Also available as podcast (Episode #50)
How to offer insurance solutions as an RIA?
There are a number of common misconceptions about the RIA model. One is that you cannot offer insurance solutions in a fee based environment. The reality is, you can offer insurance both in the traditional sense (see also my prior video on the topic) but you can also offer such solutions on an entirely fee basis. There are new innovative insurance platforms in the marketplace that have been purpose built to accommodate the specific needs and requirements of the RIA model. These offerings make accessible almost the entire range of insurance products and solutions.
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DPL Financial Partners (website)
Tim Rembowski (LinkedIn)
Brad: How to offer insurance solutions as an RIA, that is today’s question on the Transition To RIA question and answer series. It is episode #50.
Hi, I’m Brad Wales with Transition To RIA, where I help you understand everything there is to know about why and how to transition to the RIA model.
Big episode today. This is episode #50 of my RIA explanatory series. So, I just wanted to do a quick thank you to everyone that’s followed along. Whether you’ve watched it in video format, listened to it in podcast format, clicked that like button, left a review, whatever it is, I certainly appreciate everyone that has participated, shared it with their friends and colleagues or whatnot.
Thank you for that. I look forward to the next 50 videos to come.
But being the 50th video, certainly, a great show today, a great topic, a great guest.
At a macro level, we are going to be talking about… if I’m an advisor, I move into that RIA model, can I continue to – or maybe start, if I’m not currently doing it – offer insurance solutions to my clients?
To help us with that today, for those watching on video, we have a wonderful guest, Tim Rembowski from DPL Financial Partners. Tim, thank you for joining.
Tim: Thanks for having me today. It’s exciting to be on your 50th show. So, thanks for bringing us in on this event.
Brad: Tim told me ahead of time that, “It has to be the 50th show or I’m not coming on!” And I was going to give him walk-up music too, but we didn’t get a chance to put that together. But certainly happy to have you here, Tim.
I’ll ask Tim to give a little background on himself and his firm in just a second.
The reason this topic is important and worth doing a whole episode on is it falls into the theme that I come across all the time where advisors are looking at the RIA model and there’s a lot of misconceptions out there about how it works or what you can or can’t do.
Some of that is from innocent lack of knowledge that until, and if, you’ve ever dipped a toe, looked over the fence, whatever analogy you want to use, and taken a look at the model, how would you necessarily know what the mechanics are and what you can or can’t do?
Unfortunately, there’s then also a lot of misinformation out there, sometimes to try to deter advisors from making the transition. People are told, “Oh, you can’t do that.”
The reality is, in most cases, those misconceptions are wrong. You generally can do a lot of those things, but it’s important to know how to do it. What the mechanics of it are, and then just as important – and why we have Tim on is – who are the solution providers you can work with to deliver those sorts of things?
So, with that, we’re going to dive into that topic. Tim, if you could start with a little background on yourself and also DPL, I think that’d be helpful.
Tim: Thanks for the introduction. Tim Rembowski here. I’ve been working in the RIA space for over a decade. Primarily, it’s always been with commission-free insurance, so sort of at a carrier level. Jefferson National acquired Nationwide, which was one of the first companies that really was dedicated to the RIA space on the insurance realm.
I worked with David Lau to help start DPL, who is my current employer. And essentially, what our mission statement is, is essentially what happened to the mutual fund world a number of years ago. That was taking basically expensive loaded mutual funds, and now nobody uses it, right?
Everybody uses essentially iShares, you know, low cost. They’re not used to paying commissions for trading, things like that. We’re trying to do the same thing that happened to mutual funds, but have it now happen to insurance. Make it easier to purchase as well as purchasing it without the heavy commissions that are associated with insurance.
And honestly, right, it’s not really about how people are deterred from using their products. A lot of times it has to do with the expenses, the lock-ups, all the extra baggage that comes with it.
So, our mission is essentially to eliminate that through eliminating commissions and bringing value to the consumers. And then now as an RIA, you can vet the product for the benefits it provides without all of the baggage that it carries. So, that’s really our value to the industry is really just eliminating all the complexities with insurance, simplifying it, and getting rid of the commissions, and allowing RIAs to work with it on an advisory basis instead of commissions.
