Annuities

4 Strategies for Rising Interest Rates (That You Might Have Forgotten)


Annuities

Fortunately or unfortunately, depending on your point of view, we haven’t had to worry about rising interest rates for nearly a decade. Monetary policy, including quantitative easing, forced interest rates to near zero for a period of time. Clients benefited from the falling rates through capital gains growth that historically has not been a large part of bond returns.

With today’s rising interest rates, financial professionals need to offer strategies that many clients haven’t thought of for several years. Some will seem foreign to clients, as well as financial professionals, due to the time lag since they have been last deployed.

  1. We can’t chase yield. In my opinion, this has always been a staple of good, quality advice. However, we tend to chase the highest rates in any vehicle. Pressure on adhering to best interest standards makes us think that the highest interest rate is only the right thing to do. I think we should make sure there is balance with long-term stability of returns, rather than simply chasing high returns. Look to build a more consistent portfolio instead of just finding yield for a portion of the portfolio.
  1. Laddering continues to make sense. Like all good professionals, we tend to tweak what worked for us until it no longer looks like the thing that was successful. Over the past decade, we have forgotten how to take advantage of rising interest rates. We’ve changed how we position interest-driven products as rates fell quickly after the financial crisis. By laddering your interest-driven vehicles, your clients eventually have all their funds at longer term duration, which should bear a better interest rate in normal yield curve scenarios, but with liquidity staggered throughout the portfolio. We find this is a good strategy for all rate environments, but we tend to get away from it at interest rate peaks. 
  1. The purpose of the asset must be defined. Many clients tell their financial advisor they want growth with the appropriate level of risk. And, we tend to oblige them with “custom designed” portfolios from a third-party money manager. Instead, let’s change the conversation to “What do you want this money to do for you?” This question has the potential to lead to a more open discussion around long-term planning. If the assets are for retirement, let’s position them accordingly, using strategies that make sense for protecting the longevity of the portfolio. Income is the new outcome which requires more complex analysis as opposed to the highest current interest rate.
  1. Adopt to new product development made for this environment. New designs tie returns to a variable interest rate benchmark. As that benchmark interest rate increases, the client’s rate increases the following year. Many will find a three or five-year duration long; however, using laddering strategies can be beneficial in mitigating this risk.

We face a lot of challenges as the baby boomer generation continues to leave the workforce toward retirement. If not handled correctly, a rapidly rising interest rate environment makes for a potential portfolio burden that many clients are not seeing clearly. Take time to review the client’s intentions and plan for a rising rate environment over the next several years. 

Winning Strategy

Evaluate your bond holdings and plan for a rising rate environment. Your clients are unlikely to see the risks ahead due to recent monetary policy. Put your clients in a position to win.

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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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

Retirement Interest Rates Winning Strategies Capital Gains

Income, Income, Income


Annuities

As I write this, I’m traveling back from an industry meeting that my company sponsors. Being a numbers guy, I always enjoy hearing how the year unfolded, best practices in technology, and where sales increased and to what degree.

However, one of the disturbing trends that I noticed is our industry’s lack of focus on the best benefit of annuities: income.

In 2017, the industry lost $30 billion in sales that involved income, according to LIMRA. That trend continued in 2018. Economic conditions are the most likely reason for the continued shift. After all, clients have looked for safer places to place their retirement savings with the recent volatility in the fourth quarter of 2018. Basically, it’s been easy to sell annuities without the complexity of an income rider or loss of control due to the use of SPIAs or DIAs.

We tend to sell what clients want, not what they need. Ultimately, we have to work in conjunction with our clients’ goals but, too often, it feels like we may not be hitting the true need when we complete a transaction that doesn’t involve an income discussion.

Asset protection is an important function in today’s market conditions. Don’t get me wrong … annuities provide value to many portfolios with interest rates increasing, market fluctuations, and tax-deferred growth on nonqualified assets.

