Annuities

Guaranteed Income and Success


Annuities

Over the past four and a half years, my firm has been working on a software tool to help Americans think and act differently in preparation for retirement. JourneyGuide  helps identify how a client will meet their spending needs on an after-tax, after-inflation basis. It’s fast, accurate, and it allows you to work with your client not just for your client. 

 

Important findings have been coming out of the software for some time. I find the most important aspect revolves around guaranteed income and the positive effects it has on the portfolio. 

 

Earlier this year, we released a study on Qualified Longevity Annuity Contracts (QLACs) which proves they improve the probability of success in retirement portfolios.1 After a QLAC was added, many of the scenarios we tested increased to more than 90 percent probability of having $1 in the portfolio at age 95. What surprised me the most was that the largest improvements were for younger ages (ages 55-60) and more conservative clients. We often think of the traditional income annuity buyer as being 65-plus. This study clearly shows that placing an annuity with younger ages is beneficial. 

 

Any Guaranteed Income is Good

However, it’s not just deferred (QLAC) or immediate income annuities that improve outcomes. The power of guaranteed income is demonstrated case after case. The ability to provide income that the client will always receive is a powerful story. Purchasing the income and allowing the rest of the portfolio to generate less accomplishes two things:

  • It takes pressure of the portfolio to sustain a high withdrawal strategy 
  • It allows the portfolio to be invested with a long-term focus instead of short-term gains for income

 

These findings work regardless of income now or income later. The ability to take pressure off the portfolio allows the client to invest longer term, which might provide additional tax relief in the form of long-term capital gains versus ordinary income. Guaranteed income can be found in Social Security, defined benefit income payments or commercially purchased annuities. Those are the only vehicles that support mortality credits and provide income for as long as the client lives. 

 

Winning Strategy

Go to www.journeyguideplanning.com and request your free demonstration of JourneyGuide. I think you will find the tool can change how your clients think and act in retirement. 

 

About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. You can get his latest book, “Winning Strategies: The New Rules of Retirement Planning,” on Amazon.

 

1Ash Brokerage, “QLACS Improve Probability of Retirement Success,” 2018: https://goo.gl/Vw9Htz

QLAC Qualified Longevity Annuity Contracts Guaranteed Income Retirement Planning Annuities

Why Fee-Only Isn’t Always the Best Interest


Annuities

Recently, several industry publications have looked at the distribution of fee-based products. These are annuity products with no commission. In theory, the design allows a fee-only planner to place products while adhering to their business model, charging an advisory fee for all assets under management. I caution advisors – and consumers alike – to be weary of the false promises around fee-only product development. 

 

While I remain a huge proponent of consumer value, the distribution of these products remains in its infancy, with many faults in the initial distribution strategies. Recently, we have seen firms that offer a subscription-like service for those fee-only planners. The pricing is based on the planner’s assets under management and provides access to a suite of annuities with no commission earned on the amount purchased. 

 

Two things are most concerning:

  • The structure. What’s not fully disclosed or understood is how much money the subscription firms are receiving from the carriers in order to have the products on their platform. Like any distributor, the firms focusing on those fee-only advisors earn an allowance based on the amount of the annuity purchased … similar to a commission. So these firms earn revenue twice – by charging the planners and taking a portion of the sales from the carriers. 

 

  • The impact on the end-client. The net client value is suspect, at best. We ran a quote for a fee-only product and compared it to a commissioned-based product. On a $100,000 single-premium immediate annuity for a 65-year-old male with a life-only payout, the increase in income was $21 per month. On a $500 monthly income that is a sizable increase, to be clear. However, net of the 1 percent fee that the advisor will charge, the client loses $748 annually.

 

Don’t misunderstand me. I think the value of guaranteed income is extremely important. However, clients must be aware that the net benefit must be an increase in their net income above fees and expenses. In many cases, it seems to be in the best interest of the client to take the annuity purchased out of a fee-only or assets-under-management model and purchase a fully commissionable product. The net growth in income would be higher versus sticking to a rigid, fee-only business model. 

 

Winning Strategy

Look at the value of both fee-based and commission-based product selections. Don’t be locked into your business model so much that it hurts your client. 

 

About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. You can get his latest book, “Winning Strategies: The New Rules of Retirement Planning,” on Amazon.

Fee-Only Annuities Retirement Planning

The Secret to Increasing Your Compensation


Annuities

Many of you may be uncomfortable talking about your compensation with clients. That’s fair. Up until now, you haven’t had to do that. But the market is shifting toward more transparency and commoditization. Consumers want more for less. 

 

If you want to simply remain relevant in this business, you have to add value. Beyond that, if you want to increase your compensation, you have to increase the number of people you serve. That’s the secret. 

 

Law of Compensation

In Bob Burg’s book, “The Go-Giver,” the Five Laws of Stratospheric Success are laid out through a story about a sales person who is focused on taking instead of giving. He expects people to buy from him because of his quota.

 

Too often, we think of driving our compensation through earning more from every client or transaction. That’s another way of taking vs. giving. Instead, you need to focus on how many people you can serve. The Law of Compensation states that your income is determined by how many people you serve and how well you serve them. So, let’s concentrate on increasing the number of people we serve. 

 

Access to More Clients

One way to uncover more prospective clients is to meet people in a larger group setting. You might immediately think of hosting seminars. However, seminars are expensive and time-consuming, and they don’t necessarily create influence or interest. 

 

We’ve been helping advisors find groups of prospective clients another way – through pension risk transfers. In these situations, you can not only provide assistance to a business, but you could also gain access to all the employees. Wouldn’t we all like to be introduced to hundreds of people at the request of their employer? You’re using the business’s influence to serve more people.

