — I think is a necessary product. I’m proud to see the way the industry has been evolving to find new ways to deliver long-term care protection to our policyowners, including Northwestern Mutual. Increasing now long-term care insurance and the risks of it are being embedded in life insurance products so that you basically have a combination of both the mortality risk insurance as well as a long-term care risk insurance.
And I think that’s really important because at the end of the day, one of the biggest concerns people have is running out of money in retirement and long-term care is one of those events that can completely throw your financial plan for a loop and create unforecasted expenses especially around things like Alzheimer’s memory issues and so on.
And so, for our industry to begin to come out with these hybrid products, rather than just standalone products that can create sort of these outcomes that people need is something that I think the entire industry should be very proud of. The other factor about these combo products that’s interesting is it’s — they’re less likely to be mispriced the way standalone products are because the combination of your premiums over long term with the accumulation of cash values and a traditional permanent policy more than offset some of the risks that goes with long-term care.
And so, I think you’re going to see long-term care insurance continue to be at the forefront of what people need for financial security but just not in a standalone chassis so to speak.
RITHOLTZ: You mentioned we’re underinsured when it comes to products like long-term care and what else are we, as a nation, underinsured against? What risks are out there?
SCHLIFSKE: I would say that most Americans, and I’m generalizing but I think this is generally true, are underinsured when it comes to both — in addition to long-term care, they’re underinsured when it comes to both life insurance and to disability insurance.
And we find that when our reps sit down with clients and go through a rigorous planning process especially people who have loved ones that they need to take care of, the notion — they often have a notion that I got a group DI policy or group life insurance policy and that takes care of me. And yet, when they see what could happen, if they would become disabled especially in their 20s or 30s or 40s with 20 or 30 years of earnings potential out the door or worse, death, they find they’re very much underinsured.
The problem we have as an industry is that everybody needs what we have but nobody understands how much they need and it is typically all three of the products we’re talking about. Life insurance, disability income and long-term care are products that are bought — are not bought but sold and by that, I mean, people don’t wake up in the morning for the most part try to figure out how much any of those they need and go out and buy it the way you get up and say, I want to buy a car, I want to buy a refrigerator, I want to buy vacation for my family.
And so, it is important that financial advisors understand these products that they can show the value of them to their clients and typically, when that’s done, especially not in a product sale kind of way but as part of a comprehensive plan, we’re always pleased to see that people, for the most part, do want to buy more because most people do want to take care of their loved ones and plan for these unexpected events.
And this is why as I mentioned earlier, this notion of integrating insurance and investments together is a — we think a much better way to create outcomes for our clients that are valuable rather than just engaging in sort of one-off product sales.
RITHOLTZ: So, let’s talk a little bit about what makes life insurance somewhat unique in the world of financial services. It seems to be the only one that hasn’t been disrupted by technology as so many other industries especially finance has been. Why is that?
SCHLIFSKE: Well, I think the short answer and the long answer, the main reason sort of in the short run why life — you haven’t seen the disruption in life insurance that you’ve seen in other financial services companies, I think, is because it’s a very capital-intensive business.
And so, for companies either startup, fintech startups or even established players like Amazon or whatever to get into it, it’s a very capital-intensive business that requires a ton of money from a capital perspective. And because rates are low right now, the return on that capital is much, I think, less attractive to many disruptors, let’s call it that, than maybe other places they could go right now.
So, that’s the short answer. I don’t think that’s a reason not to be worried about disruption and I’ll talk about that in a minute. But I think there’s a lot of disruption coming our way.
But I think in the long run, we really have been positively changed by technology and I think COVID has accelerated that change in a huge way. And I’d like to say, we’re not in 2021 anymore, we’re in 2030 and that’s sort of a glib way of talking about how the acceleration in our industry because of COVID has really taken a decade of change and compacted it into one year.
Where you see the most disruption in the short run around our industry is around the client experience as it relates to purchasing our product. Companies are simplifying the process of becoming insured by — in terms of — the way you buy insurance.
They’re simplifying the application process. They’re simplifying the underwriting process. They’re doing it all sort of digitally with no human interaction and they’re basically making it easier and easier for clients to — who see the value of our product to buy the product. And so, that’s where you’re seeing the disruption in the short run.
And on the same side, on the wealth management side, you’re seeing these robo advisors. We’re trying to sort of simplify many of the core principles of investing, diversification, dollar cost averaging, tax planning, all those kind of things.
