Annuities

Chasing Product


Annuities

Now that the U.S. Department of Labor’s Conflict of Interest rule is completed, we are beginning to hear rumblings of how advisors will react to the proposed changes. Most frequently, I’m hearing that advisors will remain focused on growing assets under management and distributing retirement income from assets using a systematic withdrawal plan. In this manner, they feel they won’t interrupt their ongoing revenue stream.  

This attitude is exactly why the DOL proposed the rule. If revenue (and form of compensation) is the top priority, you are not acting in the best interest of the client. Instead, we need to identify the reasons why many consumers might be best served by fixed annuities, not just accumulating assets or variable annuities. For many years, fixed indexed annuities have provided similar, if not better, income riders for clients. Due to the stability of the accumulation value, carriers can better price the income benefit for clients.  

When I hear annuity producers will change products because they can’t earn a commission, I become concerned about where those producers might look for solutions. In recent years, the variable annuity industry has made their products more like commodities instead of their benefit-driven solutions of the past. By transitioning to fixed indexed annuities, I fear the industry will once again relent to irrational pricing that hurts all of us in the long term.  

It appears that producers who are squirming for a viable solution didn’t use the variable annuity chassis for upside potential, tax deferral, and asset allocation strategies. Instead, they probably sold the product for its secondary guarantees on income. If the client needs income alone – and not the potential for cash accumulation, tax deferral and asset allocation – then they might be best served with alternative guaranteed income solutions like single premium immediate annuities or deferred income annuities.  With tax-favored distribution on nonqualified assets, the after-tax income level can be higher in these income solutions versus the typical variable annuity.  

We have to change our focus. It’s not about our old, antiquated business model anymore – it’s about serving the client in ways we might not have looked at previously. The industry of tomorrow requires open-mindedness, unbiased discussions with clients, and a continued willingness to learn new strategies to affect our clients’ lives. Let’s look at the fundamental shifts that the DOL wants our industry to comply with and make positive changes for our clients. 

Winning Strategy

We’re already seeing financial professionals scrambling for the next best solution to earn a commission. Let’s start by dropping our biases toward solutions we are not familiar with and looking at new ways to solve client needs – even when we might not have done it before a fiduciary standard.  

About the Author

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. 

 

DOL Department of Labor

My Fears of Change (or the Lack Thereof)


Annuities

With the U.S. Department of Labor’s rule still fresh in our minds, it’s hard to think much beyond the changes our industry will face in the next 12 to 18 months. But, if we step back and look at the bigger picture, we have more important challenges ahead. We might be afraid of change, but I’m more worried about what will happen if we if don’t. 

 

Lack of Advisors

In the United States today, we have only one financial professional for every 1,000 citizens. And, we have the largest generations of Americans leaving the workforce for retirement, relying on the assets they’ve have saved for the rest of their lives. No way can a single professional provide the necessary advice to 1,000 people, especially with a low-interest environment, unstable global economy and the most complex tax coded in history. We must develop a better system to recruit, invest in, and train new professionals in our industry.  

 

Commoditization of Technology

Technology can do great things for our industry, but it can also do some damage if we aren’t careful. In his book, “End of Jobs,” Taylor Pearson discusses how just a little over a decade ago, Loudcloud, an early cloud hosting service, hosted applications for $150,000 a month. Today, those same hosting services cost $1,500 a month.1 

With today’s appeal of the robo-advisor, I expect the same revenue compression over the next decade in our industry. Our current climate is to look for the least expensive way to provide a service instead of providing a service with the most value. Asset allocation can be found everywhere; however, managing the sequence of returns makes all the difference in whether a client runs out of money. We must redefine ourselves from asset managers to client-focused advisors – and customize it with scale.  

 

Changes in Income

Pearson also points out that the American population faces a major shift in income generation – and he’s not referencing the loss of earned income by voluntary retirement. Instead, more Americans will turn to entrepreneurial opportunities in the future. Because between 1948 and 2000, jobs grew 1.7 times faster than our population – since the turn of the century, however, our population has grown 2.4 times faster than jobs. 

Without the retirement plans of “normal” employment, we must help our clients find vehicles to meet long-term savings demands and educate them on the impact of self-employment versus paid wages. Our clients started the mind shift, so our industry must adapt to keep up.  