Brad: Which is great. I think that answers the question in general of… yes, you can do this and you have to work with a partner like a DPL to do it.
But specifically, if you could, give us some examples, what kinds of insurance products are we talking about that are still possible in that RIA model? Is that variable annuities? Is that term insurance? What’s the range of options that are available out there?
Tim: Let’s talk about from the industry perspective beyond just DPL. In the industry, there’s been a huge movement of advisors from the broker-dealer wirehouse world over to the RIA world. What this has done, it’s caused carriers to react to that because carriers are losing distribution because some of their general distribution channels have migrated assets over to the RIA channel.
In turn, they have been forced to create new products, new designs. So, as an RIA, you can certainly work with variable annuities, indexed annuities, fixed annuities, variable universal life, term insurance, disability insurance, there’s a couple of hybrid long-term care solutions out there.
And I think one thing to make sure, if you are an advisor… with variable annuities, you have to have some type of broker-dealer affiliation to work with those. Now, typically, the carrier or a company like ourselves supplies that for you.
If you’re an RIA, it’s gotta be done in a fee-based chassis. However, if you want to work with things like indexed universal life, whole life insurance, traditional long-term care, things like that, those can still be done on a commission basis, just so you know.
You can be a fee-based RIA, and that’s where you would want to work with an independent marketing organization or a field marketing organization, IMO, FMO-type models. So, you still want to work with some of those solutions that are more done on commissions like term insurance, things like that.
You can still do those as an RIA and be established as a fee-based advisor, not fee-only. But yeah, you can work with all the product types, essentially. And most can be done on an advisory basis, but there’s a few that’ll still be done on commission basis.
Brad: We’ll dive into how the compensation works on some of these but what are – and you mentioned it – commission-free products? I also hear fee-only products. Are those one and the same thing and that’s just different ways to describe it or am I missing anything there or is it essentially the same thing?
Tim: The way to think about it is it’s no load. These are no-load annuities. Just like you might look at, B share, C share, no-load shares in the mutual fund world, you’re going to look at it from the same capacity. There’s still B share annuities, C share annuities, and no-load annuities. Same goes with life insurance as well. Basically we’ve created a new share class, that’s no-load.
Brad: I’ll ask some questions here a little bit on some of those current products, and how there’s a possibility to convert those or just start using new things going forward. So, we’ll get to that.
But on these solutions that are no-load, how does the advisor get paid? And maybe they don’t get paid on all solutions and there might still be reasons an advisor wants to incorporate them into their practice (ex: to provide it for the client.) But on some of the products where maybe there is an opportunity for the advisor to not only utilize the product, but get paid, if there’s not a commission, how is that typically structured?
Tim: That’s a good question. How I spend my time day-to-day, I head up our membership success department at DPL. I spend all day talking to advisors on how they run their business from a high-level with regards to…if I’m going to use insurance, how does this fit into our grand scheme of things with regards to business valuations, revenue, the whole nine yards?
What I’m hearing from firms, they’re treating insurance as an asset class now. Instead of it being a one-off transaction…so, in the past, insurance was a one-off transaction. You sell them a product, and then you’re kind of done, and then you do your financial planning over here, right?
Well, now that you’re an RIA and everything is focused on comprehensive financial planning, insurance is no longer transactional. Insurance is more strategic and it’s considered an asset class, essentially.
One of the biggest things I’m hearing from our member firms is that they want to start using fixed indexed and guaranteed income products as bond surrogates. The way that they’re looking at it is, “Hey, if we’re going to charge our client 1%, for example, to manage their bond portfolio, but instead, we think it’s more appropriate to allocate this annuity versus a bond, we’re going to charge our same 1%.”
Now, for those of you out there that are looking at a retainer model, this will just fit into your services as a retainer advisor, for example. So, if you offer different packages, maybe insurance is part of that retainer package. If you have a bronze, silver, gold level, whatever levels you may have, you can incorporate insurance into one of those levels.
And if you’re somebody that’s thinking about going hourly, you would just charge hourly fees on the work that you do there.
But I would say, far and beyond with most people, it’s assets under management and they’re charging their typical AUM fee against that cash value of that product.
