Annuities

Vision for What Your Effort Will Deliver


Annuities

A couple of weeks ago, I was talking with my business coach, CJ McClanahan, and he said something that struck me: “People don’t have a vision for what the effort is going to deliver.”  If you think about that statement, it applies to several parts of our lives as financial planners.  

 

Vision for Your Practice

In today’s increasing regulatory environment, we tend to focus our attention on fighting the U.S. Department of Labor rule. In practice, the rule has already taken effect as clients are already asking planners if they are fiduciaries. For the last nine months, banks and wire houses have been converting their clients, for better or worse, to fee-based accounts. And, as I travel around the country, I hear too many people talking about what they are going to do to fight the rule, rather than what they are going to do to implement the rule in their practice.  

 

The rule will undoubtedly require a lot of effort to fully implement. However, our clients are likely to benefit from the changes that the rule suggests. Putting our clients’ best interests first has always been a part of our ethical makeup. However, the documentation needed to prove this status will require changing how we process our client files, complete our paperwork, and follow our sales process. 

 

That said, we tend to lack the vision of what our businesses may be like when we implement the rule. Your clients will likely have more trust in you. They will likely discuss more concerns with you. And, they will be more likely to refer you to other like-minded prospects. Those items can make your business more profitable and more efficient. 

 

Vision for Your Clients

At the same time, our clients lack vision in the financial planning process. Most clients spend more time planning this year’s vacation than they do planning their retirement. We have to do a better job of providing that vision, through education that motivates them to complete the planning process.  

 

Without a doubt, the planning process can be onerous if done properly. Planning should consider the risks of retirement, including longevity, legacy and charitable desires, taxes, and health care, to mention a few. Each of those risks needs special consideration, evaluation, and analysis to prepare a proper recommendation for each client’s concerns, goals, and objectives. 

 

Few people rarely want to think about those risks, let alone plan for them or act upon them. It’s our job as financial professionals to create a positive vision of the outcomes for our clients: sustainable retirement income, better lifestyle management, and more time with children and grandchildren.  

 

Eyes on the Prize

In the end, vision becomes an important part of the planning process and of our business models. We must keep the vision of all the changes in perspective, but we must also envision the benefits of change. In doing so, we can easily put forth the efforts needed today for a better business and happier client relationships. 

 

Winning Strategy

Few people maintain the vision of all the effort that change requires in order to improve. That applies to clients and planners. Take time to think about where your clients need to be in the future and where your business needs to be in three to five years. Keep that vision in the front of your mind for proper motivation to change.  

 

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 DOL Fiduciary Rule

QLACs: The Unused Gift


Annuities

In 2014, the U.S. Treasury Department released new rules around Qualified Longevity Annuity Contracts or QLACs. After an initial increase in utilization, the focus and attention dwindled over the past two years. Today, the sale of all deferred income annuities remains stagnant and far below expectations from 2014. This gift that the government provided remains largely unused in the planning community. 

 

As I prepared for a presentation recently, I asked our team to update our research on the use of QLACs at different ages and for different risk allocation models. The results were similar to an earlier study we did in 2015. In fact, the results from 2017 are even more convincing for the use of QLACs. Keep in mind the interest rate environment hasn’t changed significantly over the past 24 months. Yet, a fixed instrument was proven to improve the probability of success across many categories. With such a wide improvement, we owe it to our clients to consider this solution in the retirement planning process.  

 

A Closer Look

Our QLAC study evaluated four asset allocation models: 

  • Aggressive – 80/20 equity-bond allocation
  • Moderate-aggressive – 60/40 allocation
  • Moderate-conservative – 40/60 allocation
  • Conservative – 20/80 allocation

 

The initial investment started at ages 55, 60, 65 and 70. We looked at placing a $500,000 portfolio in each of the allocations. Each portfolio began a reasonable distribution of income beginning at age 70. For each allocation strategy, there was a probability of success of having $1 left in the portfolio at ages 90, 95, and 100. 