 

Moving Sooner than Later

It’s been said many times, but it’s worth repeating: We have to do a better job working on our business instead of in our business. It’s is time for us to make a fundamental shift, which requires thought and decisions on how we will capture market share in a largely homogenous product set.

I challenge everyone to critically think about their business first thing, every day. In his book, “Triggers,” Marshall Goldsmith discusses a 2011 study that followed 1,100 decisions of an Israeli parole board. Seventy percent of the prisoners were granted parole when they appeared before the board in the morning, while only 10 percent received parole when they appeared in the afternoon. By human nature, we get fatigued and worn down by making decisions throughout the day, and we default to status quo. My suspicion is that financial professionals end up with the status quo simply because we don’t pay attention to our business until after we are too tired to think about our future. 

We face a multitude of challenges in the next 12-18 months. All the while, the American population moves toward the need for more advice, more education, and a renewed industry full of fresh ideas and deeper client relationships – all energized by new technologies. We need to take time to think about how we exceed customer expectations – not by rates of return, but by experience. 

 

Winning Strategy

Cost-conscious prospects looking for more advice create opportunities for the right business model. Have you spent enough time on your business so you can focus on its biggest assets – your clients?

 

Learn More

“End of Jobs: Money, Meaning and Freedom Without 9-to-5,” by Taylor Pearson: http://www.amazon.com/End-Jobs-Meaning-9-5-ebook/dp/B010L8SYRG 

“Triggers: Creating Behavior that Lasts – Becoming The Person You Want To Be,” by Marshall Goldsmith: http://www.amazon.com/Triggers-Creating-Behavior-Lasts-Becoming-Person/dp/0804141231

 

About the Author

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. 

Annutities DOL Department of Labor Change

How Flexibility Will Help You Win the Game


Annuities

During mega sporting events like the Super Bowl, you hear the word resiliency quite often. But, I think few people really know what it takes to be resilient. 

Too often, people think you reach success by “pounding away” like the Carolina Panthers in the road to Super Bowl 50. Without a doubt, the franchise made a great run in the 2015-16 season by continuing to pound, but they were defeated by a team that showed flexibility.   

When you look up the definition of resiliency, it mentions “having elasticity.” Not surprisingly, the Denver Broncos, who defeated the Panthers in Super Bowl, displayed elasticity throughout the season. Specifically, quarterback Peyton Manning became more flexible and elastic in his management of the game. 

 

The Struggle

Starting the season, the Broncos were a favorite to win the Super Bowl. But, as many football seasons do, the next 17 weeks were filled with promise, disappointment, concern and eventually, frustration. Many teams would have allowed those circumstances to define their season. Peyton was injured and sat on the bench for several weeks. He watched how the backup succeeded and learned the true strength of their team was their defense. He didn’t have to win every game; he just didn’t have to lose.
 

The Opportunity

In the playoffs, Peyton’s performance was clearly not the same it had been in the previous two decades of his career. However, he managed the game to the best of his ability and recognized what he could do and couldn’t do. 

The Payoff

During the Super Bowl, he didn’t seem to force anything. Instead, he paid attention to what the defense provided him, and he capitalized on it. I’m sure he would have liked to have thrown a bunch of touchdowns and set records, but it wasn’t good for the team. He was resilient in his game plan because he was able to change and adapt in a high pressure situation. 

My point? Resiliency isn’t about “keeping your nose to the grind stone.” Flexibility allows you to recognize opportunity, which is just as important as reaching a previously set goal. Sometimes you have to give up aspects of your original vision in order to reach a higher level in your game. 
 

Winning Strategy

True resiliency in business is the ability to adapt to change and maneuver around disruption. Be flexible instead of rock hard in your determination to succeed.  

 

About the Author

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. 

 

How to Position Yourself for Opportunity


Annuities

At Indiana University, Coach Bob Knight’s rules of defense were mostly based on being able to recognize the situation. Players had to always be aware of what was happening on the court – just like we must always be aware of what’s happening in our businesses. 

The Ball-You-Man rule means you stay between the ball and the player you’re guarding. You may think it would be easy to stay close to your man, but that isn’t effective – you’ll just do a lot of extra running around to chase him down. Instead, you want to stay closer to the ball so you can help support your teammates. 

