tag:blogger.com,1999:blog-69379633136409643362024-02-19T15:34:36.154-06:00John Lefferts' BlogMusings about the Retail
Financial Services IndustryAnonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.comBlogger98125tag:blogger.com,1999:blog-6937963313640964336.post-88250559410842320102018-11-07T10:22:00.000-06:002018-11-07T10:22:46.189-06:00Integration: The Natural Evolution for Financial Services Business Models<div class="separator" style="clear: both; text-align: center;">
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<span style="background-color: white; color: rgba(0, 0, 0, 0.75); font-family: Arial, Helvetica, sans-serif; font-size: large; font-style: italic; text-align: center;">“Our dilemma is that we hate change and love it at the same time; what we want is for things to remain the same, but get better” Sydney J Harris</span><br />
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">The silos from which the financial services industry have evolved are breaking down, yet the noise we hear from each segment trying to protect their respective turf is louder than ever. The perspectives and arguments from each are becoming old and running thin:</span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><span style="background: 0px 0px; border: 0px; box-sizing: inherit; font-weight: 600; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Fee only advisor: </span>Blow up FINRA and force everyone who gives advice to be held to a strict fiduciary standard</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><span style="background: 0px 0px; border: 0px; box-sizing: inherit; font-weight: 600; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Broker:</span> RIA’s serve only the top 1/3rd of households who can afford their fees while holding an unfair advantage escaping oversight and supervision by FINRA</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><span style="background: 0px 0px; border: 0px; box-sizing: inherit; font-weight: 600; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Insurance Agent: </span>How can brokers and RIA’s say they are acting on behalf of their clients best interests when they fail to address the most important financial risks of living too long and dying too soon?</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">So, in the ongoing debate about the direction of the financial services business, who’s right? My perspective...Separately, none of them but collectively, all of them.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">I think the quote above says it best. We’re all for change so long as we personally don’t have to change. Doesn’t that sound like the Albert Einstein’s definition of insanity?- “doing the same thing over and over again and expecting different results”. I’ve been in this business now going on a fourth decade and I’ve observed a fair amount of change during that time. This “wisdom” has taught me a few things over the years:</span></div>
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<li style="background: 0px 0px; border: 0px; box-sizing: inherit; margin: 2.4rem 0px 2.4rem 3.2rem; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">There are few new ideas, just old one’s updated and repackaged</span></li>
<li style="background: 0px 0px; border: 0px; box-sizing: inherit; margin: 2.4rem 0px 2.4rem 3.2rem; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">Compensation drives all perspective and behavior</span></li>
<li style="background: 0px 0px; border: 0px; box-sizing: inherit; margin: 2.4rem 0px 2.4rem 3.2rem; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">While it is smart to recognize and learn from the past, you have to let go of it to grow and succeed into the future</span></li>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">Today’s hot button issues are not too different than what we’ve seen before. New ways of distribution threatening traditional methods and shifting regulations have been a common theme since I got into the business. However, what seems different today is the pace of change. The impact of “Moore’s Law” on technology and the massive amount of information and velocity of communication is driving it to a point where no business model can keep doing business as usual. It’s a case of change or be changed. In 2006 when Webster’s Dictionary made “Crackberry” the word of the year, few of us could predict what we have witnessed in the smartphone business landscape. It’s hard to believe that the first launch of the i-Phone was June 29th 2007 and in 2010, Blackberry had a 40% share of the smartphone market. Today Blackberry has less than 1% of the smartphone market. And similarly, as changing marketplace dynamics shape the financial services business of the future, within 5 years there will be some household names that disappear and others not yet launched that will quickly emerge as market leaders.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">I'm fascinated by the divergent points of view held by leaders of the various industry business models. And just like our political climate, it seems that the most vocal and inflexible are those on the fringe while the majority are somewhere in the middle. I'm reminded of the quote "There are three types of people in this world; Those who make things happen, those who watch things happen and those who wonder what happened" Apple made things happen and Blackberry is still wondering what happened. From my unique perspective, here are some moves I think industry leadership in the camp of making things happen should consider:</span></div>
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<li style="background: 0px 0px; border: 0px; box-sizing: inherit; margin: 2.4rem 0px 2.4rem 3.2rem; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background: 0px 0px; border: 0px; box-sizing: inherit; font-weight: 600; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">Change compensation models</span></span></li>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">I mentioned above my belief that compensation drives all behavior. The structure of current compensation models are largely inconsistent with the direction of the business. And this includes fee only models. The drift away from commissions and towards fees over the past decade is not a fad. It is estimated that by year end, over 75% of all industry compensation will have been generated by fees driven largely by the wires and regionals rapid transition away from commissions. And since fees for AUM have been on the increase, the activity of providing financial planning has been on the decrease. Why? When you’re getting paid to capture more AUM, why do the hard labor intensive work of financial planning. But this is changing. As even traditional insurance agents have been evolving towards a fee for AUM model and robo’s gain traction, investment management has become a very crowded marketplace with little differentiation. Not surprisingly, financial planning is seen as a key differentiator. What I expect to see happen will be more firms starting or restarting their financial planning activity (modular and comprehensive) and charging separately for it on a retainer basis while they reduce their % fee for AUM from about 1% to about 50-75bps. This split of investment management and financial planning from bundled to being separate services better recognizes and aligns the activity. Additionally, as there will be a need to diversify revenue models, I believe those who have been marketing themselves as “fee only” will come to realize that advertising one’s compensation model is hardly good for business, not to mention overlooking the huge revenue potential in offering insurance based products. Life Insurers are now manufacturing life insurance products that pay 75bps on assets in the policy with a very slight and quickly disappearing surrender charge. This opens a whole new asset class for advisors to add to their practice while truly acting in their clients’ best interest by addressing risk management.</span></div>
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<span style="background: 0px 0px; border: 0px; box-sizing: inherit; font-weight: 600; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">2. Integrate platforms</span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">Similar to the merging of compensation models, expect to see the same with business models formerly hatched in their regulatory silo of SEC RIA, FINRA broker and state regulated insurance agent. Whether the regulators/government wise up and eliminate triplicate layers of regulation and harmonize or not (and I have little faith that they will), the business models will harmonize more as a business necessity than a regulatory requirement. Any model that relies solely on commission revenues for sustenance has its days numbered. Likewise, those who rely solely on fee based AUM will also need to diversify revenue streams. I believe the landscape will begin to look like the technology platforms where the largest in the business (i.e. Samsung and Apple) have integrated smartphones, tablets and PC’s/Mac’s each seamlessly talking to each other. Except for our business it’s not integrated devices, but integrated business models of RIA, B/D and Insurance BGA, or what I call the “Tribrid”. And I wouldn’t count out the wires just yet. They have such size and scale that if (a big IF) they made some adjustments, they could easily become a model of choice for a new harmonized marketplace while solo RIA practitioners are forced to join larger scaled models or scream “But I’m fee only!” all the way to irrelevance.</span></div>
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<span style="background: 0px 0px; border: 0px; box-sizing: inherit; font-weight: 600; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">3. Diversify revenue sources</span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">It is now recognized that the robo-advisor is redefining the value and pricing of investment management. This will continue to force margin compression on firms/practices that rely on the AUM only model of revenues. It places a higher value on those products and services that are more complex and require a human advisor to implement. For RIA’s and Independent B/D’s, this will likely be additional fees for financial planning (not just investment management) and insurance products and services. Similarly, insurance based platforms will continue to see a trend towards levelized and lower front end commissions, and will need to diversify into fees for AUM and financial planning as well.</span></div>
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<span style="background: 0px 0px; border: 0px; box-sizing: inherit; font-weight: 600; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">4. Embrace technology as an enabler versus a threat</span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">I find it interesting that the financial media is so locked on the thought that robo-advisors will replace the human advisor. I suppose it makes for a good story, but it’s simply not true. However, the robo’s will expose those who do not use new technology to enhance the client experience and they will also drive down the going rate for investment management. As more and more robo technology platforms come to market, we’ll see them getting snapped up by the large scaled platforms as we’ve seen recently since they have created smart platforms, but lack the client acquisition skills to remain as stand alone entities. They are not a threat unless you don't integrate them into your practice and business model. </span></div>
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<span style="background: 0px 0px; border: 0px; box-sizing: inherit; font-weight: 600; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">5. Create a career path for “newbies”</span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">The demographics in the business are quickly going from bad to disastrous. The average age for advisors is over 50 with a full 1/3rd expecting to retire in the next decade (according to Cerulli). The insurance industry is worse with the average age at 59 and 1/4th expected to retire by the end of the year (according to McKinsey). Heretofore, the primary source for “newbies” (young inexperienced entering the business) has been the career life insurance companies and wires. However, as the economics for proprietary based platforms continue to get squeezed (or potentially eliminated), that source of new blood will dry up. This places the responsibility for the future of the business back onto the independent platforms of which none has been successful in executing on a strategy. LPL made an attempt with NestWise a few years back but it failed miserably in execution running it as a stand-alone rather than integrating it with the greater whole. But I have a strategy in mind that solves two big industry challenges. Cerulli did a study on financial planning and found that of those firms that self-identify as members of a financial planning practice, only 38% were actually doing financial planning. Further, the number of those who do actual financial planning has been on the decrease in recent years as they’ve been focused on asset accumulation (AUM) instead. Coaxing established advisors back into financial planning is a tough sale since it’s labor intense and not as profitable as a focused AUM practice. But guess who will do financial planning?…newbies. Recruiting, inducting, training and developing young inexperienced talent into a financial planning career track is proven to be the most successful way to get them into the business. The solution to the financial planning and succession planning challenges facing the industry lies in a strategy giving a career track for “newbies”.</span></div>
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<span style="background: 0px 0px; border: 0px; box-sizing: inherit; font-weight: 600; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">6. Enable modular and comprehensive financial planning at the enterprise level</span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">As mentioned above, financial planning has been on the decline while the greatest need to provide value added services going forward is in fact…financial planning. Many who have strayed away from offering planning services cite the complexity, time commitment and relative ease in focusing on asset accumulation for more revenues instead. But today's tools for financial planning make it far easier to provide the service than just a few years ago. I’ve written before about having built a $30 mill centralized financial planning center for AXA Advisors about 15 years ago. That was painful. Today, the same service can be built for a fraction of the cost providing a virtual paraplanner to each team of advisors. Michael Kitces wrote about the concept of a <a href="https://www.kitces.com/blog/forget-the-tamp-its-time-for-the-tfpp/" rel="nofollow noopener" style="background: 0px 0px transparent; border: 0px; box-sizing: inherit; color: #665ed0; margin: 0px; overflow-wrap: break-word; padding: 0px; text-decoration-line: none; touch-action: manipulation; vertical-align: baseline;" target="_blank">Turnkey Financial Planning Program</a> (TFPP) in his blog. Providing this service on an enterprise level will be an important value added service for advisors going into the future.</span></div>
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<span style="background: 0px 0px; border: 0px; box-sizing: inherit; font-weight: 600; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">7. Favor ensemble firms over solo practitioners</span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">For generations, the retail distribution firms had a focus on the solo practitioner with individual rep codes. Today, the ensemble team is taking hold yet many B/D’s/RIA’s/Ins platforms continue to identify on individual rep codes rather than aggregating as a team. And naturally as ensemble firms continue to increase their influence, it forces business models to integrate all product lines and services (hence the Tribrid) in order to serve the various roles and specialties of team members. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">"We live in a time of paradox, contradiction, opportunity and above all, change. To the fearful, change is threatening because they worry that things may get worse. To the hopeful, change is encouraging because they feel things may get better. To those who have confidence in themselves, change is a stimulus because they believe one person can make a difference and influence what goes on around them. These people are the doers and motivators" -Buck Rogers</span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">Holding onto the familiar is a natural response to the rapid change impacting our industry. But as Socrates is quoted, “The secret of change is to focus all of your energy, not on fighting the old, but on building the new”. Blackberry grew up as a force in a closed system. It’s what gained them rapid growth but at the same time, sticking to it is what has caused their downfall. I think our business is much the same. Financial Services retail distribution grew up on closed platforms (siloes) of RIA, B/D and Insurance BGA. But much like Blackberry, sticking to these soon to be dated platforms could lead to their demise. The future of the business is through the integration of platforms, compensation models and product and service offerings. It will be interesting to see which firms have the foresight to remain relevant into the future and which will fight change to the death.</span></div>
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"Ignorance is always afraid of change”</blockquote>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-8946989137301021352018-08-07T17:04:00.001-05:002018-08-07T17:04:16.952-05:00Eat Your Own Cooking<br />
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<span style="font-family: inherit; font-size: large;">The other day I took my car into a Discount Tire store for what appeared to be a slow leak in my back tire. I was prepared to have to
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I’m a raving fan. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: large;"><br /></span></div>
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<span style="font-family: inherit; font-size: large;">This caused me to think about my positive experiences in purchasing
products over the years which led me to a conclusion I’ll share at the end. Some time ago, when
I was in high school, my first real job was at Nordstrom. I sold ladies shoes…yup,
I was a shoe dog! We’ve all heard the stories about when someone brought a tire
back to Nordstrom for a refund and they gave it to him. And Nordstrom doesn’t
even sell tires! The culture of the company to give top customer service permeated
all the way down to me as a 16-year-old shoe salesman. To this day, I seldom
shop anywhere but at Nordstrom because of it. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: large;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit; font-size: large;">Then my first job out of college was with Frito Lay starting
in the plant where they made Frito’s, Doritos, Lays and Ruffles. The quality
control there was insane. The floors were always sparkling clean. If the batch
had the slightest amount of too much/little oil, salt or the color of the chip
was off, they would throw out the entire batch. Like Nordstrom, it is because
of this experience that I will never buy a brand other than Frito Lay. <o:p></o:p></span></div>
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<span style="font-family: inherit; font-size: large;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit; font-size: large;">Then I entered the financial services business with
AXA-Equitable. Equitable launched the first variable life insurance product
back in the day and prided itself for always having one of the best performing
Variable Universal Life products in the business. I bought a VUL in the mid-80’s
and over the years have increased the death benefit several times and max funded
it. To this day, while I’m fortunate to own several assets, my Incentive Life
VUL is one of the most cherished assets I’ve ever owned. Having the ability to
participate in market appreciation but growing tax free, being able to take
money out with no taxes while having a death benefit in case I didn’t make it
to retirement is like the best features of several financial products all
wrapped into one. All for a net cost of less than 2bps that was more than made
up by the tax savings (after tax equivalent for a high earner in California for
12% equals about 24%!)</span></div>
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<span style="font-family: inherit; font-size: large;"><br /></span></div>
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<span style="font-family: inherit; font-size: large;">I</span><span style="font-family: inherit; font-size: large;">’ve had similar experiences with Lion Street which strives
to affiliate with the best in the business and now with Assurance creating
cutting edge technology for the financial services industry. The common thread
among all my work experiences is that I had a true belief in the products I was
building and/or selling. And, I ate my own cooking! (literally so in the case
of Frito-Lay). The power you gain by owning or buying the products you sell is
beyond description. </span><span style="font-family: inherit; font-size: large;"> </span><span style="font-family: inherit; font-size: large;">Like I did above
with Discount Tire, I’ve shared my belief in Nordstrom-Frito-Lay-AXA Equitable
products with many people over the years. And owning/buying those products have
made my convictions even stronger. Or put another way, I’ve had “skin in the
game”.</span></div>
<br />
<br />
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<span style="font-family: inherit; font-size: large;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: inherit; font-size: large;">If you don’t buy products from the firm you are with, ask
yourself why. Is it because you don’t believe in the products? Or maybe you don’t
believe it the products because you haven’t committed to buying them? Whatever
the case, the advice I would give you is to eat your own cooking!<o:p></o:p></span></div>
<blockquote class="tr_bq">
<span style="font-size: large;"><span style="font-family: inherit;"><br /></span></span><blockquote class="tr_bq">
<span style="font-size: large;"><span style="font-family: inherit;"><span style="background: white; color: #333333; line-height: 107%;">It’s not what you look
at that matters, it’s what you see</span></span></span><blockquote>
<span style="font-size: large;"><span style="font-family: inherit;"><span style="background: white; color: #333333; line-height: 107%;">-Henry David Thoreau</span></span></span></blockquote>
</blockquote>
</blockquote>
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<br />Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-55472376745499025102018-05-10T16:01:00.000-05:002018-05-10T16:01:48.874-05:00When I was 22...<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhp1kw3kSjLGB7rRUlZsWreGtwdb1QQAmF2OkAlDUpr9L8acPiJqPLKYM6cG9rZaLVUhoB4ABZdpvk9JB5_FA5eGkfBOQ43qgoBGRsc2IUuxHGVuZ9kS0fUExZu1IKnquk5PEgiNpewnAPy/s1600/JML+Frito+Lay.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="994" data-original-width="672" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhp1kw3kSjLGB7rRUlZsWreGtwdb1QQAmF2OkAlDUpr9L8acPiJqPLKYM6cG9rZaLVUhoB4ABZdpvk9JB5_FA5eGkfBOQ43qgoBGRsc2IUuxHGVuZ9kS0fUExZu1IKnquk5PEgiNpewnAPy/s400/JML+Frito+Lay.jpg" width="270" /></a></div>
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<span style="background-color: white; color: rgba(0, 0, 0, 0.75); white-space: pre-wrap;"><span style="font-family: Times, Times New Roman, serif; font-size: large;"><b>I first wrote this article 4 years ago prompted by Linkedin. Given that today is my triplets 22nd birthday and AXA has given "Mother Equitable" back to the US via EQH IPO, I thought I'd repost "When I was 22...". Heading out to Chicago for the first college graduation this weekend. Whoo Hoo!</b></span></span></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><br /></span></div>
<span style="font-size: large;"><span style="font-family: Arial, Helvetica, sans-serif;">I enjoy the privilege of having triplet children graduating from high school this year. The household is about to go from semi-controlled chaos to total silence as they each venture off to college. One and Done! They're tired of hearing it as I say over and over, "the next 4 years are going to be the most exciting, fun and transformative years of your life".</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;">Entering college, I really had no idea of what I wanted to do except play football and pursue "something in business". But there was one thing I KNEW I didn't want to do which was to follow my father's path into the insurance based financial services business. Dad had been a successful Agency Manager with The Equitable (now AXA) while I was growing up. As a very family oriented company, we were known as "Equi-kids". For some reason, I wanted to "be my own man" and carve my own career path. Upon graduating, I was offered a career path with Frito-Lay in the San Francisco Bay Area. To be exact, I was in Silicon Valley before it became “Silicon Valley”. And I was in the wrong kind of chips…potato chips! But it was a great experience and their management training was the best I could have ever received. However, after 2 years doing everything from ordering potatoes for the fryers to stuffing bags of chips in grocery stores, I came to the realization that folks in the food services industry didn't enjoy the lifestyle that a more entrepreneurial financial services career could offer. It simply wasn’t going to be like the one I enjoyed growing up (that is unless you own the food services company).</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;">So I began interviewing with large financial firms such as Merrill Lynch, EF Hutton, New York Life and others and then decided to take an offer from Mutual Benefit in what appeared to be a financial planning career path. For some reason I didn't connect the dots that what my father had done as I was growing up was essentially the same. So I called my Dad and said "Guess What?!. I'm going to work for Norm Levine in San Francisco with Mutual Benefit" My Dad had known Norm professionally through the industry and chose his words carefully, but essentially said, "The Hell you are! Now you've decided to come into my business, you're going to come down to San Diego and work with me!"</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;">I started my career in San Diego working first for my Dad learning the ropes the "old school way" and through the years kept working up the company food chain to find myself 20 years later in New York City as President and CEO of the very firm my Dad had worked for as I was growing up. Yes, the very and only one I KNEW I didn't want to work for as I entered college. The theme of this post prompted by Linkedin is to share stories and advice to the 22 year old college graduates #IfIWere22</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;">Given my experience I suppose the first thing I should say is don't rule anything out and sometimes the "old man" is right. But there is so much more I would say to my 22 year old self now having the wisdom that experience and years provide. Here's a bullet list:</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;">Know yourself. Be honest about what you're good at and what you're not so good at so you can maximize your strengths and minimize your weaknesses. Once you identify your unique skill, find a career that lets it shine. You also need to know what motivates you and what does not. If you're money motivated, don't be a social worker! If you hate conflict, ego's and rejection, don't pursue a career in business!</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;">If you commit first, it commits back to you. You must take a leap of faith and close the back door once you enter any career path. If you wait for good things to happen before you mentally, emotionally, and physically commit, it’ll be a long wait. The happiest people are those who commit to the situation they are in and make the best of it while unhappy people are continually looking to external factors for their success or to blame for their failure. Take 100% responsibility, commit and enjoy the results, but you have to make the first and continuing move. Don’t be in the backyard looking for four leafed clovers while opportunity is knocking on the front door. And if after you've committed and have given it your all, but unsuccessfully, then learn from the experience and move on.</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;">Simply showing up is half the formula to success. Exercising self-discipline in your time management is vital. You cannot maintain 9-5 hours and expect entrepreneurial pay. Show up whether you have something to do or not. You will create your own opportunities by being “in play”.</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>Effort, at times, defeats itself.</i></b> If you maintain a consistent, steady pace of doing first things first and last things not at all, then you are on a path to success. By forcing everything, you can come across as desperate. People will buy into strength but will walk away from desperation. Keep the pace, let it flow, be patient, and success will follow.</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>It really is a numbers game.</i></b> As much as we want to believe that there is such a thing as “working smart”, the fact remains that successful people simply make more calls and see more people. Don’t let your mind trick you into believing it’s otherwise. There is no substitute for hard work.</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>“Fatigue makes cowards of us all”</i></b>. This quote says it all. If you are not well rested, are ill or lack energy due to little or no exercise, take care of it. Employers/Prospects buy strength and push away weakness. You need to be in top shape and good health to convey a positive and impacting impression. Get adequate rest and put yourself on a routinized exercise schedule. And by all means, make getting a good nights sleep a priority.</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>You are being judged by first impressions. </i></b>The saying “You can’t judge a book by it’s cover” does not always apply in the professional world. People are judging us the moment we meet them and draw conclusions about you within a minute. Dress impeccably, drive a clean, well maintained car and be sure your props (pens, presentations, etc.) are first class. A common theme I have is, “Do it first class or don’t do it at all”</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>Believe, even when you don’t want to. </i></b>Much of your success in anything will be predicated on your ability to maintain a positive mental attitude. Believe in your industry, believe in your company, believe in your products. You can choose to believe or not to believe (being indifferent is not believing). As motivational speaker/writer Brian Tracy says, be an “inverse paranoid. A paranoid is someone who thinks the world is conspiring against them. An inverse paranoid believes the world is conspiring FOR them. Believing, even when it’s difficult, will open doors and attract the opportunities you want where not believing closes the doors. Besides, given the choice, it’s a lot more fun.</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>It’s not what you say, but how you say it. </i></b>Many of us spend agonizing time trying to figure out the catch phrase or line that will sell our product or service. It’s not entirely what you write or what you say, but the confidence in how you present yourself that will win the day. This is a proven fact that is counter-intuitive and must be worked on by all of us.</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>Set a single major life purpose and then 5 year personal and business goals for yourself. </i></b>Of all the things I have done, this is one I adopted early in my career that motivated me towards success. Every 5 years I set goals some of which I met in 3 years, some I never met. But it's almost freakish how spot on my actual results often met my 5 year goals. A goal is written down and shared with someone who can help you achieve it. Anything not written down or not shared is simply a wish.</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>You become and get what you consistently think about. </i></b>Any thought you carry repetitively, will become your reality. The picture in your minds eye of how you look, your level of success and your lifestyle, will eventually become reality if it isn't already. If you want to make $500,000 per year, then wipe out any thoughts in your mind with other figures. Think the unthinkable, dwell on it daily and your belief will create its own talents to get you there. Only you control this. Is your mind disciplined enough to hold the pictures of what you want to become rather than what you don’t want to be? All successful people know this universal key to success and practice it continually through prayer, meditation and visualization.</span><br /><br /><span style="font-family: Arial, Helvetica, sans-serif;">I've enjoyed a successful career and had I known what I do now when I was 22, I'm not certain everything would have turned out all the better. Life throws us all curve-balls and we don't know when and the magnitude of them. You simply have to be prepared to respond when they do come your way. The important thing is to find what you're good at, develop a passion for it, commit to it, set 5 year goals for it and most importantly have fun doing it. We live at such an amazing time with so much change and opportunity. I wish all the success to the class of 2014 and for my triplets in the class of 2018? Stay tuned. I'll be giving you more advice than you can probably stand.</span></span><div>
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<span style="color: rgba(0, 0, 0, 0.75); font-family: Georgia, "Source Serif Pro", serif; text-align: center;"><span style="font-size: large;">“Parents can only give good advice or put them on the right paths, but the final forming of a person's character lies in their own hands”</span></span></div>
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<span style="font-size: large;"><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: 0px 0px; background-repeat: initial; background-size: initial; border: 0px; box-sizing: inherit; color: rgba(0, 0, 0, 0.75); font-family: Georgia, "Source Serif Pro", serif; margin: 0px; outline: 0px; padding: 0px; text-align: center; vertical-align: baseline;"></span><span style="background-color: white; color: rgba(0, 0, 0, 0.75); font-family: Georgia, "Source Serif Pro", serif; font-style: italic; text-align: center;">-Anne Frank</span></span></div>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-53124823790321041462018-04-19T18:41:00.002-05:002018-04-19T18:41:45.757-05:00Will Life Insurance go "Blockbuster" or "Netflix"?<br />
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<span style="background: white; color: #0a0a0a; font-family: "Arial",sans-serif; font-size: 12.0pt;">Results from a 2018 Life Insurance Needs survey completed by
Allianz confirms what we in the financial services business have long
suspected. Whatever we’ve been doing to sell/recommend permanent life
insurance is no longer working. Some interesting findings as follows:</span><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 8.25pt; margin-left: 11.25pt; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="color: #222222; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">66% of consumers are
unsure or don’t believe benefits paid from life insurance are not taxable.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 8.25pt; margin-left: 11.25pt; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="color: #222222; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">51% are unsure or
don’t believe cash value from permanent life insurance can be used to help fund
college educations, supplement retirement income or meet other financial needs.<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 8.25pt; margin-left: 11.25pt; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; tab-stops: list .5in; text-indent: -.25in;">
<!--[if !supportLists]--><span style="color: #222222; font-family: Symbol; font-size: 10.0pt; mso-bidi-font-family: Symbol; mso-bidi-font-size: 12.0pt; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt "Times New Roman";">
</span></span></span><!--[endif]--><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">85% said that a source
of tax-fee income in retirement is what they find most valuable in a financial
product<o:p></o:p></span></div>
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<span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">According to LIMRA, the share of Americans
with at least some life insurance has fallen to less than 60% from 77% in 1989
and the sale of individual life policies has fallen by 40% since the 80’s.
