Annuities

The Regulation You Need to Be Talking About


Annuities

Recent news indicates a new U.S. Department of Labor rule will be set forth in the fall of 2019. But don’t be distracted. There’s another piece of legislation that needs your attention.

Pending tax reform, which will likely be addressed when Congress reconvenes in January, puts several tax benefits in question for retirees and their beneficiaries. And, some are critically important in the transfer of wealth.

 

The Great Tax Transfer

It’s estimated that trillions of dollars of wealth will pass to the next generation over the next two decades. It will come to the surprise of many beneficiaries, however, that most of their money will be taxed.

One of the changes that the Retirement Enhancement and Savings Act addresses is the ability to stretch qualified accounts at death of an IRA owner. It would limit the amount to just $450,000. Everything else would have to be received as a lump sum or within five years of the death of the IRA owner. This places a significant amount of tax due at the time of death.

As I travel around the country, I sense that the increased federal gift and estate tax exemption limits have lulled planners and their clients from looking at the income tax payable at transfer. That’s dangerous – they could be dropping an income tax bomb on their beneficiaries.

 

Defusing the Bomb

Like any obstacle, legislation can become an opportunity for the financial services community. There are several ways that you can position your clients – and their beneficiaries – to win, regardless of what happens in Congress.

  • With the lower tax rates introduced by the Tax Cut and Jobs Act of 2018, it benefits the client to convert qualified accounts to Roth IRAs. This allows the client to have tax-free income for retirement. At death, the proceeds are disbursed tax-free to beneficiaries as well.
  • The embedded gains in nonqualified annuities are treated as taxable distributions, and they are generally taxed on a last in, last out (LIFO) basis. This creates a great opportunity to take advantage of innovative income riders that allow the exclusion ratio to be used for tax purposes. More importantly, it allows the beneficiary to access the cost basis first at the death of the current annuity holder. That puts the beneficiary in control – not the IRS.
  • Finally, it’s always a great time to discuss the importance of life insurance with large IRA holders. It remains the most tax-efficient method to transfer wealth.

 

So, the government is likely to continue regulating the way we interact with our clients. But Congress is likely to have a larger impact due to the tax consequences on our income strategies. Focus on creating income that is efficient for both clients and their beneficiaries.

 

Winning Strategy

Don’t let the DOL distract you. Pay attention to regulation that can impact your clients’ future.

 

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About the Author

Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.

 

Retirement Regulation DOL Tax Transfer

We’ve Already Passed the Finish Line: A DOL Comment


Annuities

Today (Aug. 10), the U.S. Department of Labor’s request to delay the Fiduciary Rule’s full implementation was revealed. As with most regulation, there are technical aspects to the delay that will likely be argued by supporters and opponents. I want to make one thing clear: We’ve already passed the finish line for fiduciary status. 

 

Undoubtedly, the rule’s documentation could be less onerous. But, we shouldn’t ignore the fact that fiduciary status is here – and, it’s here to stay. We must adapt to it. We must innovate toward it. We must improve our client experience. We must keep our clients’ interest before our own. And, we must move the retirement income community forward … now. 

 

Many people will use this announcement to recommend that we go back to the old ways of doing business. It’s too late. Clients are beginning to ask their financial advisor if they are a fiduciary. Working with the clients’ interests has always been a priority, and the way that we operate our business. Today, really since the release of the proposal in 2016, fiduciary status is a table stake, a requirement and, most importantly, an expectation. In order to be successful in business, you have to meet or exceed the clients’ expectations. The value you bring is determined by how much you bring to the client above what they paid. The client expects maximum value, so you have to look at your marketplace beyond the regulation. 

 

The market has already begun to shift toward working in fiduciary status for all client relationships. Transparency continues to grow as an integral part of pricing fees and commissions. Disclosure has become a part of the product fulfillment process. Greater client awareness and education about solutions have become part of more sales presentations. In many ways, our industry has improved more in the last 12 months than it has in the last decade. 

 

I encourage those in the retirement income space to continue the move forward toward the fiduciary world. That doesn’t mean some of the DOL’s unintended consequences don’t need to be dealt with over the next 18 months. And, moving toward a fiduciary world doesn’t mean the elimination of commissions. However, we can’t go back on our commitment to serve our clients. With the complexity of retirement, there has never been a more important time to engage with Americans and help them solve their most difficult problems – longevity and income. 

 

Please stay connected with us to learn more ideas on how to best serve your clients in an uncertain regulatory and economic environment. Ash Brokerage has been active in the comment periods, and we look forward to answering our industry challenges through innovation, education and practice enhancement. 

 

Winning Strategy

When you run a race, you never look back. As you change your retirement income practice toward a fiduciary status, don’t look back. Keep your focus forward on improving your clients’ position, their experience with your firm, and how to best serve them. 

 

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.”

 

DOL Fiduciary Rule Retirement

Crossing the Threshold to Fiduciary


Annuities

Implementation is here. The U.S. Department of Labor did not pursue another delay to its fiduciary rule, and the deadline has come to pass. Even though many people in our industry would have preferred more time, I believe now is the right time to refocus our attention on our clients. The fiduciary rule will be a change, but the transitionary period offers relaxed rules in order to comply.  

 

For the past 14 months, I have been writing about redefining your business. Now that we are crossing the threshold to the rule, my message is the same. This transitionary period offers a chance to continue the thought pattern around how your business should look in 24-36 months.

 

I have always thought there are two key questions that you need to ask yourself:

  • Do you want to move up market?
  • Do you want to remain in the same market and become more efficient?

 

Regardless of the final rule, revisions or revocations, your business will need to look differently than it does today. The marketplace is demanding more holistic planning and a fiduciary mandate. The real question is:

How do you rise above the other fiduciaries who are born out of regulation?

 

I think you separate yourself by the way you segment your client base, the services you provide, and frequency of services you provide to your top clients. If you move up market, you will need to really concentrate on segmenting your business and making sure there is a successor to your less than “A” clients. Additionally, you will need to make sure you have the right resources around you in order to compete in the higher net worth market place. 

 

According to an American Institute of CPAs/Harris Poll in March 2017, 88 percent of Americans worry about running out of money have having to return to the workforce. If you redefine your business to focus on guaranteed income and longevity issues, I think you will have an opportunity to thrive in a fiduciary world and create differentiation between you and other planners. 

 

Winning Strategy

Take the transitionary period of the DOL to redefine your business and shape it to how you want it to look in 24-36 months. Take steps now to differentiate yourself based on our aging population’s concerns.  

 

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 Retirement Financial Planning

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

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