And ultimately, so, I would argue that we are seeing disruption creep into our industry both on the risk side, the insurance side as well as on the wealth management side. And by the way, I think that’s a good thing for our industry.
It’s taking longer because as I said, it’s a capital-intensive business. But there’s nothing about life insurance that would make me think that we’re somehow immune from the kind of disruption we’ve seen in other parts of the financial services industry.
And so, the companies that are going to survive or the companies that are leaning into this disruption that are experimenting around the customer experience and so on. Ultimately though, life insurance is a product that is really tied to two things, forgoing of money now and pulling those risks to protect everyone over time.
That core essence of the product is not going away. That stands the test of time. It’s the only way you can really protect yourself against — yourself as an individual against catastrophic losses and by that, I mean risk pooling.
And so, in the long run, I see the disruption in our industry more around the customer experience and the way customers — way companies engage with customers and less around sort of the basic mechanics of the product, which is, as I mentioned, risk pooling, mortality expresses, and persistency.
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RITHOLTZ: So, let’s talk a little bit about those employees. Given the circumstances and how everybody has been working from home and remote, how challenging has it been to find and train new advisors? What’s it like recruiting under a lockdown?
SCHLIFSKE: Well, it’s been a lot harder, I will say that. At the end of the day, I think though the fact that we were prepared for this pandemic has helped us be successful. We didn’t see the pandemic coming, don’t get me wrong, but we were well on our way to creating a digital experience both for our customers and for the people who sell our product, our advisors.
And so, when we went to a quarantine situation and then, obviously, the lockdown, we were able not only to service our customers and sell our products to our customers solely through digital channels. But we’re also able to recruit people. In fact, we had a record year of recruiting in 2020 over 3,100 new people joined us as advisors.
And what I think is really noticeable about those recruiting — about that recruiting class, it’s more diverse than ever, more women, more people of color and it really represents, I think, a continuation around this notion that this is a great noble profession. At the end of the day, people who work for Northwestern Mutual and others in our industry are really helping people become financially secure.
We know that the average American doesn’t know where they’re going from a financial perspective. They don’t know how to get there. They have cluttered sort of centered less financial lives and they ultimately need someone to bring that all together.
And so, this notion of being able to attract exceptional talent to this business is not as hard as I thought it was going to be in the virtual world because of two things. This notion that we have the digital tools and because there’s demand for what we do.
We are not recruiting people to a dying industry. We are recruiting people to an industry that really has a really bright future because of this notion that most Americans have to provide their financial security to themselves.
Think about it, my father’s generation had a pension plan, the equity value in his house and Social Security and that’s really all he needed in retirement to be financially secure. But it’s much more complicated today and people are on their own. They’re not getting sort of those corporate defined benefit plans from the days of old.
And so, this — there is strong demand for what we do and I think when you add all that up, it creates an ability for us to recruit into it. Then you add to this notion what we call the abundance mentality, which is that people support each other in our system, they help each other.
Our veteran advisors work with young advisors. They mentor them. They coach them. They do joint work with them. And all of that, I think, has put together for us a very robust year in terms of growth even in the midst of this notion that it’s not a face-to-face company anymore.
So, we are a growing company. We grow in single digits every year. We’re never going to be a double-digit growth company given our size and our history. But the fact that we can continue to grow in such a strong way in 2020, I think, is a proof point on the notion that there is a demand for what we do.
RITHOLTZ: Really insisting. You mentioned it was a record year of recruitment and you were successful in recruiting women and people of color. Lots of firms in finance have found that to be very challenging. What is Northwestern Mutual doing to make their recruiting drive so successful when it comes to increasing diversity?
SCHLIFSKE: Well, I think it’s — we’re on about eight to 10-year journey in this regard and by that, I mean we started about eight to 10 years ago and we really decided at that time that it wasn’t just going to be a one-kind-of-year-and-done program.
And so, the first let’s say five years or so, all we focused on was the culture in our offices. We knew that we had a male-dominated, white male-dominated workplace culture. Not that there’s anything wrong with that but it wasn’t as inclusive as it should be.
And we needed to change the culture of those offices so that women and people of color felt just as comfortable in them as a 25-year-old white guy. And so, that was the beginning of this journey which is let’s look at those aspects of our culture that needed to change so that it became more inclusive, more welcoming.