These are all fairly dismal statistics that beg the question, what is the
industry doing about it? All other industries have gone “Netflix” where the life
insurance industry is stuck in “Blockbuster” mode.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 8.25pt;">
<span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">The life industry continues to operate like
Ned Ryerson (remember the pushy salesman in the movie Groundhog Day?) with hard
to understand multi page paper illustrations that are impossible to sell from. This
causes producers and agencies to slight compliance procedures and create custom
spreadsheets by taking hours to “cut and paste” from the illustrations onto an Excel
file. This while all other industries are selling their products and services
online and digitally. But just like Netflix had the vision.to stream digitally
in 2007, then in 3 short years pushed Blockbuster to bankruptcy in 2010, I
believe the life insurance industry is currently at that same stage. Adapt or die. Life insurance carriers and distribution must develop a digital strategy to adapt.<o:p></o:p></span></div>
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<span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">What if I told you that there is a platform
that takes illustration data for up to 40 carriers and 280 plans and creates
automatic spreadsheets and an interactive visuals called “The Morningstar of
Life Insurance” by Financial Planning Magazine. Finally, a digital platform
that is built for today’s consumer that enables the agent/advisor to educate
and explain how cash value life insurance works. The platform is called Ensight
made by a tech firm in California named Assurance. Some key features that Ensight
provides:<o:p></o:p></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDyPk1yjSJbIKisktmDUxKZGtwWJacDUYXRirZo9QORScdD15T2K7sbsBTLNZP1KqxmdHcivDIhOF3RtN1NMLsFTfN_rt-MRNzL-jCqdnB2KcAXHKapzOShYYg31DxylgZHK5Ptri94XXA/s1600/Spreadsheet.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="708" data-original-width="1367" height="206" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDyPk1yjSJbIKisktmDUxKZGtwWJacDUYXRirZo9QORScdD15T2K7sbsBTLNZP1KqxmdHcivDIhOF3RtN1NMLsFTfN_rt-MRNzL-jCqdnB2KcAXHKapzOShYYg31DxylgZHK5Ptri94XXA/s400/Spreadsheet.png" width="400" /></a></div>
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<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Single Entry of data:</span></b><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"> You enter the insured information and case design details once
and then select the carriers and plans you want to illustrate. No more toggling
between carriers to rerun illustrations<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 8.25pt;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Automated spreadsheet:</span></b><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"> With the push of a couple buttons you can create side by side
comparison spreadsheets with the complete carrier illustration attached. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 8.25pt;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Fiduciary compliant:</span></b><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"> Through a revision history, the platform retains every
illustration added, taken off, printed and sent to a client. It is also a
platform that shows features and benefits of several options enabling the
demonstration of “best interest”. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 8.25pt;">
<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Speaks Robo:</span></b><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"> While
the illustrations is able to be shown in side by side comparison spreadsheets,
they are also rendered in linear graphs that are interactive. <o:p></o:p></span></div>
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<b style="mso-bidi-font-weight: normal;"><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Enables online selling: </span></b><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">Since Ensight is a visual digital platform, it is best suited to
be shown either on a tablet in front of the client or through video conferencing.
No more flipping through endless pages of illustrations. A simple, clean visual
proposal platform that clients can actually understand. <o:p></o:p></span></div>
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<span style="color: #222222; font-family: Arial, sans-serif;"><span style="font-size: 16px;">Platform Video here: https://vimeo.com/252256256/bc46e300b7</span></span></div>
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<span style="color: #222222; font-family: Arial, sans-serif;"><span style="font-size: 16px;"><br /></span></span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj40fTRe9ABoCCaUktIR7xs2NLMNM2gphKPydTU5Q66v2JkcewgOQFak9ikY8Rtd9Gy33ZdTnoiR5BicP1K_pyAlial_Y6HfTCQRfAFnc2c4M4p3co25eEgWMdGNVahGw4iUF3iXuMEf92y/s1600/EnsightScreenshot.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="900" data-original-width="1440" height="250" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj40fTRe9ABoCCaUktIR7xs2NLMNM2gphKPydTU5Q66v2JkcewgOQFak9ikY8Rtd9Gy33ZdTnoiR5BicP1K_pyAlial_Y6HfTCQRfAFnc2c4M4p3co25eEgWMdGNVahGw4iUF3iXuMEf92y/s400/EnsightScreenshot.png" width="400" /></a></div>
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<span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">When I first got in the business too many
years ago (which predates carrier illustrations), I was taught to recommend permanent
life insurance through a method we called “Educate to Sell”. It was a process
by which we would do an initial fact finder, identify the potential needs of
the prospect and once we had done that, educate them by explaining the various
types of life insurance through graphs. Then after having explained visually
the differences between Term, Variable, Whole Life, UL, etc, we would ask the
client, “what type do you think makes the most sense for your situation?” while
looking at the graphs. After having been educated on the various types of life
insurance, they could make an educated decision on what product type made the
most sense for them. Ensight is essentially “Educate to Sell” for the digital
age. The majority of prospects and clients simply won’t buy what they don’t
understand (and if they’re coerced into buying, it won’t stick). Educating them
through a clean interactive visual format is by far the most effective way to
do this type of business in the Netflix and Amazon era. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin-bottom: 8.25pt;">
<span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">So I have hope that the industry can pull away
from the statistical downward spiral as the tools used become more current and
easier to use. The next several years will see some carriers and distributors
go the route of Blockbuster while others will see the future and go the path of
Netflix. How about you? <o:p></o:p></span></div>
<blockquote class="tr_bq" style="background: white; line-height: normal; margin-bottom: 8.25pt;">
<i><span style="color: #222222; font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";">“</span><span style="font-family: Georgia, Times New Roman, serif; font-size: x-small;"><span style="color: #222222;">You never change things by fighting the
existing reality.</span>To change something, build a new model that makes the
existing model obsolete.” </span></i><i><span style="-webkit-text-stroke-width: 0px; color: #222222; font-variant-caps: normal; font-variant-ligatures: normal; orphans: 2; text-decoration: none; widows: 2; word-spacing: 0px;"><span style="font-family: Georgia, Times New Roman, serif; font-size: x-small;"> -R. Buckminster Fuller</span></span></i></blockquote>
<br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: xx-small;">PS-Full Disclosure: I am involved in the tech start up Assurance that has developed the Ensight Platform trying to drag the industry kicking and screaming into the digital era </span><br />
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<o:p></o:p></div>
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<br />Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-77030751256738331892016-08-08T10:31:00.003-05:002016-08-08T10:31:55.249-05:00Insurtech: Ned Ryerson meets Silicon Valley<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEixhyphenhyphenjvM-QMUOWy6xcUhm-R-sIQaxnA1E8kTrUvPT8r2JIxzQxTbN4Rxy7PI0xzQ-yg1vPHSc_bRdAnNe7-ZPoMzhCajWK5gQY4b7NjJoaSzYRXTEnwPKBqjFDjl47IeMZOSZt4jYbUGdEt/s1600/combine_images.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEixhyphenhyphenjvM-QMUOWy6xcUhm-R-sIQaxnA1E8kTrUvPT8r2JIxzQxTbN4Rxy7PI0xzQ-yg1vPHSc_bRdAnNe7-ZPoMzhCajWK5gQY4b7NjJoaSzYRXTEnwPKBqjFDjl47IeMZOSZt4jYbUGdEt/s1600/combine_images.jpg" /></a></div>
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<span style="font-family: inherit;">I’ve
always been somewhat of a gadget guy. When 4K TV came out in an 85 inch screen,
I had to have it. Got the solar panels on the house and a Tesla in the garage.
And like many of you, I’ve got drawers full of old blackberrys, nokias and
iphones as I’ve continually upgraded to the newest, fastest and shiniest gadget
available. Juxtapose this to the industry I’ve been in for 30+ years, the
insurance based retail financial services business. Of all the business models
out there, it is arguably the least technology driven. While most other
industries have gone Netflix, the insurance industry is still Blockbuster. The
basic premise for this is that the products are sold and not bought. It’s a
people business and technology will never replace the human touch. It’s the
ultimate relationship business. All these premises are historically correct. It
is a relationship business…but the relationship is changing. Ned Ryerson…meet
Silicon Valley.<o:p></o:p></span></div>
<div style="vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal" style="vertical-align: baseline;">
<span style="font-family: inherit;">As
some of you have noticed <i><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">(Thanks for the congrat notes
on Linkedin!)</span></i>, I recently joined a technology firm specializing in
an industry sub-sect of Fintech known as Insurtech. Yup…traded in the pin
striped suits for more casual attire and I’m developing new lingo like UX, UI
and API. Somewhat ironically, when the HBO series “Silicon Valley” first
came out in 2014, I took a pass. It looked like something that would be of more
interest to my 20 year old kids than a boomer like me. But recently at the
office after hearing the team make multiple references to the show, my wife and
I fired it up and plowed through 3 seasons in a matter of days. Very funny. When
they quote Reid Hoffman as saying “<i><span style="border: none windowtext 1.0pt; mso-border-alt: none windowtext 0in; padding: 0in;">If you are not embarrassed by
the first version of your product, you’ve launched too late”, </span></i>I
can actually relate to it now.<o:p></o:p></span></div>
<div class="MsoNormal" style="vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal" style="vertical-align: baseline;">
<span style="font-family: inherit;">In
season 3, Silicon Valley introduces a new character into the show named Jack
Barker. Given my perspective having been in the insurance industry and now the
tech business, there seemed to me like a bit of symbolism in this. The
character actor, Stephen Tobolowsky, who plays Jack Barker in Silicon Valley is
the same actor who played the role of Ned Ryerson, the annoying insurance
salesman in Groundhog Day twenty years prior. Check out the short video clips
of these <a href="http://www.vulture.com/2016/06/groundhog-day-reference.html" target="_blank"><span style="border: none windowtext 1.0pt; color: #8c68cb; mso-border-alt: none windowtext 0in; padding: 0in; text-decoration: none; text-underline: none;">two scenes</span></a> and you’ll see the similarities in the
characters down to even holding the briefcase in the left hand. Ned Ryerson is
often cited as the symbol of the obnoxious insurance salesman and of course
Jack Barker is the symbol of a rich tech CEO. This got me thinking, is the
insurance industry ready for technological change? Is it time for Ned Ryerson
to become more like Jack Barker?<o:p></o:p></span></div>
<div class="MsoNormal" style="vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal" style="vertical-align: baseline;">
<span style="font-family: inherit;">Obviously,
I do believe it’s time for the insurance industry to digitize. Why? While it
remains a relationship business, increasingly, the preferred customer
relationship is going digital. But unlike most digital disruptors, I don’t
think it’s going to bypass traditional distribution of the products and
services. We see what is happening in the robo-advisor world where the cost of
customer acquisition is financially bleeding the tech start-ups to the point
where they are forced to sell out to traditional distribution platforms. While
this is evidence that digital B2C is a risky financial services business model,
it is increasingly more apparent that the traditional distribution platforms
that integrate digital technology tools to enable their advisors will be far
better positioned to thrive than those who stick with “the good ‘ol days”. Here
are a couple trends and thoughts on why I see it this way (and why I’m bullish
on Insurtech):<o:p></o:p></span></div>
<ul type="disc">
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">InsurTech investment is
growing faster than FinTech</span></b>:
FinTech ($5.4 Bill investments in Q-1 2016) is large but mature. Most
Insurtech investment is going towards the Property & Casualty
insurance segment and B2C models. Investment in the Life/Annuity segment
is far behind creating a substantial white space opportunity<o:p></o:p></span></li>
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">The DoL is driving digital
solutions:</span></b> The U.S. DoL fiduciary
rule impacts up to 60% of annuity sales and technology solutions are
believed to be the predominant tool to comply. This will eventually bleed
into other lines of business as it will be difficult to operate a
distribution business model that is inconsistent across all product lines<o:p></o:p></span></li>
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">Insurers are partnering
with digital firms:</span></b>Technology
is expected to replace up to 25% of insurance jobs (McKinsey). Life
Insurance carriers and distributors do not have the depth of talent nor
budgets to build digital platforms and are choosing instead to partner
with digital technology firms<o:p></o:p></span></li>
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">Margins tighten/Scale
matters:</span></b> In a protracted low
interest rate environment, the margins for insurance carriers are
extremely tight. Overhead currently consumes up to 40% of premium
revenues. This is forcing cost cutting efforts, industry consolidation and
a desire to find lower costs methods of distribution using digital
technology<o:p></o:p></span></li>
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">The “insurance is sold-not
bought” prevailing belief is changing:</span></b> Historically
the industry has been a top down product push model. Shifting demographics
and technology are moving that to a bottom up customer centric model.
Digital technology is at the root of placing the customer first.<o:p></o:p></span></li>
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">Demographics are a driver:</span></b> The vast majority of current sales come from the
traditional agent channels. With an average age of 60, the agent/advisor
channel is in decline and insurers need to find alternative lines and
methods of distribution. Not surprisingly, <a href="http://www.investmentnews.com/article/20160708/FREE/160709951/brokers-becoming-a-primary-distribution-focus-for-life-insurers" target="_blank"><span style="border: none windowtext 1.0pt; color: #8c68cb; mso-border-alt: none windowtext 0in; padding: 0in; text-decoration: none; text-underline: none;">the Independent Broker-Dealer</span></a> model
is growing sales of insurance products more quickly than the traditional
independent agent channel.<o:p></o:p></span></li>
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">Aligning with
trends: </span></b>Millennials are now the
generation in the majority and are driving the shift in consumer
preferences to digital. The mobile phone is quickly becoming the main
screen<o:p></o:p></span></li>
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">Augmentation Beats
Automation:</span></b> As revealed by the
robo-advisor trending towards enabling rather than replacing the financial
advisor, the same can be expected in the insurance industry as “Insurtech”
matures<o:p></o:p></span></li>
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">We have
"robo-advisors" but where is the "robo-agent"?</span></b>: There are multiple digital offerings to manage assets
but surprisingly few to protect them in the life/annuity space. <o:p></o:p></span></li>
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">Digital has taken root
with the customer:</span></b>Cited by AM
Best, 83% of consumers would use the internet to research life insurance
before purchasing a policy if they had that option. One in four consumers
said that given the option, they would prefer to research and purchase
life insurance online. In addition, global mobile data traffic will
increase nearly eightfold between 2015 and 2020.<o:p></o:p></span></li>
<li class="MsoNormal" style="vertical-align: baseline;"><span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">The current distribution
model is not <div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuphUOc2p1Br7N12GfA8y-wF56vugqn7w53InJXXUgZjRhUZ7vKu2YFI3ESICEeXjHixE8VHXQczl8c6U2izO6QYTzkEKs4MAzLj1oatN1azfbLEJh16ho3ynr9YPxlmiPXDJRi76dOW-A/s1600/Life+Ins.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="184" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhuphUOc2p1Br7N12GfA8y-wF56vugqn7w53InJXXUgZjRhUZ7vKu2YFI3ESICEeXjHixE8VHXQczl8c6U2izO6QYTzkEKs4MAzLj1oatN1azfbLEJh16ho3ynr9YPxlmiPXDJRi76dOW-A/s320/Life+Ins.png" width="320" /></a></div>
working:</span></b> LIMRA
estimated that life insurance sales would increase $9.5 trillion if the 48
million under-insured households bought the amount of life insurance
coverage they said they needed. However, a quarter of under-insured
households said they were not approached to buy life insurance.<o:p></o:p></span></li>
</ul>
<div class="MsoNormal" style="vertical-align: baseline;">
<span style="font-family: inherit;"> Insurance
carriers and distribution platforms will need to decide whether to continue
down the traditional path and hope for different outcomes (i.e. definition of
insanity) or transform their approach to customers and products using digital
technology. As the Ned Ryersons' of the business age out and go away, the
industry needs to adopt digital technology not only to attract a new generation
of insurance based advisors, but to meet the standard set by Amazon, Google and
Tesla for a digital buying experience. As actor Stephen Tobolowsky has
done, it's time for the industry to morph from Ned Ryerson into Jack Barker.
