Annuities

The Future of Fees


Annuities

Momentum continues to move toward the advisory business.  I think there are two reasons for this.  First, we have unprecedented potential regulation coming in April 2017 favoring advisory business with fees tied to assets under management.  Secondly, we are seeing a continued industry shift to more passive investments and lower cost models—both are forcing advisers to use the lower fee structures found in advisory models.

 

Many industry experts expect those fees to continue to be driven down over the next 24-36 months due to regulation and market forces.  I agree.  So, how can we prove our value to our clients and prospects and protect our revenue while working in the best interests of our clients?  Below are a couple of ideas I think successful planners should attend to, now and in the future, to not only maintain their practice—but also grow it!

 

Fee Transparency:  I’m not talking about simply telling clients how much we charge for our services.  That has become a given because of regulation.  And, more importantly, market forces—not the DOL—will make all our fees for services look very similar.  So transparency will likely differentiate successful planners in the future.  It’s appropriate to charge 25-40bps for assets under management and disclose that amount.  It’s also appropriate to charge another 40bps for comprehensive planning with annual monitoring and/or quarterly reviews.  And it’s also appropriate to charge a certain level of basis points when planning for protection-related issues—longevity, death, disability and chronic illnesses. 

 

Vibrant Protection Platform:  With an emphasis on passive investments coming from the DOL, it will be harder to justify a high-fee structure for clients when our services are limited to asset management.  Absent of active managers, you might be setting yourself up for unhappy clients when you disclose the value of the fee.  Having a protection platform will be critical for future success.  Our clients are living 2.5 years longer for every 10 years in the United States.  Our clients’ Number One Fear remains outliving their money.  And, half of Americans underestimate their life expectancy.  Talking about contingencies and mitigating those risks will be paramount in the new financial planning world.  You have to have a team capable of executing on complex insurance and longevity issues in order to protect your assets under management and have any chance of retaining those assets with the next generation.

 

Collaborate:  From the first night that I read the DOL rule, I have said that most planners need to come to grips with two questions:

 

1. Am I going to move up market?

2. If I stay in my current market, how do I become more efficient and capture market share?

 

Our industry is one of the most collaborative I have ever seen.  We are willing to share clients for the good of the client.  Our clients have complicated issues that require expertise in many specialties.  Therefore, we have to be able to bring experts to the table for our clients.  We not only need to have a quarterback mentality to direct and execute a financial plan but also bring in experts to have the most success.  That coordination of talent, expertise and access is valuable to our clients.  Having a “network” can bring value on top of your specialty, which may soon be subject to fee compression. 

 

I can go on and on about changes in fee structure and the impact of regulation, but I think you get the idea—we have to look for different ways to earn our revenue from clients.  That means we need to expand our services to platforms we haven’t been offering to date, including life, guaranteed income and chronic illness protection.  Our clients will rightly expect a full accounting of our fee structure. Being able to clearly outline the value they are receiving will make it easier to have the fee conversation. 

 

Winning Strategy: 

Don’t look at disclosure as a reason to reduce fees because the market is reducing their fee.  Value will be important in the future.  We simply need to redefine our value, change our practices to offer services that are important to our prospects and be transparent in the fee structure. 

 

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 Strategy Annuities

Think Like a Factory


Annuities

I recently listened to a 30-minute podcast featuring Jeb Banner, CEO of Smallbox.  Smallbox develops web sites and consults on transformative ideas like putting employees first.  The owner works with clients on Factory Days and/or Weeks.  At their core, Factory Days are about reinvesting in yourself and your support staff.

 

Smallbox shut down its business for the first time in 2011 for a Factory Week, allowing everyone to get away from the business and work on themselves.  And, of course, we can all use time to improve ourselves—recuperate, recharge, relearn and discover new possibilities.  Although the experiment was not perfect, it did focus on the employees and their development.

 

How often do you shut down your business to improve your staff and your practice?

 

As planners, we control our schedules.  Unfortunately, we allow our clients to set our weekly or daily schedules.  And we tend to chase the “next case” or “next revenue source.”  But we rarely take time to get offsite and work on our own practices.  The old saying is “work on your business not in it.”  I would say that most financial professionals are busy chasing the next urgent need, regardless of its importance.  We simply love to be busy as a way of justifying our revenue to our clients.  Worse yet, we have hired talented individuals to leverage our time, sales and service, but we don’t always know how to use our staff in the most effective ways possible. 

 

How much more balanced would your life be if you didn’t have to chase after every client need?

 

If you reinvest in your staff, I bet you can learn much from them about your business.  And, they are likely to provide great ideas on becoming more efficient, providing better customer service and helping you grow your business.  But they need to know what to do and how to do it.  A simple word for that process is “training.”  We rarely budget time, energy, dollars and other resources to make our staffs better.  I am almost certain that we all underutilize our sales support staff members.  If we better train them, chances are we can have better balance in our lives—versus running around 10 to 12 hours a day. 

 

Who do you think is most important? 

 

While it may seem selfish, Smallbox would argue that you and your staff are the most important assets you have.  Ultimately, you are using your talents for the betterment of your clients’ financial futures.  However, you have to keep yourself and your staff engaged in ways that help them grow and get better.  Learning and growing will allow you to provide more value to your clients and prospects.  So, from time to time, take time to step away from your business and get re-engaged in your most important asset:  you and your staff.