However, the biggest lift that annuities provide is the opportunity for lifetime income. Longevity affects so many other risks during retirement. The ability to shift this single risk to an insurer greatly enhances the probability of success in retirement.

Sequence-of-return risk remains a variable that no one can predict. The timing of a correction – in a modest or full bear market – can make as much as a 13-year difference in how long a client’s assets last. Without guaranteed income in place, an ill-timed downturn may affect the lifestyles of Americans who are depending on systematic withdrawals. Strategies that maximize Social Security and guaranteed income options can provide stress relief on the portfolio.

At the end of the day, failure of a portfolio with guaranteed income is not catastrophic. Portfolios without guaranteed income will be force into a different lifestyle.

Winning Strategy

With guaranteed income, failure is not catastrophic. Change your focus and talk to your clients about holistic income planning.

Winning Strategies Podcast

Craving More?

Catch the latest insights from Mike McGlothlin and his guests on his podcast, Winning Strategies.

Venture over to listen to breakdowns of topics discussed here and webinar deep-dives that you won't hear anywhere else!

Listen 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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

Retirement Income Income Planning Winning Strategies

Stop Saying, “I Don’t Have Time”


Annuities

I’ve traveled over 40 weeks this year, visiting our advisors and speaking at conferences. As I sit in the Atlanta airport on a layover, I see people playing video games and watching videos. By their reactions of smiling and laughing, what they’re watching isn’t likely educational or business-related.

But, these same people will likely complain to their co-workers about not having enough time to get things done. If you want to boost your productivity, you have to evaluate your time management skills.

No Time Wasted

When I was a student manager, in a typical two to three-hour basketball practice, there were no wasted minutes. Coach Knight mapped out the entire practice, drill after drill. He set the tone for each session by addressing the team in the locker room and telling them what they’d be focused on. He might be paying attention to the angle of the cuts or the position of screens. Each day was unique based on the current state of the team’s development.

Think about mapping your day in a similar fashion. Time blocking can be an effective tool to create an environment of focus. I color code my calendar to make sure I’m paying attention to all the things I need to do in order to run a business. Time is devoted to sales skill development, advisor and key account interaction and internal meetings, among other required activities.

To build a successful business, you must focus your energy. Every part of your business needs your undivided attention … but not all at once.

Additionally, you need time to relax and be with family. Unfortunately, for busy professionals, that time gets lost and ultimately needs to be scheduled – just like a client appointment. Sometimes that feels like a stigma, but the fact you are devoting time for yourself and family is just as important as working in your business. And, I’m as guilty of that as anyone.

Plan Ahead

At the end of the day, you have the same amount of time as everyone else. Some people simply use their time more wisely, effectively and efficiently than others. Here’s what you can do to make the most of each minute:

  1. Plan your business goals for the year
  2. Break those down into monthly goals and activities
  3. Map out the weekly and daily behaviors you must do in order to execute your plan
  4. Once you identify those activities, schedule them

Winning Strategy

Focus your attention on revenue-generating activities. Schedule those things that are most impactful to reach your goals.

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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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

Time Management Retirement Winning Strategies

4 Facts and 4 Actions to Change Your Practice


Annuities

By now, you’ve heard that we’re seeing the largest shift in the workforce with 10,000 Americans retiring every day over the next decade (and longer). However, that number has been around for several years – since the first baby boomer reached retirement age. Hopefully, you’ve been changing the way you interact with clients for some time.

Income is the new outcome for those retiring. It’s no longer about saving and investing – it’s about making sure those assets last for the rest of our lives. More importantly, the shifts in our demographics should force us to rethink how we deliver value to our future clients.