To your point there, Brad, there’s things like term insurance, disability insurance, traditional long-term care, those don’t carry cash balances. So you’ll either do that just as an added service to your client, essentially just helping them fulfill their plan. If you’re fee-based, you can work with somebody to get a commission on it. Or the third option for those types of contracts is a planning fee, which I see from time to time. Advisors may just incorporate that in their typical planning fee. But that’s how you monetize on this.
Brad: There are advisors that this is a meaningful part of their value proposition and a meaningful part of their practice. And so justifiably, if they are going to use the solutions and implement them, they deserve to be compensated in some fashion. I think you gave some great examples of where that is.
I’ve also come across other advisors, of all different sizes that maybe say, “I want to be able to offer insurance solutions because, one, it might be easier for my client that I help them with that as opposed to having to send them elsewhere and then, two, if you do send them elsewhere, you never, for sure, necessarily know where that could lead the relationship. Does that person maybe try to gain more of the client opportunity?
There’s some advisors that aren’t necessarily doing it for the compensation, they’re doing it for the value-add, the service. Again, maybe if it’s a retainer model, they feel they’re being paid that way.
But is it possible for some of these things to work with a firm like yours? For that advisor that does say, “I want to implement them,” and maybe this is great for you guys if this works out, but that say, “I don’t want any compensation because I also want to be able to say I don’t receive compensation.”
Do you ever see advisors do that or is that possible? It sounds like with some products there’s no competition anyways, but have you ever seen someone go across the board like that?
Tim: Yeah, sure. I see that more often with traditional insurance. I’m talking about term insurance, disability, long-term care. I’m definitely seeing firms that don’t want to send their client to the Northwestern Mutual agent.
It used to be the Northwestern Mutual agent only did term insurance, disability, and a little bit of whole life. But now the Northwestern person has a CFP and they’re also trying to sell my client planning. So, I don’t want to do that, right? I want to make sure I can handle in-house.
Typically, the problem is, you don’t have the license or the expertise to do those items. And that’s where you can work with a company like ours because of the expertise, but we also provide the licensing.
Now, other product lines that are seen as an allocation, so things like index annuities, fixed annuities, variable annuities, I would just caution you against doing those at discounted rates or no rates at all because what you don’t want to do is you create conflicts of interest, right? You want to be billing on everything the same.
So, whether it’s an insurance asset, a stock, a bond, a mutual fund, an ETF, you want to make sure from a compliance perspective that you charge even fees across the board. For the most part, we see firms charging AUM fees if it carries a cash balance. If it doesn’t carry a cash balance, to your point, they’re doing it as an added service and not really billing on it.
Brad: That’s a great point. It’s interesting, because someone could be trying to do what they feel is maybe the better path and want to forego compensation. But to your point, under some of those products and solutions, it’s maybe creating a conflict of interest by not charging because now you have an incentive to look at certain asset classes over others, as a result of that. So, that’s a great point.
You did mention briefly their licenses. Typically, people think, “Oh, if I’m going to do a variable annuity, I have to have a BD relationship and Series 7 and, oh, maybe I need my insurance licenses.” It might be a nuanced answer, but if you can help us – again, if I’m a financial advisor, I want to do some of this, what licenses do I need to be able to implement these things?
Tim: It definitely varies based on product. Let’s start with variable annuities because that’s what most people coming from the brokerage world are used to.
You’re exactly right. There has to be a broker-dealer involved with a variable annuity transaction, which, typically requires 6, 63 or a 7. As we’re talking today, a lot of you are thinking about, “Hey, I want to go RIA-only. I don’t want the broker-dealer so maybe I won’t even do variable annuities.” Well, the good news is there are solutions to this problem.
There are a couple of carriers that will supply a broker-dealer for you. And by supply it, I mean, they have an in-house agent that essentially writes the policy. At our company DPL, we work with those firms, but for carriers that don’t have a broker-dealer capacity, we will actually act on that for you. So, essentially, we can give access to over 20 different variable annuity companies because we provide that broker-dealer license.
You as the advisor, you are essentially a limited power of attorney on these contracts. So, you’re not selling it. You don’t need a 6, 63 a 7. You don’t need any of that. You need a 65, 66, CFP, whatever your state requires for you to be an investment advisor, and charge fees for doing so.
On variable annuities, yes, the licenses are required, but you don’t have to have them. Most firms will supply the license through a third party agency desk like we do and some carriers do.
