Observe. Seek Data. Share It.


Recently, I traveled to Philadelphia, Pennsylvania, where our firm hosted Thrive University with Curtis Cloke. It was a high-level training session for serious planners in the income planning marketplace. The attendees (myself included) gained a lot of valuable insights, several of which I realized are echoed by a book, “Misbehaving: The Making of Behavioral Economics,” by Richard H. Thaler. 

Nearly three decades ago, Thaler was a lone wolf talking about behavior economics and the effects of client behavior. Over the last 30 years, he’s gleaned a few key takeaways: 

  • ­The power of observation – “The first step to overturning conventional wisdom is to look at the world around you.”
  • ­The importance of collecting data – “To really convince yourself, much less others, we need to change the way we do things: we need data, and lots of it.”
  • ­The criticality of speaking your mind – Thaler brought about change by being prepared to speak up himself, but he also stresses the need for all of us to speak up.

What’s the takeaway for us as financial professionals? A few things. 

  1. Observe. Look around you and your clients. We are – and likely will remain – in an overall low-interest-rate environment. Today’s economy is drastically different than the late 1990s and early 2000s. We live in a more volatile market. The question in income planning is no longer, “How can we mitigate risk with asset allocation?” but instead, “How can we shift the risk through product allocation?” Client demographics continue to change around us and expectations have changed as well. 

  2. Seek data. We don’t know what we don’t know, so we always have to be willing to learn. Thrive University, for example, opened the eyes and minds of many of the attendees. One advisor said, “I need to go back and have a conversation with all my clients about this philosophy.” Curtis helped us remember the importance of nominal versus real returns, implied yield comparisons, fee drag and tax impact – components that make a strong income plan for life. 

  3. Share it. In the early stages of behavior economics, Thaler went against the grain. While the topic is growing, it’s important we help continue the message. The fact is, our clients do NOT act rationally. Because of irrational behavior, we must set bumpers in their financial plans to provide guidance and a level of safety in income. But, it’s important for all of us to look the two points above, recognize that we need to change our mindset, and, as an industry, change the way we deliver inflation-adjusted income to our clients.  


Bottom Line

By admitting that our clients need a different strategy and taking time to work on our business, not in it, we will change the security level of many Americans in their retirement.  Look around at the changes, seek answers with an open mind and change the level of security for many of your clients. 


Mike McGlothlin is the Executive Vice President of Annuities at Ash Brokerage. His strength is helping advisors become more efficient and effective in their businesses. He and his team provide income-planning solutions focused on longevity and tax efficiency, and they also assist advisors with entering defined-benefit termination planning and structured settlement markets. 

Have You Adopted the Forward Pass?


In football, the forward pass is a must by today’s standards. In fact, the highest producing NFL offenses are built around the ability to throw the ball around the field. But it wasn’t always that way. The game changed significantly in 1905 when the forward pass was approved for play … but not every team adopted the new rules immediately. 

In the early 1900s, football was pretty much a running game. Because of this, concussions and head injuries were very common. One year, 18 deaths occurred on the football field due to the severity of the game. To make football less violent and safer for college students, Teddy Roosevelt worked with school leaders to figure out new rules. Thus, the forward pass was instituted.

Unfortunately, not every school took to the forward pass quickly. Initially, if a player dropped a pass, it was a turnover, and if a pass was caught in the end zone, it was a touchback. If a pass didn’t go five yards, it resulted in a 15-yard penalty. Risks were high in being different.  

Saint Louis University’s Eddie Cochem instituted the forward pass into his offense in 1906, when most colleges continued to run the ball. They won their next game, 22-0. Pop Warner began to use the forward pass at a small college, Carlisle Indian Industrial School, in 1907. His teams outscored their competition 148-11 over the first five games of the season. Then, tiny Carlisle took on the University of Pennsylvania football team using the forward pass. Pop Warner’s team beat the mighty school in front of 22,800 fans by a score of 26-6. While that score is decisive, the yardage gain was even more lopsided. Carlisle outgained Penn 402 to 76 yards that afternoon.  

The new wave of offense was noticed by bigger eastern schools, and the forward pass began to gain traction. 

What’s my point in all this? We need to look toward the innovators within our industry. Using the same withdrawal strategies for our clients will no longer work in economic environments where bond prices and rates are unpredictable, life expectancies are increasing rapidly, and volatility creates anxiety. It’s just like running the football into the middle of the line and getting crushed. 

We have to look for new ways to make sure our clients are safe. No rule, legislation or single product can solve the concerns and multiple risks of so many Americans. Instead, financial professionals have to use combinations of products and tools to meet the income demands of retirees. If your client’s retirement income isn't safe, it’s time to change the game and look for new ways to play the game. 

Bottom Line: You can’t win the game running the same old offense that won in the past. Times have changed, economics have changed, and client attitudes have changed. Innovate and look for new ways to help your clients win in retirement. 


Mike McGlothlin is the Executive Vice President of Annuities at Ash Brokerage. His strength is helping advisors become more efficient and effective in their businesses. He and his team provide income-planning solutions focused on longevity and tax efficiency, and they also assist advisors with entering defined-benefit termination planning and structured settlement markets. 


What’s Your Distribution Rate When It Really Matters?