 

Next, we placed a QLAC at each one of those ages and allocation strategies. The annuity began paying out at age 80. With QLACs, you can tend to change income start dates five years before and after the initial requested start date – this gives the client a 10-year window if their needs change. So, there are 48 results cells between ages 55, 60, 65 and 70 in the four different allocation strategies when we look at longevity at 90, 95, and 100. In every one of those 48 cells, the study found that a QLAC improved the probability of success. What surprised me was the fact that some of the largest improvements in success rates happened when a QLAC was purchased at younger ages.  

 

A Change in Mindset

Too often, we think of QLACs as a way to push required minimum distributions down the road. Instead, we need to initiate a conversation about this solution in order to mitigate the risk of longevity. In doing so, we reduce some of the concerns our clients have about running out of income during their life. We clearly help some of our younger, more conservative clients in the process.  

 

Winning Strategy

Take the time to evaluate the use of deferred income annuities in the planning process with clients. Their best interests might be served by providing guaranteed income later in life. Our study shows that you can engage a client and have a high probability of helping them improve their retirement outcomes. 

 

For more information about the assumptions and results of our QLAC study, call Ash Brokerage at 800-589-3000. Ask for our annuity sales desk and tell them you want to know how you can improve the probability of success for your 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 QLAC Retirement

Add Value or Become Extinct


Annuities

We’ve been talking about the market forces within the financial services industry that are moving us toward a new fiduciary environment. Because even though the U.S. Department of Labor Fiduciary Rule seems to be delayed until summer, what started in late 2016 continues to gain momentum. 

 

What We’ve Already Seen

At the end of last year, several firms announced strategies to mitigate conflicts of interest, and news articles have been asking consumers to ask their advisor if they are a fiduciary. Several advisors have told me that prospects have asked them on the phone if they are fiduciaries before making an appointment. 

 

It is clear that changes in our business began even before the rule was announced. According to Morningstar, the number of ETFs charging less than 10bps rose from 125 to 348 from 2010 to 2015.* Consumers have more access to information than ever before. And, more groups are focused on the educational aspects of our industry, which is a good thing for everyone. So, even though the rule, the delay, and the pending litigation remain a focal point for our industry, consumer groups have already been forcing change. 

 

What’s to Come

It seems compressed revenue, whether it be fee- or commission-based, will likely take hold over the next three to five years. If you are only earning revenue from managing assets, you need to re-think your business model. Some experts believe asset management only will gross only 40-50 basis points, and we clearly see the trend moving that way today.

 

What You Need to Do

In order to sustain a healthy business model as a planner, you’ll need to expand your horizon and modify how you manage wealth. That includes leveraging protection solutions, such as insurance, annuities and alternative products, to maximize your client relationships. Many of us many will need to partner or merge with experts in collaborating fields in order to grow revenues. Without a doubt, you’ll need to add valuable services that will retain customers and help you acquire new relationships.  

 

If you stagnate in your offerings, you will likely find yourself earning less than the 40-50 basis points mentioned. Or, you might find yourself out of business. 

 

Your clients will only continue to become more fee-conscious and look for the most efficient asset management. There’s too much information out there about asset allocation services, so that can’t be your only offering. Instead, your expertise should be driving from managing different and expanded segments of your clients’ financial lives. But, that will require a willingness, a mindset, a toughness, and a curiosity to make your clients’ lives better in the long run. I’m confident all of us in the financial professional community are up to the challenge. 

 

Winning Strategy

Look to add to your existing services in order to offset the likely fee- or commission-based compression over the next three to vie years. Adding valuable solutions to your menu of client services will provide leverage and lift to future revenue in your firm. 

 

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.”