The Facts

Below are some key changes in United States demographics that you should be considering: 1

  1. The number of Americans age 65 and older will more than double by 2060
  2. The older American population is becoming more diverse; the non-Hispanic white population will decrease 78.3 percent to 54.6 percent from 2014 to 2060
  3. Education levels are increasing, with 25 percent of the over age 65 population now having a bachelor’s degree or more
  4. A higher percentage of women are living alone later in life; 42 percent of women between ages 75-84 are living alone – this increases to 56 percent for age 85 and above

The Action

  1. The higher percentage of older Americans will add pressure to an already stretched entitlement and benefit system. We must recognize that our future state is unlikely to remain static as it will not be able to sustain itself indefinitely. Planning adjustments are prudent, especially for younger clients and beneficiaries.
  1. Our industry will have to adapt to cultural changes more than we have in the past. Those cultural differences will create new planning challenges as we see some cultures (and generations) lack the trust to care for loved ones, live in multi-family settings, and take pride in caring for the elderly themselves. Supporting the retiree plus those caregivers is a paradigm shift that we are just starting to feel.
  1. At the opposite end of the spectrum is the fact that more women are living alone. It’s less about living longer than their male counterparts. Instead, the divorce rate has climbed in conjunction with living longer. When you care for yourself, the need for long-term care will only escalate, regardless of males or females outliving their counterparts.
  1. Finally, our over age 65 population is getting smarter. Many of the baby boomers have attained advanced degrees. With technology, they have access to unlimited information via the internet and they know the right questions to ask in many situations. As a financial professional, your role should be more of guide as opposed to salesman. The currency of the future is education and information, not product sales. Our industry needs to rethink how we sell to this more educated group while delivering the value they need.

 

There is no doubt that the makeup of the United States is changing. We have to think about how our practices are going to adapt to the changing demographics. Otherwise, we will get left behind by wave. And, the size of the wave is enormous.

Winning Strategy

Think about what your business needs to look like in 10 years. Examine what the details are telling us and make a plan to serve the future of America.

Retirement Webinar

Craving More?

In 2019, retirement income planning will be more important than ever. Join us January 17 to explore the forces behind the trends that will shape and grow your business for the future.

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Learn More

1 Population Reference Bureau, Fact Sheet: Aging in the United States, January 2016: https://www.prb.org/aging-unitedstates-fact-sheet/

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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

 

Why You Should Transfer Risk to Transform Your Business


Annuities

A successful 2018 can come in the form of multiple opportunities. Some will happen fast, while others will require an investment of your time, money and energy. But, the latter are the opportunities that tend to transform your business and provide exponential growth. You need to be thinking about both – creating quick results while making strides for long-term growth. 

 

If you are going to make 2018 your best year ever, think about changing the way you talk with clients. We tend to think about performance, rates of return and fees. Those are important items, but the transfer of risk can be more important on several levels. 

 

Why would you want to retain risk without any larger return for doing so?

 

Help Clients Keep an Income

The answer is usually the cost of the insurance. So, many times, our clients choose to self-insure their retirement income through systematic withdrawals of assets under management. You need to help them understand the risks of longevity and the costs of not transferring their risks. 

 

Our research shows that most people, regardless of income and net worth, benefit from having 15 percent of their portfolio from guaranteed income sources. Those sources are Social Security, defined benefit plans, and privately purchased annuities. The ability to pool your life expectancy with other people creates a transfer of risk that is not available in any investment vehicle besides guaranteed income sources.  

 

Help Companies Keep Promises

As you meet with business owners, many will want to shift the risks of their aging pension plans to another source. There are trillions of dollars in pension plans across the United States that are no longer serving their corporations. The plans are not properly rewarding the people for extended service. The plans don’t help recruit better talent. And, they aren’t accruing additional benefits. It’s simply a liability for many CEOs today. 

 

Transferring a pension plan allows a company to free up resources that would normally be used for administrative work on an outdated plan. Due to tax reform, some companies spend idle dollars to sure up their plan. So, many are in a great position to transfer to an insurance carrier. While there is a one-year premium to shift this risk, the cost savings of administrating the plan typically outweigh the initial premium. 

 

Winning Strategy

Change your presentation to clients to shifting risks. They are surrounded by risks in today’s retirement planning market. Be different. Returns won’t matter if you can shift some of the income risk to an insurance carrier. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”