There's an app for that!<o:p></o:p></span></div>
<div class="MsoNormal" style="vertical-align: baseline;">
<span style="font-family: inherit;"><br /></span></div>
<div align="center" class="MsoNormal" style="margin-bottom: 5pt; text-align: center; vertical-align: baseline;">
<span style="font-family: inherit;"><b><span style="border: 1pt none windowtext; padding: 0in;">“The
best way to predict the future is to create it”</span></b><i><o:p></o:p></i></span></div>
<br />
<div align="center" class="MsoNormal" style="margin-bottom: 5pt; text-align: center; vertical-align: baseline;">
<b><span style="border: 1pt none windowtext; padding: 0in;"><span style="font-family: inherit;">–Peter
Drucker</span></span></b><i><span style="font-family: "Arial",sans-serif; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></i></div>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-91464850971204289092016-05-24T13:18:00.000-05:002016-05-31T11:30:57.686-05:00Life Insurance 2.0 is coming<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizVi3fnrHX4lA6GHOOuC-BbykoeODAqcBt4c9VlkP6xolDIAK9ztL6XSMDNVvqJWD-p1fBvRscS4ox4GoltMdz46b7wi6i_5P-WTZQcnrfHb9P-vOfxeAOG6NJvjjgKGJfI4G20sm7fy6U/s1600/insuretech.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="364" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEizVi3fnrHX4lA6GHOOuC-BbykoeODAqcBt4c9VlkP6xolDIAK9ztL6XSMDNVvqJWD-p1fBvRscS4ox4GoltMdz46b7wi6i_5P-WTZQcnrfHb9P-vOfxeAOG6NJvjjgKGJfI4G20sm7fy6U/s640/insuretech.jpg" width="640" /></a></div>
<blockquote class="tr_bq" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; color: rgba(0, 0, 0, 0.701961); font-stretch: inherit; font-style: italic; line-height: 3.6rem; margin: 4.8rem 120px; outline: 0px; padding: 0px; quotes: none; text-align: center; vertical-align: baseline;">
<span style="font-family: inherit; font-size: medium;">“Life insurance is a product that is sold and not bought”</span></blockquote>
<div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; color: rgba(0, 0, 0, 0.701961); font-stretch: inherit; line-height: 3.2rem; margin-bottom: 3.2rem; margin-top: 3.2rem; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-size: medium;">This quote has been the mantra of the insurance industry for generations and somewhat an excuse for a lack of innovation. Life insurance is perhaps the most difficult financial product to sell and by far the most painful to buy. It’s also the reason that commissions are extremely rich while those who don’t specialize in it such as Independent Broker-Dealers and RIA’s often don’t even touch it. (so much for giving “Holistic Advice”!). But the financial services business is undergoing transformational change driven by new regulations, digitization of everything and huge demographic shifts. And the life insurance industry is not exempt from these forces of change. Here are some influences shaping the life insurance business going into the future…kind of a “Life Insurance 2.0”</span></div>
<div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; color: rgba(0, 0, 0, 0.701961); font-stretch: inherit; line-height: 3.2rem; margin-bottom: 3.2rem; margin-top: 3.2rem; outline: 0px; padding: 0px; vertical-align: baseline;">
<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit; font-size: medium;">The purchasing process has to change</span></strong></div>
<div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; color: rgba(0, 0, 0, 0.701961); font-stretch: inherit; line-height: 3.2rem; margin-bottom: 3.2rem; margin-top: 3.2rem; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit; font-size: medium;">The life insurance buying experience is in the dark ages. The buying experience for most every product is moving digital through social media that is real time and on the mobile phone. Contrast that to the way life insurance is sold…think <a href="https://youtu.be/XqSYC_vwhDg" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; color: #8c68cb; cursor: pointer; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline; word-wrap: break-word;" target="_blank">Groundhog Day</a> . First, you have to find someone who needs coverage. Anyone want to talk about dying?…not an easy discussion to initiate. Then if you do find someone who will listen, the primary method for helping a prospect find the right coverage is by thumping multiple 20 page+ illustration’s on their desk complete with numbers they won’t understand and legalese they can’t comprehend. At this stage, perhaps after several meetings weeks apart, if they do trust your recommendation you have to fill out a very detailed multi-page application digging into some very personal and private information. Then comes the bleeding and peeing in a cup part scheduled whenever the paramedic can get to the client. Finally after requesting all their doctors information (APS) which can take months to secure, the underwriter mulls over all the information and if the history matches the underwriting guidelines, a policy is approved. It takes up to another month before the actual policy is issued and ready for delivery. All told, the buyer will have endured a 2-3 month process with very little communication along the way. Could we make this any more difficult? It’s the very opposite of how today’s buyer wants to transact…anti-social, the opposite of real time and totally paper driven.</span></div>
<div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; color: rgba(0, 0, 0, 0.701961); font-stretch: inherit; line-height: 3.2rem; margin-bottom: 3.2rem; margin-top: 3.2rem; outline: 0px; padding: 0px; vertical-align: baseline;">
<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit; font-size: medium;">Investment in InsurTech is hot</span></strong></div>
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<span style="font-family: inherit; font-size: medium;">As noted below where you can see the huge growth in FinTech, the clear laggard is in the insurance industry known as “InsurTech”. But that is changing. While investment in FinTech is beginning to show signs of maturity, InsurTech is just getting started. A highly respected consulting firm in the space estimates that investment in P&C insurance technology lags banking (ie.FinTech) by up to 5 years and Life and Annuity lags by another 5 years. But with the increased investment and new technology players entering the space, that lag time will close. Tell someone you’re in the insurance business and nobody wants to talk </span><img class="left" height="229" src="https://media.licdn.com/mpr/mpr/shrinknp_400_400/AAEAAQAAAAAAAAirAAAAJGU4YWM1MDVkLTljYjMtNDE2NS1iZjEyLTNiMjgwOWUxZGE4ZA.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; float: left; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: auto; line-height: inherit; margin: 1.6rem 4.8rem 3.2rem 0px; max-width: 432px; outline: 0px; padding: 0px; vertical-align: baseline;" width="323" /><span style="font-family: inherit; font-size: medium;">to you. Tell them you’re in the InsurTech business and everyone wants to talk with you. Technology makes a relatively staid and boring industry a bit more exciting. The insurance industry is beginning to attract tech talent like never before which will drag the industry into the digital age, albeit kicking and screaming.</span></div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit; font-size: medium;">Mortality and underwriting meets bio-technology</span></strong></div>
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<span style="font-family: inherit; font-size: medium;">At this year’s AALU meeting, one of the speakers was Dr. Craig Venter who runs the human genome project in my neck of the woods here in La Jolla, CA. Dr. Venter has been instrumental in sequencing human DNA and like all things technology, the advances over the past couple years have been astounding. Sequencing a human genome now costs just $1,345 compared with the $95 million it cost in 2001, according to the US National Human Genome Research Institute. In a few years, you could possibly get your complete DNA for a fraction of today’s cost. Having your DNA tested can give you tons of valuable information that can prevent a health catastrophe. Not only can it help prevent a life threatening disease, but it presents valuable information to an insurer. What if you knew that in 20 years you would have a high likelihood of getting Alzheimer’s disease? There are measures you can take today to prevent that from happening if you knew it. The same with various cancers and other life threatening diseases. My son recently fought and won a battle with leukemia. If we had his DNA, it would have told us about the translocation of a particular gene that caused the cancer and we could have prevented it from happening in the first place. Armed with this information digitally, an insurance company no longer needs you to bleed and pee. They may no longer need to access volumes of medical information from your doctor. And having this information in advance helps the insurer get to “yes” faster rather than “no” longer. Underwriting for life insurance is about to be changed forever…for the better.</span></div>
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<span style="font-family: inherit; font-size: medium;"><b style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Digitization</b><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"> of everything</strong></span></div>
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<span style="font-family: inherit; font-size: medium;">Blockbuster has given way to Netflix, K-Mart/Sears have yielded to Amazon and Tower Records was beaten down by iTunes. Everything is moving to digital and </span><img class="left" height="297" src="https://media.licdn.com/mpr/mpr/shrinknp_400_400/AAEAAQAAAAAAAAhYAAAAJGEyMjI4ZWMwLWU0MzMtNDMxNi1iNTVjLTZjZjVlMjUxYWI5Yg.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; float: left; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: auto; line-height: inherit; margin: 1.6rem 4.8rem 3.2rem 0px; max-width: 432px; outline: 0px; padding: 0px; vertical-align: baseline;" width="277" /><span style="font-family: inherit; font-size: medium;">the insurance industry is not an exception. While the insurance industry has been slow to adopt new technology there are signs that this is beginning to change. By using data integration, cloud technology and new digital formats, technology today allows insurers to digitize the purchasing experience without having to change their legacy systems (which will continue to be a drag on progress). Imagine a digital lead nurturing program that, through analytics, targets customers based on specific demographic information along with life events that trigger the needs for life insurance. Perhaps through Facebook or other social media, a client clicks on a message that seems personalized to them and their particular situation taking them to a landing page educating them on the features and benefits.<em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">(Side note: when you explain the features and benefits of permanent life insurance without first saying it’s life insurance, the product sounds amazing. Of course, compliance folks don’t let you do that...nor should they).</em> Once the prospect has been educated online through various mediums such as video, storyboards or a Khan academy styled explanation, they then fill out some personal information online which begins to populate an illustration and application. If they chose to do so, they can talk to an agent or advisor unless they prefer to continue on their own (most will likely choose an agent/advisor). With the data input about name, age, face amount and premium, multiple illustrations can be simultaneously run and rendered on a simplified policy comparison chart (like above) with visual graphs viewable on any device of their choice (with the compliance </span><img class="left" height="331" src="https://media.licdn.com/mpr/mpr/shrinknp_400_400/AAEAAQAAAAAAAAd-AAAAJDE1YWU1MWRjLTg3ZTktNDVjZC1iZWRiLTM5M2Y4ZjAzMWUzNQ.png" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; float: left; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: auto; line-height: inherit; margin: 1.6rem 4.8rem 3.2rem 0px; max-width: 432px; outline: 0px; padding: 0px; vertical-align: baseline;" width="309" /><span style="font-family: inherit; font-size: medium;">approved illustrations attached via pdf should they want to review them). Once a product is selected, an electronic application is filled out and electronically signed, medical underwriting is streamlined by using online DNA information and a policy is issued almost immediately. Technology today can tackle the two most difficult things in the business which is finding a qualified prospect under a favorable circumstance and making the purchasing process less time consuming and confusing. </span></div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit; font-size: medium;">Non-traditional channels will be compelled to address life insurance needs</span></strong></div>
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<span style="font-family: inherit; font-size: medium;">The big story lately in financial media has been the margin compression in the wealth management space. The DoL and the advent of robo’s are moving the dial on that even quicker. With the AUM fees expected to be cut from today’s standard of 1% to about 25 basis points, and commissions fading away, RIA’s and Independent Broker-Dealers will need to find revenues from somewhere else. There is a general belief that fees for comprehensive financial planning (as opposed to investment management) is one place to go whether it’s a flat fee, hourly charge or baked into a higher % of AUM. But one of the tenets of financial planning if memory of my CFP training is correct, is life insurance. How can an advisor meet their fiduciary requisite and not address their client’s life insurance needs? I don’t think they can. But why don’t advisors address it today? …you guessed it…it’s freaking complicated! And it makes the advisor look stupid if they don’t have it mastered. But what if the process to address it is digitized and made seamless? That’s where I see the advisor stepping up and making life insurance part of their value proposition. At the same time, life carriers are actively looking for alternative lines of distribution since the traditional agent with an average age of over 60 is a dying breed. Look to see new forms of permanent life insurance priced for the advisory marketplace so the conflict of interest over commissions are taken away. And technology will enable the RIA and Independent Broker-Dealer to address the needs in a far more consumer friendly way.</span></div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit; font-size: medium;">Robo-advisor as a proxy for robo-insurance</span></strong></div>
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<span style="font-family: inherit; font-size: medium;">Not surprisingly, the majority of FinTech investments early on went towards B2C direct models trying to disrupt the space through what we know as the "Robo-Advisor". Now that we’ve seen a couple of them crash and burn, there seems to be a reorientation towards using technology to enable rather than replace the advisor. In InsurTech, we’re likely going to see the same. The majority of InsurTech investment is currently going towards B2C models attempting to go around the current distribution channels following the theme of “disruption”. But following the FinTech trend, I think within a couple years just as we’ve seen the robo-advisor shift, we’ll see the same with InsurTech. Technology in insurance will reset from attempting to bypass the traditional channels to enabling them. (that is…until all the agents age out of the business!)</span></div>
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<span style="font-family: inherit; font-size: medium;">There is no other industry as ripe for a technology overhaul than the life insurance industry. Paper driven legacy systems have been like a ball and chain on technology progress. However, the dynamics impacting the industry are creating opportunities to change that. The painful process of finding a prospect and the multi-month purchasing process is on the cusp of changing through new technology. It will be the carrier or distribution firm who finds a way to change the buyer experience through new technology that will win in the future. However, as life firms have been in cost containment mode the past several years, the talent to create a digital platform is slim. I see carriers and distributors more likely to partner with InsurTech firms to create the future platform while using their current resources to keep the lights on with legacy systems. Imagine if we could flip the old quote around and say, "life insurance is a product that is bought and not sold" ...Life-Insurance 2.0 is almost here. </span></div>
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<span style="font-family: inherit; font-size: medium;">"The secret of change is to focus all your energy not on fighting the old, but on buillding the new" -Socrates</span></blockquote>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-34760625893023184112016-04-25T18:31:00.000-05:002016-04-26T10:50:10.973-05:00Demographics and the Emergence of Robo-surance<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh97s8wrBKl2e70CQ0RNJyS6wlzkzvgJjECDgXTWXZ8NnXwIoILggrYsWVelQBZtsWLyfWzNbOnZbxZ0XU3Be_fwBZZIcu_ukON-Z8oq_GBzvxRNpNTL-IaO8j_maxe7A6oMUzkv9S0FsBL/s1600/RobotHand.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh97s8wrBKl2e70CQ0RNJyS6wlzkzvgJjECDgXTWXZ8NnXwIoILggrYsWVelQBZtsWLyfWzNbOnZbxZ0XU3Be_fwBZZIcu_ukON-Z8oq_GBzvxRNpNTL-IaO8j_maxe7A6oMUzkv9S0FsBL/s400/RobotHand.jpg" width="400" /></a></div>
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<span style="font-family: inherit;">Ever since I entered the financial services business back in the 80’s, the Baby Boomer demographic has been the overwhelming driver of consumer behavior and how companies marketed their products and services. While it remains true that the majority of investable assets remain with the Boomer generation due to a lifetime of accumulation, what seems to be changing is their influence on purchasing behavior and decision making. Why? After multiple decades of demographic dominance, it is estimated that as of last year, there were about 75.4 million Millennials, outnumbering the approximately 74.9 million Baby Boomers. The Boomer has been overtaken in sheer size for the first time in over six decades.<a href="http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-boomers/" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank"> Pew Research Article</a> </span><br />
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<img class="left" data-loading-tracked="true" height="443" kasperskylab_antibanner="on" src="https://media.licdn.com/mpr/mpr/shrinknp_800_800/AAEAAQAAAAAAAAdMAAAAJGFiZTg4YTYyLTQ1ZDQtNGNlYS1iYTQwLTRjN2ZmMzE5NTQ5Mw.jpg" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; float: left; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: auto; line-height: inherit; margin: 30px 30px 30px 0px; max-width: 100%; outline: 0px; padding: 0px; vertical-align: baseline;" width="310" /><span style="font-family: inherit;">So far, 20% of Baby Boomers have retired. By 2020, it is estimated that 44% of boomers will have retired. While the Boomer is definitely where the assets are currently, guess who is going to inherit all that money in the coming decades? You guessed it…Millennials. And just as the size of the Boomer generation impacted how we marketed to them, Millennials are today shaping the business models for the future. To be successful for this segment, it comes down to one key word: <span class="underline" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; text-decoration: underline; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Digitization</strong></span>. That’s why we’ve seen an explosion in FinTech investment for the financial services industry. It seems everything is going digital whether it’s going direct to the consumer over the web or enabling intermediaries to be more efficient and tech forward in marketing to the shifting demographic. As noted below where you can see the huge growth in FinTech, the clear laggard is in the insurance industry known as “InsureTech”. But that is changing. In this article titled <a href="https://seedingtech.com/2016/02/01/the-insurance-tech-moment-is-coming/" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">"The Insurance Tech Moment is Coming"</a> , it states, “Insurance is the next FinTech” growing faster in the past couple years than FinTech itself, which includes the “Robo Advisor”. It appears that InsureTech lags the FinTech investment by about 2 years…but it's catching up.</span></div>
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<span style="font-family: inherit;">Combine this phenomenon of industry digitization with all all the other drivers of change such as regulations (DoL today and likely the SEC soon), Advisor/Agent demographics on the decline and the demand for financial services products and advice on the increase, and you’ve got an atmosphere ripe for disruption. But not the kind of disruption where the robo will replace the advisor. As we in the business know, people do not make impulse purchases on complex products and services or as we often say, they're sold and not bought. That’s why we’ve seen multiple slick robo offerings struggle with gaining traction only to be bought out by well capitalized human advisor firms. But there will be some direct models that can replace the advisor/agent. Financial services and insurance products that are more straight forward and simple such as simple asset allocation, home/auto insurance, term insurance and health insurance will be easier to buy online in the future through B2C direct models. However, Comprehensive Financial Planning, Permanent Life Insurance and Annuities are more likely to be digitized<span class="underline" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; text-decoration: underline; vertical-align: baseline;"><em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"> through</em></span> a financial professional rather than <em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span class="underline" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; text-decoration: underline; vertical-align: baseline;">around</span></em> them due to the complexities.</span></div>
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<span style="font-family: inherit;">Not surprisingly, the majority of FinTech investments early on went towards B2C direct models trying to disrupt the space. Now that we’ve seen a couple of them crash and burn, we’re seeing a reorientation towards using technology to enable rather than replace the advisor. In InsureTech, we’re likely going to see the same. The majority of InsureTech investment is currently going towards B2C models but following the FinTech trend, I think within a couple years just as we’ve seen the robo-advisor shift, we’ll see the same with robo-surance. (Note: Insurance is so tech backward, there isn't even a "robo-advisor" like-kind term, so I made up "robo-surance")</span></div>
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<span style="font-family: inherit;">Another emerging trend in insurance is the need to find alternative forms of distribution. With the average agent age at 60 and regulations causing manufacturers to drop their proprietary distribution models (as Met did recently), insurance carriers and BGA's have to find a way to open up sales to grow or else they’ll die a slow death. Coincidentally, the RIA and Independent B/D's are seeing their margins compressed like never before and similar to the insurers, need to find alternative lines of revenue or they'll also die a slow death. With the benefit of technology being able to simplify an otherwise complicated product and service (think Turbo-Tax), there are some technology companies entering the financial planning and insurance space to do the same. By taking a consumer focused approach which is leaning towards digital and reshaping the complexities of insurance products, not only will the traditional channels be more effective, but those who have typically referred this piece of business away such as RIA's may be inclined to keep it in house, particularly if the carriers reprice their products (from commission to asset based) which is the current trend. </span></div>
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<span style="font-family: inherit;">One company I've been advising in this space is <a href="http://assuranceapp.com/" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Assurance</a>. The firm is taking the Intuit Turbo-Tax technology and applying it to the complex life insurance business to format illustrations that not only help the financial professional comply with new regulations, but renders the proposals digitally in a graphic, easy to understand way, viewable on any device (computer, tablet, cell phone) rather than thump down multiple confusing 20 page illustrations on the desk. </span></div>
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<span style="font-family: inherit;">We are at the intersection of demographic change (Boomer to Millennial) and regulatory disruption where the natural solution is new technology. Just as it has been said that if you google yourself and nothing comes up, you really don't exist, likewise, if you are a financial services or insurance firm and don't have a digital consumer offering, the firm doesn't exist. It's time that the insurance industry play catch-up with a digital strategy. Assurance is one of a handful of firms that can show them how to do it. </span></div>
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"A horse never runs so fast as when he has other horses to catch up and outpace"</blockquote>
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-Ovid</blockquote>
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Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-75485269779437072892016-04-13T10:12:00.001-05:002016-04-13T10:12:22.030-05:00Sun-Moon-Stars Align for Retail Financial Services Platforms<div class="separator" style="clear: both; text-align: center;">
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<span style="font-family: inherit;">It’s not often that from a business perspective, the sun, moon and stars align to create both tremendous opportunity and incredible change. What we are witnessing now in the financial services business is that exact phenomenon. But in this business, it’s not the sun, moon and stars, but instead, shifting consumer preferences, technological advancements and regulatory change. The alignment of these key components is creating a game changing environment that will further delineate winners from losers while being unforgiving to those prone to maintaining the status quo. The release of the DoL rule last week was the final piece to fall into alignment setting everything in motion that had prior been somewhat paralyzed. Now that we have some clarity, it’s finally time to press forward…game on! Here are some observations about this unique point in time…</span></div>
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<span style="font-family: inherit;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Consumer preferences:</strong> It’s no mystery that everything is moving towards a digital platform for most anything we need and want. Whether it’s entertainment through Netflix, shopping with Amazon or updating features on the Tesla, it’s no longer an option to opt out of the digital revolution. Brick and mortar stalwart Nordstrom had 8% of their sales online in 2010. It is expected to soon be up to 30% and that’s a store most folks like to physically shop. What about the one’s that aren’t as consumer friendly? I suppose now that my 83 year old mother prefers to shop through her Amazon Prime account, it’s a sure sign to me that the way folks prefer to purchase products and services is profoundly changing.</span></div>
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<span style="font-family: inherit;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Technological advancements:</strong> It’s been said that if a customer googles your company or name and nothing comes up, you really don’t exist. In today’s world, particularly with the rising millennials, you now have to be seen on tablets and most importantly, smartphones. With the average age of a financial advisor at 55 and the insurance agent pushing 60, there is a strong tendency to do things the way we’ve always done them. When I started in the business we used to carry around “rate books” for insurance products. That gave way to computer illustrations. Now that we’re at the intersection of new technology and changing regulations, you no doubt will see the next evolution of ways to engage and communicate complex products to consumers through the device of their choice, not ours. In the future it is going to be benchmarking data analytics comparing product recommendations and disclosures through graphics seamlessly viewable on any device you prefer. </span></div>
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<span style="font-family: inherit;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Changing Regulations:</strong> If consumer preferences are the moon and technological advancements are the stars, then the sun (the big one!) is the seismic change in regulations taking place. There is much yet to digest about the 1,000+ page DoL rule, but whether it gets through or not, it is likely the catalyst to get long anticipated industry change moving. Some first impressions:</span></div>
<ul style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; line-height: 27px; margin: 0px 0px 15px; outline: 0px; padding: 0px 0px 0px 35px; vertical-align: baseline;">
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">The DoL was smart to acquiesce on some of the initial language. Yes, the insurance and B/D industry will continue to push back, but how can you argue against doing what is in your client’s best interests? It was a challenge for them to keep it from happening and now it has happened, it will be a greater challenge to stop it from moving forward.</span></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Sales illustrations have long been a tool used to recommend certain products. But in a best interest environment, that won’t be enough. It has been said that without the advent of new technology such as the robo-advisor, this rule would not be possible. Likewise, it’s going to require new technology to meet the DoL requirements. Benchmarking alternatives, providing the necessary disclosures and listing every potential conflict of interest goes way beyond the current illustration of today. Advisors/ Brokers/Agents are going to need a tool to demonstrate that they have met all the requirements of the best interest contract (BIC) to play in this space going forward.</span></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">With the DoL “genie out of the bottle” , I don’t think there is any going back. Firms that choose to take a wait and see approach as many have done thus far will find themselves at a severe disadvantage whether the rule moves forward or not. While the large IBD’s such as LPL and the wires don’t like it, they’re not gambling on the rule being overturned and are already moving forward on plans and infrastructure to comply. And with a more “friendly” version of the rule having come out than previously thought, it is more likely that the SEC will fall in line for all non-retirement products as well.</span></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Just as the DoL pulled indexed annuities from the <div class="separator" style="clear: both; text-align: center;">
