Annuities

DOL Changes: What You Should Do First


Annuities

“Everyone has a will to win; few have a will to prepare to win.”

–Bob Knight, former Indiana Hoosiers basketball coach

With the new U.S. Department of Labor (DOL) rules coming into effect next year, many financial professionals are asking, “What do I have to do to comply?” I think the better question is, “What should I be doing to prepare?” Instead of solely focusing on what you must do, go a step further. Determine how you can enhance your business to not only comply, but also excel above the competition.

 

Critical Success Factors in Future Business Models:

  • Compensation regimes must remain as neutral as possible – All revenue should be paid through an established grid so consumers are confident that conflicts are reduced.

  • Products with classes must become more uniform – The DOL recognizes the time and effort devoted to some sales cycles for more complex and best interest sales. Differential compensation must be set by class, not individual product. Furthermore, all of us will need to work with smaller margins.  

  • Conflicts of interest must be eliminated – Metrics such as highly concentrated positions, high placement ratios of product classes, and repetitive solutions must be addressed.  

  • Distribution systems like career agencies add value in the oversight of producers – It’s essential to know your client, agents and brokers in a fiduciary environment. Highly structured general agencies and Offices of Supervisory Jurisdiction provide value and confidence when executed properly.

  • The fear of disclosure must be abandoned – As an advisor, during your recruitment process you should educate your clients about disclosed information, including your commissions and overall revenue into your firm. As a business owner, you shouldn’t feel violated by the requirement to discuss your compensation regimes and business models. Your clients will appreciate learning why, how, what it takes to serve them with honesty and loyalty.  

  • We have to keep our curiosity – You must abandon your old biases in the former “suitable world” and remain open to different classes of assets and solutions to innovatively solve client needs.  

While many uncertainties about the new rule remain, the DOL has indicated its willingness to provide guidance throughout the implementation period. However, the six items above will serve as a foundation for thought and action as the specifics are gradually clarified.

Winning Strategy:

Preparing to win is more important than the desire to win. Use the DOL’s implementation period to assess your business model and develop new strategies to deliver meaningful client solutions. Focus on improving methods of distributing products and services for future success.

 

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.

Why We Can’t Let Collaboration Die


Annuities

Whenever someone enters my office, they are greeted by a picture of “The Last Shot.” It captures the moment when Indiana basketball player Keith Smart took the final shot of the game to help the Hoosiers win the 1987 National Championship. However, it’s not just Smart I appreciate when I look at this picture. I also notice the other players, supporting him both on the court and on the sidelines. (EDITOR’S NOTE: If you look closely, you’ll notice Mike is one of the supporters on the sidelines as a student manager!)

Every time I look at this picture, I am reminded of the value of teamwork and collaboration. In a similar way, we must demonstrate a high level of cohesiveness in order to serve clients effectively. Often, our clients are trusting us with their very last retirement dollar, and they deserve an extremely high level of professionalism in return.  

Over the course of 30 years in this industry, I’ve observed a shift from holistic service to specialization. While the focus of retirement planning remains on accumulating assets, our clients need more than just asset management. Too little emphasis is placed on long-term care needs, guaranteed income floors, and the transfer of wealth with the least amount of taxation.

 

Making Your Team Work

With the current DOL ruling defining new standards for our industry, are you capable of performing ALL the analysis necessary to serve your clients with excellence? My guess is that, individually, you aren’t able meet that expectation. Therefore, you should use a more holistic, team-centered mindset to achieve these goals. 

This type of collaborative plan can be executed with a variety of professionals:  

  • Life insurance agent 
  • Long-term care expert
  • Attorney
  • CPA
  • And possibly others needed to serve the best interests of the client

When you use this approach, you must be certain everyone understands their role as individuals and teammates. Regardless of which who created the original plan for a client, everyone working on the case will also be held to the fiduciary standard, thus making it imperative for the team to work as a cohesive unit.

As you assemble your championship team, ask yourself a few questions: 

  • Are you willing to individually take on the fiduciary risk from others’ recommendations?
  • How can you ensure every team member is being transparent with the client about fees and disclosures? 
  • Is it time to re-think your business model as a sole practitioner and look to building a producer group that can address your clients’ needs under one entity? 

There’s no doubt we must continue to collaborate for the better of our clients. Yet, the real question is how to do it effectively and efficiently for our business. Now is a great time to look at all your vendors as teammates and determine what gaps you need to fill. Just as a coach strategizes where to position certain players, you need to strategize with your carriers, vendors, services and technology.  

When we surround ourselves with like-minded professionals, collaboration only benefits our clients. Think about how you will collaborate in a more regulated environment, and consider the consequences of working independently in a fiduciary setting while maintaining best interest standards. My fear is that collaboration will quickly fade as an unintended consequence of regulation and broker-dealer compliance. But, teamwork is too important to lose as we transition into the next chapter of financial services. 

 

Winning Strategy:

Our strongest professional relationships might change as a result of regulation, but we can’t sacrifice collaboration. You must be intentional about strengthening and maintaining your relationships, creating a team that will be effective for your clients and your business. 

 

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.

 

Why We Should Change Our Measurement of Success


Annuities

When it comes to retirement planning, our industry’s priorities need to change. If we continue to measure our success against the market, we’ll always come up short of expectations. 