My favorite example is one of the — one of our network office leaders, used to have a context for new employees and if you won the contest, you got a tuxedo. Well, the problem is, women don’t want a tuxedo, right? So that was never an incentive for them. It’s a little point but it shows you all the nuances that we had to do around culture to create this welcoming environment for anybody who wants to be in it.
Then we spent the next five or six years really focusing on this notion of meeting people where they are.
And so, you don’t — you don’t recruit the same way necessarily for a white person at a big 10 university as you might a person of color at a historically black college or a woman who might be a career changer or all those kind of things.
And so, we really focused on meeting people where they were, recruiting people who were in environments that they didn’t like, that they could see we had a better one. But ultimately, I think what happens and I think this is — this may sound a little bit like motherhood and apple pie, but I think it’s true.
At the core of what we do is we help people become more financially secured. That is our mission and that is an attractive proposition regardless of your raise or your gender or anything like that. And so, ultimately, the more we can demonstrate to people that there’s a home for you and that people want what you do, I think it’s really — it’s been one of the hallmarks of why we’ve been successful from a diversity perspective and recruiting.
It’s because this is not a — it is not a white-male only mission. It’s a mission that anybody can look at it. And if you look at, let’s say black America, that is traditionally underserved when it comes to financial security, there’s a huge opportunity for other African American and blacks to come in to this career and make in-roads into that sort of — let’s say neglect as part of our economy.
And so, I think it’s really a — it is an abundance mentality and it’s one in which we started to make some notable successes. We’re far from perfect on this. The journey’s nowhere close to being over, but it — I really feel like we started down the right path and we’ve got some proof points that is working right now.
RITHOLTZ: So, that’s really interesting. How does that apply to the C-suite and senior executives? A lot of big firms have been successful in recruiting people to the upper echelons of the organization, but they’ve been less successful in retaining that talent.
SCHLIFSKE: Yes. We’re very proud of our record. I always start with our board. My board — so, we’re a Fortune 100 company and only 40% of our board is white male. That means 60% of our board is diverse either in terms of gender, ethnicity, race or some combination of the three.
And so, we start — we walked the talk right from the beginning, right at the top of our organization. The other thing I would say is that we tend to be a company that likes to develop talent internally. Now, we have some senior people who we’ve recruited from the outside world. But by and large, we think the way to create a more diverse and inclusive company is not just from recruiting people to it but from growing homegrown talent.
All of my senior team, we all have a personal goal that we hold ourselves accountable too. It affects our annual incentive plan payouts and our long-term incentive plan payouts and it’s around diversity. We have to be moving people up in this organization. We want to see more people of color at management levels and up.
We hold ourselves accountable for that. Every open job, when we look at the sleight of people has to have at least one diverse candidate on it when we’re considering filling those jobs. We want to promote from within. The same thing is true.
If we recruit from the outside for a job that sleight has to have, at least one person, and hopefully, more that represent diverse candidates.
So, we walk the talk from the very beginning from a recruiting and promotion perspective and then we fairly elaborate, what I would call support mechanisms. By the way, they’re not perfect yet, they’re getting better.
But so that people of color and women in our organization feel they have the same mentorship that maybe I had as a white male back in the ’80s.
And so, I think — and as we’ve talked about in this podcast, I’ve been here for 34 years and when I look at our level, our management ranks and I look at the women and the people of color in it, I’m very proud to say a disproportion share of that is homegrown talent.
And I’m hoping they see the same opportunities I did, the same mission that I have, the same mission that we have going forward. And so, I do think we can — we can hold on that talent.
But I will say, the other thing is that when someone recruits a way, one of our black employees or let’s say a woman — a senior woman, I take great pride in that. Because what it says to me is that we’re developing talent that other people value and are hiring away from us.
And just like we lose white males to the recruiting process sometime when we lose people of color and women, I view that as a proof point that we are growing talent that other people value. So, I think that’s — that’s just this whole ecosystem is from a diversity perspective, it’s not just one thing. It has to permeate your entire culture, it has to permeate your entire way of doing things, and as that happens, the roots take place — there’s roots everywhere and you’re not really dependent on one or two people staying in order to hit some sort of metric.
RITHOLTZ: So, let’s talk a little bit about the financial services world. One of the big themes has been the move away from the traditional wirehouses and towards more independent channels. How has that impacted your investment business, if at all?