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insurance exemption and under the BIC due to their complexity, I think a “harmonized” SEC best interests rule will pull in complex life insurance as well. If an indexed annuity and variable annuity are “complex” enough to be overseen by the DoL then it stands that Indexed Universal Life and Variable Universal Life will likely be pulled into the fiduciary complex.</span></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">In that the DoL has essentially harmonized the regulations for a huge piece of business, it is natural that business models will follow suit. This lends to the Tribrid model of B/D, RIA and BGA under the same roof for ease of meeting regulatory requirements while reducing liability and risk.</span></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">It is quite likely that insurance companies will reprice their life and annuity products not only to meet the “reasonable” compensation thresholds of the DoL but also to open up a new line of distribution through RIA’s. If distribution expenses are stripped out of the life/annuity products and they get repriced like an AUM model, RIA’s who routinely refer this line of business out may be inclined to keep it in house.</span></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">It is estimated that the DoL covers up to 60% of investable assets. This is the first regulation that universally covers state insurance agents, FINRA brokers and SEC investment advisors cutting across the outdated and cumbersome product silos. It will materially change distribution business models to fall in line with the new regulations. Either business models comply or they impracticably decide not to play in this space from where up to 60% of their business is coming from. I don’t really think there is an option.</span></li>
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<span style="font-family: inherit;">I started in this business during the 80’s and have witnessed the evolution through the years. But I have never seen such dramatic change that threatens the very existence of multiple business models as they are structured today. RIA’s and certain forward thinking broker-dealers have been working under a best interests scenario enabled with technology for some time and will only need to make a few adjustments to comply. But the insurance industry has been caught flat-footed on this one. Not only does this change the entire revenue model of high commissions, but the insurance industry has been notoriously slow to adopt new technology. We see a proliferation of robo-advisors, some going direct to the consumer and others enabling the advisor. But where is robo-surance? I suspect that insurance industry executives are thinking long and hard about that right now. Fintech and the robo-advisor have been dominating industry headlines the past several years. The coming trend? Insuretech and robo-surance…stay tuned</span></div>
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<span style="font-family: inherit;">"If you change the way you look at things, the things you look at change"</span></blockquote>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-40597964510413572262016-03-09T16:36:00.000-06:002016-03-09T16:38:20.155-06:00If A Tree Falls In The Forest, Will A Regulator Hear It?<div class="separator" style="clear: both; text-align: center;">
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"If a tree falls in a forest and no one is around to hear it, does it make a sound?" …or put another way, if a client is ripped off by his/her advisor and a regulator does not know about it, was the client really harmed? After a career in the financial services business as an advisor, supervisor and senior executive, I can’t believe I’m about to stand up for the entity that has caused me so much frustration and consternation over the years; FINRA. You may have noticed quite a bit of industry media and opinion leaders piling on the study released last week titled <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2739170" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">"The Market for Adviser Misconduct"</a> . The wide distribution of that study which concluded that 7% of “financial advisers” have records of misconduct and of that, 44% of those “advisers” are re-employed in the industry within a year, has prompted headlines like <a href="https://www.washingtonpost.com/news/wonk/wp/2016/03/07/beware-of-your-financial-adviser/" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">"beware of your financial advisor"</a> and <a href="http://www.bloomberg.com/news/articles/2016-03-01/it-just-got-even-harder-to-trust-financial-advisers" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">"It just got harder to trust financial advisers"</a>. As a former Pres/CEO of a 7,000 advisor B/D and more recently having launched an RIA and B/D from scratch through a start-up, I’ve seen the good, bad and ugly from regulation and a lack thereof. Yes, there are some bad actors in the B/D business and unfortunately they too often resurface only to continue their bad acting. Even 1% is a number too high. But to focus on the somewhat flawed study of 7% and 44% is very misleading. This not to mention the suspect timing of the release just weeks before the expected DoL proposal is to be made public. I won’t argue the numbers and methods they used to come to their conclusions. They may even be accurate. What is concerning though is the media spin on it.</div>
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After the study and resulting media coverage hit the streets, <a href="http://www.investmentnews.com/article/20160303/FREE/160309966/wall-st-critic-warren-grills-finras-ketchum-on-regulators-ability-to" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Elizabeth Warren</a> came out in a Senate Banking subcommittee hearing criticizing FINRA for not doing its job. My initial impression was, Wow!...if she is all over FINRA who closely supervises their member firms, she must be clueless about how inept the SEC and state insurance departments are at policing their constituents. Here’s why I had that reaction:</div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Companies live in fear of FINRA:</strong> No matter what level of the business you’re in, if you’re registered, FINRA is ever-present. If a tree falls in their woods, they will definitely hear it. No one individual is more important than the broker-dealer firm and any supervisor turning his/her head on misconduct will likely lose their career for “failure to supervise”. Any deviation from “company policy” is typically met with some form of discipline and is made as part of the broker/advisors record. This at times leads to some fairly minor infractions to be reported as misconduct as most B/D’s now exercise a zero tolerance policy.</div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Routine activities for RIA’s are often cited as misconduct for brokers:</strong>I’ve had to discipline (and report to FINRA) for actions that fall into the category of “Failure to comply with company policy”. An advisor was once preparing for an annual review and since the B/D at the time did not have a means to show a snapshot of all the client holdings, the advisor created his own Excel spreadsheet and showed the values. While it was accurate and did not misstate the holdings, the spreadsheet was found in the client file during a routine compliance review and the advisor was then terminated for “Failure to comply with company policy”. Refer a client to an insurance agent who then sells your client a policy? In some circumstances that could get a registered rep fired for “selling away”. There are many routine activities in the SEC RIA world that would get one fired in the FINRA world.</div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Certain alleged misconduct, despite being inaccurate, is reported as misconduct anyway:</strong> An advisor in a smaller town had an arch rival at a competing firm who was targeting his clients. A tactic that the competing broker used was to write complaint letters for his prospects (the advisors clients) claiming misrepresentation so the firm would waive surrender charges and return the original investment even though there was no basis for it. Of course, each event was reported as a client complaint as required by FINRA. The weight of too many of these complaints forced the B/D to terminate the honest advisor since the risk of remaining affiliated was too great despite the false nature of the complaints.</div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The majority of FINRA regulated brokers are also investment advisors:</strong> I find it interesting that the financial media and several in the fee-only community continue to run with the narrative that it’s the commission hungry broker allowed to sell bad products versus the fee only RIA who always acts in their clients best interests. It’s been widely reported that 88% of B/D registered reps are also registered as investment advisor representatives (part of the corporate RIA). And the largest Indy B/D, LPL was reported to have 62% of their 2014 gross sales in advisory business and trending heavily towards going 100% to fees. This is happening at all B/D’s in the business. The narrative of RIA good guys versus broker bad guys is running thin and based on an era gone by. </div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Registered insurance agents and brokers drop FINRA to escape supervision: </strong>I know many brokers and agents who dropped their FINRA registration to simplify their lives. Many of them are now born again fee only’s. While there are some advisors who have been fee only from the inception of their practice, most started out as brokers and simply could not deal with FINRA all up in their stuff. Some did it in a sincere interest to change their business model to be on the same side of the table as their clients. But as many did it to get out from under FINRA’s thumb.</div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">FINRA members are dramatically shrinking while RIA ranks are the fastest growing.</strong> Just a few years ago, the number of B/D’s was around 5,500. This year that number will dip below 4,000 and the expected reduction will likely quicken after the DoL rule crushes the small IBD model. One wonders, with FINRA being over-resourced inspecting brokers who are trending towards investment advisory and the SEC under-resourced…</div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">The ease in opening an RIA versus a B/D is somewhat disconcerting:</strong>Starting any business from scratch is always a tough task, but launching a new B/D is flat out painful. Huge business plans, pro-formas, multiple interviews, background checks, names of potential brokers to submit and vet, setting up net capital requirements, clearing arrangements, etc. It was an agonizing year of to and fro with FINRA to get approved. For the RIA it was pulling together an ADV, some various forms and filing in each state. A done deal after 2 months. It’s almost scary how easy it was to set up the RIA compared to the B/D. It’s equally scary how absent the SEC is in overseeing RIA business compared to FINRA.</div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"> So, where’s the report on RIA’s? </strong>There is no way to do a study on non-FINRA registered RIA’s because the data does not exist. And even if there was a “BrokerCheck” database for RIA’s, it would be highly suspect since nobody is looking except on average an audit every 10 years. If a tree falls in the SEC forest, they most likely will not hear it! <a href="http://www.investmentnews.com/article/20140601/REG/140539989/questions-on-third-party-ria-audits" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">This</a> Investment News article states, “According to the SEC's annual report, 80% of exams by the SEC or self-regulatory organizations identify deficiencies; 35% find “significant deficiencies,” which might damage investors. But only 13% of those are referred to enforcement for action.” 35% have <strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-family: inherit; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-family: inherit; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">significant</em></strong> deficiencies? And that’s of the 9% RIA population they take the time to examine. Where's the media narrative on that? It’s no wonder why RIA’s staunchly oppose FINRA taking over the job!</div>
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There is no question that there continues to be bad apples affiliated with B/D’s, RIA’s and state insurance departments just as there are bad doctors, lawyers and CPA’s. While the popular study alleges that 7% of B/D brokers are bad apples, there are indications that the number in the non-FINRA regulated constituencies could be far greater simply because nobody is looking. As a proponent for a harmonized fiduciary standard, I hope we are all required to act in our clients best interests. I also believe that the incentives for selling certain products in the form of excessive commissions, exotic trips, etc. need to be taken out of the system. But as I started this article, "If a tree falls in a forest and no one is around to hear it, does it make a sound?" I can’t see how you can argue that FINRA should not and cannot inspect RIA’s when the majority of FINRA brokers are essentially conducting much of their business in the same way. And after the DoL proposal gets implemented, the lines will blur even further. Of all the entities in our business that we have to be held accountable to whether it’s the SEC, DoL, state insurance departments and state securities departments, FINRA is the only one that is actually getting the job done (geez, I can’t believe I’m saying that!). It seems like a waste of time and resources to have so many duplicate regulatory entities each with their own set of rules and procedures overseeing what is essentially the same activity of giving personalized investment advice. Unfortunately, I don’t see that changing any time soon. But reading all the vitriol about FINRA is almost laughable. It’s masking the real problem in the lack of accountability and inspection by state insurance departments over their agents and the SEC over their RIA’s. And now we’ve got the DoL stepping in to make things even more complicated. Like in politics, the industry voices are loudest at the extremes while the more level headed are somewhere in the middle. Our business is harmonizing and it’s my belief that the regulators should do so as well. Stoking the narrative that brokers are uniformly ripping their clients off while RIA’s are pure is not helping solve the problem of overlapping regulations and regulators. We have too many regulatory forests and various definitions of what constitutes a tree falling much less hearing it fall. Will anyone write about that?</div>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-44666517433091677762016-03-02T18:43:00.001-06:002016-03-02T21:09:27.264-06:00Who Moved My Cheese?...Is It Top Down or Bottom Up?<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgEnFTlWpMdzhjh24EhpphhVwVEe11eXXtoHAEH5xzfEanLjYSK1IqVk4_D38_GP1lRaXkaxw2n3RvCLGUnceRCQ9gAqmwnXs8VX3mI6HAR6x4QEED6bJ2iZHjZsu8_JxBy-BASiSlxxIz-/s1600/dsc_0006-goose-bum.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="265" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgEnFTlWpMdzhjh24EhpphhVwVEe11eXXtoHAEH5xzfEanLjYSK1IqVk4_D38_GP1lRaXkaxw2n3RvCLGUnceRCQ9gAqmwnXs8VX3mI6HAR6x4QEED6bJ2iZHjZsu8_JxBy-BASiSlxxIz-/s400/dsc_0006-goose-bum.jpg" width="400" /></a></div>
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<span style="font-family: inherit;">I’ve been a follower of Ken Blanchard and Spencer Johnson's books and teachings since the One Minute Manager came out in 1982 (hard to believe it’s that old!). They always have a common sense message for the business community told through stories. With all that is going on in retail financial services, it has caused me to re-look another of their popular books “Who Moved My Cheese”. You may recall it was about change in one's work and life and four reactions (fear, shock, anger and grief) to those changes by two mice and two "little people," during their hunt for cheese. They live in a maze, a representation of one's environment, and look for cheese, representative of happiness and success. One day they went to the spot in the maze that always had cheese and it was gone (hence the title “Who moved my Cheese”). One of them went on to look for cheese elsewhere while the other, with fear of the unknown, does nothing. The brave one, hoping his friend would change his mind and go out to look for new cheese, left a trail of writings on the walls of the maze (ie “Handwriting on the wall”). The writings are meant to be lessons:</span></div>
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<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;"><b>Change Happens</b></span></span><ul style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; list-style: disc; margin: 0px 0px 15px; outline: 0px; padding: 0px 0px 0px 35px; vertical-align: baseline;">
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">They Keep Moving The Cheese</span></li>
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<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Anticipate Change</span></strong><ul style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; list-style: disc; margin: 0px 0px 15px; outline: 0px; padding: 0px 0px 0px 35px; vertical-align: baseline;">
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Get Ready For The Cheese To Move</span></li>
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<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Monitor Change</span></strong><ul style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; list-style: disc; margin: 0px 0px 15px; outline: 0px; padding: 0px 0px 0px 35px; vertical-align: baseline;">
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Smell The Cheese Often So You Know When It Is Getting Old</span></li>
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<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Adapt To Change Quickly</span></strong><ul style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; list-style: disc; margin: 0px 0px 15px; outline: 0px; padding: 0px 0px 0px 35px; vertical-align: baseline;">
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">The Quicker You Let Go Of Old Cheese, The Sooner You Can Enjoy New Cheese</span></li>
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<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Change</span></strong><ul style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; list-style: disc; margin: 0px 0px 15px; outline: 0px; padding: 0px 0px 0px 35px; vertical-align: baseline;">
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Move With The Cheese</span></li>
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<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Enjoy Change!</span></strong><ul style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; list-style: disc; margin: 0px 0px 15px; outline: 0px; padding: 0px 0px 0px 35px; vertical-align: baseline;">
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Savor The Adventure And Enjoy The Taste Of New Cheese!</span></li>
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<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Be Ready To Change Quickly And Enjoy It Again</span></strong><ul style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; list-style: disc; margin: 0px 0px 15px; outline: 0px; padding: 0px 0px 0px 35px; vertical-align: baseline;">
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">They Keep Moving The Cheese.</span></li>
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<span style="font-family: inherit;"> Given what we are witnessing today in the financial services business I honestly believe this is our “Who Moved My Cheese” moment. It is becoming eminently more clear that we’re about to see a dramatic shift in business models and their source of revenues. I’m not talking about an evolution over a period of years, but swift “turn on its head” kind of change happening as you read this. For the longest time, financial services has prospered under a product driven top down model. Financial product manufacturers made products and priced them with a “Gross Dealer Concession” or “distribution allowance” pushed down through B-D’s or agencies to sell them. The GDC/Dist. Allowance was ultimately paid for by the client in the form of commissions and/or surrender charges. But this is quickly changing from product driven top down to a market driven bottom-up model. Rather than the flow of money starting at the product manufacturer level in the form of GDC moving down the chain, it now is shifting to begin at the client level in the form of fees moving up the chain. The cheese has moved! If/when the DOL proposal becomes the law of the land, it quickens this shift from top-down to bottom-up. And what does this mean for the traditional distribution platforms of independent and insurance based broker-dealers? It flips the value proposition on its head. Rather than the B/D or distribution entity holding the purse strings dictating the terms of the advisor relationship (What have you done for me lately?) it shifts the power to the client and advisor (This is what we need from you to support our clients). The vast majority of distribution platforms are either unwilling or unable to make changes to survive, setting up what I believe will be a business version of musical chairs as it morphs and consolidates.</span></div>
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<span style="font-family: inherit;">“Sometimes, Hem, things change and they are never the same again. This looks like one of those times. That’s life! Life moves on. And so should we.” ― Spencer Johnson, M.D.</span></blockquote>
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<span style="font-family: inherit;">We’ve seen a number of companies anticipating change and adapting to it following the “handwriting on the wall” lessons above. They’re primarily product manufacturers coming to the realization that owning distribution is no longer a viable model without substantial structural changes and investment. That was true with AIG selling off their Advisor Group Indy B/D and more recently with Met unloading their career life insurance agency force they’ve held for about 150 years. And Met practically gave it away for $300 mill while saving $250 mill per year by doing so. Can you say “hot potato?” What did Met and AIG see? The current top down model is fractured and neither was willing to make the structural change and investment to fix it. And they won’t be the last to punt.</span></div>
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<span style="font-family: inherit;">So, does this all mean that the entire business is transitioning towards the RIA business model and we can all dump our B/D? Wow, you mean we won’t have to be supervised by the terms of FINRA and be subject to their harsh discipline? Not so fast. I think the business model of the future looks more like a law firm where the focus is on client billings driven by partners in various disciplines of financial planning. But I don’t think FINRA goes away. They simply adjust to the new environment and supervise RIA’s as well by shifting resources from overseeing the shrinking universe of B/D models. Yes, FINRA’s cheese has been moved as well.</span></div>
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<span style="font-family: inherit;">I think many business models are past the stage of fear and perhaps even shock. But too many are taking a wait and see attitude to the issue of making changes for future survival and that is deadly. Remember, the quicker you give up the old cheese, the sooner you can enjoy the new cheese. You can do this by selling out as did AIG and Met, or making changes and investments for future growth as are firms like United Capital and Dynasty Financial. They have realized that the cheese has moved from top down to bottoms up. It will be interesting to see how advisors, brokers and the various business models face this existential crisis. </span></div>
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<span style="font-family: inherit;">“He knew sometimes some fear can be good. When you are afraid things are going to get worse if you don't do something, it can prompt you into action. But it is not good when you are afraid that it keeps you from doing anything.” </span><br />
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<span style="font-family: inherit;">―Spencer Johnson M.D.</span></blockquote>
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Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-77375580725918313202016-01-28T19:54:00.000-06:002018-05-31T14:55:20.109-05:00Career Life Insurance Distribution: A shock to the system<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEJ4l6CfOfE4RdwD_tDeUcoIYtzIDITacoBUd5Wvq8AxEk3-arzV676rrWeG1nyh1hyphenhyphenZ_4bdmjg2MhW6oDQ8v_rcIQsPSPFj7OPvJk8yio_hg-MQg4cUmnRUbut3G6vvZX5n3p-sKH3ugt/s1600/2882541135_26b817ecc3_b.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEJ4l6CfOfE4RdwD_tDeUcoIYtzIDITacoBUd5Wvq8AxEk3-arzV676rrWeG1nyh1hyphenhyphenZ_4bdmjg2MhW6oDQ8v_rcIQsPSPFj7OPvJk8yio_hg-MQg4cUmnRUbut3G6vvZX5n3p-sKH3ugt/s400/2882541135_26b817ecc3_b.jpg" width="400" /></a></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">As the financial media reports on the potential fallout in the independent broker-dealer community should the DoL proposal go forward as it appears to be headed, it seems like their definition of an independent platform is “not one of the four major wirehouses”. Of course, it’s far more nuanced than that. There are B/D groups like Cetera, networks owned by PE firms like Ladenburg Thalmann, regional B/D’s like Stifel and those that are insurance company owned B/D’s such as the ones affiliated with Jackson National. There is no question that the DoL proposal will impact them all in a big way since it has been reported that the new rules will cover up to 60% of investable assets. With the reduction or loss of revenue sharing, move away from lucrative commission based products and increased compliance and legal exposure, it’s no longer business as usual. I suppose it’s understandable that the financial media does not distinguish between the various breeds of broker-dealers given all the varieties and their unique complexities. However, a largely overlooked segment of the community that will be impacted disproportionately are the insurance manufacturer B/D’s. Take a look at the most recent Investment News ranking of the top 10 independent broker-dealers based upon number of registered reps:</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;"> <strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"> Firm # of Reps</strong></span></div>
<ol style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: rgba(0, 0, 0, 0.701961); font-stretch: inherit; line-height: 24.5455px; margin: 0px 0px 15px; outline: 0px; padding: 0px 0px 0px 35px; vertical-align: baseline;">
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif;">LPL Financial 14,036</span></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif;">Lincoln Financial Network* 8,457</span></strong></em></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif;">Ameriprise Financial Services* 7,589</span></strong></em></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif;">Northwestern Mutual* 6,014</span></strong></em></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif;">Transamerica Financial Advisors* 5,103</span></strong></em></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif;">MML Investor Services* 4,892</span></strong></em></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif;">AXA Advisors* 4,854</span></strong></em></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif;">HD Vest 4,515</span></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif;">Cambridge 3,374</span></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: Arial, Helvetica, sans-serif;">Cetera Advisor Networks 2,948</span></li>
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<span style="font-family: Arial, Helvetica, sans-serif;">Source: Investment News B-D data center</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">You’ll notice I’ve placed an asterisk next to those “independent broker-dealers” that are owned by a manufacturer of proprietary insurance products. They represent 60% of the top 10 and 36,909 reps on this ranking from a highly respected industry publication. Yet, you’d be hard-pressed to find any industry articles about these firms, how they operate and the coming challenges ahead. And I’m not surprised. The lines that once separated insurance based distribution models from investment based have blurred to the point where they now appear one in the same. Then there’s the intentional blurring by the publically traded insurance companies themselves…why?...because the multiples for asset managers are well above being characterized as a stodgy low growth insurer. But the confusion goes further. There are insurance companies that own independent broker-dealers as was the case with Transamerica above at #5 before they sold it off late last year and more recently with AIG selling to PE firm Lightyear. AIG specifically cited challenges with the DoL proposal as a reason for selling and I’m certain that any others who can sell will do so. That leaves one set of insurance affiliated B/D’s left “holding the bag”. They are those inextricably imbedded into the insurance manufacturer known as career life insurance distribution firms.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">There is one distinguishing factor that makes career insurance shops (several listed in the top 10 above) the most challenged of the platforms with the DoL proposal; <strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">proprietary products</em></strong>. The symbiotic relationship with the field branches and home office of insurance carriers worked for generations. HQ manufactured competitive proprietary products and the field agents and managers received differential compensation, recognition, benefits and conference qualification credits for selling them (with differences between GA and Managerial systems, but I don’t want to further confuse). But what happens if they are no longer allowed to receive these extra benefits for distributing proprietary products? Answer: they no longer have that symbiotic relationship as the economic basis for tying field distribution and the manufacturer no longer exists. And unlike the independent B/D’s owned by insurance companies (as was AIG Advisor Group and Transamerica Financial Advisors), they cannot be easily sold off. The legacy costs in the form of infrastructure, real estate leases and retiree benefits alone are like a ball and chain that can’t simply be extracted. Add to that the lack of investment into current technology and relatively low GDC per advisor and it becomes questionable at best if there is any value at all.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">The drift away from proprietary products at the career shops has been going on for almost 20 years. To combat it, insurance companies have been increasing 3rd party distribution and dramatically cutting costs in their career platforms. But the implementation of the DoL proposal and potentially following with an SEC fiduciary proposal will act as a shock to the system should proprietary products no longer enjoy favored status. An obvious question then…is this a death sentence for career life insurance models? I think it depends. In their current form, yes it is life threatening. But with some semi-radical restructuring, they could actually come out on top.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Radical change within the career life insurance space does not come natural. There is a formula and system that has worked for generations and toying with it is pretty much sacrilegious. Those who are wed to the old ways where leadership is not bold enough to change will die a slow death. I expect attrition to the IBD models in a big way (to those IBD’s who survive). But if an existing career firm is willing to make tough decisions and change compensation, recognition, product set and their entire value proposition, they are actually better positioned than the wires and indy B/D’s. </span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">Here’s why they’re better positioned; There is going to be a big shift from investment management and towards financial planning as a result of AUM fee compression and a need for the human advisor to add value above and beyond the robo-advisor. The career insurance models have culturally been more process driven than transaction driven which matches up perfectly with financial planning. They also have a recruiting model in place to bring in new talent where none of the IBD’s have ever had success. But can you teach an old dog new tricks? (ie move the career life salesman to become a fee for service financial planner). Yes, I’ve done it before and with the right incentives and HQ support, it can happen again.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">"There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction" -John F. Kennedy</span></blockquote>
