Ninety-nine percent of his $22 million in 2005 sales may have been in equity-indexed annuities, but Steve Delott knows times are a-changin’. Senior Market Advisor’s 2006 Advisor of the Year understands the key to future success lies in being able to offer more than just annuities – the future is about offering comprehensive planning. And comprehensive planning includes products that require securities licenses to sell, or to move money out of.
Delott, a 30-year industry veteran and father of two, has held on to his Series 7 and 63 licenses for years despite working almost exclusively with fixed products. Why? Because he never wants to be in a situation where he needs to talk about securities but can’t because of his lack of licensure. Now that dedication to those licenses is going to pay off, as he adds fee-based money management services to his menu of practice options, expanding the services he is able to offer clients at his Rolling Meadows, Ill.-based Delott & Associates Inc., which is wholly owned by National Financial Partners.
“I think I could do a better job for my clients,” he says about offering fee-based services. “My clients win, but at the same time I win.”
He envisions a time when insurance companies are going to require advisors to sign statements that say they didn’t talk about securities to clients while moving money into annuities. Because of that, he sees many advisors leaving the game; he sees many others getting licensed; and he sees still others conducting business as usual, signing the statements and talking securities anyway. Mostly what he sees is opportunity. And he’s excited because of it.
SMA: You’ve been dealing almost exclusively in annuities. You said 99 percent of your sales were EIAs last year. Yet, you hold on to your Series 7 and Series 63 licenses. Why?
SD: Well, the industry is changing. It’s interesting because I talk to a lot of advisors, and the people that are focusing on annuities, they either think it’s great or it’s the end of the world. Or, they don’t know what to think. They are in a state of confusion. I always took this philosophy: In Chinese, the translation for crisis means opportunity. That’s the way I see our industry right now. It’s in crisis, but for me – and I think it will be for many advisors – it is going to be a great opportunity.
SMA: What opportunity is that?
SD: The annuity is one-size-fits-all for everybody. It’s got great value for a portion of most people’s money, but not for the lion’s share of everybody. So what I am doing now is a few different things. I’m managing money, either individual stocks or no-load mutual funds. I do that on a fee-only basis. I charge a percentage of the accounts I am managing. Sometimes the people need tax-free income, for which I usually will put them into AAA insured municipal bonds. Or, their taxes aren’t really an issue, but they need income. Sometimes I will but them into investment-grade corporate bonds. I try to keep everything really high quality.
SMA: Are advisors doing a disservice to clients when they talk them into moving money out of securities and into annuities but they don’t have a securities license?
SD: It’s interesting that you are asking me that question. I just read an article the other day from the SEC. The SEC happens to be sneaking into seminars around the country now. One of the things the article said was that if you are going to discuss securities at all, you better have a securities license because that is a violation of securities rules, according to this article, in which they were quoting a lady from the SEC. I think what is going to happen is that these advisors out there will either get a securities license and continue, or they will quit selling annuities and get out of that particular aspect of the business, or they are going to continue to sell the annuities the way they have and take a chance. What I suspect will happen is that the insurance companies ultimately will change their suitability forms. They’ll ask right on there, “If you are not securities licensed, did you discuss transferring any of their securities, stocks, bonds or mutual funds into a fixed index annuity or fixed annuity?” I suspect that is going to be standard protocol sooner or later.
SMA: Is that a good thing for consumers?
SD: I believe it is. I see no harm in fixed index annuities being supervised by the broker/dealers, as a double-check to make sure the products are appropriate and they are suitable for the investor. I don’t see there to be any harm in that. I think you’re seeing a lot of states requiring the insurance companies to shorten up the amount of time that an annuity can have a surrender charge. The products coming out are becoming more competitive. This is all part of this controversy that took place out of nowhere of the NASD supervising fixed indexed annuities. The products are becoming more competitive, the insurance companies are becoming more consumer friendly, and I don’t necessarily believe that the NASD needs to supervise fixed index annuities, but I think it’s causing insurance companies and financial advisors to become more consumer friendly, make sure it’s more suitable. I think it’s having a positive effect. I’m not saying it needs to be supervised by the NASD, but I think everybody wins from this.
SMA: Is compliance the enemy?
SD: When I first heard about fixed income annuities and compliance, I thought it was the enemy. Now I have embraced it.
SMA: What changed your mind?
SD: Numerous things. I want to make sure that the annuity is suitable for the client. The percentage of their assets that I’m putting in the annuity, I want to make sure that is suitable. I want to make sure I don’t put in too much in the annuity. I see the products becoming more competitive. I see new products coming out. So, I just think it’s a win-win situation for everybody. That’s why I’m embracing it.
SMA: And a securities license puts an advisor ahead of the game?
SD: The annuity is not the only solution. It’s part of a solution. Men and women are doing seminars and the entire seminar is supposedly on financial planning, but it really is only on annuities. Why are they calling it a financial planning seminar? Why don’t they just call it an annuity seminar? Because they’re really just disguising what they are talking about. So, if a lot of these advisors will take the extra effort and get a securities license, they’ll be able to offer their clients a lot more and truly do comprehensive financial planning. It cannot hurt to have the securities license, it can only help.
SMA: What’s the impetus behind your move to add fee-based services for your practice?
SD: No. 1, I think I could do a better job for my clients. No. 2, my clients win, but at the same time I win because now I have more income coming in for doing these additional services, so it benefits me as well as it does my clients.
SMA: Are you going to transition completely to a fee-based model, or are you going to keep a fee- and commission-based practice?