 

A typical transfer includes a period where employees may elect to take a lump sum and roll over their retirement savings. You can provide valuable information to help them make those decisions and win them as clients. By doing so, you have successfully followed the Law of Compensation: Your income is determined by how many people you serve and how well you serve them. 

 

Winning Strategy

Don’t concentrate on how much you earn by each transaction. Focus on how you can help more people. Increase your value proposition and the number of people you serve, and I’m confident you’ll see results.

 

About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. You can get his latest book, “Winning Strategies: The New Rules of Retirement Planning,” on Amazon.

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That Time Coach Knight Went Fishing at Practice


Annuities

Because I was a student manager for Indiana University’s basketball team, I’m often asked how practices were with Coach Bob Knight. As you can imagine, they were generally intense with little time wasted. But, many of them included invaluable life lessons for all involved. One such practice was during our Christmas break. Coach came out of his locker room with a fishing pole in hand. I automatically knew this practice was going to different. 

 

Coach spent 90 minutes talking about being aware of your surroundings for the best chance of success. He used the analogy of fly fishing in a river with a fast current. He moved around the basketball court, simulating how a fisherman might move. He said you have to be careful when stepping on slippery stones, as you need a steady frame to cast your line. And, you have to pay attention to the strength of the current, so your feet aren’t pulled out from under you. 

 

You have to gather all this information into your decision-making process as you fish. And, you have to practice. Coach would cast his line and land the bobber within 6 inches of his target. Every time. Years of repetition created muscle memory, so he was extremely accurate. 

 

Practice for Planners

Coach’s fishing analogy was true for basketball, and it’s also true for income planning in an investment portfolio. There are hundreds of risks associated with a retiree’s income plans, but longevity-related issues multiply the chances of running out of money. Each risk in longevity is its own stone covered by moss. The client can easily slip and get caught up in the current. After that, it’s hard to recover. The damage is already done. 

 

In planning, you have to constantly check the variables surrounding your clients, just as you would check for slippery rocks or pay attention to the speed of the current. You can reduce the impact of longevity by shifting your client’s risk. 

 

The cash flow pressure of a long-term care event can be mitigated with insurance or income riders that provide additional income. Annuities are the only vehicle that use mortality credits to boost income yield to the client, and income streams can be guaranteed through immediate or deferred income products. And, inflation protection can be reduced through riders on many annuities. 

 

Want to be as accurate as Coach Knight? You’ll need repetition. Make income planning a repeatable process in your practice, and you’ll be more efficient and effective with your clients. You’ll also improve retention and increase referrals. 

 

Winning Strategy

Navigate the planning process like a skilled fisherman. Eliminate or reduce as many slippery stones as possible. Watch your step so you don’t get caught up in the current. Shift the risks and make your client’s journey more predictable. 

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About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. You can get his latest book, “Winning Strategies: The New Rules of Retirement Planning,” on Amazon. 

Retirement Practice Management Financial Planning

Bringing Annuities to Light


Annuities

I recently attended a sales conference hosted by Allego, a training software company. The conference displayed best use cases for training but did so in light of the changing way people learn. As we attempt to bring more awareness to annuities in the financial planning process, I think it is really important to understand how our clients learn. 

 

Traditional brick and mortar business are rapidly declining, and our digital footprint is coming front and center. How we interact with prospective clients and clients is changing right before our eyes. Consider these stats from Forrester Research: 1

  • 68 percent of buyers want to research an idea online before they buy
  • 60 percent of buyers would rather get their initial information online instead of talking with a person
  • 62 percent of buyers say they decide on a vendor based on their digital image alone

 

Your prospective clients are more educated, have more resources and information at their fingertips, and have more choices of vendors than ever before. To remain relevant, you have to provide value upfront and more frequently than you did just 10 years ago. 

 

The learning curve in our industry is not steep; it’s more like a ramp. But, the longer a prospective client takes to engulf themselves in a topic, the longer the retention. That makes your sales cycle extremely long. But, education is positive for our industry. It’s always been a bedrock. It just needs to be delivered in a different medium. 

 

What’s Your Story?

Every financial planner can benefit from stepping back and thinking about how you deliver information to your clients. Before you dive into the digital world, take some time to clarify your message and your story.

 

The way your clients interpret your message can either be like holding several eight-pound bowling balls, or striking a cord that addresses their internal emotions. It’s not about us anymore. It’s about what we can deliver to them emotionally and philosophically. That’s what clients want to know. When you communicate in that perspective, you touch the hearts of many people, which can lead to new level of engagement. 

 

A new level of engagement is what will bring products to a new light. The change in perspective will allow the product to fit into the overall purpose of the financial plan, which is totally focused on the client. Take a few minutes to think about how you communicate. Are you talking the same way you did just a couple of years ago, or are you ahead of the curve in how prospective clients want to interact? If you want to learn more, check out my site, https://www.clarifyyourmessage.com/Michael-McGlothlin, and to see how I could help you market and grow your business.

 

Winning Strategy

Think about how your target market communicates and researches information. Match that behavior and you have a better chance of being the go-to financial planner for that group. 

Retirement Webinar

Craving More?

We're talking shop with Tim Ash! This webinar will be packed so register now and bring your notebook!

Register Now

 

About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. You can get his latest book, “Winning Strategies: The New Rules of Retirement Planning,” on Amazon. 

 

1Forrester, “B2B Buyers Mandate A New Charter For Marketing And Sales,” Jan. 10, 2017: https://www.forrester.com/report/B2B+Buyers+Mandate+A+New+Charter+For+Marketing+And+Sales/-/E-RES132705

Retirement Financial Planning Education Client Value