Annuities

3 Ways to Get More from Your Brain


Annuities

Like many professionals, I am trying to incorporate meditation into my daily routine. With meetings for seven to eight hours of the day and many nights taken up by client dinners, I find it difficult to be present while at home or to simply rest my mind. It’s hard to start a new habit, especially when you don’t feel results immediately. However, I know in the long run that meditation will make me healthier and help me make better decisions for my sales division. 

 

One of the reasons I started to look in to meditation was the advice from my business coach. But, I found a lot of other information about the brain and reasons why I needed to “rest my brain” occasionally.

 

Did you know the brain completes 1,000,000,000,000,000,000 calculations per second? That’s right – it’s a one with 16 zeros after it. I had to look up the proper name for the number – it’s quintillion. I just knew it was a big number.

 

Think about the brain’s capacity and its limitations. It takes the brain approximately 21 minutes to refocus on a complex task after being interrupted. But, at the same time, it can conduct 1 quintillion calculations per second. So, how do you manage this important part of the human body and maximize its use for clients?

 

Focus

Given our busy schedules (and our clients), it’s imperative we keep the mind on task. I recommend time-blocking for important activities like calling clients, client appointments and managing your business. Focusing on tasks allow you to leverage the power of your brain and its massive computing ability. 

 

Rest

It’s important to rest your brain and keep it fresh. After all, it’s really working overtime doing all those calculations. Take time to enjoy the outdoors; sit and listen to “nothing” – chirping, whispering, glistening, or whatever you hear. Enjoy the moment. Allow the brain to relax and take in the environment. By having a relaxed brain, you are in a better position to make great decisions on your business and with your clients. 

 

Challenge

Lately, I’ve been talking a lot about constraints. Challenge your brain to think outside the normal flow of business. Ask yourself, “Is there a better solution for my client that provides a better outcome than how I am doing it now?” Your clients will appreciate the ideas that your brain delivers. After all, one idea out of a quintillion isn’t all that hard, right?

 

Winning Strategy

Allow your brain to rest periodically. But, when it’s time to focus, make sure you are uninterrupted. The level of productivity you enjoy will surprise you. Practice exercising your brain just like the rest of your body. 

 

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.”

A Call for More Financial Professionals


Annuities

With the U.S. Department of Labor Conflict of Interest and Fiduciary Rule looming, many people predict a loss of sales and financial professionals. I’ve talked extensively about the opportunity to expand one’s financial practice, but I fear the new rule will create a barrier to entry for many individuals – young and old – thinking about a financial services career.

 

A recent study by The American College found a large segment of the population scored poorly on a financial literacy test, indicating a tremendous need for retirement education, which can best be served one-on-one and face-to-face, not through a digital interface.

 

Below are some key findings from the RICP Retirement Literacy Survey*:

 

Only 19 percent passed the retirement income quiz (60 percent or better).

Not one person in more than 1,000 respondents received an A (90 percent or better). And, only 1 percent of the respondents scored a B (between 80-90 percent). 

 

Only 39 percent of respondents knew that when interest rates rise, bond prices drop.

With today’s low interest rate environment and people reaching for longer durations, the risks associated with bond ownership has never been higher. The majority of Americans don’t understand the direct correlation and the effects of changes in interest rates. 

 

More than half the respondents underestimated the life expectancy of a 65-year-old male. 

Too often, robo-advisors guide a client through some assumptions. But, the assumption is left to the person selecting the input. This survey result suggests half of Americans are underestimating how long they will need their assets to last.

 

Only 31 percent of people responding to the survey knew that 4 percent can be safely withdrawn from an account during retirement (the 4 percent rule).

Even with increased media attention to retirement income and focus on de-accumulation strategies on digital platforms, most people do not understand how much they can withdraw from their savings. 

