Annuities

Why Financial Illiteracy is Like a Cancer


Annuities

Recently, I read an article from Yahoo Sports about former Indiana Pacers player David Harrison. After earning $4.4 million in four seasons with the NBA, plus some time overseas playing professionally, the 32-year-old basketball player is nearly broke. We’ve heard about these scenarios before, but this story exemplifies why financial illiteracy is like a cancer. It does not discriminate by wealth. It does not care about race or gender. Simply put, not understanding your financial situation and circumstances can ruin your life.  

Harrison can’t even work at a local McDonald’s restaurant, not for lack of trying. Customers recognized him – it’s difficult to miss a 7-foot person taking your order – causing them to ask questions and end up taking 40 minutes to order, according to the article. So he had to leave McDonald’s. Banks foreclosed on his home and tried to repossess his car, and he still provides for his infant son. He says he can’t even afford to finish the final 16 credit hours needed to earn a degree (he left college early to play in the NBA). Needless to say, his life now is extremely different from his life when he was playing in the NBA. 

Even though most of us won’t be retiring from the NBA, this example shows the importance of having a reliable stream of income when your main source of income stops – no matter your age or profession. It’s something that’s all-too-often overlooked. I’m sure Harrison would appreciate having some level of steady income right now. And, he probably wouldn’t care about the rate of return on that income – he would be more focused on the bills he could pay instead.  

The Bottom Line: Financial literacy begins with education and planning. Understanding income needs and potential pitfalls could help your clients avert many hardships later in life.

 

 

Winning Teams Have Infrastructure


Annuities

Back at the end of the NFL season, I remember listening to a sports broadcast discussing the similarities of the four franchises in the conference championships. All these teams had something in common: infrastructure. It’s an important ingredient for success in sports AND business. 

The host pointed out that each team had built a championship contender through various methods: free agency, the draft, retaining talent through long-term contracts or some key trades. Two teams had MVP quarterbacks. Two other teams had rising quarterbacks. Some teams relied on the run more than others, and a couple relied heavily on the short passing game. The methods were different, but all led them to winning. 

If you’re going to succeed in business, you need to find a way to build (or partner with someone that has) infrastructure around you. In the financial services industry, you need to have:

  • People who can support your sales efforts – Product specialists are key to positioning the correct solution with the right client situation.

  • Post-sales support – You need to be able to get your pending business through the pipeline efficiently, with little need to touch paper after the client signs. You need to be able to focus on the next client solution. 

  • Marketing – You must have a team that understands our business, your business, your clients’ needs, and how to brand that story repeatedly.  

  • Cutting-edge resources – Your staff needs to supply a flow of ideas and clients to you so that you are always looking for ways to drive revenue through your office. A good brokerage agency can provide ideas through data-mining and understanding the coming trends in the industry. 

  • Financial reporting – Just like you ask of your clients, you must be able to understand where you earn your revenue and where you spend it. Make sure you are getting all the commission reporting from your carriers to make your life easier. Establish processes so you can monitor the financial health of your business. 

If you don’t have the resources to reinvest in your business today, then you should partner with organizations that can help with the above areas. You might find that their partnership is more valuable than having a single person on staff, and it may be more profitable to outsource many of the infrastructure needs listed above. If you’d like more information about creating an infrastructure around your office, give us a call at Ash Brokerage. 

The Bottom Line: Successful teams and businesses have outstanding infrastructures surrounding them. Great producers focus on activities that solve client problems, while others handle the non-revenue activities.  

Change vs. Virtuosity


Annuities

The definition of change is to convert or transform. Essentially, we all change year after year as we continue to transform as humans. But real, meaningful change might be better described as virtuosity – the development of great skill or mastery. So, what does it take to become virtuoso?  

Becoming a virtuoso starts with one question: Am I resolved to be the best? If you are resolved to be a virtuoso, you have a purpose or intent to be the best. In doing so, you will do the things necessary to become the best – regardless of time commitments, money or effort. That is a clear difference to just changing.  

As an industry, we have to be resolved to improve the client experience with underwriting, application processing and overall experience. We must commit to making the industry better, and do so in a manner that deploys financial resources, intellectual capital and time commitments from all levels.

We have to change our mindset from just change – because we are changing for the sake of change – to being resolved to make our industry a virtuoso industry. It has to be one that new talent views as a premier place to build a career, where clients seek information and don’t rely on “robo-investing,” and where we deliver true value to clients.  

The Bottom Line: Re-think change to become a virtuoso, and remember the first step is redirecting our mindset.  

 

Contracting Doesn’t Have to be Complicated


Annuities

Contracting is a single word, but it covers a broad scope of responsibilities. To an advisor, it may seem like a lot of hoops to jump through, but our team focuses on making these necessary steps as easy as possible for everyone. 

To begin, we validate that the agent has an active appointment with the state in which they are writing business, and that they have the necessary the line(s) of authority on their license for what’s being written. Then, we process the carrier-specific contracting documents and ensure all required courses have been completed for continuing education and product training. 

Finally, we setup the appropriate commission schedule and contract hierarchy with the carrier to ensure the agent is paid correctly on the business being submit through Ash Brokerage. 

Our dedicated contracting team works hard to understand and maintain the most-up-to date information related to carrier and state requirements – we’re happy to help you navigate through the process. Our advisors can also access our custom database, which lists specific carrier and state requirements and provides links to carrier training portals. It’s a valuable tool we provide at no cost to advisors. 

The Bottom Line: Contracting doesn’t have to be complicated. Let our team help you through this process so you can get on your way to getting your case in force. 

 

Do You Know What You Own?


Annuities

Anyone can look at their quarterly statements and see what they have in their portfolio, right? But, do you really know what you own? Granted, you can easily see the ticker symbols for your mutual funds, but you might be surprised to know how much drift there is in any mutual fund in the United States. 

It’s always good to sit down with your clients and review their portfolio’s asset allocation – many advisors use tools such as Morningtar, Albridge or other data aggregators. Before your client meeting, however, it’s important to review the style drift and correlation of the selected mutual funds. Style drift happens when fund managers tend to chase returns and look to different asset classes to gain extra return. Before you know it, the large cap equity fund becomes a small cap emerging growth fund. 

It’s the advisor’s responsibility to make sure the fund managers continue to meet the requirements of the allocation strategy by maintaining their expected asset class. 

A recent article from Financial Planning (subscription required) highlighted the increased correlation in returns between several bond funds and the S&P 500. Due to the continued low-interest-rate environment, many bond funds perform similar to equities. The idea of an asset allocation strategy is to have uncorrelated assets in the portfolio to balance and reduce volatility. While those bond funds may have maintained the integrity of their portfolio design at one time, the current economic environment makes it necessary to revisit their viability into today’s portfolios.  

When you dig deep in your clients’ portfolios, you’re promoting trust and deeper relationships. Take the extra time to review all aspects of the portfolio, including risks and potential solutions to reduce risks. Many of us may not see the risks of our current allocation strategy until it’s too late. Take the extra step to look at vehicles that remain uncorrelated to portfolios.

The Bottom Line: The current economic environment has changed the way traditional investment vehicles perform. Take time to re-evaluate the products used for a client’s asset allocation strategy and reduce volatility due to highly correlated investments.