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<span style="font-family: Arial, Helvetica, sans-serif;">“Back in the day” I headed an initiative to morph a life insurance sales force towards financial planning. The old guard of the firm was very much against it thinking it would deep six the insurance sales. We changed the licenses (from series 6 to Series 7 & 65), training, product set, compensation and recognition. Rather than recognizing producers for commissions earned, we recognized advisors for how many Asset Management Accounts were opened and assets gathered. The most interesting thing about it is that not only did we capture all the investment assets, we also saw a marked increase in insurance sales. Referrals increased, per capita GDC increased and the breadth of products distributed increased when a financial planning approach was used instead of a sales pitch. <a href="https://files.acrobat.com/a/preview/93262273-543a-4753-b156-9fb020dd3716" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Financial Planning Mag article about it here</a> . So what happened to it? While the initiative was wildly successful, the market downturn hit in the early 2,000’s and it was dumped back in favor of a product driven strategy, namely variable annuities, to goose profitability of the mother company. However, it may have just been ahead of it’s time. I truly believe that if the career life space is to survive, financial planning is the path they must take. It will be interesting to see who is willing to make radical changes and who will die a slow and agonizing death.</span></div>
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<span style="font-family: Arial, Helvetica, sans-serif;">“To be truly radical is to make hope possible rather than despair convincing”</span></blockquote>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-39614359607987823692016-01-11T11:41:00.004-06:002016-01-11T11:41:47.388-06:00Where is the Elon Musk of Financial Services?<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEihpKqgH6BL3Vk_wM2klOp9Sqg9mJThvOpvPig068qkbm44Q09WIOwYBdjdQiyaMQc_76IuQFEdsXY2shm-doT3oH1hhNOKyj91Rrgrsq6GKqbLhcO8qTK1_pU-PePnL4YzjCcDXLuTmDZJ/s1600/elon_musk_quote__on_important_things.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEihpKqgH6BL3Vk_wM2klOp9Sqg9mJThvOpvPig068qkbm44Q09WIOwYBdjdQiyaMQc_76IuQFEdsXY2shm-doT3oH1hhNOKyj91Rrgrsq6GKqbLhcO8qTK1_pU-PePnL4YzjCcDXLuTmDZJ/s640/elon_musk_quote__on_important_things.jpg" width="640" /></a></div>
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<span style="font-family: inherit;">I’ve written before about my experience in moving from <a href="https://www.linkedin.com/pulse/fiduciary-progress-luxury-once-tasted-becomes-john-lefferts?trk=mp-author-card" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Texas to California</a> and how I’ve adopted green technology having bought a Tesla, installed solar panels in the home and wired the house for efficient wireless whole home technology systems. Of course, I could have done that while in Texas, but moving gives you a fresh start and it’s easier to make changes as you break out of prior rooted habits and routines (along with the opportunity to throw out a lot of crap!). Knowing my interest in new technology, my wife gave me the book <a href="http://www.amazon.com/Elon-Musk-SpaceX-Fantastic-Future/dp/0062301233" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Elon Musk</a> on Christmas and I recently finished reading it. It’s an interesting read with a window into how he’s wired and his incredible drive to not just disrupt industries but transform them entirely forever. He’s been compared to Steve Jobs a lot, and while they are/were both visionaries and drivers of change, Musk is more about being on a mission to save mankind rather than develop products we didn’t think we needed. To describe him in the book, the author said that if there were a love child between Steve Jobs and Bill Gates (I know…bad visual), it would be Elon Musk, although a former Musk business partner said “But I’d say he’s nicer than Jobs and a bit more refined than Bill Gates”</span></div>
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<span style="font-family: inherit;">“Do or do not. There is no try” -Yoda</span></blockquote>
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<span style="font-family: inherit;">As I read through the book, I couldn’t help but think, where is the Elon Musk of financial services? The car industry was ripe for disruption having competed on features and distributed through dealerships for as long as one can remember. But Tesla is a whole new experience. It’s more of a lifestyle. As I pull up to an intersection I’ll often see another Tesla owner glance over and give me a thumbs up as if to say, “we know something that nobody else knows”. It operates more like a computer with wheels than a car. In a car, you need to buy a new one to get new features. In a Tesla, new features are downloaded over the wireless internet so it’s never obsolete. And there are no oil changes, engine repairs or visits to the dealership or mechanic. It is literally a game changer for the car industry in its current business model which is why they’re fighting it.</span></div>
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<span style="font-family: inherit;">"There’s a tremendous bias against taking risks. Everyone is trying to optimize their ass-covering” -Elon Musk</span></blockquote>
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<span style="font-family: inherit;">Space-X is another example of changing an industry. The space industry has not had much innovation for decades. The US has pretty much pulled away from it leaving Russia and China to lead…until Space-X came along. Musk is taking his cutting edge technology and remaking the industry at a fraction of the cost while Russia is still using the Soyuz spacecraft from the 60’s. The recent landing of the Falcon 9 rocket is also a game changer for this industry. Historically it’s been like throwing away an airplane after every flight. Imagine the cost savings and frequency of lift off by reusing a rocket for each launch.</span></div>
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<span style="font-family: inherit;">SolarCity, another company influenced by Musk is disrupting the utility industry. They don’t make solar panels like the now defunct Solyndra did, but instead they install solar systems enabled by technology such as their partnership with Nest thermostats. If Musk is successful in getting his Nevada battery factory up and running, it becomes possible to unhook from the power grid and run an entire home from a battery pack charged by the solar panels on your roof. Again, another industry game changer. </span></div>
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<span style="font-family: inherit;"><em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">"Whatever skeptics have said can’t be done, Elon has gone out and made real. Remember in the 1990s, when we would call strangers and give them our credit-card numbers? Elon dreamed up a little thing called PayPal. His Tesla Motors and SolarCity companies are making a clean, renewable-energy future a reality…his SpaceX [is] reopening space for exploration…it’s a paradox that Elon is working to improve our planet at the same time he’s building spacecraft to help us leave it"</em> <em style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">–Richard Branson</em></span></blockquote>
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<span style="font-family: inherit;">What’s interesting is that Musk helped get these companies to success despite the long odds, industry old guard pushing against change and prior players having tried and failed. And he does so by integrating them in ways not done before. So this brings me back to my initial question, <strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">where is the Elon Musk of financial services?</strong> Like the auto industry, financial services is ripe for disruption rooted in old ways of doing business based on outdated regulations and resulting business models. Where it makes all the sense in the world to integrate the various business models (wrote about it<a href="https://www.linkedin.com/pulse/future-financial-services-distribution-models-john-lefferts" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: none; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank"> here</a> ), the RIA’s, FINRA regulated B/D’s and Insurance models are fighting to remain in their respective silos. But those silos are slowly but surely breaking down. As the old guard moves on, technical advancements continue and regulations play catch-up, today more than ever before there is an opportunity to create a more current business model built for the trend towards holistic financial advice. And it is more likely that the future Tesla/Space-X/SolarCity of the financial services industry will come from a start-up than from an established old line firm locked in legacy issues. I think that 2016 is the year we'll see that happen. Hello...Elon?</span></div>
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<span style="font-family: inherit;">“Ignorance is always afraid of change”</span></blockquote>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-5061932883878043732015-11-23T11:07:00.003-06:002015-11-23T11:07:50.214-06:00The New Financial Services Ecosytem<div class="separator" style="clear: both; text-align: center;">
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<span style="font-family: inherit;">“An invasive species can be any kind of living organism that is not native to an ecosystem and which causes harm. They can harm the environment, the economy or even, human health.”</span></blockquote>
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<span style="font-family: inherit;">You’ve probably read about certain invasive species that find their way into a new ecosystem dominating the native species for food and sustenance. The Asian Carp is one that is often cited. They were introduced into Southern U.S. fish farms in the 70’s and over time have spilled into and taken over rivers and lakes by overwhelming all other species. They are now a threat to enter the Great Lakes and it is apparently near impossible to eradicate them once they've spread.</span></div>
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<span style="font-family: inherit;">A similar phenomenon may be occurring in the retail financial services business. For some time, each specialized discipline in the financial services business grew up in and stayed within their respective ecosystem walled off by regulations and business model style. RIA’s were distinct from wirehouse stockbrokers and indy producers were district from insurance agents. For generations, there was little crossover into one another’s turf, but those distinctions are quickly fading away. Industry harmonization has been occurring organically over the past decade and will continue with or without regulatory involvement. The heavy trend is away from proprietary commission based products and towards asset based fees, even in the insurance industry.</span></div>
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<span style="font-family: inherit;">For some time, the purist fee only RIA segment has been very vocal about the need to hold all practitioners to a strict definition of a fiduciary standard (a viewpoint I also hold if implemented properly). This falls in the “be careful what you ask for…” category and I think they’re getting what they wished. The prevailing belief was that holding all advisors, brokers and agents competing in this space to the higher fiduciary standard would force imposters out (.ie. salespeople) thereby elevating the profession while eliminating the competitive threats to the RIA only business model. Instead, what has evolved today is that every discipline of the financial services industry is now competing within the same ecosystem with no barriers to keep one another out.</span></div>
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<span style="font-family: inherit;">Opening up the financial services ecosystem will force model consolidation, failure of smaller indy B/D’s and further impose a separation of product manufacturers from owning their distribution platforms. But, the barriers from competition RIA’s have enjoyed are also being removed. It becomes a survival of the fittest circumstance. The new larger ecosystem will look a great deal like the former RIA only space, but with new competition from invasive species. I’m not calling former stockbrokers and insurance agents “Asian Carp” (though I’ve heard them called a lot worse), but having grown up in a “kill and eat” ecosystem, they are far more aggressive than the traditional RIA community. This is where I see the purist RIA community to be most challenged competing in this new ecosystem.</span></div>
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<span style="font-family: inherit;">Having attended the FPA meeting in Boston this past September, I was struck by the contrast in style of attendees compared to other industry conferences such as AALU. (Yes, I know the purists don’t see AALU and FPA to be similar, but believe me, they are quickly evolving to cover the same subject matter as the industry harmonizes). At the risk of overgeneralizing, I observed that AALU is attended by a bunch of Alpha’s (male and female…but sadly, dominantly male) who are crisply suited and buttoned up, bold in demeanor and very outgoing and social. At days end, the lobby bar is always a party. At FPA, it was a more subdued. As a group (again, overgeneralizing) it appeared that they were more analytical, dressed down with more earthy casual attire and a tad less bold than the Alphas at AALU. Frankly, they appeared more nerdy and proud of it. It’s not that one is better than the other, it just struck me as different. But it did cause me to think about how, as every segment evolves to compete in the same ecosystem, the space may become reshaped. </span></div>
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<span style="font-family: inherit;">There have been a several industry articles recently citing the death of the “rainmaker”. The young generation being trained by our colleges and universities in their financial planning programs are not being taught the most difficult skill of all which is business development (i.e. rainmaking). Apparently they have no interest in sales and the challenges that come with it. And the “go to” pool for new young talent, wirehouses and career life insurance companies, are dialing down or eliminating their recruiting of newbies since it has become a very expensive proposition. Add to this that nearly 70% of RIA’s are solo practitioners, one wonders how RIA’s will be able to compete with the aggressive invasive species of former stockbrokers and insurance agents entering their space.</span></div>
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<span style="font-family: inherit;">I’m not proclaiming that the legacy RIA model is destined for extinction. But I do think it will change. To compete they’ll need to be more proactive with business development while becoming broad based in product and service offerings outside of investment management. Yes, they’ll have to behave more like the salespeople they formerly shunned while offering products such as insurance and annuities they often avoided. Likewise, the former sales driven broker and agent will also see a falling out of those who cannot meet the higher standard of fiduciary. And those who do survive will need to behave more like their RIA brethren. I suppose what I’m saying is that the new ecosystem will be comprised of mutants derived from advisors, brokers and agents. Fighting this change to hold on to the way it was is futile and a waste of energy in this "survival of the fittest" battle. The sooner our various business models begin to structure and retool for the future, or mutate, the better chance they have to not only survive, but thrive in the new financial services ecosystem.</span></div>
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<span style="font-family: inherit;"> “The secrets of evolution are death and time-the deaths of enormous numbers of lifeforms that were imperfectly adapted to the environment; and time for a long succession of small mutations.” </span></blockquote>
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<span style="font-family: inherit;">-Carl Sagan, Cosmos</span></blockquote>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-82186628494830744502015-10-29T10:55:00.002-05:002015-10-29T10:56:34.344-05:00A Speech I'm Writing for 2020 About Financial Services Distribution Models<div class="separator" style="clear: both; text-align: center;">
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<span style="font-family: inherit;">With all the "Back to the Future" posts were seeing these days, I thought I'd take a crack at it here. This is a speech I've written for a financial services industry conference after being awarded financial services company of the year honors playing "Carnac the Magnificent" for the moment....</span></div>
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<span style="font-family: inherit;">"At today’s 2020 annual industry conference, I was asked to reflect on the evolution, or what some say is a revolution the financial services industry has endured over the past 5 years. While 2015 may seem like it was just yesterday, as we now all know, the “turn on its head” sort of change we’ve seen is more than any of us have witnessed in our entire lifetimes. With 2020 vision...no pun intended...I am fortunate to have had the foresight to launch a platform positioned not only for survival, but to carve out a niche that truly serves our clients in the best way possible. Unfortunately, many of our industry peers did not anticipate the changes or were just too set in their ways to make the necessary adjustments for survival. There is a certain paradox here that for a business where the demand for what we do is perhaps at an all-time high with more money in motion than ever, the number of financial advisors and advisory firms has reached an all time low. I suppose that means for those of us still standing, it’s a good thing.</span></div>
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<span style="font-family: inherit;">So let’s review how we got here. I guess it makes sense to start by discussing the Wirehouses, Indy B/D, insurance and RIA models and how they ended up where they are today since those silo's and labels no longer exist. We all grew up in a world where each model was regulated separately and typically by the products and services they primarily recommended. The brokers were regulated by FINRA, the RIA’s by the SEC and insurance by each respective state insurance department. It seems archaic, redundant and highly restrictive, but each had their own set of standards and rules despite overseeing essentially the same thing; practitioners giving personalized investment advice. The old models where product manufacturers maintained their own tied sales force went the way of proprietary products. Today in 2020, I can't think of a single distribution platform or model owned by a product manufacturer. It's no longer about what you recommend, but how you recommend it. As we now know, that's what brought the silo's down. </span></div>
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<span style="font-family: inherit;">The major wirehouses seem to have changed the most. I think what history shows is that once they moved from client focused partnerships to publicly traded companies driven for quarterly profits; it was the beginning of the end. Yes, the biggest of the bunch, Merrill Lynch has survived having been spun off from B of A, but only after severe damage was already done looking today like a shell of their former self. You would have thought that we learned about banking and wirehouse marriages from the Citigroup-Smith Barney debacle decades ago. Today after acquiescing to the independent models, we now have “wirehouse lite” formats. But it seems to be too little too late. The glue used to be culture and brand. The flight to independence changed all that and it’s hard for them to justify lower payouts with little to no additional value added.</span></div>
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<span style="font-family: inherit;">The independent B/D models for a while were the fastest growing of the bunch. But when the great recession hit with interest rates remaining low along with extremely thin profit margins, the shakeout over the past decade has been brutal. Add to that the elimination of soft money deals and increased compliance costs and it's no surprise that only an handful of the 4,000 B/D's in 2015 exist as stand alone's today. Insurance company owned B/D’s couldn’t shed them quick enough and PE firms having seen LPL’s early success thought that collecting and rolling up small B/D’s would be a good way to build scale and then sell ‘em off for the big bucks. They didn’t realize the culture of indy B/D’s. Trying to dictate who the indy producer is going to affiliate with is like herding cats. Once they realized their B/D was going to be sold off to yet another owner, or that their B/D would be merged with the other PE owned B/D, the producers bolted for more stable and scaled models leaving the PE investors holding the bag. </span></div>
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<span style="font-family: inherit;">RIA’s enjoyed a unique niche for the longest time flying under the radar of the regulators. They clearly had it right having long adhered to the fiduciary standard and operating under a fee and AUM model. But their arrogance about the moral high ground over other models ended up catching them flat footed. In a sense they were early winners having a head start on structuring under the fiduciary standard by which today all models must operate. But how did they ever think that the rest of the industry would be regulated identically as fiduciaries but RIA's would remain separate under the SEC with a visit once every 10 years? Now that we are all under the microscope of FINRA, it’s been interesting to see how they have become somewhat humbled. Their fear was that they would be dumbed down playing on the same field as lowly salespeople. They were focused on the wrong thing. Holding everyone to the fiduciary standard and accountable to a regulator has been a real win for our clients while substantially increasing the level of professionalism for the entire financial services industry. The high tide has raised all ships. </span></div>
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<span style="font-family: inherit;">For our insurance based models, I suppose we should have seen it coming with what had taken place in Australia and the UK. Once the US moved life insurance and annuities out of the state insurance department regulations and into FINRA, holding them not only to full commission disclosure but under a fiduciary duty, those 12% commission indexed annuities went the way of the 20% commission limited partnerships of the 80’s…and good riddance. Like the other models, the insurance industry has been rocked by the European financial crisis and lengthy period of low interest rates. It seemed like over the prior two decades the mega large European insurance companies were taking over. Now that they’ve essentially become Eurozone government run entities, the prominent names like ING, Aegon and Allianz are no longer prevalent here. And in a low interest rate environment, what were they thinking when they offered contracts with up to 4% guarantees when safe investment rates were points lower? We’ve seen this picture before. Remember Executive Life? While commissions have reduced and levelized while the number of insurance only advisors has come down by 75%, I suppose the silver lining is that the rest of the financial services industry has picked up the slack realizing that insurance is the bedrock of financial planning by insuring against dying too soon or living too long. With the emergence of non-commission and fee based life and annuity contracts, the former fee only RIA bunch have jumped on the bandwagon and now tout insurance products as one of their more attractive financial solutions. Who woulda thunk?!</span></div>
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<span style="font-family: inherit;">When we set out to build our model back in 2015, we had some basic tenets in place to drive our decisions. It had to be advisor owned so the focus was on the client and not firm stock value. We had to be highly professional so as to be able to hold ourselves out under the fiduciary standard. We needed to be broad based with expertise that cut across all former silos of investments, insurance and advice. This is what hatched the “tribrid” by combining Insurance BGA, Broker-Dealer and RIA all onto the same platform enabled by integrated straight through processing and real time technology while leading with comprehensive and modular financial planning. We earn revenues through 50bps on assets under management while we charge a retainer for the type of financial planning services our clients need. The combination of reasonable AUM fees and retainers has increased our revenues per client to all time highs while being a better model for the consumer. And we focused on the high end of the market where our expertise was best suited. We had always observed that the ideal model would look like M Financial on the insurance side, but HighTower on the investment advisory side. And we wondered why a model combining the best of both had never been developed. Basically, that’s what we did and it turned out to be a real differentiator for us.</span></div>
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<span style="font-family: inherit;">Back in 2015, it was very difficult to predict how things would turn out. It’s ironic that Senator Dodd and Representative Frank are now serving jail sentences for the mortgage mess they were part of when the very bill to clean up that mess had their names on it. Nonetheless, there were some signs that everyone could have heeded to make changes for survival. We knew that the fiduciary standard was going to happen, yet many firms fought it and continued with product driven, commission based proprietary models anyway. We knew that regulations were going to become more harsh and cut across all lines of business, not just in a silo’d way. And there had been a long trend towards fee forms of compensation and AUM models that are no longer the outlier, but the standard today. I suppose with legacy systems and CEO’s focused on profits and stock prices that they saw what they wanted to see. But in the end, it is our clients who we serve that must be front and center. That’s the way we’ve done it, and that is also the reason I’m standing here today telling our story.</span></div>
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<span style="font-family: inherit;">Thank you very much"</span></div>
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<span style="font-family: inherit;"><i>"You can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something - your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life" </i></span></div>
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<span style="font-family: inherit;"><i>-Steve Jobs</i></span></div>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-14965619477133146902015-09-29T16:46:00.000-05:002015-09-29T16:46:32.008-05:00The Future for Financial Services Distribution Models: Integration<div class="article-content" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">
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<span style="font-family: inherit;">“Our dilemma is that we hate change and love it at the same time; what we want is for things to remain the same, but get better”</span></blockquote>
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<span style="font-family: inherit;">–Sydney J Harris</span></blockquote>
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<span style="font-family: inherit;">The silos from which the financial services industry have evolved are breaking down, yet the noise we hear from each segment trying to protect their respective turf is louder than ever. The perspectives and arguments from each are becoming old and running thin:</span></div>
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<span style="font-family: inherit;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Fee only advisor</strong>: Blow up FINRA and force everyone who gives advice to be held to a strict fiduciary standard</span></div>
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<span style="font-family: inherit;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Broker:</strong> RIA’s serve only the top 1/3rd of households who can afford their fees while holding an unfair advantage escaping oversight and supervision by FINRA</span></div>
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<span style="font-family: inherit;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Insurance Agent:</strong> How can brokers and RIA’s say they are acting on behalf of their clients best interests when they fail to address the most important financial risks of living too long and dying too soon?</span></div>
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<span style="font-family: inherit;">So, in the ongoing debate about the direction of the financial services business, who’s right? My perspective...Separately, none of them but collectively, all of them.</span></div>
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<span style="font-family: inherit;">I think the quote above says it best. We’re all for change so long as we personally don’t have to change. Doesn’t that sound like the Albert Einstein’s definition of insanity?- “doing the same thing over and over again and expecting different results”. I’ve been in this business now going on a fourth decade and I’ve observed a fair amount of change during that time. This “wisdom” has taught me a few things over the years:</span></div>
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<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">There are few new ideas, just old one’s updated and repackaged</span></strong></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">Compensation drives all perspective and behavior</span></strong></li>
<li style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: 32px; margin: 0px 0px 15px; outline: 0px; padding: 0px; vertical-align: baseline;"><strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">While it is smart to recognize and learn from the past, you have to let go of it to grow and succeed into the future</span></strong></li>
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<span style="font-family: inherit;">Today’s hot button issues are not too different than what we’ve seen before. New ways of distribution threatening traditional methods and shifting regulations have been a common theme since I got into the business. However, what seems different today is the pace of change. The impact of “Moore’s Law” on technology and the massive amount of information and velocity of communication is driving it to a point where no business model can keep doing business as usual. It’s a case of change or be changed. It’s hard to believe that the first launch of the i-Phone was June 29th 2007 and in 2010, Blackberry had a 40% share of the smartphone market. In 2006 when Webster’s Dictionary made “Crackberry” the word of the year, few of us could predict what we have witnessed in the smartphone business landscape. And similarly, as changing marketplace dynamics shape the financial services business of the future, within 5 years there will be some household names that disappear and others not yet launched that will quickly emerge as market leaders.</span></div>
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<span style="font-family: inherit;">In my current role as an industry consultant, I'm fascinated by the divergent points of view held by leaders of the various industry business models. I'm reminded of the quote "There are three types of people in this world; Those who make things happen, those who watch things happen and those who wonder what happened" Apple made things happen and Blackberry is still wondering what happened. From my unique perspective, here are some moves I think industry leadership in the camp of making things happen should consider:</span></div>