SD: I believe it is going to stay fee and commission based. There are advantages to both. But I think this is the future. A lot of advisors, even if they are resistant to getting a securities license or they do not embrace compliance, will eventually see the value in this and they’ll go ahead and get their securities license. If they do have a securities license, I would suggest or highly recommend to them that they not cancel their securities license because of compliance. That’s going to be the future. If a person is doing seminars or just selling annuities, and that’s all a person is doing, I predict their income will start to slow down. It will start to decline.
SMA: Will FMOs and broker/dealers be the engine that drives that?
SD: They are going to more than likely supervise it. I know a lot of these marketing organizations are starting to develop their own broker/dealer – for example, Brokers International. That is interesting. They are very pro indexed annuities. This way a lot of people will be able to transfer or put their securities license with an organization like Brokers International, a company that understands the fixed indexed annuity business. They will not be a broker/dealer that says, “It’s causing us a lot of aggravation. We don’t want that.” They truly understand that business. That’s going to be another wave of the future, as some of these large marketing organizations will create their own broker/dealer. They’ll provide suitability requirements and they’ll supervise it. They’ll also embrace the sale of the fixed index annuity.
SMA: Will that possibly force advisors to think about the securities side of things?
SD: That’s correct. I think you are going to see some people just getting out of the business because they don’t want to go the extra mile. The people that do go the extra mile, I think they will be rewarded.
SMA: Ethics is an easy thing to say, but a difficult thing to demonstrate. How do you make clear your commitment to ethical behavior and practices.
SD: No. 1, I give my clients my NASD report. I have printed off a lot of mine. When prospects come in my office, I give them a copy of my background, which is flawless, I’m happy to say. I also give them a certificate from the Better Business Bureau, which shows that once again I have won the complaint-free award. I also encourage them to spend $5 or $6 and they can write to the Better Business Bureau and the BBB will give them a written letter saying that I have no complaints against me.
SMA: Do people do that?
SD: It’s interesting because about a year ago, I got a message from the Better Business Bureau in Chicago. Somebody said, “Steve Delott, this is so and so. I’m with the Better Business Bureau.” I thought, there goes my perfect record. I was upset. I called him back the first chance I got. He said, “I just want to thank you because we are getting a lot of people giving us $5 to get your written credit report. That helps us out.” I laughed about it, but I was nervous when I got his voice mail. Third, I am a member of the National Ethics Bureau. I joined it because I thought it made good sense because this gives the consumer another way to check me out.
The fourth method is that my company was acquired on June 1, 2004, by National Financial Partners. After they acquired me, or during the process, they told me how they were doing all this due diligence on me. It’s a publicly traded company on the New York Stock Exchange, so they have done their due diligence on me far greater than what the National Ethics Bureau or the Better Business Bureau could do. Then, if that’s not good enough, I will call up some clients, ask them if they wouldn’t mind calling prospects and letting them know what they think about me and the type of work I’ve done for them. I have never had one of my clients turn me down.
SMA: If clients were asked to describe you, what do you think and/or hope they would say?
SD: That Steve Delott is very knowledgeable. He is sincere, he works in our best interest, and he returns our phone calls promptly. And, also, I provide a lot of service. I do provide a lot of service. My philosophy is I promise a lot and I deliver more.
SMA: How do you put prospects at ease?
SD: No. 1, when they attend my workshop, they know nothing is going to be sold, so they are sure they can be at ease. It gives them an opportunity to evaluate me. No. 2, now that I am charging fees, I let everybody know right in my workshop, and again when they come to my office, that I am being compensated for my time and that when they come to see me, they could come without any obligation and without any pressure of any type because I am being compensated for my time. I just dangle an additional carrot for them that lets them know that I will refund my fee after my financial plan has been fully implemented. They come in very relaxed because they know that. They know there is not going to be any pressure put on them. If they want to take advantage of my services, they’ll ask, “Steve, how do we get started?” If they don’t, they know it is perfectly OK with me.
SMA: What are a couple of the biggest things that worry seniors?
SD: A lot of them are worried that they are going to outlive their money. That’s a big worry. A lot of the people, I find, are not absolutely sold on their existing financial advisor, even if they have been dealing with that advisor for several years. A lot of them have told me, “Steve, I know nothing about money. I know nothing about investments. And I have to trust my advisor that he or she is working in my best interest. I’m not absolutely convinced that he is acting in my best interest. I have often wondered if they are acting in my best interest or in their best interest.” It’s surprising that after people become my new clients, a lot of them will confide that to me. I find that interesting.
SMA: How do you work referrals?
SD: I really enjoy receiving referrals from my clients. But I make my prospective clients come to my workshops before they see me at my office. I make that mandatory because I want them to have a couple of hours to truly evaluate me, even though they may have been sold on me just from the referral. I want them to come to my workshop and judge for themselves.
SMA: What does that accomplish?
SD: When they do come to my office, first of all, they have had a general overview of the things I can help them with. Secondly, I think they come in very relaxed and under no pressure.
SMA: How many seminars do you do a year?
SD: I typically do a seminar three Tuesdays in a row. Then I take a Tuesday off, three Tuesdays, take a Tuesday off. The reason I take a Tuesday off is because I tell the people they only have seven or eight days to make the appointment with me. If I get too many appointments, then I’m the one saying I cannot see you for two weeks or three weeks. So that’s the reason I take that week off, to get caught up on appointments.
SMA: What do you think makes your seminars so effective?
SD: Well, I would like to think that they are very compelling. I do realize some people are coming just for the free meal. However, what they don’t know is that I believe my seminar is so compelling that even though many of them are coming just for the free meal, they are going to stand in line and make an appointment with me. Not everybody is coming for the free meal, but a high percentage of people are coming just for the free meal. I have changed a few things.