When we’re looking at fixed indexed, term insurance, life insurance, things like that, same concept. If you don’t have a life insurance license but you want to offer them, that’s okay because there are companies like ours that supply it, and there’s carriers that supply it for you as well.
However, if you do still hold a life insurance license, you have the ability to write fixed indexed, those types of policies if you would like. You can be the writing agent on it and you could either do that in an advisory capacity through a firm like ours, or you could do it through a commission capacity, through an IMO/FMO-type model.
Brad: For the advisor that has existing positions, it’s a meaningful part of their practice – we’ll get to what it looks like for someone that hasn’t been doing any of this and wants to start doing it – but for the advisor that has an existing insurance component to their practice at whatever model or firm they’re at now, maybe a broker-dealer type firm, and so some of those were perhaps originally a commission-based product and it still makes sense for the client at the moment to have those positions, what can you do to help them?
I don’t know if convert is the right word or look at opportunities to say, “How can we take this existing book,” for lack of a better word, “of insurance solutions you have now? And if you like this story over here, what’s that transition look like?”
So, take the typical breakaway advisor that has some amount of insurance business, what is it you guys do with those folks to try to help them bridge that gap to what you’re describing?
Tim: Let me give you an example from one that I’m working on right now of a $400 million practice with LPL, breaking away, starting their own RIA. One of the hurdles of breaking away was that about 20% of their revenue is tied up in trails from old annuities. So a big consideration was, “If we break away and go RIA, what do we do with that 20% that is tied up in trails? Can we convert some of that over to an advisory platform? Or do we look at somebody in the office stays with the broker-dealer and we do the commissions that way or change broker-dealers?”
What we did for them… we have a tool on our website that’s an automated annuity review system where you type in the details of your annuity and it will run you through a simulation to see if there is…it shops a whole marketplace to figure out if that client would benefit through a 1035 exchange.
The key there is we’re working in a fiduciary capacity now, so if there’s things like surrender charges, that needs to be a consideration. We can do a breakeven analysis, but it probably won’t make sense to make a change.
If your client has an income rider and they’ve already turned that on years ago, that contract is probably far underwater, probably not going to make sense to make a move with it.
Our experience working with over a thousand RIA firms, we find that about 65% of the time that client would be better off switching to an advisory contract even after you assess your fee. That’s what you’re looking for.
What you could do is take your existing book and have our marketplace shop everything that’s out there for you give you an analysis on your book that would say, “Here’s the policies that we can justify making a move. Even after you charge a fee, it’s less expensive, more income, whatever the deal might be.”
And then the other 35%, we break that down with regards to which ones are too far underwater, which ones have a surrender charge, that way you can make a more educated decision on essentially…”If that represents 20% of my revenue, if I can bring over 12%, 13% of that, that’s pretty attractive. If I only have 5% of that, maybe I need to evaluate different options.”
We’re doing an evaluation on costs, on benefits, and it’s really important to see the whole marketplace so that you can see what options are available.
Brad: I certainly appreciate you being a straight shooter and not saying every scenario possible is a solution for you guys, because I think that’s just being realistic.
Are there options to accommodate that ~35% where it might not be fit? Can they bring it and park it with you guys even if there’s no compensation so that they protect that part of a client’s relationship? Or what options are there for that 35%-ish? I know that was just an example that you gave.
Tim: Yeah. That’s kind of our general experience, about 35%.
Here’s what I’ve seen advisors do that we’ve helped in transition. It depends on how big that is, right? If that 35% represents a decent amount of money, what I’ve seen advisors do is, there are some broker-dealers that are very friendly with your RIA.
What I mean by that is, they’ll let you run your RIA, do your own thing, and then they’ll just help you out with that smaller part of your book. And those are companies like Purshe Kaplan & Sterling, Private Client Services, Mutual Securities are three that come to mind.
So, if that represents a considerable amount of revenue for you, I would advise you to maybe look at one of those companies. You would still somewhat have to keep the broker-dealer affiliation, but at least you could keep that revenue, and then at least they won’t touch your RIA.
That’s one option, if it’s meaningful. If it’s not a meaningful amount of revenue, there’s kind of two options that I’ve seen.