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<span style="font-family: inherit;">I mentioned above my belief that compensation drives all behavior. The structure of current compensation models are largely inconsistent with the direction of the business. And this includes fee only models. The drift away from commissions and towards fees over the past decade is not a fad. It is estimated that by year end, up to 75% of all industry compensation will have been generated by fees driven largely by the wires and regionals rapid transition away from commissions. And since fees for AUM have been on the increase, the activity of providing financial planning has been on the decrease. Why? When you’re getting paid to capture more AUM, why do the hard labor intensive work of financial planning. But this is changing. As even traditional insurance agents have been evolving towards a fee for AUM model and robo’s gain traction, investment management has become a very crowded marketplace with little differentiation. Not surprisingly, financial planning is seen as a key differentiator. What I expect to see happen will be more firms starting or restarting their financial planning activity (modular and comprehensive) and charging separately for it on a retainer basis while they reduce their % fee for AUM from about 1% to about 50-75bps. This split of investment management and financial planning from bundled to being separate services better recognizes and aligns the activity. Additionally, as there will be a need to diversify revenue models, I believe those who have been marketing themselves as “fee only” will come to realize that advertising one’s compensation model is hardly good for business, not to mention overlooking the huge revenue potential in offering insurance based products. Met Life recently launched a life insurance product that pays 75bps on assets in the policy with a very slight and quickly disappearing surrender charge. This opens a whole new asset class for advisors to add to their practice while truly acting in their clients’ best interest by addressing risk management. I expect other insurers to follow suit as traditional methods of distributing life insurance are on the decline and no longer sufficient for their growth.</span></div>
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<span style="font-family: inherit;">2. <strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Integrate platforms</strong></span></div>
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<span style="font-family: inherit;">Similar to the merging of compensation models, expect to see the same with business models formerly hatched in their regulatory silo of SEC RIA, FINRA broker and state regulated insurance agent. Whether the regulators/government wise up and eliminate triplicate layers of regulation and harmonize or not (and I have little faith that they will), the business models will harmonize more as a business necessity than a regulatory requirement. Any model that relies solely on commission revenues for sustenance has its days numbered. And the career distribution companies, the majority being tied to a life insurance manufacturer, whose economic reason for being is to distribute commission based proprietary product are in the cross-hairs of this developing movement. I believe the landscape will begin to look like the technology platforms where the largest in the business (i.e. Samsung and Apple) have integrated smartphones, tablets and PC’s/Mac’s each seamlessly talking to each other. Except for our business it’s not integrated devices, but integrated business models of RIA, B/D and Insurance BGA, or what I call the “Tribrid”. And I wouldn’t count out the wires just yet. They have such size and scale that if they made some adjustments, they could easily become a model of choice for a new harmonized marketplace while solo RIA practitioners scream “But I’m fee only!” all the way to irrelevance.</span></div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">3. Diversify revenue sources</span></strong></div>
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<span style="font-family: inherit;">It is now recognized that the robo-advisor is redefining the value and pricing of investment management. This will continue to force margin compression on firms/practices that rely on the AUM only model of revenues. It places a higher value on those products and services that are more complex and require a human advisor to implement. For RIA’s and Independent B/D’s, this will likely be additional fees for financial planning (not just investment management) and insurance products and services. Similarly, insurance based platforms will continue to see a trend towards levelized and lower front end commissions, and will need to diversify into fees for AUM and financial planning as well.</span></div>
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<span style="font-family: inherit;">4. <strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Embrace technology as an enabler versus a threat</strong></span></div>
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<span style="font-family: inherit;">I find it interesting that the financial media is so locked on the thought that robo-advisors will replace the human advisor. I suppose it makes for a good story, but it’s simply not true. However, the robo’s will expose those who do not use new technology to enhance the client experience and they will also drive down the going rate for investment management. As more and more robo technology platforms come to market, we’ll see them getting snapped up by the large scaled platforms as we’ve seen recently since they have created smart platforms, but lack the client acquisition skills to remain as stand alone entities. They are not a threat unless you don't integrate them into your practice and business model. </span></div>
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<strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">5. Create a career path for “newbies”</span></strong></div>
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<span style="font-family: inherit;">The demographics in the business are quickly going from bad to disastrous. The average age for advisors is over 50 with a full 1/3rd expecting to retire in the next decade (according to Cerulli). The insurance industry is worse with the average age at 59 and 1/4th expected to retire by the end of 2018 (according to McKinsey). Heretofore, the primary source for “newbies” (young inexperienced entering the business) has been the career life insurance companies and wires. However, as the economics for proprietary based platforms continue to get squeezed (or potentially eliminated), that source of new blood will soon dry up. This places the responsibility for the future of the business back onto the independent platforms of which none has been successful in executing on a strategy. LPL made an attempt with NestWise a few years back but it failed miserably in execution running it as a stand-alone rather than integrating it with the greater whole. But I have a strategy in mind that solves two big industry challenges. Cerulli did a study on financial planning and found that of those firms that self-identify as members of a financial planning practice, only 38% were actually doing financial planning. Further, the number of those who do actual financial planning has been on the decrease in recent years as they’ve been focused on asset accumulation (AUM) instead. Coaxing established advisors back into financial planning is a tough sale since it’s labor intense and not as profitable as a focused AUM practice. But guess who will do financial planning?…newbies. Recruiting, inducting, training and developing young inexperienced talent into a financial planning career track is proven to be the most successful way to get them into the business. The solution to the financial planning and succession planning challenges facing the industry lies in a strategy giving a career track for “newbies”.</span></div>
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<span style="font-family: inherit;">6. <strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Enable modular and comprehensive financial planning at the enterprise level</strong></span></div>
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<span style="font-family: inherit;">As mentioned above, financial planning has been on the decline while the greatest need to provide value added services going forward is in fact…financial planning. Many who have strayed away from offering planning services cite the complexity, time commitment and relative ease in focusing on asset accumulation for more revenues instead. But today's tools for financial planning make it far easier to provide the service than just a few years ago. I’ve written before about having built a $30 mill centralized financial planning center for AXA Advisors about 15 years ago. That was painful. Today, the same service can be built for a fraction of the cost providing a virtual paraplanner to each team of advisors. Michael Kitces wrote about the concept of a <a href="https://www.kitces.com/blog/forget-the-tamp-its-time-for-the-tfpp/" rel="nofollow" style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; color: #8c68cb; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Turnkey Financial Planning Program</a> (TFPP) in his blog. Providing this service on an enterprise level will be an important value added service for advisors going into the future.</span></div>
<div style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; color: #232629; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: 32px; margin-bottom: 32px; outline: 0px; padding: 0px; vertical-align: baseline;">
<span style="font-family: inherit;">7. <strong style="background-attachment: initial; background-clip: initial; background-image: initial; background-origin: initial; background-position: initial; background-repeat: initial; background-size: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">Favor ensemble firms over solo practitioners</strong></span></div>
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<span style="font-family: inherit;">For generations, the retail distribution firms had a focus on the solo practitioner with individual rep codes. Today, the ensemble team is taking hold yet many B/D’s/RIA’s/Ins platforms continue to identify on individual rep codes rather than aggregating as a team. And naturally as ensemble firms continue to increase their influence, it forces business models to integrate all product lines and services (hence the Tribrid) in order to serve the various roles and specialties of team members. </span></div>
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<span style="font-family: inherit;">"We live in a time of paradox, contradiction, opportunity and above all, change. To the fearful, change is threatening because they worry that things may get worse. To the hopeful, change is encouraging because they feel things may get better. To those who have confidence in themselves, change is a stimulus because they believe one person can make a difference and influence what goes on around them. These people are the doers and motivators" -Buck Rogers</span></blockquote>
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<span style="font-family: inherit;">Holding onto the familiar is a natural response to the rapid change impacting our industry. But as Socrates is quoted, “The secret of change is to focus all of your energy, not on fighting the old, but on building the new”. Blackberry grew up as a force in a closed system. It’s what gained them rapid growth but at the same time, sticking to it is what has caused their downfall. I think our business is much the same. Financial Services retail distribution grew up on closed platforms (siloes) of RIA, B/D and Insurance BGA. But much like Blackberry, sticking to these soon to be dated platforms could lead to their demise. The future of the business is through the integration of platforms, compensation models and product and service offerings. It will be interesting to see which firms have the foresight to remain relevant into the future and which will fight change to the death.</span></div>
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Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-57056606812575218382015-07-28T17:26:00.002-05:002015-10-27T13:26:39.009-05:00Two Words...Financial Planning<div class="separator" style="clear: both; text-align: center;">
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<span style="font-family: inherit;">In the movie "The Graduate", there is a famous scene where Dustin Hoffman’s character Benjamin comes home from college to a party celebrating his graduation at his parents house. Mr McGuire, a friend of his parents pulls him aside to give some career advice:</span></div>
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<span style="font-family: inherit;"><strong>Mr McGuire:</strong> I just want to say one word to you. Just one word.</span></div>
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<span style="font-family: inherit;"><strong>Benjamin:</strong> Yes, sir.</span></div>
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<span style="font-family: inherit;"><strong>Mr McGuire</strong>: Are you listening?</span></div>
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<span style="font-family: inherit;"><strong>Benjamin:</strong> Yes, I am.</span></div>
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<span style="font-family: inherit;"><strong>Mr McGuire:</strong> Plastics.</span></div>
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<span style="font-family: inherit;"><strong>Benjamin</strong>: Exactly how do you mean?</span></div>
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<span style="font-family: inherit;"><strong>Mr. McGuire</strong>: There's a great future in plastics. Think about it. Will you think about it?</span></div>
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<span style="font-family: inherit;"><strong>Benjamin:</strong> Yes I will</span></div>
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<span style="font-family: inherit;">In a sense, I feel like Mr. McGuire writing this post, but instead of one word, I have two words where I see a great future…Financial Planning.</span></div>
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<span style="font-family: inherit;">The transformation taking place in the financial services business today is striking. And as we all know, when swift change like this occurs, there will be some winners and as many losers. Observing these changes, there are multiple factors lining up that point to a renewal in financial planning. Unfortunately, in too many cases, our industry has watered down the term "Financial Planning" to slapping a 1% fee on a managed account and moving on to gather the next pile of assets. The kind of financial planning I'm referring to is collecting a complete inventory of all assets, insurance policies, employee benefits, retirement plans, cash flow, tax returns, etc, identifying client goals, creating and implementing a plan complete with monthly budget while monitoring it to stay on track. Here are just a few observations that cause me to see a resurgence in financial planning:</span></div>
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<li><span style="font-family: inherit;"> <strong>AUM Fee Margin compression</strong>: Fees charged as a % for assets under management have drifted downwards over the past several decades recently settling in at about the 1% mark. Whether robo’s continue to gain traction or not, they are redefining investment management from a value added service into a commodity. Their current pricing ranges from free to 50 bps. Any charge above the robo's will in time be viewed as overcharging unless additional value above and beyond asset allocation is provided. Yes...financial planning. </span></li>
<li style="margin-bottom: 5px;"><span style="font-family: inherit;"><strong>Fiduciary as the standard</strong>: The issue of fiduciary versus suitability has been debated for decades. But today as the business mix of former commission based advisors has drifted towards fees while social and mainstream media are educating the public about "best interests", it’s hardly an argument any more. Whether the SEC and/or DoL make it the law of the land or not, a fiduciary standard has de facto won the argument. Charging fees was once unique and a differentiator...not anymore. Simply charging a fee for constructing a portfolio will not be enough value added to justify above market fees in the future. What will?...financial planning.</span></li>
<li style="margin-bottom: 5px;"><span style="font-family: inherit;"><strong>Compensation mismatch:</strong> While many advisors claim they offer financial planning as part of their AUM fees, there is evidence that in many cases it’s not entirely true. This <a data-mce-href="http://wealthmanagement.com/client-relations/financial-advisor-blind-spots" href="http://wealthmanagement.com/client-relations/financial-advisor-blind-spots" target="_blank">article</a> cites a study where 83% of advisors claim that financial planning is core to their practice where 28% of affluent investors say they have a plan created by their advisor. In my observation, many advisors who once did planning have since dropped the service in part because it’s a lot of work but more impacting, they aren’t being paid to do it. If you’re being paid to capture more AUM then that’s what you do. And if you’re not being paid to do financial planning, then that’s what you don’t do. Follow the money. This compensation mismatch will become more evident in time forcing advisors to better demonstrate the value added beyond the commoditized service of investment management. Again, two words...financial planning. </span></li>
<li style="margin-bottom: 5px;"><span style="font-family: inherit;"><strong>Compensation transparency:</strong> Now more than ever, there is a focus on dissecting all forms of compensation. And again, whether the SEC/DoL get a uniform standard done or not, I do expect further compensation disclosure requirements exposing this issue further. Advisors go to great lengths to hide the fact that they are getting paid, how much and for what service. And this happens whether they're charging fees, commissions, trails, renewals or a combination of them all. With complete and clear disclosure of compensation, it points to further movement away from commissions towards fees in addition to an "a la carte" approach to charging for services. I see portfolio construction/allocation remaining as a % fee for AUM but at a rate closer to where the robo's set it. For any further value added service it only makes sense to separate that out from the AUM and charge for what it's worth as an hourly, flat or retainer fee. The most likely value add an advisor can provide is modular or comprehensive...you guessed it...financial planning.</span></li>
<li style="margin-bottom: 5px;"><span style="font-family: inherit;"> <strong>Advances in Financial Planning software: </strong>Years ago, I headed a financial planning initiative where we built a $30 million financial planning center with huge mainframe computers. Advisors collected the data from the client, entered it into the software which was then electronically transmitted to the center in Alpharetta, Georgia. CFP’s in this center would review the plan for accuracy, print out a big book for "thud" value and overnighted it back to the advisor for delivery. We charged a fee up front for the planning separate from the products recommended afterwards. We thought it was pretty high tech at the time, but times have changed. Today, the mainframes are extinct, all the software has gone to the cloud and it’s no longer necessary to plunk down a big binder of data since it can be pulled up in real time on line integrated with current values. Michael Kitces does a great job discussing current and future planning software <a data-mce-href="https://www.kitces.com/blog/designing-the-financial-planning-software-of-the-future-calculator-collaboration-tool-and-client-pfm/" href="https://www.kitces.com/blog/designing-the-financial-planning-software-of-the-future-calculator-collaboration-tool-and-client-pfm/" target="_blank">here</a>. Today's technology has taken much of the complexity and clunkiness out of the process opening up new opportunities for...financial planning. </span></li>
<li style="margin-bottom: 5px;"><span style="font-family: inherit;"><strong>Succession planning</strong>: Career shops that recruit, train and develop inexperienced candidates are becoming fewer while the demand for financial planning is on the increase. This along with more advisors leaving the business than entering, needless to say we have a succession problem in the business. Financial planning is detailed, tedious and process driven work which is why so many have stepped away from it. But guess who will do the detailed work?...newbies. In my experience, I've had better results hiring young inexperienced talent and training them to do planning than by converting one who has since stepped away from it or never done it at all. The best way to successfully recruit, induct, develop and retain new talent into the business is through a career path in financial planning. I also believe that the time has come for large independent firms (IBD's and RIA's) to invest in this career path to protect the future value of their franchise from evaporating. A qualified farm team of financial planners would be developed and could then be deployed to join more mature firms to do...financial planning.</span></li>
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<span style="font-family: inherit;">There is every indication that we're at a tipping point in the evolution of our business where it's a case of "change or be changed". With a shift towards fees and pressure to lower them, a desire for compensation alignment and the relative ease new technology has made the once tedious process, all signs point to financial planning as being positioned as the differentiator advisors need to survive and thrive in the marketplace. </span></div>
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<span style="font-family: inherit;">There's a great future in financial planning....think about it...will you think about it?</span></div>
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<span style="font-family: inherit;">"Unless you are prepared to give up something valuable you will never be able to truly change at all, because you'll be forever in the control of things you can't give up.” -Andy Law</span></blockquote>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-77395502458521711032015-07-05T18:02:00.002-05:002015-10-27T14:24:18.411-05:00The Path of Least Resistance<br />
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"The path of least resistance leads to crooked rivers and crooked men" </blockquote>
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-Henry David Thoreau</blockquote>
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<span style="font-family: inherit;">This quote is harsh, but it is a reminder that as humans, our behavior is often driven by the avoidance of difficulty yielding instead to what appears easy. As an industry, the financial services business is at a crossroads of sorts on this path of least resistance. Regulatory changes, robo technology and a shift in consumer preferences are just a few of the driv<span style="font-family: inherit;">ers that have led us to this juncture. In a column for</span> <a href="http://www.financial-planning.com/news/practice_management/veres-why-the-aum-fee-is-toast-2693173-1.html" rel="nofollow" style="border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; color: #96999c; font-family: inherit; font-size: x-large; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Financial Planning Magazine</a>, Bob Veres wrote about a couple questions he asked a “fee-only” group of advisors saying this: <em style="border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">“At a recent NAPFA co</span>nference, I asked everyone in the audience to raise their hands if they were charging their clients based on assets under management. Virtually every hand went up…. Then I asked how many of them were considering a switch to retainers or other fixed compensation at some point in the next couple of</em> years. <em style="border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">Once again, virtually every hand went up” </em></span><span style="font-family: inherit;">This dichotomy illustrates the hard decisions to make. Being paid solely on AUM for all services an advisor provides has worked for some time. But it is becoming increasingly apparent that continuing to do so places your practice at risk for overcharging when compared to the automated investment services (avoiding saying the word “Robo” too much). Additionally, the greatest value add human advisors provide their clients is through comprehensive financial planning and truth be told, many have stopped providing that service. Why? It’s hard! It’s hard to engage a client, convince them to pay a fee, collect all the data, coordinate with other professionals, help get the financial house in order and monitor the plan. Why go through all that work when you’re getting paid entirely by attracting more AUM. There are many firms that still do comprehensive planning, but of the hands Veres saw go up on his questions, I bet many have moved their practice almost entirely to investment management because…that’s what they’re getting paid to do. It’s the path of least resistance.</span></blockquote>
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<span style="font-family: inherit;">The RIA tribe of the financial services nation is not the only one at this crossroad. With wires and independent B/D’s moving almost completely to fees for AUM, they’ve got the same issue to deal with. And it doesn’t stop there. Those in the career insurance models have drifted away from their roots of selling predominantly life insurance towards annuities and AUM investments largely due to the massive 401(k) and pension rollout business (a market the proposed DOL regs could crush for many). Why? Selling life insurance is hard and rolling over a large chunk of money is much easier. Whether you’re a fee only advisor earning revenues on AUM, a life agent making a commission on sales or a hybrid broker earning a combination of both, we are all at a crossroads to align our compensation with the value we provide or risk becoming obsolete. And that value must be something other than a product sale or investment allocation, both of which clients will increasingly bypass you to get it faster and cheaper online.</span></div>
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<span style="font-family: inherit;">So how do we get off the path of being paid for something entirely different than for the primary value we provide? And can it really be done? I’ve had an experience that tells me, yes, it can be done. Back 15 years ago I headed up an initiative at AXA Advisors to convert commission based series 6 career life producers (perceptively the low end of the Financial Services food chain) into fee for advice Series 7/65 Investment Advisor Representatives. (Article about it here: <a href="https://www.box.net/shared/4qynek0o35" rel="nofollow" style="border: 0px; box-sizing: border-box; color: #96999c; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">https://www.box.net/shared/4qynek0o35</a>) Even back then, this was thought to be a way to place a focus on the value of the planning relationship while capturing more “share of wallet” after the plan was completed. Early on it was successful, but not easy. We started with a pilot in the state of Texas as somewhat of a test tube. The McKinsey folks working with me called it “proof of concept”. We had to change licensing, training, products, compensation, recognition…basically everything. And we had to do this while continuing to run a business as we knew it. We used to joke that it was like changing the tires while driving 60 MPH. Needless to say, it was the “turn on your head” kind of change that was unsettling. But our results were very interesting. Over the year where we made this seismic shift from essentially a product push methodology to a process driven fiduciary relationship, overall sales revenue increased by 30%. Naturally using a financial planning process and charging a fee for the advice, investment product sales increased 73% while non-proprietary sales in general increased 57%. But the proprietary sales revenues also rose 25%. It was a case where a high tide raised all ships. A win for the better served client, a win for the advisor who increased his/her income and a win for the company which increased all sales, including proprietary sales.</span></div>
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<span style="font-family: inherit;"> Financial Planning magazine did an article on the initiative and made a statement at the end, “if AXA can develop such a strategy, it could transform not only its career agents, but the entire financial services industry” (<em style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">FP Mag article here: </em><a href="https://app.box.com/shared/sib7b18f8i" rel="nofollow" style="border: 0px; box-sizing: border-box; color: #96999c; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">https://app.box.com/shared/sib7b18f8i</a>) A pretty bold statement and probably true…but it didn’t happen. The fee for advice strategy was rolled out nationally with some success, but nowhere near the level that the Texas test tube experienced. Unfortunately, change requires leadership and while I had the vision, passion and commitment to make it work in Texas, the same level of leadership was not shared throughout the enterprise nationwide. When the market slid post 9/11 and expense cutting became the front and center strategy, the entire initiative was cut and the focus of the firm went back to the product push of old. The path of least resistance.</span></div>
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<span style="font-family: inherit;"> So, <em style="border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;"><strong style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">CAN</strong></em> advisors, planners, agents, brokers, etc. change gears and be paid a fee directly for providing advice, yes. But <em style="border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;"><strong style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">WILL</strong></em> they change their strategy? Only time will tell. The path of least resistance is to keep on doing what we’ve always done.15 years ago my team made an attempt to get off that path with the planning initiative but ultimately it failed when we tried to force change nationwide. It was more painful to change than keep the status quo. But somehow today given the massive changes in the industry, I think most of us are sensing that maintaining the status quo may be more painful in the end. The path of least resistance has reached a fork and it's time to decide which one to choose. </span><span style="background-color: transparent;"> </span></div>
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"Pain is inevitable, suffering is optional"</blockquote>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-12916976836989984702015-06-15T16:40:00.001-05:002015-10-27T14:22:14.433-05:00"Fee Only"-does it really matter?<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjj_nffAf21crJaavwq0n6upc_ahcP0kCAl2FEu_H0kxyhdIfW4IS24KP0KHZHOdq9l1MSLaBF_HQIKSs6TxVp_3NXHQemR6r_o5gKTYr18QfG0sZkW1T-50JKyT0OJLqpUxT3rShqVJUPp/s1600/fee-only_b.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjj_nffAf21crJaavwq0n6upc_ahcP0kCAl2FEu_H0kxyhdIfW4IS24KP0KHZHOdq9l1MSLaBF_HQIKSs6TxVp_3NXHQemR6r_o5gKTYr18QfG0sZkW1T-50JKyT0OJLqpUxT3rShqVJUPp/s400/fee-only_b.png" width="400" /></a></div>
