Annuities

What You Can Do While We Wait for Answers on the DOL


Annuities

Since Feb. 3, when the president signed a memorandum asking the Department of Labor to review the Fiduciary and Conflicts of Interest Rule, I’ve talked to agents and advisors from around the county. Many feel a great sense of relief that the rule is likely to be delayed – many believe this is the beginning of the end for the rule.

 

Regardless of a potential delay or revision, I don't believe we can afford to move backward in how we interact with our clients. The fiduciary standard is here to stay – market forces and regulatory agencies already act as if the rule is in effect.

 

I think it’s vital to prepare for running your office as if you are a fiduciary. While we wait for answers on the DOL, you can set yourself up for success by taking a few key steps:  

 

  1. Review your sales process. Make it repeatable and document it. Think about how you interact with your clients. Document every step and turn it into a policy and procedure manual for client interaction. The final product is less important if you follow a consistent process.
  2. Evaluate your vendors. Whether it’s software, fact finding, BGAs, or broker-dealers, are they going to be able to support your business model and help you execute what best supports your client base and growth plans?
  3. Get comfortable with transparency in fees. Most clients will appreciate your plans to remain in the business and continue to stay in contact with them. Don't be afraid to discuss your model and thoughts around compensation.
  4. Listen to your clients. Engage with them however best meets their needs. I don't believe any business model is superior to another so long as your engagement is defined by client need.
  5. Think about your compensation – in relation to time, effort, expertise and what the client is asking to get accomplished. Concentrate on neutrality when defining your fees with a group of clients.

 

These are just the beginning steps to prepare for a fiduciary standard – they represent the fundamental building blocks. As planners, we can’t defer our fiduciary responsibility any further. Instead, we should look at this possible delay as an opportunity to refine our practice and enhance our client experience.

 

Winning Strategy: Take time to prepare for a fiduciary standard. If there is a delay in the DOL rule, you can get your business in a better position for success. Make fiduciary a positive differentiator for you as you look to thrive in our new marketplace. 

 

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of annuities 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.”

DOL Annuities Fiduciary

DOL Issues Proposed Delay


Annuities

Today, the U.S. Department of Labor (DOL) is likely to post the proposed delay to the Fiduciary and Conflicts of Interest Rule on the Federal Register. You can read the full 31-page document at www.federalregister.gov. The delay pushes the applicability date to June 9, 2017, which amounts to a 60-day delay to the rule. This is significantly less than what many industry professionals hoped for after President Trump’s memorandum on Feb. 3, 2017.

 

As the Fiduciary Rule continues to evolve, I want to stress that many aspects of the rule have already been implemented by the marketplace. Firms have created policies and procedures to mitigate the conflicts in their business and supervise best interest standards for clients. Advisors have begun to change their business models to adhere to the new rules. All of these movements are positives for our industry. And, we look forward to continuing to deliver products, services, strategies and solutions to our advisors in a neutral, conflict-free environment.    

 

Looking into an unclear crystal ball, our industry must accept that the rule – in some form – seems to be inevitable. How the rule is supervised and executed will ultimately change the distribution of retirement products forever. I want to encourage all members of the financial services community to stay engaged with their senators and representatives in shaping the DOL rule. Ultimately, I believe a legislative fiduciary standard is the best outcome to unify the standard across all distribution channels and geographic markets. The standard must work with NAIC regulations that govern fixed and indexed annuities, while outlining a centralized regulator to hold all professionals accountable. 

 

Ash Brokerage continues to prepare for the Fiduciary and Conflicts of Interest Rule. As we inch closer to a resolution, we will work with our independent agents to make sure they have an avenue with the least amount of disruption to their business. For our registered representatives and RIAs, we are prepared to support and assist you in the transition to a new environment. Our tools, research and expertise working in an agnostic sales organization provide the necessary support for success in the future. We look forward to partnering with firms and advisors looking to prepare and thrive in the new world of delivering retirement products and services to so many Americans who need our advice. 

 
About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of annuities 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.”

DOL Annuities

Simplicity in Business


Annuities

I’ve been traveling this past week to several different conferences, and have already picked up some great ideas to share with our advisers.  Through my travels, I was struck by a couple of comments that really hit me—about the simplicity and authenticity of business.  I’m always surprised about how the simplest and most direct statements are often the most valuable. 

 

I had the great honor of speaking at The Society of Financial Service Professional’s (FSP) Arizona Institute.  As I was preparing for the event, I remembered that FSP played a large part in one of the largest sales during my retail career.  After receiving a large lump sum of money that increased their net worth, a couple had a question about college funding and the eligibility of future assistance.  College funding and financial assistance were not my areas of expertise.  So I sent my question to the discussion board at the association and received a lot of valuable information in return.

 

I was able to discuss the case with another professional who deals in financial assistance and planning, and was an expert in his field.  I learned from that experience, and passed that learning along to my client.  The knowledge I passed along from that source added value to my interactions with my prospective client.  I also encouraged the couple to contact my source if they felt the need to explore additional information.  Because of my relationship with a network of professionals, I was able to add value beyond my expertise.  The couple elected my firm to manage their money due to my ability to look holistically at their current situation.

 

Adding value—value that is important to the person you are working with—can come in many flavors.  As I was sitting in a carrier meeting this week, I was reminded about the simplicity of business when you work on bringing value to the relationship.  The speaker commented on three things that make you successful in business, regardless of your industry:

  1. People like you.
  2. People trust you.
  3. You add value.  If you add value, it’s easier to get people to like and trust you.

