Annuities

Compensation Shifts


Annuities

The “Law of Compensation” states that your income is directly related to number of people you serve and how well you serve them.1 Notice that the law does not claim one business model is better than the next. In fact, business model, e.g., fee-based, commission, etc., is irrelevant to how much compensation you earn. 

 

The key to your success or failure isn’t your compensation. The key is focus. It’s about your focus on your clients, and prospective clients. 

 

No matter your business model, you will dramatically increase your compensation by focusing on the number of people you serve and how well you serve them.

 

Let’s look at the first part: the number of people you serve. Common practice will tell you that less is more. You need to work with a smaller number of clients with high net worths. That’s a business model. That model can be scaled to new heights through the investment of para-planners, support staff, and additional planners (which makes a great succession plan for the firm). By reinvesting in your business, you can serve more and increase your compensation. 

 

The next part is about maintaining value in your service. As you increase your number of clients, it’s important not to lose sight of their individual needs, desires and planning objectives. Again, investments in technology, people, and infrastructure can make a huge difference. 

 

A Focused Mindset

Your clients hire you to look them in the eye and solve their most complex issues – retirement and longevity. The level of service you provide is more important than the model you use. In fact, rarely do clients ask about your business model. They care about your expertise, how well they will be served, and how much they feel their goals and objectives are a priority. 

 

It’s inappropriate to choose a solution for a client based on your business model. You have to change your mindset to focus on your clients and what risks concern them the most. If their concerns are longevity and income, you owe it to them to look at guaranteed income options, even if that is against your business model. 

 

Winning Strategy

Maximize your compensation and revenue by looking at how you can help more people and increase the level of service you provide. Both will elevate your business. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement 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.”

  

1Bob Burg and John David Mann, “The Go-Giver: A Little Story About a Powerful Business Idea”: https://thegogiver.com/

Compensation Practice Management The Go-Giver Retirement

How to Create Value Beyond Fees or Returns


Annuities

If you’re like most of the people that I’ve talked to over the past 18 months, you’ve felt revenue compression. As our industry gravitates toward more transparency, it’s fair to expect continued reductions on commissions and fees. So part of becoming a more successful financial planner involves defining your value in a whole new way. 

 

It’s no longer enough to have the lowest fees or the best returns – anyone can have the best returns in any given year. According to research from S&P Dow Jones, only 5 percent of active money managers continued beating the index after a three-year run of beating the S&P 500.1 

 

Any advisor can lower their fees until they are unprofitable and unsustainable. Go ahead and Google “online financial planning software,” and you’ll see how low your fees will have to be if you want to compete – free. As Bob Burg and John David Mann explain in “The Go-Giver,” you must think about your value in terms of how much you are giving your client in excess of the payments you receive.2

 

Customize Your Value to Your Clients

Return and fees might be a part of your overall value, but they are longer the determining factor for clients to select advisors and to stay with them. You need to provide additional value to every client on their own terms. Customization will be critical. Know what is motivating each and every client interaction. Examples might include online access to information, bill paying ability, concierge or complimentary professional services, or family office services. 

 

Understanding what is important to your client is the key to success – it’s not a specific investment theory that can ultimately be duplicated. Providing service and expertise that’s personalized to their situation adds value. Focusing on the client and delivering what they want adds value. Every. Single. Time. 

 

Your Client-Focused Business Model

The fiduciary standard forces you to walk away from your own interests and place them on your clients. That includes your business model. You new business model should be “the client model.” You should be asking yourself:

  • What is the ultimate goal for this client/prospective client?
  • What can I do to put the client in a better position financially?
  • If my client sat down a year from now and said, “Thank for making my life better!” what would have happened and what would I have done with this client?
  • How can I help this client the most?

 

That is a client-focused model. No concern about your upfront or ongoing revenue streams. Did you provide value to the client on their terms? That’s the ultimate question you have to answer. 

 

Winning Strategy

Focus on growing your business through a client-focused model. Your true worth in a client relationship is determined by how much you give in value, not what you take in payment. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement 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.”

  

1 S&P Dow Jones Indices, “Fleeting Alpha: Evidence From the SPIVA and Persistence Scorecards,” February 2017: http://us.spindices.com/documents/research/research-fleeting-alpha-evidence-from-the-spiva-and-persistence-scorecards.pdf

 

2Bob Burg and John David Mann, “The Go-Giver: A Little Story About a Powerful Business Idea”: https://thegogiver.com/

Value Practice Management The Go-Giver Retirement

Why You Should Transfer Risk to Transform Your Business


Annuities

A successful 2018 can come in the form of multiple opportunities. Some will happen fast, while others will require an investment of your time, money and energy. But, the latter are the opportunities that tend to transform your business and provide exponential growth. You need to be thinking about both – creating quick results while making strides for long-term growth. 

 

If you are going to make 2018 your best year ever, think about changing the way you talk with clients. We tend to think about performance, rates of return and fees. Those are important items, but the transfer of risk can be more important on several levels. 

 

Why would you want to retain risk without any larger return for doing so?

 

Help Clients Keep an Income

The answer is usually the cost of the insurance. So, many times, our clients choose to self-insure their retirement income through systematic withdrawals of assets under management. You need to help them understand the risks of longevity and the costs of not transferring their risks. 

 

Our research shows that most people, regardless of income and net worth, benefit from having 15 percent of their portfolio from guaranteed income sources. Those sources are Social Security, defined benefit plans, and privately purchased annuities. The ability to pool your life expectancy with other people creates a transfer of risk that is not available in any investment vehicle besides guaranteed income sources.  