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<span style="font-family: inherit;">Last week there was some Industry buzz around CNBC releasing their list of the <a href="http://www.cnbc.com/id/101633740" style="border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; color: #96999c; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">top 100 fee only wealth management firms</a>. In response, Michael Kitces posted an article on his popular blog calling out CNBC because <a href="https://www.kitces.com/blog/9-out-of-top-10-cnbc-fee-only-advisory-firms-not-actually-fee-only-according-to-cfp-board-compensation-disclosure-rules/" style="border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; color: #96999c; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">9 of top 10 "fee only" firms are not actually fee only</a> . It turns out that 9 of them had disclosures in their form ADV that they actually share insurance commissions. Michael is as knowledgeable on insurance products and comprehensive financial planning as anyone in the industry. So he wasn’t coming at it as an ADV thumping fee only zealot. But he was calling out CNBC and to a lesser extent the firms holding themselves out as fee only when in fact it’s not true. It causes me to think, with the industry changing at break neck speed and the organic harmonization of business models, does the moniker of “fee only” really matter?</span></div>
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<span style="font-family: inherit;">"Pretty words are not always true, and true words are not always pretty"</span></blockquote>
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<span style="font-family: inherit;">The vast majority of “fee only” advisers earn their revenues from charging a % of AUM and not for giving comprehensive financial planning advice. They would argue that they’re giving the financial planning advice for free but being paid via AUM. So, if the client pulls their assets away from the advisor, would the advisor continue to give free advice? Probably not. In an editorial for Investment News, Bert Whitehead offered an interesting point of view in a piece titled <a href="http://www.investmentnews.com/article/20150531/REG/305319996/most-financial-advice-is-tainted-by-advisers-self-interest" style="border: 0px; box-sizing: border-box; color: #96999c; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Most financial advice is tainted by advisers' self-interest</a> . He states <em style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">“Investment advisers offer investment products for a commission, which may be a front-end load, a back-end load or a continuing load for assets under management. All are commissions contingent on a sale, so they are salespeople. “Gathering assets” is a sale” </em>I believe he is saying that even “fee only” advisors who charge solely on AUM are in fact acting in a sales capacity with different, but as many conflicts as those who work on commission. He infers that to be truly “fee-only” and adhere to a fiduciary standard by providing comprehensive advice free of conflict, charging a retainer and/or hourly fee is the only way to do it. There are many advisors I know who would take offense to this point of view, but when you really think it through, it’s difficult to argue otherwise.</span></div>
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<span style="font-family: inherit;">"Solid character will reflect itself in consistent behavior, while poor character will seek to hide behind deceptive words and actions" –Myles Munroe</span></blockquote>
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<span style="font-family: inherit;">So, why are a subsect of advisors and the financial media so hung up on the moniker “Fee Only”? Does the buying public really care and is it really a positive differentiator? Frankly, not only do they <strong style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;"><em style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">not care</em></strong>, but studies have shown that they don’t even know the difference between all the various flavors of advisors that make up our industry. Even further, the public generally has a negative perception of the term “fee”, so holding oneself out as “fee-only” may appeal to other “fee-only” advisers and the financial media, but it’s not helping the profession. I have a feeling that if Kitces went further down the CNBC list, the 9 out of 10 ratio would hold true throughout. And I really don’t think it’s necessarily a bad thing. To offer a comprehensive approach, including tax planning, estate planning and insurance advice, financial advisory firms <strong style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;"><em style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">SHOULD</em></strong> be involved in more than investment management. And they should be compensated for it so long as they're acting in their clients best interests.</span></div>
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<span style="font-family: inherit;">With robo’s gaining traction with money management, those advisory firms that rely solely on revenues from AUM are facing a similar threat as travel agents did once the buying public figured out they could book travel themselves online. We should be seeing a drift away from “fee only” investment management, which represents the majority of “fee-only” advisors today and towards true comprehensive financial planning. And if memory serves me right, the principal topics of the CFP exam devoted as much to insurance as it does investments. The argument that fee only AUM advisors are more pure than commission greedy brokers is old and dated in a business where financial publications are writing leading stories titled <a href="http://wealthmanagement.com/2015-compensation-survey/compensation-survey-2015-slowly-disappearing-commission?page=2" style="border: 0px; box-sizing: border-box; color: #96999c; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">2015 compensation survey-the slowly disappearing commission</a> and the majority of wirehouse and IBD revenues come from fees. I get that many in the industry want to professionalize the business and distance themselves from the image of commission hucksters. But to do so while not addressing their client’s comprehensive needs so as to be termed “fee only” isn’t the way to do it. It’s divisive, misleading, misunderstood and doesn’t further the interests of either the advisor or the profession. It’s time to lose the obsession with the term “fee only” and care more about acting in our clients best interests, regardless of how we are compensated.</span></div>
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<span style="font-family: inherit;">"The worst form of arrogance is deliberate humility; For it is pretentious and deceptive"</span></blockquote>
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Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-52637553312759172252015-05-26T09:59:00.000-05:002015-10-27T13:33:18.588-05:00The Financial Services Business has harmonized…and you?<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoc6GLlguHVZFsDgNSqaOgoxuyt6gtT4DVNbyrFH1Q6HixTeSxbbuU20VTzvtOv-5IPPLOVvGWev8zuz5KNUXUFezHPHxMreY5t_F-1NhGFpuHpWr9bpFebUq9DW29745unhnv3eCYLJYk/s1600/Maruni_Hidari_Mitsudomoe.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgoc6GLlguHVZFsDgNSqaOgoxuyt6gtT4DVNbyrFH1Q6HixTeSxbbuU20VTzvtOv-5IPPLOVvGWev8zuz5KNUXUFezHPHxMreY5t_F-1NhGFpuHpWr9bpFebUq9DW29745unhnv3eCYLJYk/s200/Maruni_Hidari_Mitsudomoe.jpg" width="200" /></a></div>
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<span style="font-family: inherit;">I recall when Glass-Steagall was repealed back in 1999. The year before, Citigroup challenged the regulation by merging with Travelers Insurance (who had already owned Smith Barney) essentially prompting the Financial Services Modernization Act of 1999 to come into being. It was thought at the time that this harmonized model was the future of the business and there would end up being about 20 combined banking, insurance and investment worldwide giants running one stop shop branches. We now know this did not happen and the combined insurance, banking and investment experiment didn’t work. But why? Some blame bad management and others think it was simply too unwieldy to merge the different cultures. But from my perch, while the repeal of Glass-Steagall regulations allowed insurance, banking and investment models to merge or “harmonize” at the holding company level, the regulations at the point of sale (FINRA/SEC/State Ins.) remained in silo’s. The result was an inability to truly merge these business models into a one stop shop at the retail distribution level. However, today we are potentially facing a big change here. What if regulations do harmonize and everyone giving “personalized investment advice” are held to the identical standard presumably with the identical regulatory entity overseeing it. And how would that impact the future of financial services business models?</span></div>
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<span style="font-family: inherit;">Back in the late 90’s when the Citi model was being assembled, the evolution of stockbrokers moving towards RIA styled AUM and insurance agents morphing into financial planning was in the early stages. But today, 17 years later, the momentum for convergence is quickening. By the end of this year, it is expected that 75% of industry compensation across all channels will be fee-based. This past March, Northwestern Mutual historically known as a life insurance cult, bought LearnVest to help increase its reach in the financial planning business where they already deliver 400,000 plans a year. And take a look at Investment News ranking of the largest independent B/D’s. In the top 10 ranked by revenue, you’ll find platforms historically known for insurance such as Lincoln Financial, Northwestern Mutual and AXA Advisors near the top of the list. The truth is, the industry isn’t just harmonizing…it’s already harmonized! Regulations are simply playing catch-up.</span></div>
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<span style="font-family: inherit;">Most people I speak with who are “in the know” on the DOL harmonization, which covers brokers, advisors and insurance agents, believe it will get done in some form unless lobbyists are able to stall it further. It’s also speculated that the SEC is letting the DOL take the beach first and will follow soon after with a similar set of regulations. And to the dismay of those who dropped their securities licenses to get rid of FINRA, it’s wishful thinking that they harmonize the regulations but don’t harmonize the regulator.</span></div>
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<span style="font-family: inherit;">For many models, it’s really not a huge deal since the majority of business they’re doing is fiduciary based anyway. 70% of the business that wires do today is in fees and in time, it could easily get close to 100%. However, there are 3 segments that will be negatively impacted the most unless they make big changes soon:</span></div>
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<li style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px 0px 5px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">The small one person RIA which represents about 70% today will need to find a larger firm for compliance/operational infrastructure since it’s going to be too costly to go it alone.</span></li>
<li style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px 0px 5px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">The small Independent B/D (the 4,000+ not large enough to make the Investment News list of top 100) who lack the scale to withstand a hit from the potential reduction of 12b-1 fees, and the increase in compliance infrastructure costs and legal liability.</span></li>
<li style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px 0px 5px; padding: 0px; vertical-align: baseline;"><span style="font-family: inherit;">The proprietary insurance manufacturer that maintains a tied sales force whose value proposition for retaining career producers is predicated on the economics of selling proprietary products.</span></li>
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<span style="font-family: inherit;">"Change is at the door, accompanied by anxiety and fear; if you dare to open it, you may find that opportunity lies on the other side"</span></blockquote>
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<span style="font-family: inherit;">As is often said, change brings opportunity. For those models that are currently operating successfully as a hybrid of scale, there is the potential to leverage the existing infrastructure to take in refugees from the 3 segments listed above. But it's with a slight twist to the already popular hybrid model. If, for the first time, insurance agents are held to a fiduciary standard as is currently proposed in the DOL regulation, it opens the door for a more current “Tribrid” model to emerge.</span></div>
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<span style="font-family: inherit;">Since leaving my gig at Lion Street where we created a tribrid model of RIA, B/D and BGA, I’ve been consulting and talking to many leaders in the industry. Some clearly see the opportunity while others are so rooted in traditional lines of thought, they simply can’t accept that the business has changed from under them. One leader at a prominent Indy B/D firm when I introduced the idea of integrating insurance into their model replied “I don’t believe in insurance”. Many in the industry continue to suffer from what I call “Groundhog Day Syndrome”. That is believing the insurance industry is still operating as portrayed in the movie from over 20 years ago. There are many “insurance producers” who have evolved into the investment and advisory lines of business and happen to find themselves trapped in a dated proprietary model. These producers will be searching for a home that fits their business.</span></div>
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<span style="font-family: inherit;">Currently there are just a handful of independent models that can take in the insurance based refugee. M Financial, NFP, Valmark and Lion Street come to mind and they will benefit from the pending regulatory change. But the opportunity is so huge, and the landing pads so few that if a large IBD ever figures it out, they stand to profit greatly in a post harmonized environment. Additionally, most of the insurance business currently being done by IBD advisors is going outside losing a huge revenue opportunity and placing the IBD at great compliance risk. Having the outside business on the OBA does not exempt the IBD from supervising it. I think this is particularly true with the way indexed products are being illustrated and sold.<em style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">(FYI-an interesting white paper in this <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2561567" style="border: 0px; box-sizing: border-box; color: #96999c; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">link</a> that supports my premise. Click where it indicates to download)</em></span></div>
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<span style="font-family: inherit;">The Citigroup one stop shop model was ahead of its time and with harmonized regulations at the field branch level, it may have had a chance to work. Functionally, today much of the business operates in a harmonized way and if/when regulations remove current patchwork maze of redundant regulations, the door will have opened for a new era business model and the financial services landscape that we all grew up in will be forever changed. I believe that the tribrid model’s time has come.</span></div>
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<span style="font-family: inherit;">"Entrepreneurs see change as the norm and being healthy. Usually they do not bring about change themselves. But the entrepreneur always searches for change, responds to it and exploits it as an opportunity" –Peter Drucker</span></blockquote>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-87161244732495013112015-04-28T12:35:00.003-05:002015-10-27T13:33:43.913-05:00Fiduciary Progress: A luxury once tasted becomes a necessity?<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhCtjWb5Cde506-zR59MB0u9CqUyVNUE1PZLdD6kxb1lt3WvNfi0iFmcgYmmqLKHlLY38jV0gLflEqsuDwKpeNscu-axpn6PaCHvN2nk8MXFw48kR_f8eUz2A8SgGo02tjD_6EqKAiURgd/s1600/ifSKpcQ.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="180" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhCtjWb5Cde506-zR59MB0u9CqUyVNUE1PZLdD6kxb1lt3WvNfi0iFmcgYmmqLKHlLY38jV0gLflEqsuDwKpeNscu-axpn6PaCHvN2nk8MXFw48kR_f8eUz2A8SgGo02tjD_6EqKAiURgd/s1600/ifSKpcQ.jpg" width="320" /></a></div>
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<span style="font-family: inherit;">This past weekend I was driving with my wife and son as we passed a gas station. I couldn’t help but notice them gawking at the price per gallon posted on the moniker. Then they both complained about prices edging up again and how it’s going to eat into their monthly budget. I didn’t say anything but had a tough time hiding my smirk as we drove on past in the Tesla. I haven’t set foot in a gas station since getting the Tesla late last year. But then I realized that I pay the gas bills anyway…smirk goes to frown. There is one thing I can tell you; once it comes time to replace the next family car, it may or may not be a Tesla, but it <span class="underline" style="border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: underline; vertical-align: baseline;"><strong style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">will</strong></span> be an electric car. Yes, <strong style="border-image-outset: initial; border-image-repeat: initial; border-image-slice: initial; border-image-source: initial; border-image-width: initial; border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;"><em style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">a luxury once tasted becomes a necessity.</em></strong></span></div>
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<span style="font-family: inherit;">The same holds true for much of the progress we are experiencing today with technological advancements. In my hood, each home has substantial solar panels either on the roof or at the side of the home. You would think our electric bills in California would be higher than Texas where I lived last year. Not so. With the solar panels, our bills are 1/3rd of the price…and that’s before the A/C over summer is figured in. Again, I won’t have a home without solar having tasted it. Also in Texas, I spent more than I’m willing to admit on a whole home system wired with one of the best sound systems at the time. Now in the new home, we cut the wires with a new wireless Sonos system with far better quality at a fraction of the cost spent in the old home. And I’ve got a garage closet with several blue-ray players that a couple short years ago were state of the art. Now they’re obsolete. Just today I saw news about the Tesla battery initiative to power a home potentially cutting the utility cords. In a few short years, it’s possible that like the car, solar and sound systems (and Robo Advisors?) this too may become the norm. And once we get there, we’re not going back. It becomes a necessity once you have it.</span></div>
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<span style="font-family: inherit;">Progress happens which is usually a good thing. But when I look to the Financial Services industry tusseling over new regulations and the “fiduciary argument”, it becomes clear that much of the business continues to fight progress. So far, that deferral of progress has worked. Dated business models are spending big bucks to hold on to the old way of doing business. The consumer wasn’t indifferent about whether their advisor was acting in their best interests, they simply didn’t know it was possible that they weren’t. I sense this is changing. With social media and the issue being taken up by credible pubs like the Wall Street Journal and New York Times, there seems to be a shift in the tide from indifference to “hey, this is not right, it’s gotta change”. I also think the large wires and IBD’s see this as well as we’re hearing somewhat of an acquiescence to the need for a uniform fiduciary standard. Yes, we’re entering that territory where the possibility of a uniform fiduciary standard is now being tasted and there may be no going back.</span></div>
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<img alt="" class="left" data-loading-tracked="true" height="254" src="https://media.licdn.com/mpr/mpr/shrinknp_400_400/AAEAAQAAAAAAAANPAAAAJDI5YTYxZDk4LWFmNjQtNDNmZS05OTc2LTRjNDY2MzNlYjBlOA.jpg" style="border: 0px; box-sizing: border-box; float: left; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: auto; line-height: inherit; margin: 0px 30px 15px 0px; max-width: 100%; padding: 0px; vertical-align: baseline;" width="254" /><span style="font-family: inherit;">The lobby against the uniform standard is not without basis. The legal exposure by opening up lawsuits is HUGE. Aside from “Wildlife of Texas” selling 12% commission indexed annuities, I believe all financial services firms want to offer products and advise on what is in their clients best interests. But just as you see ads from law firms trolling “If you’ve been exposed to asbestos, call Dewy, Cheatem and Howe”, how about, “If you’ve been charged over 1% by your financial advisor, you may have recourse...” Most larger firms can adjust to a fiduciary standard since it covers the majority of business they’re already doing anyway. I think that’s why Merrill, LPL, Wells Fargo and a few other big firms have been on record as being supportive of it. But the legal exposure issue will keep much of the industry in the fight.</span></div>
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<span style="font-family: inherit;">Conversely, it may also be fought from the other side. Harmonization of regulations has yin-yang thing. Yes, we’ll all be held to a fiduciary standard (RIA’s Cheer good for us! Brokers/Agents boo, bad for us). But it also implies that we’ll all have the same oversight by a 3rd party…likely FINRA in some form. (RIA’s boo, bad for us! Brokers/Agents knowingly smirk). I really don’t think we get one change (uniform fiduciary standard) without the other (uniform FINRA oversight). The "fee only’s" think brokers should be held to their standard, but they themselves should not be held to the same level of accountability just as some brokers think they can hold themselves out as "advisors" but not be held to the fiduciary standard. I'm afraid we can't have it both ways. Yin-Yang.</span></div>
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<span style="font-family: inherit;">Progress is not always a clean positive linear process. It involves change which is always difficult. Which brings me to back to the luxury becomes a necessity thing. Coming from Texas where a spring storm could dump up to 10 inches of water in a matter of hours, now in California…it's one of the greatest of all luxuries in a state full of them. I’ve come to realize that luxuries and necessities are a matter of perspective. </span></div>
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We can complain because rose bushes have thorns, or rejoice because thorn bushes have roses.” -Abraham Lincoln</blockquote>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-51508486935192371792015-03-26T16:56:00.001-05:002015-10-27T13:34:55.515-05:00The Battle Cry of the Not So Quiet Company<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifPXFttRbNra4oZx89Bcj1rIrBl_9a4zA7ZEmSm9Pt4mS1ET7V4HXwEqlPMneaHgNCYApkZfztZZWGAxOE71iLH1QXP9RiPo2uWv_whJg1wjF6Fpl3-DHq8ylgmxldKmAMrehrHF7RSzNe/s1600/william-wallace.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEifPXFttRbNra4oZx89Bcj1rIrBl_9a4zA7ZEmSm9Pt4mS1ET7V4HXwEqlPMneaHgNCYApkZfztZZWGAxOE71iLH1QXP9RiPo2uWv_whJg1wjF6Fpl3-DHq8ylgmxldKmAMrehrHF7RSzNe/s1600/william-wallace.jpg" width="281" /></a></div>
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<span style="font-family: inherit;">The news this week about life insurer Northwest Mutual acquiring online financial planning firm LearnVest caught many in the industry by surprise. Up to now, the whole argument about who will survive the uber competitive and evolving financial services landscape has been framed as the independent RIA versus the “stockbroker”. So when a life insurance company crashes the party, it’s met with disbelief and confusionas if to say “How dare a life insurance company encroach on OUR domain!” In Bob Veres Inside Information newsletter (which I’ve been subscribed to since the 90’s) this month, he cited the <a href="http://www.bobveres.com/archives/921-Two-Birds,-One-Stone.html" style="border: 0px; box-sizing: border-box; color: #96999c; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">current fractured financial planning community</a> as being made up of tribes. I agree with Bob that the financial planning industry is made up of numerous “tribes” with varying backgrounds and disciplines. But he goes on to specifically exclude “Wall Street and the top sales agents among the independent broker-dealers and insurance companies” from the tribal nation. This is where I disagree.</span></div>
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<span style="font-family: inherit;">Our business has its roots in silo’s predicated on what products were <br style="box-sizing: border-box;" />being manufactured, sold and thus, regulated separately. It was once a simple business. The stockbroker regulated by what is now FINRA sold only stocks and bonds, the investment advisor regulated by the SEC gave only advice and the insurance agent regulated by the states sold only life insurance and related products. Yes, today we still see vestiges of the old world disciplines, but they are a dying breed. As Illustrated in the chart below, the solo single discipline practitioner is being replaced by the muti-disciplined ensemble team. And this is happening in the wires, independents and insurance companies alike. Despite the current matrix of duplicate and often triplicate overlapping regulations, the business is harmonizing organically. Whether regulations catch up to this reality is another discussion altogether, but inertia is on the side of it happening regardless. This is why it is so laughable to me when I read the financial media narrowly defining the argument as stockbroker (do they even exist today?) versus RIA when they essentially perform the same service and are both compensated largely by fees.</span></div>
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<img alt="" class="center" data-loading-tracked="true" height="341" src="https://media.licdn.com/mpr/mpr/shrinknp_750_750/AAEAAQAAAAAAAAMCAAAAJDE2OTJiMTRiLTdmZDctNGQyYy04YjVjLTQ4NmQzYWNkODQ3Nw.jpg" style="border: 0px; box-sizing: border-box; display: block; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: auto; line-height: inherit; margin: 0px auto 15px; max-width: 100%; padding: 0px; text-align: center; vertical-align: baseline;" width="588" /></div>
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<span style="font-family: inherit;">So what about the life insurance interloper? Did LifeVest “sell out” to the quiet company as some have indicated? Without knowing the details of the transaction, on the surface it looks like a good move. In this <a href="http://www.forbes.com/sites/samanthasharf/2015/03/25/northwestern-mutual-buys-learnvest/" style="border: 0px; box-sizing: border-box; color: #96999c; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank">Forbes article</a> the LearnVest CEO is quoted “This propels the vision. They have tremendous scale. We are going to take the innovative technology that has made LearnVest so special and we are going to be able to help scale it rapidly to another 4.2 million households. Not overnight but very quickly.” She also pointed out that Northwestern Mutual delivered 400,000 financial plans last year. “We can help them do that faster, stronger and to more households.”…Say what? An insurance company is doing financial planning and wants to do more? They can’t do that…can they?</span></div>
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<img alt="" class="left" data-loading-tracked="true" height="166" src="https://media.licdn.com/mpr/mpr/shrinknp_300_300/AAEAAQAAAAAAAAJxAAAAJGViYTFiZmRlLWZmNWQtNDJmNC04NmNhLThkOTM5ODU5NGYxZA.jpg" style="border: 0px; box-sizing: border-box; float: left; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: auto; line-height: inherit; margin: 0px 30px 15px 0px; max-width: 100%; padding: 0px; vertical-align: baseline;" width="295" /><span style="font-family: inherit;">I suppose the life insurance industry still has some work to get past the dated image portrayed in the movie Groundhog Day. The product peddler, while still alive in certain spots, is being replaced by technology enabled broad based financial advisors who happen to be affiliated with an insurance manufacturer. With all roads pointing towards practitioners who give personalized investment advice soon to be held to a fiduciary standard, the differentiator for every discipline will no longer be products offered or how one is compensated. (Though the fee only crowd still crow that they are unconflicted by their comp…<em style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">yeah right)</em>. It won’t be what you offer, but <span class="underline" style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; text-decoration: underline; vertical-align: baseline;"><em style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;"><strong style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">how</strong></em></span> you offer it that sets one apart from the others. This is why NW Mutual is smart with this acquisition. They are getting ahead of the curve by integrating a technology based financial planning platform to lever their existing relationships and provide a value added service. They have to do it for defensive reasons to retain their field force and potentially adhere to a fiduciary standard and for offensive reasons to increase new lines of revenue should the proprietary advantage be taken away. I expect to see more insurance companies who retain a field force do the same. <em style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;">(PS-This should cause some large B/D’s and/or RIA’s to also get defensive and extend their core offering to include life insurance rather than being the one off it is today)</em></span></div>
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<span style="font-family: inherit;">Just because one tribe speaks a different language than another tribe doesn’t mean they’re not all part of the same tribal nation. Life insurance practitioners are often best suited to extend into comprehensive financial planning since it is a natural extension of the process driven needs based approach they’ve been using for years. It’s time that Wall Street and RIA tribes recognize this. The “Quiet Company” has just made this evident to the tribal nation with this not so quiet battle cry.</span></div>
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<span style="color: #333333; font-family: inherit; font-style: italic;">All the other chiefs and tribes have accepted the Great Law of Peace. They now live in peace with one another. -Hiawatha</span></div>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-25383042952263760412015-02-12T12:18:00.000-06:002015-10-27T13:35:26.340-05:00Robo-Advisors and Robo-Cars...on Sundays!<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgWou3lNC-6WNrLSaJfKoIa2H_X7s_4ecQb0XTO52MghHYforaRIkh6o3RJdCMs9oXgTmFbfzroVwkzj0CgG7qvdyuj_a3DOcp2Leswj44iuOSFNGspa5ZZMz2wi7E49QW-THf4g3KauL9I/s1600/tesla-test-drive-2.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgWou3lNC-6WNrLSaJfKoIa2H_X7s_4ecQb0XTO52MghHYforaRIkh6o3RJdCMs9oXgTmFbfzroVwkzj0CgG7qvdyuj_a3DOcp2Leswj44iuOSFNGspa5ZZMz2wi7E49QW-THf4g3KauL9I/s1600/tesla-test-drive-2.jpg" width="400" /></a></div>
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<span style="font-family: inherit;">For over 20 years, I have been a loyal big benz sedan customer buying into the “best or nothing” advertising mantra. Every three years like clockwork, I’d turn in the old leased one and got the new and improved black on black from the local dealership. This past June when the lease was up, I decided not to re-up for the first time in decades since I was in the process of moving my family from Dallas to San Diego. Besides, with my triplets heading off to college, I could drive their cars as needed and save a few bucks in the process. Though my son’s ’08 GMC Yukon with 90,000 miles on it is far from a luxury car, it did the trick. That is...until one Sunday when I went to the local shopping mall for clothes.</span></div>