So simple.  So right.  But too often ignored. 

 

After attending the Arizona Institute earlier in the week, this simple checklist for business relationships resonated with me.  Our value to our clients will be the knowledge and wisdom we bring to the relationship.  We are quickly moving to business models that require technology to make investment selections and recommendations.  However, our clients will still require value brought to the relationship in the form of personal expertise, a trusting relationship and the ability to have a meaningful conversation.  We have to find the proper expansion of our business models that can add value.  With one of the greatest fears of Americans still being running out of money in retirement, I suggest we take a hard look at the longevity issues around income planning.  This can easily add value to your relationships and provide a means of having a unique conversation with your clients and prospects.

 

Winning Strategy:

Take a look at the simple aspects of your client relationships.  Leverage the likability, trust and value propositions you can add in order to recruit new clients. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of annuities 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.”

Annuities Practice Enhancement

Advantages in the Uncertainty of Rates


Annuities

The 10-year Treasury has jumped nearly 75bps since Donald Trump’s election.  If you talk with some economists, they’ll say the rate increase will continue; others predict a softening of rates back to the average over the past three years.  The Fed has indicated they would like to see rates above 3 percent by 2019.  In reality, we simply do not know where rates are going—short term or long term. 

 

So, what should you do with your clients in an uncertain rate environment?  I suggest you take advantage of this uncertainty and talk to your clients about how to properly mitigate interest rate risks—now and in the future. As rates were falling In the first half of 2016, we saw a significant increase in 5-year multi-year guarantee annuity sales.  Advisors were trying to lock in clients for a period of time while the 10-year Treasury fell precipitously throughout the first six months of the year.  However, we need to take advantage of the time to change the conversation with interest rates. 

 

Instead of reacting to rate changes and chasing the rate environment, try to begin repositioning the interest-driven portion of your portfolio for success, regardless of the rate environment.  I think this can best be done using the simple concept of laddering, a viable tactic to take advantage of any rate environment.  It’s a simple move that places your financial vehicles at different maturities over a certain time frame.  Once the short-term vehicle matures, you reposition it to the longest maturity available.  When the next shortest-term instrument matures, you reposition it for the same long-term maturity.  After going through your initial investments, you have laddered your portfolio.

 

The result of doing this creates liquidity and better rates.  Your client is now positioned with all of the interest-driven assets at the longest portion of the yield curve—the part with the historically highest rates and yields.  At the same time, you have a steady source of cash if the client needs liquidity.  By positioning a pocket of money annually in a ladder, the client has liquidity to a portion of his or her portfolio each year.  If the client believes more will be needed, simply position a larger percentage in each pocket of money and, perhaps, shorten the long-term maturity.  A lower yield is the likely cost of more liquidity.

 

Thinking about long-term solutions for interest-rate risk is sorely needed now—not because of a rising interest-rate risk but because we must move away from transaction-based solutions.  Your clients will appreciate the value you have added to the relationship with an actual solution versus worrying about an uncontrollable event such as a change in interest rates.

 

Winning Strategy:

Look at laddering the fixed income portion of your portfolio regardless of financial vehicle.  Putting your clients in the highest yield position with liquidity requires some repositioning but makes sense now and in the future. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of annuities 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.”

Interest Rate Annuities

Important Demographic Shifts


Annuities

Part of my presentation at The Arizona Institute focused on the demographic changes over the last 20 years, changes that are likely to impact the retirement income space for several decades.  Some changes are the costs associated with increased longevity.  Others are the rate of savings in the United States, which has been declining since the late 1970s, resulting in smaller asset values to work with as we seek to generate future income.  But, I think the one change not discussed enough is the shift from defined benefit to defined contribution plans we have seen over the past 20 years. 

 

Defined contribution plans continue to grow in popularity due to the large selection of funds, lower costs and tax advantages.  But few plans have access to guaranteed income like a defined benefit plan.  Only recently have 401(k) plans begun to add deferred-income annuities to some target date selections.  In our research, we find that a portfolio can be optimized (a 95 percent chance of one dollar left in the portfolio at age 95), with somewhere between 18-25 percent of the portfolio in guaranteed income.  Guaranteed income may be Social Security, pension or annuities. 

 

When I talk with plan sponsors about their retirement benefits for employees, I find a ton of information in their offices about risk tolerance tests, asset allocation and fund performance.  But I rarely see or hear intelligent and meaningful conversations about converting this wealth into income.  The loss of guaranteed income streams provided by pension plans places additional pressure on our remaining assets to generate income.

 

The shift away from defined benefit plans seems to have shifted the attention of our asset managers as well.  Too many of our pension plans are currently underfunded.  Some plans are just as insolvent as the Social Security system.  Many plans have invested in significant holdings in bonds.  In a potentially rising interest rate environment, this can be devastating.  As more Boomers with these frozen pension plans inch closer to accessing their income, many plans will see increased pressure on funding levels as payouts increase and bond prices decrease. 

 

This demographic change can open an opportunity for those planners who address it.  Talking to your clients about getting in position for retirement income now can put planners in a leadership role with their clients.  Giving clients the options of guaranteed income will likely provide stability to the portfolio and peace of mind to the client.  Although this shift will end up being costly to most consumers, the financial planning industry can step in and provide proper strategies to many Americans.

 

Winning Strategy:

Understand how consumer behavior over the last two decades will impact retirement income planning.  More income from fewer assets, less guaranteed income available from employer plans, and increased longevity risks can provide an opportunity to expand your value proposition to the client. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of annuities 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.”

Retirement Annuities Generations Employer Plans