Let’s face it. Many of us have short attention spans. Whether it’s looking at our phones or tablets, quickly changing conversations with multiple people, or simply not being able to focus on a task, technology and social pressures have changed the way we interact with people and weakened our ability to pay attention for long periods of time. 

I feel we tend to keep a shorter vision on retirement planning as well. And, this could be dangerous for our clients.  

We talk a lot about life expectancies increasing and determining the proper payout for a client’s assets. Unfortunately, I see many people making plans based upon life expectancies of newborns. We need to concentrate and look at the expanding life expectancies of 65-year-olds and the complications that those extra years bring. 

Rising income needs due to inflationary pressures are greatest in retirement because of health care and housing issues. Longer retirements cannot withstand level income for long periods of time, especially with a volatile base of assets. As planners, we need to consider the impacts of our clients’  income sources in 20 years, not just in that initial five- to 10-year period. 

Over the years, the 4 percent distribution rule has been kicked around by many industry professionals and academics. Again, I don’t think the distribution percentage at age 65 is as important as what the percentage will be in 15 years. Too often, we set a withdrawal rate based upon today’s factors. And, we don’t mitigate the other risks in retirement. Eventually, due to inflation primarily, the withdrawals must invade principal. This starts a downward spiral of asset depletion, resulting in the client running out of money. 

We have to challenge our thinking about income distribution and asset accumulation so that both counterbalance one another. Today, we use one to fund the other. But, they need to complement each other throughout a client’s lifetime.  

If you’re using a simple withdrawal strategy for income, chances are the withdrawal rate will escalate in the client’s late 70s and 80s. This adds pressure to the remaining portfolio and might eliminate options. Instead, think about designing a guaranteed, inflation-adjusted floor of income and creating liquidity with funds that don't supply income. At the same, complement the plan with risk mitigation products to increase the probability for success.  

Bottom Line: You’ve heard the saying “It’s not what you earn; it’s what you keep that matters.” Well, it’s not the distribution rate when you start that matters; it’s the rate in the second half of retirement that makes retirement sustainable.  

Mike McGlothlin is the Executive Vice President of Annuities at Ash Brokerage. His strength is helping advisors become more efficient and effective in their businesses. He and his team provide income-planning solutions focused on longevity and tax efficiency, and they also assist advisors with entering defined-benefit termination planning and structured settlement markets. 

Now is the Best Time to Sell Fixed Annuities!


Many may question my sanity when they read the title of this blog. You might think that you can’t put your client in a fixed account during some of the lowest interest rates in the U.S. history. However, in sales, it is all relative to the current situation, environment and client attitude. 

Try positioning the current fixed sale in relation to the impact the current interest rate can have on your client’s funds in terms of year. One of our top sales professionals challenges his advisors to change their mindset and look at ways to impact their clients – he uses the Rule of 72. This rule, discovered by Einstein, says you can take the number 72 divided by your interest rate and you’ll have the number of years it will take to double your client’s money. It’s an easy tool to show clients how you can impact their savings. 

Let’s assume that we were selling fixed annuities in the mid-2000s, when CD rates hovered around 4 percent. Using the Rule of 72, we know it would have taken 18 years for your clients to double their money (ignoring taxes and inflation). During the same time, fixed annuities were selling for around 5 percent. That would have allowed you to shorten their money-doubling time to 14.4 years.  

In today’s rate environment, five-year CDs are paying clients around 1 percent, while a typical fixed annuity is paying around 2.25 percent.* You might not think those rates are attractive, but change your attitude by focusing on time, not rates. It would take 72 years for clients to double their money with a 1 percent CD. For clients with a fixed annuity at 2.25 percent, you reduce that cycle down to 32 years. A 40-year difference is far more significant than the four-year difference you would have made in the clients’ situation in the mid-2000s.  

Re-examine how you think about fixed annuities in the low-rate environment. Focus on the client and how fixed annuities can positively impact their financial position relative to other solutions. When you look at the impact you can deliver, your clients will appreciate the conversation.  

The Bottom Line: We need to change how we look at the fixed annuity market. We can have more impact selling a fixed annuity today than we did when an annuity earned 5 percent interest. 


*Source: as of Dec. 15, 2014.


Fixed Annuities

Crediting methods: Options for filling your clients’ buckets


A lot of advisors think of crediting methods like buckets. Most fixed indexed annuities use a one-year crediting method, so your client gets whatever’s in the bucket at the end of the year. The bucket is dumped out annually (reset) and everything starts over.

If you have a three-year crediting method, the bucket isn’t emptied until the third year. So, if the market has a weak first year (little in the bucket or leaks), but it recovers in the second and third (takes on lots of water), your client could come out ahead. They would have a lot more water in the bucket at the end of the third year than at the end of the first. 

However, let’s say the opposite happens – the market has a good first year (lots of water) but stumbles in the second and third (a few leaks in the bucket). Your client could lose out on those returns from the first year and get less than they would have with the one-year option.  

Despite the potential for smaller returns, the multi-year crediting option offers several advantages. The pricing on these annuities is usually lower, with higher caps, lower spreads and higher participation rates. 

Remember, it’s possible to have a negative return with any crediting method, and we can’t predict market performance. Some clients and advisors simply can’t wait three whole years to see their results – others wouldn’t mind waiting for more. 

The Bottom Line: If you have a client who’s a little more patient and wants more upside potential, look at longer crediting options. It may take time, but their bucket could be filled to the brim.  


Crediting returns