Annuities

Uneducated Opinions


Annuities

As a freshman at Indiana University, I seemed to be in a fog during my first week of basketball practice.

The whole experience of Assembly Hall, Coach Knight and some of the best players in the country was a lot to take in as a student manager. Every year, Coach made a point of saying something to each of the new managers. Unannounced, he came up to me, made a somewhat indirect introduction and said something I’ll never forget:

“Son, after you graduate, you are going to hear from a lot of people who think they can coach. I would encourage you not to pay attention to the uneducated opinions and pay attention to how we play basketball at Indiana.”

Sure enough, there were plenty of people who would offer their thoughts once they found out I was a student manager ― how they would have used Steve Alford more effectively, or how they’d have gotten Keith Smart the ball more often.

What surprises me is how often this conversation occurs in business as well.

In April, I read an article from Ken Fisher in USA Today titled “Avoid Complicated Annuities.” I have several concerns about the article ― not only because of the misinformation it contains but because USA Today’s distribution means a wide audience is receiving poor advice. At the end of the day, Mr. Fisher’s article is nothing more than an opinion piece on annuities, and it appears to lack the proper factual perspective on what annuities can do for many retirees.

First, the article quotes Mr. Fisher as saying, “Whatever you need, annuities are probably wrong.” That simply isn’t accurate. The evidence behind study after study continues to show the benefits of annuities. Ash has a study that shows how the benefits of guaranteed income ― using a QLAC for deferred income ― improves the probability of success in 48 of 48 scenarios. If your goal is to mitigate the risks of longevity and running out of money, annuities are probably right in most situations.

Second, Mr. Fisher indicates low-cost stock and bond funds held directly are better in the long term. I don’t completely disagree. I’m an equity believer and find that equities put clients in a great position to outpace inflation. Unfortunately, Mr. Fisher’s statement lacks the backdrop of the changing demographics in America.

The typical trailing baby boomer (ages 50–59) has far less in savings than the generation before. I am deeply concerned that this will plague our industry for the next two decades or more. Today’s planners are expected to create more income, for longer periods of time, with the least amount of assets. Using annuities can reduce, or in many cases eliminate, the impacts of longevity on a portfolio. Therefore, understanding the proper placement of annuities within a portfolio helps alleviate some of the pressures felt by retirees. Annuities offer an alternative to a systematic withdrawal strategy using stock and bond funds. We have to help retirees think and act differently than they originally thought they would in retirement.

Finally, it’s difficult to know when our last days will be. You shouldn’t be confidently willing to bet on longevity. Think about insuring risk versus betting on it. You do it for a home fire or auto accident. Why not use that same philosophy in your retirement income portfolio? Look for smaller chances to create big impacts. There is a wide gap between a journalist and a columnist. The difference is fact and opinion. Everyone is entitled to their opinion ― but we can use research to show the value of deferred annuities and tax-efficient income from annuities. So don’t always believe what you hear from someone online or posing as a journalist. To get the facts on annuities and other retirement solutions, speak to one of our Retirement Income Consultants.

Winning Strategy: Use facts to make educated recommendations to your clients on retirement income planning.

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.

Information and Interpretation


Annuities

In the financial industry, we talk all the time about improving overall client experience. Inevitably, this conversation turns to technology and how to make it easier to purchase our products. Yet adoption is often slow for several reasons, the least of which is the inability to shorten the process, even with electronic order entry.

But there’s one thing that isn’t being discussed enough: the ability of the consumer to level the playing field through technology.

I’m not talking about the customer’s ability to go online and complete their own financial plan or research us as financial planners. The real equalization of the client-advisor relationship is the ability to obtain limitless information online. Returns, allocations, expenses, investment styles ― all of these are readily available to consumers before the first conversation takes place with the advisor.

So how do advisors add value in the information age? Simple. Financial planners interpret the mound of information. We bring value to the customer by making sense of all the data. It’s critical that the financial community recognizes this change in our society and adapts to the ways people access information.