 

Help Companies Keep Promises

As you meet with business owners, many will want to shift the risks of their aging pension plans to another source. There are trillions of dollars in pension plans across the United States that are no longer serving their corporations. The plans are not properly rewarding the people for extended service. The plans don’t help recruit better talent. And, they aren’t accruing additional benefits. It’s simply a liability for many CEOs today. 

 

Transferring a pension plan allows a company to free up resources that would normally be used for administrative work on an outdated plan. Due to tax reform, some companies spend idle dollars to sure up their plan. So, many are in a great position to transfer to an insurance carrier. While there is a one-year premium to shift this risk, the cost savings of administrating the plan typically outweigh the initial premium. 

 

Winning Strategy

Change your presentation to clients to shifting risks. They are surrounded by risks in today’s retirement planning market. Be different. Returns won’t matter if you can shift some of the income risk to an insurance carrier. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement 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.”

2 Investment Theories that are Critical in Today’s Market


Annuities

When you’re done reading this, you should Google “investment theory.” You will find more than 577 million articles, videos, news releases, opinions, and thousands of different types of investment theories. It’s mind-boggling to think of the different ways you can manage assets in this industry. 

 

The problem is we forget that the most important part of managing assets is making sure our client understands and feels comfortable with the direction of their portfolio. Maybe even more important is how our clients make decisions. 

 

Out of the millions of Google results, there are two theories that I find relevant in today’s investment management market: Prospect Theory and Recency Bias. Understanding how your clients react to these two behavioral theories is important in how you manage their expectations and set the course for their retirement strategies.  

 

  • Recency Bias assumes you are going to get the same result as you have previously when there is a chain of consistent events. For example, if you watch a football game and the kicker is setting up for a game-winning field goal, you assume he will make it because of his high percentage of successful kicks and the fact that he has already kicked several field goals earlier in the game. In reality, he has no better chance of hitting that field goal than any other kick. But, our recency bias tells us that he will make it. In investing, the recent gains in just about every asset class make us think that the equity and bond markets will continue to increase. In reality, there is no fundamental reason to believe that the chances of continued equity market increases are greater than they have ever been. We just perceive that the markets will go up. And, our clients feel that way when they make decisions. 

 

  • Prospect Theory addresses the willingness to avoid loss. In most cases, clients feel a loss 2.25 times more than the same amount of gain. They tend to choose products on how they are positioned. For example, let’s assume that the total return for a client in two different scenarios is $25 for the same, two-year fixed period. One results in a steady gain of $25 over the two years, or $12.50 for each year. Another scenario allows the client to achieve a $50 gain in year one but a $25 loss in year two, resulting in the same net $25. Most clients tend to choose the first scenario because they have a tendency to look for gains and avoid losses, even if the result is the same. 

 

As we start to look into 2018, think about how your clients might be affected by different market scenarios. How likely are they to get scared or concerned if they don’t see the steady growth of their retirement dollars? Is your practice in a better position by making sure your clients feel better about steady growth versus random fluctuations in the market? Make sure you understand what your clients are feeling in order to build the portfolio that best matches their goals. 

 

Winning Strategy

Understanding how clients react to recent events and potential gains and losses is just as important as managing money to benchmarks. Take time to ask the right questions and look at alternatives to address behavior and money management theories. 

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement 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.”

Investment Theory Retirement Annuities

One of the Easiest Decisions You can Make for Your Clients


Annuities

Clients have a lot going on at the start of the year. Work brings new challenges and new budget constraints. Kids have to get to college and start a new semester, which brings the returned stress of tuition. And, they’ve probably deferred a conversation with you, their planner, because they were too busy in December. Now it seems as if they are just as busy, if not busier. 

 

So many things going on in other aspects of your clients’ lives that you have to make their financial decisions easy. You can address longevity concerns, making at least one decision easier and less painful than all the distractions swirling around them. 

 

Tax-Deferred to Tax-Free?

We’re always trying to minimize taxes for our clients. Unfortunately, some of our products create a tax at death that is higher than if we had not placed it in a tax-deferred instrument to begin with. According to LIMRA’s 2017 Fact Book, there are $486 billion in non-qualified assets on insurance carriers’ books that are not providing income to their owners. Amazingly, a large percentage of those clients are over age 75 and considered affluent or mega-millionaires. 

 

If those are one of your clients, they have a potentially severe problem. 

 

How can you better leverage an asset that isn’t being used for its intended purpose?

 

Current tax law allows a 1035 exchange from one annuity to another annuity with continued tax deferral. Better yet, if you transfer the asset to an approved asset-based LTC annuity, the proceeds are accessible tax free when used for qualified long-term care expenses. Where else can you transfer a tax-deferred gain to a tax-free distribution under the proper scenario? “Rothification” requires claiming the gain as a taxable gain in the current year. By concentrating on non-qualified assets, you can continue to defer the gain and potentially access it tax free. 

 

When you propose this type of transfer, the client benefits in several ways:

  • The asset continues to grow tax deferred and they have no taxable gain on the transfer 
  • The client creates leverage from the purchase of the long-term care annuity as the carrier provides a tax-free pool of assets for long-term care expenses
  • If the client needs long-term care, they access the cost basis and the gain in the policy without any tax consequences

 

Your practice benefits from this conversation in several ways:

  • You preserve and protect your assets under management from one of the costliest expenses in longevity planning
  • You generate another source of revenue from an asset that was likely not creating revenue for the firm; or, you capture more assets from a previous financial planning firm
  • Because you have helped the family and generated capital when they need it most, you have a greater chance of working with the next generation

 

Think about looking at your existing clients and asking about their non-qualified assets. The opportunity is large and can help relieve their longevity concerns immensely. For more details on this strategy, check out this video. 

 

Winning Strategy

There is a large opportunity ready to be transferred to the next generation. If you provide a better transfer path and better tax consequences you will win business and clients.

 

About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement 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.”