Case in point: In March, the Wealth Adviser Daily Briefing from the Wall Street Journal analyzed the benchmark performance for the mutual fund industry in 2015. Some key takeaways:

  • Not surprisingly, most stock pickers and active managers (66%) did not beat their benchmark index
  • 84% of active large cap managers did not beat the S&P 500 over five years
  • 82% did not beat the benchmark over 10 years 

Obviously, there is a bias toward exchange-traded funds and index investing in today’s planning. However, I argue there is another benchmark that is more important – the client’s benchmark. 

Clients rarely have a financial goal of exceeding the 10-year average of the S&P 500 performance. Instead, they usually have in mind a dollar amount where retirement seems achievable. We are noticing that dollar amount goal is shifting from a focus on the asset value to a focus on the amount of income that will make their retirement successful. 

So, instead of publishing the performance of active managers against an external index, why don’t we identify how many of their investors earned more than required in order to have a successful retirement? These investors should be held to the same fiduciary standard as the financial planners who are meeting with clients, working to ensure their goals are met. In a post-DOL world, we need to look at our entire industry differently and challenge our thinking as it relates to our clients’ goals and objectives.  

Going forward, we must align our goals with those of our clients in order to impact a meaningful change in our industry. The most successful financial planner will be someone capable of articulating how his or her financial planning process exceeded each individual client’s benchmark return or income goal. 

Winning Strategy

Instead of looking at external indexes to validate our performance, let’s focus on reaching our clients’ goals first. Each client has a unique target they need to achieve in order to retire successfully – let’s validate our success through their success.

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.

Survive and Advance: The March Madness Mentality


Annuities

If you know me, you know March Madness is one of my favorite times of the year. I love that the regular season, conference championships, or even talent of the team doesn’t matter once the tournament begins. Rather, what truly counts is how effectively the teams use the “survive and advance” strategy to play the next six games.

With all of the recent changes in our industry due to the U.S. Department of Labor ruling, “survive and advance” certainly applies. Many industry experts continue to spew complaints, as the rulings’ requirements are undoubtedly burdensome and difficult to administer. But instead of stagnating under the pressure, we need to adapt the “survive and advance” mentality – most importantly, we need to advance.

To advance your business, you should adapt this mentality in three areas: 

  1. Fiduciary Standard – As a financial professional, you must consider how to survive in a fiduciary role. Although many of you have already reached this standard with parts of your business, adapting your entire client base to that level may be difficult, timely and costly. You’ll need to change your business model and learn to become more efficient. However, these issues should be corrected and improved – with or without government requirements – to enhance your business. With the right mentality, these changes will not only help you survive, but also lead you to thrive. 

  2. Technology – Think of ways you can incorporate technology to improve your everyday practices and remain at the forefront of advances as they come. The true key to any change as a result of the DOL rulings will be how we advance with technology – as an industry and as financial professionals. Our banking industry competitors are able to move funds with the click of a cellphone camera. Yet, we still require timely paper signatures to move assets between carriers. Our current technological status and distribution methods will not attract millennials to invest in our business. 

  3. Client Experience – In a fiduciary world, it’s ultimately the client experience, not the rule itself, that will determine who will be successful. If you can improve the client experience and attract new, high quality prospects, you will survive and advance. However, if you fail to step up your game, you will quickly fall behind.

 

Winning Strategy

Embrace the “survive and advance” mentality. Adapt to the specifics of the DOL ruling, but also think about advancing and thriving in your practice.

 

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. 

Our Digital Value Dilemma


Annuities

We’re not in the technology industry, but it’s clear technology is important to ALL industries, including financial services. As you evaluate your business model to meet new regulations, you should also consider how technology can make those changes more effective.  

Recently, I read an article published by CISCO about digitization and the Global Center for Digital Business Transformation’s 2015 study on digital disruption. Digitalization, according to the article, refers to upgrading an office by creating a website or investing in cutting-edge technologies. By evaluating your own digitalization, you ultimately will be able to improve your client experience, a key differentiator that can set you apart from competitors. Advisors and financial planning firms that master this idea will stand a step above the rest.

 

The Cost of Waiting

The risk of NOT thinking digitally may prove costly. The Global Center’s study predicts four of the top 10 industries will be replaced in the next three years due to “digital disruption” – when a technological advancement makes an industry nearly obsolete. For example, film cameras were replaced by digital cameras, and even digital cameras are now being replaced by smartphone cameras. 

Failing to be up to speed with the digital world will result in being passed by those who have the technological advances. Our clients are bombarded by digital advertising and notifications, so we must remain at the forefront of their minds in order to capture market share. Only through a process of effective digitalization will our business be able to successfully reach clients and remain competitive. 

Government regulation forces us to look at our business differently now, but technology can provide the tools we need to catapult our business to a higher level. As you evaluate changes to your practice, ask yourself: 

  • How can I become more technologically efficient as I market my services and products?  
  • More importantly, how can digitalization improve my client experience?  

 Both will help you increase your market share in the future. 

 

Winning Strategy

Rethink your business model and client experience in order to improve. Don’t allow new regulation to be the disruptor that solely shapes your business – use technology to make it more valuable to your clients and prospects.  

 

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.

 

 

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