Recently, I talked with Gabrielle Bosché on my Winning Strategies podcast. Gabrielle is an expert on millennials and spoke about how millennials were taught to access information in school. Their entire education centered around standardized testing, learning through video and interaction, and how to find information. Our clients will eventually become ― or already are ― the same way. With technology, clients can access any piece of information in seconds, yet we continue to see behavioral tendencies that prevent most Americans from having a successful retirement. The reason is a lack of good interpretation.

Interpreting information is a major shift in our roles. For years, we believed that by providing information, we make ourselves different. But our value isn’t in education, information or our ability to research. Instead, our value to customers lies in our ability to distill vast amounts of information and data into a meaningful conversation. We must weed through the minutiae and prioritize the relevant information. Our value manifests itself when we help change a client’s behavior to make informed decisions in a way that improves the probability of retirement success.

It’s easy to get information. It takes talent to change behavior. The bridge is the ability to interpret. When we show our clients the way to retirement success and position ourselves as a guide, that’s when we make meaningful changes in our clients’ retirement.

Winning Strategy: Think about how well you interpret the information your client already has access to through technology. Interpretation will be the new differentiation.

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.

Effective Change


Annuities

Habits are hard to break.

It’s even harder to make positive changes that create good habits. We’ve all said we wanted to set a new goal ― exercise more, eat better, read more, get to work earlier or spend more time with the family. I’ve failed many times at all of the above.

The secret behind effective change is repetition and focusing on a goal.

Many people who change do so with a mental picture of what the goal looks like. Instead of setting a goal to lose weight, it’s proven to be more effective to set goals such as running a 5K, achieving a thinner waistline or building stamina to play with the kids. It’s important to know where you are headed and the reward that will be there ― that keeps a person motivated, especially through the hard times.

Real change happens when we make incremental changes in our daily habits. Some people may be able to go cold turkey or jump in with both feet. If you’ve created permanent change with an all-or-nothing approach, congratulations! But, statistically, chances are those changes won’t stick. Breaking old habits and creating new, sustainable ones takes time and commitment.

The same goes for changing your financial services practice to an income planning focus.

For years, all of us in the financial services industry have been told to build a business with reoccurring revenue. The path of least resistance has mostly focused on a wealth management strategy ― accumulating assets under management and creating a steady flow of revenue from a percentage of those assets.

The problem is that strategy doesn’t allow for shifting demographics. We have to create more income, for a longer period of time, with less assets, than ever before.

It is a unique challenge, and it’s relatively new. Past generations had a stronger pension system and started taking Social Security sooner. The markets didn’t fluctuate based on sound bites circulated on the internet.

Retirement income planning is changing before our eyes. Nearly $600 billion worth of pension assets is currently frozen in the U.S. pension system, and current reports predict that Social Security will go bankrupt in 2035 without substantial change. Markets will continue to be affected by political climate, taxes, tariff structure and general market fluctuation.

We have to act, think and behave differently in order to help our clients retire securely.

We can’t go “cold turkey” with all of our clients ― the vast majority need advice and guidance on how to make sure they don’t run out of money in retirement. So how do you create effective change in your practice to address these changing demographics? The same way you successfully change other habits ― vision and repetition.

If the benefits of changing your practice to focus on income planning aren’t immediately clear, look at the risks of not doing so. In multiple surveys, investors have said they would leave their current financial advisor if Social Security or income planning advice is not offered to them within the next five to ten years. Changes to our practice need to happen in order to remain relevant.

Income planning is unique ― it takes planning, listening and alternative vehicles to reach the ultimate goal of a secure retirement. It must be done individually, one-on-one, which makes for the repetition. But it’s important to think strategically: How do we make the shift now, instead of when it’s too late?

Winning Strategy: Changing demographics continue to shape the needs of our clients. Make sure your practice reflects the coming needs of your clients, so they want to stay with you.