 

Winning Strategy:

Schedule regular time throughout the year to think about your business, discover new ways to help clients, and improve the skill sets of you and your staff.  It’s worth the investment.

 

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.”

Success and Consistency


Annuities

As many know, I am a big college basketball fan.  When you look at some of the most successful programs in the country, you’ll find one thing in common: consistency in coaching. Coaches like Roy Williams at North Carolina, Coach K at Duke, Bill Self at Kansas and Rick Pitino at Louisville have all been at their schools many years.  Some years have been better than others at those schools, but no one can deny those programs have stamina and a level of excellence that is well above the average college program.  Even with successful programs that have seen coaching changes over a period of years, the same culture will likely exist throughout the program.

 

Having a quality coach at the helm is equivalent to having consistency in your retirement portfolios.  There will undoubtedly be market downturns and volatility, but consistency provides a powerful motivator for our clients to remain with their plans.  Consistency comes from us always being in communication with our clients, even in difficult market times.  We must be a consistent voice for our clients and prospects, providing information, education and advice—even when our clients don’t want to hear what we have to say.  Plus, we need to listen and react to our clients’ biggest concerns—turning their assets into retirement income. 

 

Vehicles providing guaranteed income could create the kind of stamina and consistency in a portfolio our clients seek.  It’s not that the entire portfolio needs to be guaranteed—far from it.  In fact, our research shows that between 18-28 percent of income should be guaranteed to optimize the retirement income.  That leaves plenty of assets to be invested in an allocation strategy that can protect purchasing power due to inflation. 

 

Our industry needs to look at new ways to provide guarantees and create consistency and stamina for retirement income.  Several vehicles can reduce the pressure—or improve upon—a systematic withdrawal strategy.  We need to educate our distributors, broker-dealers and advisers on vehicles like HECMs, income annuities and Qualified Longevity Annuity Contracts (QLACS).  All are underutilized today but could provide valuable benefits to our clients’ retirement income portfolios. 

 

Winning Strategy:

  Think like a successful college program or sports franchise.  Add consistency to your retirement income portfolios for more success with 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.”

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Industry Changes


Annuities

If you ask most people what the biggest change the financial services industry is facing, they will likely say regulation.  The DOL’s fiduciary standard and conflicts of interest rule has certainly captivated everyone’s attention for more than a year.  Regardless of implementation date, firms across America are already changing how they conduct business.  But, regulation is only a small percentage of the changes that likely will force us to change our practices—and for the better.

 

Several trends will impact the expectations of our clients in the future as they plan for retirement.  Each creates a certain amount of risk, but three in particular will force us to have a different kind of conversation with our clients than we’ve had in the past. 

 

Growth of Defined Contribution Plans—For the three decades beginning in 1979, the number of participants in defined contribution plans grew from under 20 million to nearly 70 million.  At the same time, defined benefit plan participants decreased to under 20 million during those same 30 years.1  We are beginning to feel the effects of that switch to defined contribution as the first wave of retirees roll out of their 401(k) plans.  The timing of the DOL rule is perfect, because so many American workers need advice on generating income, not accumulating assets.  For planners who want to grow their business, they will need to reconcile the need to plan for income versus asset management.  Clients will soon begin asking—if they aren’t regularly doing so now—about how to generate income for life.  The importance of asset management is decreasing, as evidenced by fee compression within the industry.  Our clients simply do not see the value in asset allocation services the way they did during the accumulation phase of their lives. 

 

Fee Disclosure—Many of us are accustomed to disclosing fees, especially those of us who have worked with ERISA plans in the past. However, the change in client mentality will encourage us to not only disclose more but also to redefine how we disclose.  I sense that the new purpose of disclosure is more about understanding the client value and less about fees.  Our clients are becoming more educated through unlimited educational resources, robo-advisors and fee-conscious service providers.  Unfortunately, these trends are affecting the value of the traditional planner who focuses only on retirement income planning.  In the past, our fee structure included asset management.  We now need to solidify how much is going for asset allocation services and how much is going to our other value-added services.  Disclosure will force the successful planner to add more value.  You might say that is simple fee compression, and it might be, but if you evolve into a holistic financial service that offers more than just asset management, you have more justification for your current fee structure.  Those additional services can be added with scale and efficiency to replace or grow your revenue per client—now and in the future.

 

Re-engineered Marketing—Gaining clients in the future will be more difficult—even more difficult than it feels today.  Our prospects have access to our backgrounds, our web sites and our social media profiles within seconds.  We are faced with so many chances to create one negative impression against hundreds of positive public interactions.  In the future our prospects will come to our offices with more information about our firms than they ever had before.  It’s as if we, the planners, are at a disadvantage because we don’t know as much about them.  However, we can use technology to manage the marketing risks and turn it into a positive.  We must have a social media strategy with checks and balances—a process for posts and reviews. This will take effort to set up but can pay dividends in client acquisition.  The costs associated with prospecting can become scalable and efficient if social media is used properly. Additionally, we have to always be on the lookout for new ways to secure new clients using referrals and positive experiences. 

 

While regulation will affect us in 2017, the financial planning market place is likely to have a more profound impact on how we grow going forward.  Take the opportunity to evaluate how you will grow regardless of regulation. 

 

Winning Strategy:

Think about how changes in the market will affect your clients’ views of retirement planning.  Disclose your value differently than in the past and focus on marketing those strengths 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.”

 

EBRI, Department of Labor