SCHLIFSKE: I would — I would say we probably had a handful of our career advisers go to independent channels and the fact of the matter is if a career adviser leaves Northwestern Mutual, it’s almost inevitable that they go the independent route. But ultimately, our retention rate right now is about, I think, around 96-97percent which means the vast majority of our veteran advisers are staying with Northwestern Mutual year after year.
I think — I think there’s two things that doing to create sort of that stickiness because we never — you never want to compete on anything that’s a commodity. And so, from our perspective, I think our sort of value proposition to our veteran advisers is what’s keeping them there and it all starts with sort of our — what we call our unrivaled holistic approach to client.
So, it’s the — it’s sort of the merger of a trusted adviser, a robust planning process with proprietary planning software, the integration of insurance and investments at the client level which is somewhat unique in our industry all backed up by a rich digital platform and omnichannel service.
So, those five things do set us apart from most of the independent channels. They can’t bring all of that sort of skill to bear to a client. The second thing we have is, obviously, we have arguably the best products in the industry when it comes to our insurance products.
Our long-term value and our permanent life insurance product is second to none. We’re a low-cost producer in the industry. So, you combine those two things and we — we think that there’s — there’s a home for advisers that create something for them that they can’t get anywhere else. And that’s ultimately how we compete in the marketplace.
And it’s this creating a proprietary system, if you will, that ultimately works with clients and we think we can demonstrate better outcomes over the long-term with our clients, better outcomes from an investment perspective, and better outcomes from a risk perspective, and certainly, when you integrate them, better outcomes.
And so, I think at the end of the day, that’s what’s causing the strong retention in our — in our career advisers, is because the independent channel can’t offer everything that we do.
RITHOLTZ: So, life insurance sales people have gotten a bad rep in popular culture. Is that — is that deserve or unfair and what do you do to try and reduce that?
SCHLIFSKE: I think it’s totally unfair. I think — I think the bad rep is because nobody wants to buy life insurance, right? It’s the ultimate self-sacrifice. It’s giving up money today as a policy that I’ll never see. It will go to my loved one someday when I die. Hopefully, many, many, many, many, many years from now.
But ultimately, there’s — life insurance is a self-sacrificing instrument that nobody really wants to deal with. And you layer on that, nobody wants to talk about their own mortality. And so, I think that’s why the rep is unfair. I don’t think it’s because of the product itself.
Whether you’re talking about Northwestern Mutual or almost any of our competitors, the persistency in their product lines is substantial. People keep life insurance for a very, very, very long time. And the reason they do, it’s because it has a positive impact on their lives whether it’s at Northwestern Mutual or at any other major carriers, those products that we’re selling, ultimately, have value that people see decades from now.
And so, I think — and by the way, I don’t think you can be truly financially secure without life insurance. It has — it benefits your throughout your lifecycle as a young adult when you’re taking care of your family as you near retirement in terms of the optionality it gives you. And then ultimately, at the end of your life, with the legacy, either for charity or for your loved ones.
And so, this — and so I think it is a bad rep. But I think it’s one that the industry’s always dealt with and we’re proud to talk about it because we know that when clients buy our products, they keep them and I think that’s a much better proof point than sort of this rep about life insurance salesmen that continues to go around and around and around.
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RITHOLTZ: Interesting. So, you mentioned managing risk over the long haul. You’re in the business as CEO of managing risks for the company, what keeps you up at night?
SCHLIFSKE: Well, I think the biggest thing that keeps me up at night is some of the stuff from the external environment. If you look at our business model per se, obviously, we’re still in the midst of a transformation so we’ve got to execute well but the nuts and bolts of our operation do not make me nervous.
In fact, one of the things we like to talk about is las February, when COVID was on the horizon, everybody was freaking out. We were very, very calm about it because we had done all the scenario planning for both the pandemic and the stock market crash with low interest rates well in advance of last February and March.
It’s not — by the way, it’s not because we knew that was coming this past year, it’s because that’s what we do to make sure that we’re always in operations for decades to come. And so, I don’t really lose sleep over the nuts and bolts of our operation.
Where I get nervous is about a lot of the things going on from the federal government perspective, I think were in the midst of one of the biggest experiments we’ve ever seen in terms of government spending and modern monetary theory. I don’t think we actually know how this experiment’s going to end and I think that’s something that causes me to get out pause ph) and to be — another reason why we value financial strength so much.
