Annuities

Shaping our Business for Success


Annuities

In the annuity industry, 2016 continues to shape up as a year of change and challenge. With the proposed U.S. Department of Labor (DOL) ruling anticipated to be announced this spring, many are wondering how they should set their goals, transition their business to advisory platforms, or build out separate units for Middle America. In reality, we need to focus on some of the basic tenants of goal planning. 

You probably know you need to keep goals SMART – Specific, Measurable, Attainable, Realistic and Timely. In times of significant change, we must keep those guidelines in mind as we set a new course for many of our businesses in the annuity industry. 

Specific – We need to have a vision of what our financial planning practices will do for clients.  Even under a fiduciary standard, it’s hard to imagine being all things to all clients. We must get specific about what services we want to provide to clients at an exceptional level. 

Measurable – There are many metrics that will allow you to keep score and stay on track throughout the year. In times of change, we might have several parallel goals. Of course, we need to have a total sales or revenue goal. But, you might want to think about how much of your business you want to transition before the end of the year, or have another metric in mind. 

Attainable – Because we are looking into a muddy crystal ball with a new regulator and unannounced rule, it is difficult to judge attainability. Clearly, we must set a course for a fiduciary standard sometime in 2017. I think it’s important to keep in mind that the sooner we shift our planning to this standard, the more attainable our goals will be once the ruling is finalized this spring. 

Realistic – Realistic goals begin with action – early and often. We can no longer sit and wait for a legislative bailout in the 11th hour. Setting realistic expectations with clients and staff begins immediately. Slowly, we’ll start learning to have transparent conversations with clients; by year end, we’ll transition into deeper conversations about how our industry earns revenue for our expert advice. 

Timely – We must set our goals with an end date in mind. With so much in flux with regulatory change, you should consider setting your goals at 90-day increments. We should know the final ruling by spring 2016. This allows the industry to set goals for the transition to a fiduciary standard by Jan. 1, 2017.  

 

Bottom Line: Goals are important, but we just can’t focus on sales this year. In order to create long-term success in our industry, we must focus on our written policies and procedures to create meaningful goals that will transform our practices. By working on transparency and planning in 2016, we’ll provide ourselves with a jumpstart on our new post-DOL world. 

 

DOL Goals

Buying Income on Sale


Annuities

Last Sunday, my wife asked me to go to the grocery store. She was studying and writing papers as she continues her education to become an ultrasound technician, so I agreed to shop if she provided me with a list. Having been recently married, it was different for me to buy more than hot dogs, Eggo waffles and bread. But I figured it out, and I found myself shopping the way most Americans do.   

As I went methodically down the list, I wheeled my cart from aisle to aisle searching for each item. Once I found the paper towels, I looked at the brands and designs, then I made my decision. However, I found myself looking at the cost. It was clearly a better deal to purchase 12 rolls of paper towels instead of four. Without hesitation, I purchased the dozen – even though I didn’t need all of them now and the total cost was more. 

Next, I found the facial tissue and repeated the same decision process: brand, design, cost per box. I’m now the proud owner of a dozen Kleenex boxes.  

Here’s my question: Why aren’t we using the same process with our clients when it comes to retirement income? When you look at the options, the most efficient way to purchase income is to take advantage of discounted dollars and mortality credits. And, only one type of vehicle provides the advantage of mortality credits and tax-advantaged income distribution rules. Even though that purchase may be more in today’s dollars, it will likely outperform many traditional vehicles that possess volatility, sequence of return risk, longevity risk, and gain-first taxation.  

It’s time to have a conversation about buying basics. If we’re willing to pay more for a larger supply of paper towels and Kleenex because we know we’ll need them later, there’s no reason we shouldn’t be doing the same with our income products. Most people are willing to spend a few extra dollars now to save more in the long run. 

Ask your clients how they shop at the grocery store. If they’re willing to purchase additional items when they’re on sale, they’re likely to be receptive to buying income at a discount as well.  

 

Bottom Line

Buying income at a discount is no different than buying basic necessities. And, our income floor is a necessity that should be guaranteed. Make sure you’re showing your clients how they can buy in discounted dollars. 