 

All of the above (and similar statistics from the survey) alarm me about the readiness of most Americans as they move toward retirement. When we are unprepared, we have to seek out professional assistance. That assistance is not going to come from a robo-adviser or digital platform. Clients need, and deserve, to feel comfortable and have their questions answered. More importantly, they should have a relationship that challenges them to think about potential risks like longevity, health care, interest rate risk, rate of return targets, and income strategies. 

 

It’s unlikely that a computer program will have the expertise to direct a client through the complexities of retirement planning and be there to make them feel comfortable when the plan may bend off course. 

 

Winning Strategy

Think about providing more education to your clients and prospects. Surveys point to a need for more education. More importantly, there is a need for more financial professionals to help execute meaningful financial plans. Help someone into our industry and be a mentor to them. 

 

*“6 Disturbing Findings from America’s Failed Retirement Quiz,” The American College, Aug. 10, 2016: http://knowledge.theamericancollege.edu/blog/6-disturbing-findings-from-americas-failed-retirement-quiz

 

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.”

Which Risk Do You Want?


Annuities

Since the U.S. Department of Labor (DOL) rule was announced in April 2016, there have been so many interpretations of the rule and its effects on individual financial planning firms. As I read the rule in April, one of my biggest concerns was that advisors would shift their product mix to the path of least resistance instead of really digging in to what might work for the client.

 

Unfortunately, I see and hear a lot of “I’m not going to sell annuities in the future.” Even worse, I continue to hear broker-dealers limiting product menus to make compliance easier. 

 

Over the last several years, the stock market has been on one of the longest bull runs in history. Recently, in July and August of 2016, I watched the stock market hitting all-time highs. But, at the same time, I saw inactivity at the advisor level and the client level. The annuity industry reports sales slowing during the summer months across most carriers. Our business has slowed and our sales teams report that clients don’t want to meet with their financial advisors. In turn, advisors have begun to turn their clients’ accounts into fee-based accounts after charging an upfront commission. In many cases, they feel the change is mandated by their firm. Many are not taking the opportunity to advise clients – instead, they are just focusing on the administrative change in compensation. 

 

Unfortunately, through all the DOL issues, we have failed to focus on what is most important: protecting our clients’ retirement income savings and income potential. With markets growing to all-time highs and volatility low, it seems like a perfect time to remain invested. However, when you look at extended periods of low volatility heading into the fall months, you see an increased period of volatility after Labor Day. Our clients, especially those within five to 10 years of retirement, have too much to lose in the next market downturn.

 

So, my question is simple:

 

Do you want to be protected from regulatory risk by not selling annuities under a Best Interest Contract? Or, are you exposing yourself to litigation risk by not reaching out to clients and locking in gains with a significant risk of account value loss?

 

Too often, we get caught up in media and peer conversations about the regulatory environment changes. Make no mistake, the changes coming in April 2017 are significant. But, it’s no reason to abandon our clients and stay within our comfort zone of asset management. Instead, it’s a time to reflect on the entire value proposition you bring to the table for your clients. And, more importantly, it’s time to act upon protecting their retirement savings before the next market correction. 

 

Winning Strategy

Take a look at your clients who are within five to 10 years of retirement. Call them into your office for a meeting to assess their current risk tolerance and desire to take some of the investment risks off the table.

 

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.”

Get Creative on Your Playground


Annuities

Recently, I’ve been reading “A Beautiful Constraint,” a book I would highly recommend to any financial professional thinking about how to implement changes to their practice. And, a couple of weeks ago, I witnessed an analogy the authors use to discuss creativity.

 

I was walking home to meet a repairman when I noticed students at a nearby school were out to recess. As I waited for the repairman to show up, I watched the kids play on the playground. They ran freely around the designated area, which was enclosed by a chain-linked fence. They pushed the boundaries of the recess zone – some were even climbing up the fence and had to be told to get down. But, they made up their own games with their friends, played hide-and-seek, and generally let their minds run free and enjoyed themselves. 