By the way, we’re a AAA company, one of only two AAA companies in America that has a stable outlook and that financial strength is what gives me comfort in this sort of thing.
The other thing I would say that causes me to lose sleep a little bit is this notion of operating in a virtual world. Northwestern Mutual’s culture, and I hope you’ve heard this as I talked, and our mission is steeped in all of our employees. And yet we’ve hired thousands of people in 2020 who have never said — spend a day in the office seeing that culture firsthand.
And so, this virtual world that we’re in, I think has eaten away a little bit of that cultural piggy bank that we have and I can’t wait to get back — everybody back on campus and back in the offices and back to work, so that we can rebuild that culture overtime. I’m a little bit worried about that right now and that’s one of the things that we’re losing a little bit of sleepover.
But fortunately, I think with the vaccinations and everything, I think we’re closer and closer to the end of this. And ultimately, I think low rates are — continue to be a problem for us. We — we’re built to last. It’s not going to affect our company long term. But persistent low rates are very — it’s a very sort of slow pressure on life insurance companies.
And so, we have to be uber vigilant about expenses. We have to be Uber vigilant about where we place our bets. We have to be uber vigilant about execution because we don’t have a margin of error when rates are so low to make mistakes and waste money or go down the wrong thing.
So, those are the things that keep me up at night. And then, of course, the government you never know where regulation is going to go, where corporate taxes are going to go. Those are wildcards that we can’t control.
We’re lucky and that our industry is generally a bipartisan issue. We work with both sides of the aisle. And so, when there’s a new administration, we’ve got to build new relationships with the administration. But generally speaking, our relationships in Congress and both in the house and the Senate are strong but you never know what’s going to happen there and that’s the wild card, I think, that almost any business has to worry about.
So, generally speaking, I feel good about where we are. I’m not losing sleep at night. Being the strongest company in the industry helps, but you’ve just got to be uber vigilant about all these things that are going on because you just can’t make mistakes when rates are as low as they are.
RITHOLTZ: What about social unrest as a risk factor during last summer, during the black lives matter, protests. You were pretty vocal on social media. Tell us what motivated your voice and how it was received when within the company and within the industry?
SCHLIFSKE: Yes. So, I was particularly moved this summer by some of that. And the reason I was moved is as I’ve said, we’re very proud of our record around diversity and inclusion. But after the George Floyd killing and some of the social unrest we saw, I made a point to call about 20 or 25 of our black and African American leaders throughout our company, both in our home office in Milwaukee, but also in many of our network offices.
And I think that the biggest sort of impact I had was this notion of hope being constantly deferred. And it’s this notion — and not just at Northwestern Mutual but from a societal perspective. And so, this notion of as a black professional this country, you hope things are better. You hope you’re getting to a point of full of quality and things like that. And yet, those hopes get deferred because of some of what we saw.
And so, those conversations, combined with what we saw going on around the country, really had an impact on me in a in a way that I honestly didn’t think that they would. And so, I knew that there was a lot of work to do.
What I’m proud of in terms of the way Northwestern Mutual approached is that we didn’t just issue press releases and we didn’t just donate money to this cause or that cause. Those are easy things. I’m not saying they’re bad things, but they’re easy. But what I’m really proud of is the hard work that we did.
So, we’re formed a task force that I chair. We call it Sustained Action for Racial Equality and the — I think the two key words in that are sustained action. We decided not to just do something that sort of met this summer unrest going on, but something that we could be proud of 5, 10, 15 years from now and we have a strategic roadmap, we’re investing in our communities, we’re investing in our culture, we’re investing in financial literacy for African-Americans and blacks, and we’re investing in the professional development of blacks and African Americans, not just at our company but in our communities.
And I think that kind of work is what I’m proud of. Because ultimately, and I tell the story in sort of a fast way. But you could approach diversity and inclusion with your left brain or your right brain. If your — let’s see. Your left brain is the analytical side, America is becoming more diverse, OK?
The notion that you can be a thriving relevant company, just catering to white Americans is crazy from a — just a purely objective perspective. SO, regardless of your feelings on this, there’s a strong business case to be made for diversity inclusion. But from the right — the right side of your brain, the more empathetic and emotional side, as I say, it’s the right thing to do.