 

*Wall Street Journal, “WSJ Wealth Adviser Briefing: Broker Fee War, Morgan’s Make-Right, FAs on Snap’s IPO,” March 1, 2017: http://blogs.wsj.com/moneybeat/2017/03/01/wsj-wealth-adviser-briefing-broker-fee-war-morgans-make-right-fas-on-snaps-ipo/

 

Be Ready for the Questions Your Clients Will Be Asking


Annuities

As I was traveling around the country attending conferences, The New York Times published an article that caught the attention of many people in our industry. “The 21 Questions You’re Going To Need To Ask About Investment Fees,” points out questions we all need to get comfortable answering.* Better yet, we should prepare to discuss them upfront with our clients  

 

The article is a perfect example of the market effects taking place in the financial services industry. While the U.S. Department of Labor Fiduciary Rule has been delayed, our industry has already started a transition that is unlikely to be reversed. Our clients have been exposed to many of the perceived conflicts that exist in our business, and they have the right to ask appropriate questions. 

 

At the same time, I believe it is entirely appropriate to continue selling commission-based products, especially in long-term income planning and tax-deferral situations. Simple math indicates that commission-based products, when used properly, enhance the client position in many cases (as with any product solution).

 

The article asks questions about compensation, incentives, trips and fees. All of these are important to disclose to our clients in the future. If incentives are involved, I would argue we need to be upfront about those in the new fiduciary world. In fact, we need to figure a way to not be incentivized by these and focus on vendors making our business more efficient and effective. In the end, we must be prepared to answer all our clients’ questions about our compensation, the fees of the product, and why the particular product is the proper solution.  

 

As an industry, we need to take this type of article to heart. The news media should not be educating our clients about fiduciary status. Instead, we need to show them how valuable financial service professionals can be in building a long-term retirement and wealth management plan. If we commit to that, everyone wins.  

 

Winning Strategy:

Whom do you want educating your clients – you and your staff or the news media? Stay ahead of any hype. Be ready to answer questions about fees and compensation. 

 

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.”

*New York Times, “The 21 Questions You’re Going to Need to Ask About Investment Fees,” Feb. 10, 2017: https://www.nytimes.com/2017/02/10/your-money/the-21-questions-youre-going-to-need-to-ask-about-investment-fees.html?_r=0

Annuities DOL Fiduciary

Rule Delay Announced


Annuities

On April 7, the U.S. Department of Labor (DOL) will likely publish an official delay of its fiduciary and conflicts of interest rule. Many in our industry have been waiting for this rule to be delayed, but several points around the fiduciary rule remain uncertain. Industry experts predict a further delay, allowing the DOL to fully complete President Trump’s requested review of the rule.  

 

I want to stress to all who work in our industry that many aspects of the rule will go into effect June 9, 2017. Most notably, impartial conduct standards must be adhered to on any qualified sale after the delayed implementation date. Although the Best Interest Contract (BIC) requirement appears to be have been pushed off until Jan. 1, 2018, the sale of an annuity inside a qualified account must be in the best interest of the client, make no misleading statements, and have reasonable compensation tied to the transaction.  

 

More importantly, our industry has already begun to shift to the fiduciary status and will continue to do so before the June 9 delayed implementation date. For those of us serving our clients, it continues to be table stakes to work in the best interest of our clients. We must work toward the standard of care that every client deserves while protecting our profession that serves those clients.  

 

Even with the relief of the BIC through 2017, we need to look at the next nine months as an opportunity to evolve in the fiduciary world. We must continue to evaluate our sales process, our product shelves, and our holistic nature of our clients’ needs. The successful retirement advisor of the future will get to the fiduciary standard quicker, more efficiently, and have greater effectiveness with each client. 

 

Ash Brokerage stands committed to helping all our advisors make this transition. As implementation grows clearer in the coming weeks and months, we will announce several tools and resources to help you.  

 

Many aspects of the rule remain unanswered. Namely, the independent marketing organization exemption continues through the review process without finalized thresholds for marketing organizations to sign the BIC in 2018. We look forward to continuing to be part of the conversation in shaping these important changes to our industry. Look for continued information through Ash’s sales teams and social media. I look forward to growth in our industry with the increased care that the rule will provide to our 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.”

DOL Annuities