Fortunately or unfortunately, depending on your point of view, we haven’t had to worry about rising interest rates for nearly a decade. Monetary policy, including quantitative easing, forced interest rates to near zero for a period of time. Clients benefited from the falling rates through capital gains growth that historically has not been a large part of bond returns.
With today’s rising interest rates, financial professionals need to offer strategies that many clients haven’t thought of for several years. Some will seem foreign to clients, as well as financial professionals, due to the time lag since they have been last deployed.
We face a lot of challenges as the baby boomer generation continues to leave the workforce toward retirement. If not handled correctly, a rapidly rising interest rate environment makes for a potential portfolio burden that many clients are not seeing clearly. Take time to review the client’s intentions and plan for a rising rate environment over the next several years.
Evaluate your bond holdings and plan for a rising rate environment. Your clients are unlikely to see the risks ahead due to recent monetary policy. Put your clients in a position to win.
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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. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.
I have long discussed the need to position your products and services on value propositions besides rate. However, I want to talk about the advantages of selling in today’s low rate environment and placing the client in a better position using rate as an example. In the long run, the value you bring to your clients by talking about current fundamentals will bring more people back to your office.
As I looked at today’s rates (Sept. 6, 2016), the current 30-year Treasury Yield is 2.24 percent. Currently, several insurance carriers are offering five-year, multi-year guaranteed rate annuities with similar rates. I constantly read in the Wall Street Journal about advisors placing their clients in dividend-paying stocks in order to create better yields in the portfolio. So, in order to obtain higher yields, the client either must take equity risk in the portfolio or expose the bond portion of the portfolio to extreme price depreciation in the event of a rising interest rate market. Neither sounds fundamentally strong for the long haul.
Too many advisors fail to show an alternative because of their own biases against annuities or a bad past experience. But, I believe we are in the best-ever market conditions to sell our products. Even with fixed annuity yields between 2.25 percent and 3.34 percent (assuming an FIA hits a 4.5 percent cap 75 percent of the time), our taxable equivalent yield is, at a minimum, 3.84 percent – well above the current investment grade corporate bond yields. And, the nominal return is just as high as the current 30-year Treasury rate, with no risk to principal in an increasing interest rate environment.
So, while your competition searches the next best thing that their clients want to hear or chase, talk to your prospects and clients about two fundamentals: safety and liquidity. Ask yourself:
Don’t focus on where the economy or interest rates were six months ago and compare them to today. Look at the relative economic conditions and talk to your clients about fundamentals. They will appreciate the simple, straight-forward approach to their retirement success.
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.”
We’ve heard in the past that October is the biggest CD rollover month of the year – fact or fiction?
Let’s look at some history. CDs were first sold in six-month increments (six months, 12 months, 18 months, etc.), but in October of 1983, they became deregulated.
Tax returns were a leading factor in the October/April trend. We saw an increase of CDs being established by people receiving a refund, or they surrendered their CDs to help pay for taxes due. At one point, Bank Rate Monitor estimated that upwards of $100 billion in CDs was in transition in each of those two months.
In order to smooth out the issuing of CDs and reduce the amount in play during October and April, banks started to offer them on odd terms, such as seven or 15 months. This slowly moved the trend across the balance of the year.
Look at today’s CD rates on Bankrate.com*:
Are CD’s the right place for your clients? Or are you still following an outdated trend? The fact is, October is no longer one of the two hottest months for CD rollovers. It’s open season throughout the year.
If your clients are looking for …
... Make sure you contact a member of the annuity team at Ash Brokerage to help you with CD alternatives – annuities are also available all year long.
*As of Oct. 10, 2014
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