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<span style="font-family: inherit;">I was at the mall to update the closet and as a hunter, not a shopper, I’m usually out of there in 30 minutes. But on the way to my go-to shop for clothes, I “happened” to be walking by the Tesla store. Looking at the shiny things inside the window, it was as if I was cast under some sort of spell and I could not resist the gravitational pull of being drawn into the door. That day they “happened” to have an S85 sedan out back for a test drive and “happened” to have an opening for me to drive it. So I drove it…done deal. Within minutes, I was in front of a computer at the store building my own car online that was to be assembled and ready in about 45 days, just in time for the 2014 tax benefits afforded Californians for electric cars. When I got home with a folder in hand and without a bag of clothes, my wife asked, "what did you get at the mall?" I knew I would have to tell her at some point, so I sheepishly murmured, “umm…a car?”. Then in a puzzled and slightly angry voice she blurts <em>“YOU WENT TO THE MALL FOR SOME CLOTHES AND YOU GOT A CAR?!!!”</em></span></div>
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<span style="font-family: inherit;">Ever since moving to California I’ve become more curious about Tesla’s since it seems like every 3rd or 4th car I pass is a shiny new S85. But when I was in Texas, it wasn’t so. Texas is one of the states that is protecting their dealership model by requiring cars to be bought through a dealer which Tesla does not do. <a data-mce-href="http://my.teslamotors.com/advocacy_texas" href="http://my.teslamotors.com/advocacy_texas" rel="nofollow" target="_blank">Tesla-Texas link here</a> I always thought it strange that you can’t buy booze or cars on Sundays in Texas due to <a data-mce-href="http://www.texastribune.org/2011/03/11/why-cant-i-buy-a-car-or-liquor-on-sundays/" href="http://www.texastribune.org/2011/03/11/why-cant-i-buy-a-car-or-liquor-on-sundays/" rel="nofollow" target="_blank">“blue laws”</a> that have been in existence since before Texas was even a state. Of course, us heathens out here in California can buy booze and cars on Sundays…and even cars directly from the manufacturer. There is no doubt that the Tesla is a unique vehicle for a number of reasons. But as great as the car is (it rocks!) it’s as much the seamless internet driven no hassle customer experience in buying a new Tesla that sets it apart.</span></div>
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<span style="font-family: inherit;">If you want to make enemies, try to change something. ~Woodrow Wilson</span></blockquote>
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<span style="font-family: inherit;">Our business is going through a great deal of change in a sense like the car business is enduring. The Texas laws for buying a vehicle are protecting an outdated way of doing business and it’s only a matter of time before the old guard will have to yield to a more current way. For the financial services business, we’re seeing similar change fought on two fronts. The first, much like the Texas dealerships, is a fight against new regulations. RIA’s are fighting being supervised by anyone, in particular FINRA. This while brokers are fighting being held to a strict fiduciary standard. The second fight against change we're seeing in the business, similar to Texas dealers keeping the tech driven Tesla model out, is a battle against the threat of the “robo-advisor”.</span></div>
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<span style="font-family: inherit;">Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof ~John Kenneth Galbraith</span></blockquote>
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<span style="font-family: inherit;">Like many of you, I’ve read a great deal about the robo’s and have been in the camp that believes they will never fully replace a qualified human advisor. But, whether we like it or not, it isn't our call about how it plays out. It’s up to the customer. Whether you’re an insurance producer living off 6% annuity and 90% insurance commissions or an advisor charging 1% plus on top of investment management fees, new methods of distribution including the robo-advisor will dig into your margins. To survive much less compete in the future, you had better focus on building strong client relationships to justify them working through you for yesterday’s margins while today they can as easily go direct and bypass you altogether…for far less. I also think robo’s will force the current prevalence of advisor as asset manager to diversify into alternative revenue lines and activities that require more of the human element. Comprehensive financial planning and life insurance are two areas in financial services that are complicated, process driven and more often require human interaction than slapping a fee on top of an ETF. In a strange unforseen way, the robo’s and new regs may in fact help both financial planning and life insurance segments of the industry rise to a level of professionalism they both seek as the old is driven out and the professional advisor is forced to diversify outside of the silo of asset management.</span></div>
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<span style="font-family: inherit;">If nothing ever changed, there'd be no butterflies ~Author Unknown</span></blockquote>
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<span style="font-family: inherit;">I suspect that while Tesla may be the first for cars, they won’t be the last to build out a direct distribution model bypassing the dealerships that have made a bunch of old goofy-assed white guys who make gawd-awful TV commercials, a boat load of money over the years. (and yes, we’ve got a similar variety in our business too!), Are robo’s the Tesla of our business? Will robo’s put human advisors out of business? None of us really know the answers to these questions. I really don’t think professionals in our business will be put out much like medical doctors were not made obsolete by WebMD. But then again, when you look at what happened to travel agents once the internet got traction, it causes me to think that we aren’t immune to any change at all. As a profession with the average age pushing retirement, there is a strong tendency to wax longingly for the good ‘ol days rather than change for the long haul ahead. The laws in some states that protect dealerships from the competition of direct models like Tesla are certain to fall in time because frankly, they were put in place for an era gone by. Likewise, the regulations RIA’s and brokers cling to are sure to fall in time as well. And with the emergence of new methods of distribution, the next decade in financial services is certain to look very different than it does today. Robo-cars and robo-advisors...I'll drink to that...on a Sunday!</span></div>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-5140292927205216892015-01-30T13:35:00.002-06:002015-10-27T13:36:00.105-05:00Insurance Industry to DOL Proposal: "Don't Know-Don't Care"<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTwFnwUMtfuHZz-5O7T-OwPtzPHn3UCJO1jA0Bqo6LgfS4RhODYvbQW7SLWvOYt4wGQSKnZWM6wBPwlkNReLA61mhg02wqXq5rZA4SV68j3x3coXGJlG-VmHOYPNXSTEcHPpLmGF9wBFA2/s1600/act_quickly_and_calmly_when_suffering_a_boiling_water_burn.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTwFnwUMtfuHZz-5O7T-OwPtzPHn3UCJO1jA0Bqo6LgfS4RhODYvbQW7SLWvOYt4wGQSKnZWM6wBPwlkNReLA61mhg02wqXq5rZA4SV68j3x3coXGJlG-VmHOYPNXSTEcHPpLmGF9wBFA2/s1600/act_quickly_and_calmly_when_suffering_a_boiling_water_burn.jpg" width="320" /></a></div>
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<span style="font-family: inherit;">As the long expected DOL fiduciary proposal nears its re-release, the anxiety levels for all the various stakeholders are reaching a boiling point. There's a great deal at stake that could materially change the retail financial services business if commission products must be replaced by fee based accounts for the retirement marketplace. The argument against it is that the ruling will force all products from commission to fee based putting the small market advisor out of business and forcing the less sophisticated client to go it alone. Another less popular but extremely important part of the proposal shifts the liability and burden of proof from the DOL to the advisor (or firm employing/supervising the advisor) should there be a claim. Moving claims from arbitration to the courts could be a B/D CEO's nightmare. On both sides of the argument, there are multiple groups and associations fighting, but it seems to me by reading the various industry publications that SIFMA and FSI are most often cited as the prime opponents. Clearly, the constituents of SIFMA & FSI, made up of B/D’s and asset managers of varying sizes and types, have something to lose if the DOL gets its way (FSI viewpoint here: <a data-mce-href="http://www.financialservices.org/fiduciary/" href="http://www.financialservices.org/fiduciary/" target="_blank">http://www.financialservices.org/fiduciary/</a> ). However, last year advisor comp was made up of about 60% in fees and by the end of this year, that fee number could be over 75% and trending upwards. That tells me that a great many of SIFMA’s and FSI’s constituents are already being held to a fiduciary standard for much of their business. While the threat to securities based firms is certainly there, I’m more surprised by what appears in the media a lack of fight from the insurance industry. The firms that should really be shaking in their boots are in the life and annuity insurance industry.</span></div>
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<span style="font-family: inherit;">Ignorance is always afraid of change</span></blockquote>
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<span style="font-family: inherit;">The life and annuity insurance business is primarily made up of two basic types; The “career” agent and the “independent” agent. The true independent B/D that does not manufacture product will be impacted by the DOL proposal, but it is the proprietary product manufacturers who maintain a sales force that will be impacted the greatest. While several industry publications categorize many of the career insurance firms as “independent B/D’s” (Northwest Mutual, AXA Advisors, Mass Mutual, Lincoln Financial, etc.) the truth is that they are insurance product manufacturers first and maintain a tied sales force to distribute those products often through their owned B/D secondarily. These B/D’s are not truly independent. The relationship between the insurance company and their agent only works to the extent that the agent sells/recommends/distributes the proprietary manufactured products. For doing so, they receive benefits qualifications, pension contributions, conference qualifications, recognition and managers receive overrides and bonuses. This is the “value proposition” for affiliating with a career company. It worked great in an era gone by where the majority of producers sold primarily life insurance. However, you will find that a great many agents in these career models have drifted away from selling life insurance over the years and towards retirement products/services and asset management. These types of practices will be impacted the greatest.</span></div>
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<span style="font-family: inherit;">So fast forward to a DOL fiduciary as proposed becoming the law of the land. These insurance company manufactured products for retirement which are primarily fixed, variable and indexed annuities, will have to be repriced and restructured to accommodate the DOL requirements. The possible implications are the following:</span></div>
<ul style="margin-bottom: 30px; margin-left: 40px;">
<li style="margin-bottom: 5px;"><span style="font-family: inherit;">Career agents may lose differentiated benefits (benefits, pension cont., overrides, etc) for selling proprietary products over non-proprietary products further eroding the "value proposition". All products would need to be on a level playing field</span></li>
<li style="margin-bottom: 5px;"><span style="font-family: inherit;">Pricing of the annuities may be forced towards AUM comp and away from commissions impacting agent compensation flows and managerial overrides as structured today <a data-mce-href="http://www.naifa.org/advocacy/federal-issues-positions/fiduciarydol" href="http://www.naifa.org/advocacy/federal-issues-positions/fiduciarydol" target="_blank">Read NAIFA's point of view here</a>: <a data-mce-href="http://bit.ly/1yrWAn1" href="http://bit.ly/1yrWAn1" target="_blank">http://bit.ly/1yrWAn1</a></span></li>
<li style="margin-bottom: 5px;"><span style="font-family: inherit;">If the career insurance company cannot respond to this shift from proprietary manufactured commission based products towards fees <strong><em>AND</em></strong> restructure their career producer “value proposition” towards asset based products, they stand to lose producers to the Independent B/D models (LPL, Cetera, Commonwealth, etc) at a staggering pace</span></li>
<li style="margin-bottom: 5px;"><span style="font-family: inherit;">Some career models will give up career distribution or drop their B/D to become a “super OSJ” of an true independent B/D (As Kansas City Life did last year with Securities America <a data-mce-href="http://bit.ly/1tlvIte" href="http://bit.ly/1tlvIte" target="_blank">http://bit.ly/1tlvIte</a> )</span></li>
</ul>
<div style="margin-bottom: 30px;">
<span style="font-family: inherit;">This is not to say the insurance career shops are doomed. Many have the leadership and resources to respond to the market forces in play and some have already moved towards fee-based products. But for those with their heads in the sand hoping for business as usual, it could be a disaster.</span></div>
<blockquote style="color: #333333; font-style: italic; margin-bottom: 30px; padding-left: 40px; padding-right: 5px;">
<span style="font-family: inherit;">Is it ignorance or apathy. Hey, I don’t know and I don’t care -Jimmy Buffet</span></blockquote>
<div style="margin-bottom: 30px;">
<span style="font-family: inherit;">And what about the independent agent who places product through a Brokerage General Agency (BGA), many of which are not FINRA registered and sell primarily fixed and indexed products. For those who sell fixed/indexed life insurance, they can keep flying under the radar for now. For those marketing fixed and indexed annuities for pension rollouts and IRA rollovers, which includes a great many of them…bulls eye. These advisors who heretofore have been loosely regulated by state insurance departments will now have to meet the strict DOL requirements.</span></div>
<blockquote style="color: #333333; font-style: italic; margin-bottom: 30px; padding-left: 40px; padding-right: 5px;">
</blockquote>
<span style="color: #333333; font-family: inherit; font-style: italic;">The five stages - denial, anger, bargaining, depression, and acceptance - are a part of the framework that makes up our learning to live with loss. They are tools to help us frame and identify what we may be feeling. But they are not stops on some linear timeline in grief.</span></div>
<div style="color: #4d4f51; line-height: 24px; margin-bottom: 30px;">
<span style="font-family: inherit;"><br />Reading both investment and insurance industry publications, it seems that this threat is going relatively unnoticed by the independent agent and to some extent the career agent segment. Most I speak with haven’t even hit the first stage of denial which seems odd given what's at stake. When change happens there always seem to be winners and losers. Should the DOL get this through, the winners for the insurance based models could be the few career firms that have the resources and leadership to implement change immediately. Another winner from collateral damage will be the forward thinking Independent B/D’s who can become the safe haven of choice for those agents/advisors currently stuck in firms that will not/cannot make the shift. And contrary to popular belief, many insurance based advisors have already made the transition towards asset management thereby controlling the client relationship on all levels (asset management and risk management). For those IBD’s that have a robust insurance support offering, and there aren't many of them, these advisors and teams are a real find.</span></div>
<div style="color: #4d4f51; line-height: 24px; margin-bottom: 30px;">
<span style="font-family: inherit;">Regardless, it remains a question mark as to if/when either the SEC and DOL will not only pull the trigger, but then get it through. The fiduciary debate is going on 5 years now and still nothing has been resolved. But there is a real sense that 2015 will be the year it may happen. Where there is great change, there is equal opportunity and it will be interesting to see who will seize this opening to take the lead. Are insurance based distribution models prepared to compete in a new regulatory environment? Are IBD's positioned to recruit and support the insurance based advisor as the field harmonizes? Let me know what you think....</span></div>
Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com1tag:blogger.com,1999:blog-6937963313640964336.post-13417860092585866762015-01-15T12:49:00.001-06:002015-10-27T13:36:34.836-05:00Curveballs and Screwballs<br />
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<i><span style="color: #333333; font-family: inherit; mso-bidi-font-family: Helvetica; mso-fareast-font-family: "Times New Roman";">“Life is 10% what happens to you and 90% how you react to it.”
-Charles Swindoll<o:p></o:p></span></i></div>
<span style="font-family: inherit;">
</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKLqvEkU2qdJiPylc_-wPoDFPH2kfrxW_yLJaE4jjnUZJEMV5C9psAkMUo26cex15FM-X8Otg9TZNea1jI0M27GPMi_Vang2DlQcLke3SPwYdiRgi9cYjT30KjM3eN8wyN-lNCZGYADxBY/s1600/screwball_7952.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: inherit;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKLqvEkU2qdJiPylc_-wPoDFPH2kfrxW_yLJaE4jjnUZJEMV5C9psAkMUo26cex15FM-X8Otg9TZNea1jI0M27GPMi_Vang2DlQcLke3SPwYdiRgi9cYjT30KjM3eN8wyN-lNCZGYADxBY/s1600/screwball_7952.jpg" /></span></a></div>
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<span style="color: #4d4f51; font-family: inherit; mso-bidi-font-family: Helvetica; mso-fareast-font-family: "Times New Roman";">In May of last year, I wrote a
post on career curveballs <a href="http://linkd.in/1u5biWb" target="_blank"><span style="border: 1pt windowtext; color: #7b539d; mso-border-alt: none windowtext 0in; padding: 0in;">http://linkd.in/1u5biWb</span></a> and how I set in place a
personal roadmap for the remainder of the year. By October, everything was
going exactly as planned. Got triplet kids into college, sold the home in Texas
and my wife and I moved to our hometown of San Diego. What seemed impossible at
the outset of 2014 was within reach by fall since I had just one more box to
check-off...landing a career role in Southern California. Things were rolling
and I was certain the year would end perfect according to plan. Then I got a
call...<o:p></o:p></span></div>
<span style="font-family: inherit;">
</span><br />
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<span style="color: #4d4f51; font-family: inherit; mso-bidi-font-family: Helvetica; mso-fareast-font-family: "Times New Roman";">In early November, my son Marshall, a freshman student-athlete
at Penn State, called me and let me know he was at the Penn State campus
medical offices getting checked for what he believed were symptoms of mono. It
seemed plausible since kids in college get these kinds of things. I even had it
as a sophomore in college. But then shortly later, I received another call from
the doctor doing the examination. "We are putting Marshall in an ambulance
and rushing him to Penn State Hospital in Hershey". Shocked by the news, I
asked the doc if I should make plans to get there. She said, "if it were
me, yes". The blood test for mono revealed that his platelet count was at
3,000 where normal is well above 140,000. At the time I was unsure what this
meant although the doctors knew exactly what the symptoms pointed towards. I
hopped a flight the next day thinking this all will blow over and he'll be back
at school in a few days. How can a healthy 6' 5'' 325lb offensive lineman out
with friends on Saturday night and experiencing flu-like symptoms on a Sunday
have something life threatening on Monday? This is probably just a viral or
bacterial infection and the docs will give him a prescription to clear it all
up...so I told myself. Yes, this was a coping mechanism kicking in, also known
as denial. In a couple days after multiple tests, the doctors confirmed the
diagnosis as they had suspected all along. This was more than a curveball, it
was something more unexpected; a screwball. He has Leukemia.<o:p></o:p></span></div>
<span style="font-family: inherit;">
</span><br />
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<span style="color: #4d4f51; font-family: inherit; mso-bidi-font-family: Helvetica; mso-fareast-font-family: "Times New Roman";">My cousin Craig Lefferts pitched
in the majors in the 80's and 90's<a href="http://lat.ms/1B3mwfC" target="_blank"><span style="border: 1pt windowtext; color: #7b539d; mso-border-alt: none windowtext 0in; padding: 0in;">http://lat.ms/1B3mwfC</span></a> His
signature pitch was the screwball. Most every major league pitcher threw heat
and curveballs, but he was one of a handful who threw the screwball. It's
startling. At only 75 MPH it drops on you totally unexpected. It freezes you
unlike any other pitch. Learning that you have cancer at any age is a stunner.
But getting it in the fall of your freshman year really stinks. It's a total
screwball dropping on you unexpectedly. This is supposed to be a highlight of
your life...the most fun ever. New freedoms, new surroundings, being on the
football team, it was all there. Then this happens. But as we know, "<i><span style="border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;">It's not</span></i> what happens to <i><span style="border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;">you</span></i>, <i><span style="border: 1pt windowtext; mso-border-alt: none windowtext 0in; padding: 0in;">but how you react</span></i> to
it that matters".<o:p></o:p></span></div>
<span style="font-family: inherit;">
</span><br />
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<span style="color: #4d4f51; font-family: inherit; mso-bidi-font-family: Helvetica; mso-fareast-font-family: "Times New Roman";">After about 3 weeks, we got him stabilized to the point he could
travel back to our new home in San Diego where he is receiving top notch care
from UCSD Medical Center. Marshall's attitude is awesome. After a very short
couple days of "why me?" he then adopted an attitude of "I will
beat this no matter what!" and sees it as a bump in the road on the way
towards achieving his goals. He has to receive treatment for another 6 months
and is out of school for the rest of the school year, but we have every reason
to believe that he will be ready to go back to school this coming fall. He has
responded to treatment phenomenally well and early signs point towards a full
recovery. Marshall's positive attitude has been an inspiration to the doctors,
nurses, family, friends and in particular to me.<o:p></o:p></span></div>
<span style="font-family: inherit;">
</span><br />
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<span style="color: #4d4f51; font-family: inherit; mso-bidi-font-family: Helvetica; mso-fareast-font-family: "Times New Roman";">I am convinced that maintaining a positive attitude in the face
of a personal crisis is the only way out of that crisis. It's not easy to do,
particularly if you're sick and not feeling well. That's true for kids with
cancer as well as for parents of kids with cancer. We feel fortunate that we caught
it early and have access to the best medical help possible. My last post was in
October and then I kinda fell "off the grid" in November and December
as supporting my son was front and center. Although the treatments make him
feel terrible at times, he keeps on keeping on and is even making plans to get
back into the gym next month. He has taken personal responsibility for getting
healthy again which frees me up to get back to checking off that final box on
my 2014 plan. We all get curveballs thrown at us from time to time. But when
you get thrown the more rare screwball, it tests your attitude like never
before. I'm a big believer of the quote at the top. It's easy to get down at
even the most simple of roadblocks. And I'm sure any problems my son or I have
pale by comparison to many others. We are blessed with a positive attitude and
I wish the same for everyone.<o:p></o:p></span></div>
<span style="font-family: inherit;">
<i><span style="color: #333333; font-family: "Georgia",serif; line-height: 107%; mso-ansi-language: EN-US; mso-bidi-font-family: Helvetica; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US;">I believe the most significant decision I can make on a day to day basis
is my choice of attitude. It is more important than my past, my education, my
bankroll, my successes or failures, fame or pain, what other people think of me
or say about me, my circumstances, or my position. Attitude keeps me going or
cripples my progress. It alone fuels my fire or assaults my hope. When my
attitudes are right, there is no barrier too high, no valley too deep, no dream
too extreme, no challenge too great for me -Charles Swindoll</span></i></span>Anonymoushttp://www.blogger.com/profile/16842047274228614183noreply@blogger.com0tag:blogger.com,1999:blog-6937963313640964336.post-47966551006883550562014-10-22T16:00:00.002-05:002015-10-27T13:36:56.859-05:00Survival of the Adaptable<h1 class="article-title" style="background-color: white; border: 0px; box-sizing: border-box; color: #333333; font-family: Helvetica, Arial, sans-serif; font-size: 36px; font-stretch: inherit; font-weight: normal; line-height: 40px; margin: 0px; outline: 0px; padding: 0px 0px 10px; text-align: center; vertical-align: baseline;">
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<span style="font-family: inherit;"><span style="font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: auto; line-height: inherit;"><img alt="" class="left" data-loading-tracked="true" src="https://media.licdn.com/mpr/mpr/p/6/005/092/3fb/0b9c41c.jpg" style="border: 0px; box-sizing: border-box; float: left; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; height: auto; line-height: inherit; margin: 0px 30px 15px 0px; max-width: 100%; outline: 0px; padding: 0px; vertical-align: baseline;" /></span>As I read the financial media, tweets and blog posts, I am often reminded of the Charles Darwin quote here. It seems that while the financial services industry changes at break neck speed, many leaders hold onto the known and familiar for dear life. The business simply does not look, feel, operate and communicate like it did just a few short years back. Despite this, it appears that some very strong and intelligent industry players are doing everything to fight the very thing that will insure their survival; that is to embrace and respond to change. Social media is but one example of how our industry is becoming reshaped. With the exception of a select few like Mark Casady or Joe Duran, how many industry CEO’s have really embraced social media?</span></div>
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<span style="font-family: inherit;">“Everyone thinks of changing the world, but no one thinks of changing himself.” -Leo Tolstoy</span></div>
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<span style="font-family: inherit;"><span style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">As we sit here today in late 2014, it strikes me that we’re going on 5 years since the current </span><span style="border: 0px; box-sizing: border-box; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; vertical-align: baseline;">administration passed Dodd-Frank giving the SEC authority to rewrite the rules to potentially “harmonize” standards and supervision of those who give “personalized investment advice”. RIA’s initially applauded the move thinking it would force the dastardly brokers to their beloved fiduciary standard giving them a competitive edge. Brokers applauded the move thinking it would force RIA’s to a level playing field with FINRA supervision. But soon after, the turf protecting began and continues today which has contributed to the apparent stale mate status of any real regulatory change.</span></span></div>
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<span style="font-family: inherit;">“The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.” <br style="box-sizing: border-box;" />― Albert Einstein</span></div>
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<span style="font-family: inherit;">I find it interesting that the “fiduciary debate” has been framed as SEC RIA versus FINRA Broker. This while the business seems to be converging and blurring into one on a mass level. Not only that, but there are so many variations of those who give “personalized investment advice” that broad brushing them all as either RIA or Broker is as myopic as seeing only two colors; black or white. I’ve seen estimates that by 2015, 75% of industrywide (that means everyone) compensation is expected to come from asset-based fees, up from 59% in 2013 and 55% in 2007. I saw a recent stat from B/D leader LPL saying that 65% of new business coming in is from RIA’s or those entering the RIA model. Merrill Lynch, the oft cited arch enemy of the fee-only crowd requires every new hire to get a CFP. In time and with attrition, they’ll trend towards a majority holding the fiduciary rooted designation. And according to new research from Cerulli Associates, 90% of wirehouse clients received estate planning services in the third quarter of 2014. That compares to 83% of regional broker-dealer clients, 76% of bank clients, 80% of independent B-D clients and only 66% of RIA clients. So Wires are doing a better job at delivering broad based services than RIA’s? You wouldn’t know it by reading most industry media and pundits.</span></div>
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<span style="font-family: inherit;">“Life is a series of natural and spontaneous changes. Don't resist them; that only creates sorrow. Let reality be reality. Let things flow naturally forward in whatever way they like.” <br style="box-sizing: border-box;" />― Lao Tzu<a href="http://www.goodreads.com/author/show/2622245.Lao_Tzu" rel="nofollow" style="border: 0px; box-sizing: border-box; color: #7b539d; font-stretch: inherit; font-style: inherit; font-variant: inherit; font-weight: inherit; line-height: inherit; margin: 0px; outline: 0px; padding: 0px; text-decoration: none; vertical-align: baseline;" target="_blank"><br style="box-sizing: border-box;" /></a></span></div>
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<span style="font-family: inherit;">The fact is that despite whatever the SEC, FINRA, DOL, etc. does or does not do with updating regulations, our industry is harmonizing organically at a pace faster than many of us have realized. The vocal minority at the extreme edges are fighting battles in a war that may have already been decided. Yes, whether we like it or not, we’re all in the same business and becoming more similar than dissimilar as the evolution progresses. It’s been said that you never change things by fighting the existing reality. To change something, build a new model that makes the old model obsolete. I think that now more than ever, the opportunity exists to build a new model that cuts a path between the old silo’d models of the past. It won’t be RIA only or FINRA B/D broker only. And it’s more than the current evolutionary trend as a hybrid. It goes a step further not by maintaining the status quo, but by responding to the changes that are reshaping the business as we knew it.</span></div>
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<span style="font-family: inherit;">“Those who cannot change their minds cannot change anything.” <br style="box-sizing: border-box;" />―George Bernard Shaw</span></div>
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