We have a mission to make people more financially secure. That mission doesn’t include labels like white or black or Hispanic or male or female. And so, we — this this notion of doing the right thing for people who feel like their hope has been deferred too long fits right into the mission of this company and there’s no way we can’t be just as good as that — at as we are — as it comes to wealth management or risk products.
And so, this is a skill that we’re going to build. It’s a skill that Northwestern Mutual is going to be world-class act. And it’s something that I’m proud that started. It’s too bad it had to start because of killing and social unrest. But maybe that’s one of the bright spots in this that ultimately is going to lead to something that’s much bigger and better than anything that was going on before.
RITHOLTZ: Really — really interesting. A couple of years ago, you guys built a brand-new headquarters. Gee, it’s about five years ago. I know there was an element of sustainability in that new HQ. Tell us about Northwestern Mutual’s sustainability efforts?
SCHLIFSKE: Well, look — you can’t be 160 plus years old and not care about the environment, OK? I mean, it’s this — we want to be around for another 160 years and our sort of ecological sensitivities predate climate change and free date all the current things that are going on because we ultimately want to conserve things and we want to conserve things because that’s what great companies do and we don’t want to be seen as wasting any resource, especially natural resources.
So, the building is a proof point around, I think, two things. One is the ability to create a building that can be green, that can create a wonderful work environment, but at the same time, be at the forefront of all the efforts around energy conservation and so on and that in this building is and I can get into details around the Windows and the cooling and all that stuff.
But ultimately, it is a very beautiful, sustainable, structure that has a great work environment as part of it. But the other thing that’s interesting and this isn’t right to your question, but it ties in your previous question is, when we built that building, we committed to the city that we would have a large portion of the work done by minority contractors and that’s another form of sustainability that doesn’t necessarily tie right to the — to our climate or our ecological resources.
But by using minority contractors on a — half billion dollar building, we were able to create sustainability for them. They were — they were building skills, they were building financial resources, they were building a resume, a pedigree around this kind of really important work.
And so, I think the sustainability of that building isn’t just from an ecological perspective, but also from what we did as it relates to minority contractors and their ability now to go forward.
And as you’ve seen other construction in Milwaukee develop, our new Fiserv Forum where the Bucks play, other major office buildings, those construction projects are now learning from what we did in employing the same, both sustainability issues and the same minority contractor issues. And it’s just — you could see the ripple effects of that and it’s — it’s why I’m very, very proud of that building.
Now, our employees will tell you they love it because it’s great work environment. But I’m proud of it not just because of that but because of sort of the catalyst that became for all the things that we’re talking about today.
RITHOLTZ: So, the last big question I have is what are the looming large opportunities that you see when you look out 10 or 20 years for both Northwestern Mutual and the financial services industry?
SCHLIFSKE: Well, I think the — I think this is a growth industry. It’s just — it’s just amazing to repeat what I said. Most people have fractured centered to those lives from a financial perspective. They have too many things. They don’t know how to pull it together, they’re on their own, they’re pioneers in the sense that there’s no way — agreed-upon way to do it. They don’t know where they’re going financially. They don’t know how to get there. They need someone to help them and it’s — it’s unbelievable, the demand that’s out there.
Now, it’s latent demand. And by that, I mean people don’t necessarily know exactly how to get what they want. Henry Ford had that famous saying, if I ask people what they wanted, they would sit faster horses because they didn’t see the beauty — the value of a car and I think our industry faces that a little bit.
People want financial security. They want to make sense of the financial life. They want someone to pull it all together for them and make sense of it, but they don’t necessarily see the way to do that is through a trusted advisor planning and the integration of risk and investment. So, that’s our job.
Our job is to show people the way to get to financial security. But people are underinsured, people don’t not a save for retirement, people don’t know how to take care of themselves financially, and it — that is — the financial literacy in this country is, I would say, below average for where it should and could be.
And so, I think the opportunity for our company and for others like us is absolutely unbounded. I mean, I really believe we’re a growth industry. Now, we’re going to grow it single digits, as I’ve said. We’re not going to be the 20% year-over-year thing because this is hard work.
You’ve got engaged clients one at a time. You’ve got to meet with them and do the planning, the rigorous planning, that they need and show them the way forward.
But I — as I see more and more companies shift away from sort of this product-oriented sell where I just want to sell a product and move on, to forming these lifetime relationships with clients, and get them to have the outcomes they want. Not the products they want but the outcomes they want, I think our industry is going to continue to shine.