One is if you still have somebody that you’re friendly with at the broker-dealer, maybe a colleague that you’re friendly with. But if you want to completely rid yourself of that broker-dealer, get your clients completely away from it, we actually have the ability to do an agent of record change here at DPL.
Essentially, wherever your broker-dealer is, we would switch that over to us and we would be the broker-dealer on the account. Now, we’re not going to solicit your client, call them, do any of that. That’s just a service for you so that you don’t have to worry about Joe Schmo calling your client because they’re the new broker in town that was assigned to your client’s account.
And then we can help you get things like quarterly statements and such. But yeah, there’s agent record options as well as. Switching it over to these other options that will leave your RIA kind of alone.
Brad: I hear that a lot, the scenario of needing/wanting to protect that client relationship, as it’s only a piece of the overall client relationship. If you do leave it behind, you could try to leave it with someone, a friendly person that you know, but the tough thing is you never know where that leads as the years pass.
So, good that there’s a pathway even if it’s – I don’t know if park is the right word – but a way to put it with you and at least protect the relationship and the advisor doesn’t have to worry about the client being solicited and those sorts of things, I think is helpful.
Brad: Let’s say an advisor has talked to you and your team, they figured out whatever amount they can convert, they figured out the solutions, and now they’re on the other side. Or related, an advisor that maybe hasn’t done any insurance solutions that would like to begin to do this. What does that look like coming to a firm like yours?
Is it almost like the proverbial supermarket where you say, “Here’s all of our options. We have team members that help you understand them and sort through them,” or what is that kind of going forward experience like with a firm like yours?
Tim: What I think is important is if you’ve never done insurance before, you’ve probably heard a lot of bad things about cost, commissions…and most of it’s been bad sales tactics. Sometimes I’ll sit on annuity seminars of other companies just to hear, and it’s always this latest and greatest pitch and it always seems too good to be true. So, if you’ve never used insurance, and that’s your experience, I understand where you’re coming from.
One thing that we do at DPL is we lead with education with everything. Everything is about educating the advisor on, “Here’s actually how it works. Here’s why you would do it and here’s who you would do it for.” No sales gimmicks.
We provide calculators and tools for you to utilize. We had a couple of our firms that are really highly regarded fiduciaries, and they brought to my attention one of the tools on our website, it’s about income efficiency. They wanted to explain to me how they’re looking at it. And it was fantastic.
Essentially, what they were doing was they were comparing their bond portfolio. They were putting their bond portfolio into our tool. And then they were looking at an annuity and which would be more efficient for producing retirement income.
Those of you that have heard of Wade Pfau, Michael Finke, David Blanchett, they’ve always talked about this whole idea of income efficiency. It’s just been so hard to operationally pull it off.
What we’ve done is created tools where you can operationalize that and then the marketplace, so you shop for the best product to fit that income efficiency concept. This is what’s had my team really busy lately is because of where fixed income is, everybody’s looking for a solution.
They’re using our tools and our calculators to get conceptually why an annuity makes sense. And then using the marketplace to find the one that makes sense. And then working with a consultant to go one by one how that product works.
So yeah, I would say you really need the education and that’s really what we’re going to be here to help you with, is kind of understand how it works, no sales gimmicks, and just use math as the equation.
Brad: That’s great. I’m a huge proponent myself of education with my website, doing videos like this. I think you owe it to people to first help them understand it before you try to say, “Oh, hey, I’m the solution for it.” So, I applaud you guys for leading with that as well.
What does that first conversation look like? If an advisor is listening to this – my audience is primarily advisors that are thinking about moving into that RIA model, so there’s a lot of variables involved in that, and that’s a big part of what I help them to do is think through all these different decisions.
If there is that advisor, they do have that insurance part, they are going to maybe need a solution like what DPL provides, if they call you up – and we’ll get to how people reach out to you guys – but if they call up, what is that first conversation like?
I’m a big proponent of this question to prepare people when they call up. Is that immediately, “Hey, let’s just keep it at education?” Is that, “Oh, hey, let’s start diving into the nitty-gritty of the specific positions you currently hold?”
What does that first call look like so people can know what to expect if they were to reach out?