 

On the other hand, I also recently witnessed a class of children attending a day game for our single-A baseball team, the TinCaps. As I walked to lunch that day, the kids were in an open area, yet all of them were milling around within 10 feet of their teachers. There was no hide-and-seek, no one running to climb a nearby wall, and no one who seemed to be making up their own games. Instead, with all this wide open space, they were listening carefully to their instructor and waiting for the next order. The lack of constraint didn’t foster creativity.

 

It’s the same with business constraints – they can set up and provide a launching pad for creativity. Without constraints, we tend to follow orders or continue to do what we think is successful – probably because it’s the way it worked previously. Instead, we need to be pushing our limits and looking for new ways to attack our clients’ problems.

 

It’s constraints like the U.S. Department of Labor (DOL) Fiduciary Rule that force us to look at our clients’ needs differently … more creatively. This is a time to rethink how you provide guaranteed income to your clients and secure their financial future. Take the opportunity of the regulatory constraint and grow your financial planning practice through creative ideas and strategies, solving problems with open mindedness toward solutions that are new to you, and introduce your clients to a more holistic experience in a post-DOL world.

 

Winning Strategy

A constraint can challenge you to look at your financial planning practice differently. Use the current regulatory constraints to look at expanding your offerings and make your business more holistic. You will likely capture more business from existing 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 DOL Practice Enhancement

Seeking Income Replacement with Low Interest Rates


Annuities

Near the end of August, my daily Google search brought an article to my attention: “Advisers seek income replacement as interest rates tumble.”* The article addressed how financial planners are looking at changing the conversation with their clients to increase the return and yield in their portfolios. There were some interesting statements made in the article that I think need to be discussed.

 

  • The firm being highlighted manages to the asset return minus inflation. They are targeting a long-term return of 3.5 percent to 4.0 percent, which is very reasonable. However, their model portfolio to achieve those returns consists of 25-30 percent fixed income and 70-75 percent equities. Even for a 60-year-old with a long life expectancy, that concentration in equities presents some risk that many may not be willing to take. And, even with conservative returns, longevity risk has not been addressed – the client can still run out of money. With a 70 percent allocation into equities, sequence of return risk remains high, even though the equity portion is well diversified. 

  • The firm states that if the client can’t settle for an annual 3 percent return, it recommends a 90 percent equity allocation. Obviously, the client’s risk tolerance must support this. However, chasing return tends to make portfolios more aggressive, increase turnover costs, and increase tax exposure to non-qualified portfolios. Planners need to be careful about allocation strategies that tend to drift to more aggressive. I like to remind clients they never know how much risk to take until they have taken too much. Additionally, the firm looks to add illiquid vehicles to boost yield. Again, as we look toward retirement, the need for liquidity and uncertainties mount. The need for liquidity might increase as we move from our working years to our non-income-producing years. 

  • The article failed to address the other risks besides market risk to the portfolio. Planners tend to address market risk and return risk through allocation strategies. However, there are so many other risks for a near retiree or retiree. Successful plans mitigate longevity risk and make the portfolio more efficient, provide access to affordable health care options, provide a strategy to maximize Social Security, address the potential effects of a chronic or unexpected illness, mitigate long-term care expenses associated with a nursing home or in-home health care expenses, and much more. 

 

We have slipped into a world of asset managers and asset gathers. Being fiduciaries means looking out for our clients’ best interests – that will include not only asset growth, but also asset protection. By protecting assets, we can eliminate pressure on the remaining assets that would have required a higher return. By reducing longevity risk, we may be able to lower the required return and adjust equity allocations to normalized allocation percentages for retirees. 

 

Winning Strategy

Address the entire financial plan, not just the assets under management. Too many firms are concentrating on asset growth and using asset growth to replace income. That type of portfolio is tax and cost inefficient. We need to look at alternatives that can protect the portfolio while mitigating the other risks associated with retirement income planning. It’s not as simple as changing an allocation. 

 

*“Advisers seek income replacement as interest rates tumble,” FinancialPlanning, Aug. 29, 2016: http://www.financial-planning.com/news/advisers-seek-income-replacement-as-interest-rates-tumble

 

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 Assets Under Management