 

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 ‘Sesame Street’ Can Teach Us About Selling


Annuities

On Nov. 10, 1969, Joan Ganz Cooney debuted a new children’s program on public television. Up to that point, she’d been a documentary filmmaker. However, her true love was education-based television, and she wanted to create something that would resemble the highly popular “Rowan and Martin’s Laugh In.” She hired a gentlemen named Jim Henson to create puppets – “Sesame Street” was born.* 

Many of us grew up with Jim Henson’s characters, and they still resonate today. “Sesame Street” probably taught you about letters and numbers, and could also teach you a thing or two about selling. The show’s success can be attributed to several of Joan’s strategies: 

  • Segments were short and to the point – it layered education and leveraged repetition 
  • They used various media – animation, human actors and puppets
  • Shows were generally upbeat and fun


When working with clients, think how you can use those elements to be successful: 

  • In today’s world of distractions, we have to be to the point. We’re trying to build long-lasting relationships, but our clients think in short bursts of attention. Let things build with time and repetition. 

  • Find ways to best communicate with each client or prospect. The options are endless – emails, letters, phone calls, brochures, handouts, slides, videos … the list goes on. You have to be prepared because clients are doing their research before they ever meet you.  

  • We must remain positive. While we have a responsibility to discuss the “not so pleasant” realities of life, there’s no reason to be negative about any products, services or circumstances. During periods of volatility and economic uncertainty, our clients want someone to look them in the eye and tell them, “It’s going to be OK” or, “This is what we need to do right now.” No website or robo-advisor can do that for them. 

 

Bottom Line

Simple usually wins. Think about making things “Sesame Street simple” for your clients to understand. It will improve your communication and your impact. 

 *Morning MoneyBeat Factoid, Wall Street Journal, Nov. 10, 2015

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. 

Why Financial Professionals Will Matter Post-DOL


Annuities

While on a plane recently, I read a quick article in Money Observer, a British financial site. It was like I was getting a glimpse into the future of the post-DOL world here in the United States. With similar regulations taking effect in the United Kingdom in 2012, many clients can’t afford financial advice.  

Two facts in the article were staggering: 

  1. Half of the respondents who had an idea of how they were going to take their retirement savings thought that a drawdown strategy (systematic withdrawal strategies) would provide guaranteed income for life. Unfortunately, there are many variables that affect that strategy, including rates of return and withdrawal rates. But, I can confidently say that it will not guarantee income for life.  

  2. Twenty-five percent of respondents thought the drawdown strategy was risk free. Clearly, there’s a gap in the fundamental mechanics of receiving income from pensions. To a lesser extent, I found it interesting that 25 percent of respondents thought their pension income was tax-free. 

 

The complexities of the British pension system are no different than the complexities of U.S. retirement plans. Regardless, it’s clear that Americans will need advice. 

With some of the DOL ruling leaking out in various presentations over the last 30 days, I think it’s important not to lose sight of where commission-based products fit into the proposed rule (and, I stress that it’s still a proposed rule), which makes an attempt to focus on what is best for the client. We can’t let paperwork and regulation get in the way of what many of us have been doing for years – putting the client first and making sure there is a baseline of guaranteed income.  

Educating people and putting them in the right position to make quality decisions will never go out of favor. Because of that, I encourage financial professionals to think about how they will educate the large portion of retirement asset holders who will no longer have a wealth manager tied to the asset. Their clients will be looking for quality education, expertise and recommendations that will impact their lives for the next 30-plus years.  

Let’s collectively step up to the challenge of a post-DOL world and make a difference for our clients, their families, their co-workers and our industry. Don’t let the fear of change and how we transact business affect our view of who we do business with our or how our advice should be disseminated.  

 

Bottom Line

While we may need to be more transparent and change forms, we shouldn’t lose our core value proposition to our clients: quality advice and sensible solutions, delivered consistently through personal interaction.  

 

Learn More

Register for our webinar - Februrary 4, 2016 -  discussing the latest DOL rulings and changes to expect.

 

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. 

 

 

Observe. Seek Data. Share It.


Annuities

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.