Tim: One of things we want to understand is, first of all, what’s your situation? Is your situation, “I have a large annuity book and I need help with it, help me transition that over,” or is the conversation, “I do a little bit of insurance and I’m breaking away. I want to see if I can still write insurance through DPL.”
Once we get to understand that situation, we want to take you to our calculators on our website. Most people want to play around, run some numbers, see for themselves what goes on.
So, typically, the first interaction is going to be a 15-minute call where we walk you through how to use the calculators on our website. And then also during that call, we want to provide some education on how the fee billing works and how some of the data aggregation works.
For example, if you’re using an Orion, a Black Diamond and a Vise, we want to make sure you understand how everything can fit in together and fit seamlessly. A lot of advisors are used to insurance being transactional. So this idea of making it more strategic means that it has to come in and fit into the overall grand scheme of things.
That first interaction is going to be a little bit around advisory fee billing. How it fits into a portfolio management system, and then also showing you how the tools on our website progress.
From there, if there’s interest and there’s business, we have further modules that walk you through how we actually execute on a 1035 exchange, walk through the operations of that, how we can help you do that fixed income allocation concept that I mentioned a couple of fiduciaries we have been working with are using.
It really is first getting those tools in front of you so that you can play around with them for yourself and then run the numbers.
Brad: For the advisor that has that existing book of insurance solutions that they might need to convert, how long would you recommend needs to be factored into that? Both on that front end, “Hey, what can I do?” and then after they start making that transition to the RIA model? How long do you typically see that process in the back end taking to convert these sorts of things where it makes sense?
Tim: In our experience, firms are generally going to first move their accounts. That will take you maybe 60 to 90 days to get all that knocked out, get your typical AUM moved over.
What we’d like to do is while you’re in that transition period, if you can get us that annuity book, we’ll do the analysis on your annuity book while you’re moving the rest of the assets. We’ll do the homework for you, while you guys are taking care of getting paperwork for that and getting all the other assets.
That way, when you’re finished, we have our reports in there waiting on you that says, “Of your 100 contracts you sent over, here’s the ones that can convert.”
What advisors generally do is they’ll rank those from highest asset to the smallest asset, because remember, it’s assets under management now so there’s definitely some incentive on the larger policies. They’ll want to rank on that direction, or maybe they’ll rank them based on when the next client meeting coming up is.
But essentially once you get that Excel sheet with the game plan together, the playbook that we’re going to follow, what that looks like, we put together a proposal for you. You have a client-facing proposal that you could sit down and show the client.
It lays out costs, it lays out income of things that you’d want to see. The client conversation is really easy based on the proposal we put together. It’s not like showing them an insurance illustration or prospectus. It’s a very simplified document that says, “Here’s the big things you need to know.”
Once the client has that everything is electronic now. It’s a great thing. Some of you might be used to the old, archaic insurance world where things are paper? We’ve created electronic versions of applications now. Once you’ve got a client, meeting that application process is really easy, it’s all electronic.
Once that’s been completed, we do all the paperwork for you. If you need a back-office support staff, we’ll do all that for you. We’ll pre-fill apps, get them together, the power of attorney documents, advisory fee documents, the whole nine yards is put together for you.
Once the client signs all that, and we’ve helped with all that paperwork – it’s moving a little bit slower than it used to because of COVID, mail slowed down in general – but generally speaking, from signature, to funding, through 1035, you’re looking at 15 to 20 calendar days, probably just because it’s still snail mail and checks and things like that.
Then we’ll help you get set up on the backend so that you can manage it. Show you how to log in, show you how to trade. Get it set up in your portfolio management system.
Start to finish, the interaction’s about 30 days, and then you’ll see it on your portfolio management system 30 days for a full completion of cycle to where it’s integrated in everything that you do.
Brad: I assume you’d say on the very front end, it’s never too early to call in for that education conversation and start talking at a macro level. It certainly doesn’t hurt. Processes change over time, but you can begin that conversation even if you think you’re not going to transition for a little while. Just start to get a feel for what that looks like. I think that’s helpful.
Before we wrap up, I started off at the top of the show talking about misconceptions out there in the marketplace. In all of your conversations with advisors, what would you say is maybe one or two of the biggest misconceptions that you end up having to correct people on?
Do folks come to you thinking they can’t do something or they’re skeptical about something and it turns out you help them understand there is a pathway? What would you say the biggest misconceptions you come across on the insurance front are?