And so, I — I am actually quite optimistic about our future. I’m 62 years old. We have a mandatory retirement policy here at 65, so I’ve got three years left with this company and it — I feel melancholy about that because I think our brightest days are ahead of us. I just think there’s so much opportunity in this country to help people become more financially secure. And it’s — it’s very exciting.
And then when you overlay how we’re using technology to improve the customer experience, to make it more — to make it frictionless, more seamless, better for our clients, I think — I think this is — it’s a bright future.
So, as this company does both perform and transform at the same time, I think we are just having that — one of the brightest futures that we’ve ever had as a company and I’m really proud that we can deliver performance in the — here and now, but at the same time, build out this customer experience platform that’s going to ensure relevance for years and years and years to come.
RITHOLTZ: So, here’s an unanticipated question and a little bit of a curveball. I didn’t realize Northwestern Mutual had a mandatory 65-year retirement age. Have you even begun thinking about what you’re going to do in retirement or maybe that’s the wrong word, post Northwestern Mutual?
SCHLIFSKE: Well, I haven’t really started thinking about it, to be honest with you. I’ve still got a lot to do here and I’m really excited about what I want to do and it’s a full-time job.
In my heart, I think I’d like to teach after Northwestern Mutual. But I haven’t put much thought into it beyond that. But some sort of graduate business school environment where I could talk about all that I’ve learned and share it with people would be really fulfilling and I think I get much more sort of joy out of that than a — than a second gig somewhere in corporate America, anything like that.
So, but I — as I’ve said, I’ve got plenty of time. I mean, Joe Biden and I are going to end our terms at about the same time. I’m sure he’s not thinking about retirement and neither am I. I’ve got a lot to do here. We’ve got a great team and I really want to focus on delivering in the here and now.
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RITHOLTZ: Great answer. Let’s jump to our favorite questions that we ask all of our guests starting with what are you streaming these days? Tell us what’s keeping you entertained during this work-from-home era, either Netflix or Amazon Prime or whatever podcast or audio you might be listening to. What’s keeping you busy these days?
SCHLIFSKE: Well, I would say I would say that from a streaming perspective, except for “The Crown” my wife and I don’t do much of that stuff. I — when I am winding down, I’m much more about reading books than I am about to me but I will say we got sort of addicted to the series “The Crown” and love it.
My mother’s English. I went to English — I went to England every summer to visit my grandmother. So, I’m a little bit of an Anglophile and that’s — that series really resonated with me.
But to be honest with you, I’m much more interested in reading books when I have some free time. I think that quiet really appeals to me. And so, that’s about — that’s about it from a streaming perspective.
RITHOLTZ: Well, we’ll get to books in a moment. Let’s talk about your mentors who helped to shape your career.
I’ve been blessed with a lot of mentors. I think probably, there’s two — rather than name names, I would say two things, really, I value in terms of the mentorship that I got as I — as my career was developing.
The first thing is, I mentioned early on that Northwestern Mutual does a lot of leverage buyouts. And we continue to be very active in that part of the capital markets as a company. But back when I was making those investments, the opportunity to either sit on a board that we — of a company that we’re an owner of or at least be part of a board meeting when I was in a more junior role and see all those CEOs in action and how they rank companies, and it wasn’t just financial services it was aluminum die casting and retail products and consumer products and things like, that that ability to see different industries confront similar problems, I think, was really helpful.
And then, my board — I’ve been a CEO for now going on 11 years. Before that, I was very involved with our board. And what I would say is that our board — my board has been unbelievable in mentoring me. I can’t tell you how many times, when I was a junior executive making presentations to our board where a board member would take me aside after a board dinner and sit down with me for 15 or 20 or 30 minutes and tell me what I did right and tell me what I did wrong and tell me where my style got out of hand and things like that.
And I — I think, a lot of times, people sort of say their board’s been valuable, but I really mean it. The mentorship that I’ve gotten and sort of the advice that I’ve gotten, not necessarily about strategic goals but more around style and relating to people and engaging with people, I think those — those two things have really had the biggest impact on my sort of development as an executive and stuff that I’m very appreciative of.
RITHOLTZ: Really, really interesting. You mentioned books. Let’s talk about some of your favorites. What — what are you reading right now and what are some of your all-time most beloved books?