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.

Keep Moving Forward


Annuities

As I travel, I often look out the plane window and marvel at the vastness of our country. As we celebrate Independence Day, I’ve gotten to wondering what it would be like to live in 1770s America. Life was so different for our founding fathers. Their challenges were very different from ours ― and harder than we can ever imagine. Yet in some ways, life was simpler and better then ― at least it feels that way based on how immensely we complain about our life situations.

Picture being in the fight for our independence. The bite of winter sending endless shivers through a worn uniform. Food and supplies dwindling down to meager rations, with limited communication on when additional supplies may arrive. Moving into unchartered lands for the next battle, only to come across a wide, raging river.

And think about the generals commanding it all. It took days to move up- or downstream to find a suitable river crossing. Scouts would ride far in advance looking for the other army, detecting movements and potential sites to set up for battle. It could be weeks before orders would come from leaders about changes in plans. Information was limited at best. Yet they continued.

The revolutionary army’s struggles are far from the challenges in our personal and business lives. Today, we have access to nearly unlimited information and technology. For our clients, it’s probably too much information ― which leads to paralysis by analysis.

In 1776, you couldn’t afford to stay put; you had to move forward with limited information.

In 2019, we can’t afford to stay put, either. But at least we know where we’re going. Retirement may be uncharted land for our clients, but we know what works and what doesn’t. We can mathematically prove that guaranteed income from Social Security, pensions or annuity-driven income makes a dramatic difference in the probability of success in a retirement income portfolio.

Yet many of us are not moving. We often keep our clients’ financial success stagnant when we could ― we should ― move them forward. Why wouldn’t we take advantage of the information at our fingertips?

Our founding fathers completed an incredible feat to secure our independence and improve the lives of the people in a new country. Now it’s time to think about how we can use existing technology, resources and products to improve the lives of our clients. The good news is that it is much easier than it was 243 years ago.

Winning Strategy: Don’t be paralyzed by indecision. With the abundance of information available to planners today, it’s easier than ever to leverage information to make good decisions for our clients.

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.

How to Double Your Clients and Double Your Business


Annuities

Everyone always asks my sales team if we support marketing initiatives like seminars, client events and mailing lists. We do in certain situations, but I’ve found those tactics to have limited upside and they are costly, even with sponsorship. 

 

To be honest, I think there’s a more effective way to grow your business – by capturing the next generation of your current clients. 

 

According to LIMRA, there are more than $489 billion of in-force annuity assets on the books of insurance carriers. These policies are not being annuitized for income and largely not being used for income rider usage. Many have accumulated for years and contain built-up gains that will be taxed at the beneficiary’s ordinary tax rate. We call that the ticking tax bomb. 

 

Defuse the Situation

You could wait for the IRS to strike as soon as your client is gone. Or you could take action to help their beneficiaries before it’s too late. 

 

One solution is to turn on tax-advantaged income for your clients who own these “untapped” annuities. The income stream is small and includes a return of basis, making part of their payment tax-free. When your client dies, the remaining cost basis may be stripped from the annuity in a lump sum or through payments. This allows their beneficiaries immediate access to tax-free cash. 

 

The remaining inheritance can be stretched over a beneficiary’s lifetime, which reduces the affect of taxation. Otherwise, a beneficiary would have to claim 100 percent of the remaining gain in the year of receipt or over five years from the date of the annuitant’s death. 

 

By putting the IRS in the back of the line, you will gain trust with your next generation of clients. This is a great way to grow your business. I encourage you to not only conduct regular reviews of your clients’ beneficiary designations, but also look at planning for the beneficiary’s inheritance. How they receive the money is equally important as the dollar amount. 

 

Winning Strategy

Double your business by doubling your clients through annuity reviews. If you look at how the distribution will affect the beneficiary and add value to their distribution, you will gain their trust and earn their business.

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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.

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