Tim: For those who already use insurance, cost is always a big hindrance. That’s because the commission rule, like in variable annuities, 3.5%, 4%. We can get clients out the door at 50 basis points, no problem at all, plus your advisory fee. So, cost should never be your concern. When you rip that commission out, it drastically changes the pricing. So, that shouldn’t be a concern, cost.
Another one is if I was asking them, “How about charging a fee on the insurance product? I’ve never done that before. This is new to me. How can I charge a fee on insurance?” That’s why what I mentioned earlier, treating this as a strategic asset allocation and not one-off transactions is so important.
You have to look at it from that perspective. You have to say, “If I have a $1 million client and they’re a 60/40 client and I’m going to replace some of their fixed income with an annuity, I have to look at it as a 60/20/20 client. I still have to look at it as $1 million client, not an $800,000 client with a $200,000 annuity.
As long as you’re looking at it from that way and you have it integrated into your portfolio management system, you should feel confident charging a fee for it because you’re doing what’s best for your client.
If you’ve done your diligence and you know this is the best option for your client as a fiduciary, you should feel confident in charging your fees for that because, remember, you don’t get paid to trade, you get paid to give your client the best outcome.
Maybe you’re not trading that annuity as frequently as you might trade other accounts, but that annuity gave the client a better outcome. Feel confident in charging a fee on that.
So, the advisory fee is one, costs are another. And then just the whole concept of if I use an annuity, aren’t I hurting my client’s nest egg? Isn’t it gone if I use an annuity? And that’s not the case. There are new types of products, new types of constructs to where you can get income, guaranteed income. You can even get guaranteed downside protection, all these things without surrender charges and without annuitizing.
What that means is you can charge an advisory fee on that account until it hits $0. You’re not going to lose advisory fee revenue. There’s this concept I’ve heard of, “annuicide”, which is basically I kill my business if I use annuities because I don’t have anything to manage anymore? You’re still managing that annuity even with the income so there’s still the ability to charge a fee on it.
I’d say that’s the three biggest things I run into.
Brad: I don’t blame people for having misconceptions because this whole concept of a no-load or a no-commission or fee-only whatever we want to call it – insurance, is a foreign subject matter to a lot of folks.
I do encourage people, if you think you can’t do a particular thing with your client base, well, maybe you can’t. But maybe you can and it’s a matter of getting that education, reaching out to people like Tim and his team to better understand it. Watching a video like this. Listening to the podcast.
For folks that this is resonating with, they like what they’re hearing – I’m a big proponent of you, Tim. I think, you’re a wealth of knowledge and DPL as a whole. For people that want to reach out, what’s the best way to make that initial contact and begin learning more and diving into it?
Tim: I would encourage you to go to our website. And then we have a Contact Us section where you can tell us exactly what you’re looking for.
Our website is dplfp.com. I encourage you to go out there and then go to the contact section, and we’ll have a consultant reach out to you from there. They can help you with your situation. There’s also an 800 number on there that you can call as well.
I’d highly encourage you to pop out there. You would have a dedicated consultant that would be tied to your account. Until then, you can go to our general information right now. But basically, at that point, we would assign somebody that would be dedicated to you that you’d work with consistently. This isn’t like a call center where you’re calling and you get somebody new every time.
I appreciate you having me on today. Congrats to having 50 episodes here. Glad I could join you for this one. Thanks a lot for having me.
Brad: Absolutely. Thank you for joining. We’ll add the website in the show notes as well as some of the other links there. As long as you end up on the main website, you can certainly dive in from there. There’s a lot of educational content on the site, so you can start diving into it.
And then, like Tim said, if and when you reach the point you want to have that conversation, it’s easy to reach out to their team and get connected.
For everyone listening, I certainly appreciate the participation, the support. Fifty episodes, it has come a long way from the first episode and I look forward to the next 50.
If you’re not already there, if you head on over to TransitionToRIA.com you can see all the episodes both in video format and in podcast format. Whether you’re watching or listening now, if you’d prefer to do the other it’s available to you. I have great resources like Tim on here that can help you.
Tim, thanks again. And thanks, everyone, for tuning in.
Tim: Thanks, Brad.
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