SCHLIFSKE: Well, I am a big fan of history books. So, early in my career, people would give me books like “Good to Great” and stuff like that and I’ve read them and I think they’re good and I’m not complaining about. But I found that I learn much more from reading about actual history and how people dealt with it.
And I — and I tend to move from American history, the European history and I just have a huge interest in both of those. Right now, I’m reading this really — someone recommended this book. It’s called “Oliver Wiswell” and it’s — I can’t — I think it was published in 1947. It’s the one exception my rule because it’s a fiction book and its historical fiction about the Revolutionary War, told from the perspective of loyalists, so people fighting against colonists and the militia and George Washington. And it’s really interesting to see it from that point of view.
But I just finished that book and my wife and I just celebrated our wedding anniversary today, as a matter fact, and she gave me this book on Sunday. She jumped the gun a little bit and it’s called “Lincoln Mentors” and it’s by a guy named Michael Gerhardt and it’s really about all the people in Lincoln’s life that influenced his policy.
And I’m on about, I don’t know, page a hundred, I just started it. But it’s — it’s really fascinating to see how the early people in his career, Henry Clay is the one I’m reading about now and how influential they were in his sort of development as a leader.
And so, I’d recommend both those books. The one’s out of print. this book by Michael Gerhardt is — I think it’s relatively new. And it’s so far so good. So, that’s what I’m reading right now.
RITHOLTZ: Very interesting. What sort of advice would you give a recent college grad who was interested in a career in either insurance or finance or both?
SCHLIFSKE: I — the advice I got when I was 22 is the advice I followed that worked for me. And so, I always like to share it with other people. And one of my neighbors, when I was just getting out of college said, the secret — and he worked at a bank, a fairly senior guide, a local bank in Milwaukee and he said if you work harder than anyone else between the ages of 25 and 35 and never stopped developing additional skills, so you’re always learning, you’ll set yourself up for a great career.
And I’ve tried to follow that. Obviously, I’m well beyond 35 now but in my 20s and 30s, when you’re young and you have bottomless energy, there’s no reason not to work harder than everybody else. And I did that and I think that was the foundation for the career.
And then as we talked about just reading books or finding other ways to constantly be learning, think about how Northwestern mutual in 34 years, my career there has changed. It’s dramatic how we’ve evolved and changed and transformed ourselves and you couldn’t do that if you weren’t reading and learning and observing and being curious.
And so, I think — I think those two things. Working hard and never stop being curious, never stop looking at other industries or people for skillsets or ideas. I think it’s really ultimately a great way to build a career regardless of whether it’s an insurance and finance or probably anywhere else.
RITHOLTZ: Quite interesting. And our final question, what do you know about the world of insurance and corporate leadership that you wish you knew when you began your career 34 or so years ago?
SCHLIFSKE: When I started in Northwestern Mutual, as I mentioned, I worked in the investment side. I couldn’t care less about life insurance. I just love being a portfolio manager, investing in companies, watching them grow, etc. etc. I wish I’d known what a great industry this is back then.
And maybe this sounds a little self-serving, but our industry is vibrant, it’s growing, it’s full of innovation, and I think sometimes people aren’t attracted to it because they I think it’s kind of boring and old and stodgy and it’s really not bad. And I wish I’d known more about that. I probably would have paid more attention to things going on around me rather than just hunkering down and doing the investment stuff.
And from a leadership perspective, I’m still evolving there. But ultimately, what I really learned about leadership that I didn’t know back then is that it — you have to have both a keen intellect and mind, but you also have to have high emotional IQ, emotional quotient. And I — and I really — when I was younger, I felt, wow, if I had a good idea and I explained it, everyone will just buy into it and start working there.
And I totally underappreciated how much — how important it is to engage with people, not just on an intellectual level, but on emotional level so that there — so that they know that you care about them. They know that the reason you have this idea is not for selfish reasons, but it’s for the good the organization.
They believe that what you’re doing isn’t just for personal aggrandizement for the — but for the good of the organization. I don’t think I really appreciated that 15 or 20 years ago, maybe even 10 years ago I didn’t appreciate it. But as I — as I’ve been in this job longer, I — you just can’t underestimate the value of both of those things being integral to actually moving something forward.
RITHOLTZ: Thanks, John, for being so generous with your time.
We have been speaking with John Schlifske. He is the Chairman and Chief Executive Officer of Fortune 100 company Northwestern Mutual.
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