If the ball is on the opposite side of the court from your man, you want to stay on the same side as the ball, keeping your man in peripheral vision. If the ball swings over to the top of the court or to your man’s side, you can immediately try to deny the pass. Everyone on defense must be constantly moving and adjusting their position, looking for any opportunity to get the ball back.   

 

Defense for Your Business

In financial services, each client represents a new possession. We must react to their unique needs and objectives. More importantly, we must move to different positions as their goals change throughout their life’s journey.  

Looking at the bigger picture, we have to recognize any opportunities the new fiduciary rules will provide us. Yes, the rules will force us to change our practices, but those of us who can recognize and react before the ball arrives will succeed in making the transition. 

You can defend your business by taking some basic steps:  

  • Create written policies and procedures – this will provide protection against possible litigation by showing you follow a documented process that leads to agnostic solutions and client-centered recommendations

  • Have a partner with providers that remain independent of conflict, allowing you to find financial recommendations that are in the best interests of your clients without regard to carrier-specific incentives

  • Do what you’re likely already doing: Delivering education and advice that’s built on trust and expertise – if you do that, the compensation won’t matter 

These things might be adjustments to what you’re doing in your financial practice today. But, moving before the ball moves will place you in a better position to win. The pending rules will open the door to many opportunities that our industry can capitalize on … as long as we’re in the right position.  

 

Winning Strategy

Good defense requires you to recognize the situation on the court and place yourself in the right position. Make sure your business is in the right position for the fiduciary standards of the future.  

About the Author

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. 

 

Winning the Same Way Every Time


Annuities

As a student manager for the men’s basketball team at Indiana University, I was fortunate to sit at the end of the bench for the 1987 NCAA National Championship. Many people ask me how Coach Bob Knight prepared the team for the final game against Syracuse in the day and half after we beat UNLV in the national semifinals. Well, we did the exact same thing we had done all year. 

You see, success follows process and procedure, which eventually allows a team (or business owner) to use their talents effectively. That Final Four run proved that when you follow the successful process you’ve established, you can relax and play the game freely and confidently. 

As we approach a fiduciary standard later in 2016, it’s important to set up wining processes now. Following an established process every time will allow you to focus in on the client while acting in their best interest. Pay attention to how you interact with your clients in the following ways:

Engagement

Make sure you have a set routine for each client to explain your services, set expectations and sign a standard engagement letter. The engagement letter (contract) should provide flexibility in how you provide solutions and receive compensation. It’s too early in the financial planning process to determine which solutions you’ll use or if/how you will receive commissions. 

Discovery Process

In order to act in the client’s best interest, it’s critical to uncover all the necessary information through an established discovery process. Create a written fact finder to document the answers, and be sure they aren’t completely quantitative. It’s just as important to understand how a client feels and prioritizes their goals is as it is to know their net worth, disposable income and assets.  

Analysis

You should leverage a consistent software or set of software tools in your analysis of each case. Having a process that provides dependable output gives you, and the client, assurance they are receiving the best advice. 

Presentation

Because you are familiar with the software output, your client presentation should be methodical and factual while emphasizing the key areas of concern. Obviously, this is where you begin to recommend and offer solutions. If you have followed your standard process up to this point and have established their needs, how you receive compensation will likely be irrelevant to the client. 

Implementation and Review

One of the most frustrating things clients tell us is that their financial professional failed to follow up on the plan. It’s really important to make sure all your recommendations were executed – either by you or another financial professional – and that you take the initiative to make sure all those recommendations are performing properly and still meet the client’s goals.

Many financial professionals remain concerned about the pending fiduciary standards. However, I argue the vast majority of our sales professionals are following some sort of established process already. 

Instead of worrying about changing your financial planning practice on a dime, look to review and refine your established processes. Make sure they are agnostic to companies and compensation. Most importantly, write those processes down so that you have documentation in the event you are challenged by a client in the future. Following the same processes over and over will give you the same confidence the Hoosiers had playing in the national championship game. 

Bottom Line

Establish and follow your selling process for success. Having set standards allows you to focus on the client and meet or exceed their expectations.

 

Learn More

1897 NCAA Tournament: http://www.cbssports.com/collegebasketball/ncaa-tournament/history/yearbyyear/1987

 

About the Author

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.