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Retirement Planning > Retirement Investing

Retirement planning optimist - 2006 Advisor of the Year

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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.

SMA: What has changed?
SD: No. 1, I charge a fee now for them to come see me. It used to be free to come in and they were under no obligation. Now I charge. If they are under 60, I charge a $500 fee. If they are 60 or older, I charge $250. I cut the fee in half, because they are either retired, they are nearing retirement or they are working part time. So I give them a little bit of a break.

SMA: Has that changed the makeup of your audiences?
SD: No, it’s not changing the makeup. I’m seeing the same success I had before. Where it does have an effect is when people come in to see me. Before, I ended up doing business with most of the people that came to my office. With the fee, almost everybody is doing business with me.

SMA: Does the upfront fee mean these are people who are ready and willing to work with an advisor?
SD: Yes. Now the way I state it to them, I let them know that by paying the fee when they come to see me, they are under no obligation because I have been paid for my time. So they could come to my office knowing that they are not under any obligation. If they end up doing business with me, then after the financial plan has been fully implemented and I deliver it to them, I refund the fee they paid. So it won’t cost them anything. So if they say to me, “Steve, I’ve been dealing with my stock broker for 20 years. I see him or her in church every Sunday. I cannot sever that relationship.” Well, then I’ve given them a nice financial plan for an inexpensive price that their stock broker or financial planner can take and implement, if that’s the case. Either way, they can come in feeling very comfortable knowing that they are under no obligation.

SMA: How do you view your seminar?
SD: I would consider it an educational workshop. I call my workshop The Retirement Planning Workshop.

SMA: So people know early on that you specialize in retirement.
SD: Yes. And then I just started a radio show in Chicago. The first one aired on Sept. 10. That one is called Retirement Planning Radio. So I tie the two together.

SMA: What is the show going to be like?
SD: It’s going to be call-in. I’m going to discuss different topics on Sundays from 3 p.m. to 4 p.m. I’m going to have different topics each week.

SMA: What does your sales process look like after the seminar?
SD: All the appointments have to be at my office because I don’t have time to go out and make house calls. If the people want to come to my office but they can’t drive, I’ll send one of my staff to pick them up and bring them to my office and return them home. That’s never an obstacle. When they come to my office, what we do is someone from my staff presents them with a contract that they need to sign. It basically talks about the fee and that it is refundable after implementation of the plan, assuming they implement the plan. Otherwise, it’s the fee they paid for my time. After we collect the fee, we give them a 12-question test. It’s designed to give me their risk tolerance.

SMA: You’re not blindly recommending products.
SD: I know if they are on the conservative side, they are more moderate or they are more aggressive. Then I run that through a special computer program and that gives me their risk tolerance. So after they’ve paid the money and they’ve signed the contract, then I enter the conference room. I allocate three hours for our appointment.

SMA: That’s a sizeable chunk of time.
SD: Yes. That’s one of the reasons I need to charge the fee. I’m using a lot of time. I take my time with them. I get all their financial information. I find out if they are digging into principal or if the income that they have is sufficient. If there are any future expenses that they are aware of that may occur. I ask a lot of questions. So a lot of it is devoted to the fact-finder.

SMA: What’s next?
SD: Then I go through all of their financial investments. I have them bring me their most current statement of any of their accounts. I have them bring me their most recent tax return. I have them give me the interest rates on their CDs, the maturity dates of their CDs, whether they are taking the interest or whether they are letting it accumulate. If they have any annuities, I want to see the policy. I want to see their most recent disclosure statement. I have them bring me their trust if they have a trust. I tell them I’d rather they bring me too much than not enough. After I examine the portfolio, I tell them what I like about their current accounts, and then I tell them where I see I can improve upon. So I give them both. Then I let them know what I want them to keep and which assets I want them to reposition.

SMA: Is that how you put the ball in their court?
SD: Yes. A lot of the people will say, “Go ahead and do what you think.” If they say that, which is most of the time, I will take applications for the necessary repositioning of the assets. And then what I do is I tell them that in about a week, they will be getting a formal, written plan of everything that we’ve discussed and everything we are going to implement. It’s both in written form and in proposals. So they have the written form and they have the actual proposals of everything that I would like to do or that I am doing. In the meantime, because it takes so long to transfer accounts from their stockbroker or financial advisor or whatever the case may be, I have them come to another retirement planning workshop that I’m doing in their location during the transfer process. I do that for a couple of reasons. No. 1, I do that because a lot of times the information I give them in our meeting is so overwhelming. Even though they say, “Steve, go ahead and take care of it,” the workshop gives them another overview of some of the things we’ve implemented or started to implement.

The second thing is that many stockbrokers and financial advisors – when they see the transfer or the ACAT – will call my clients and try to talk them out of doing business with me. You can’t blame them. They want to preserve their business. But by coming to another seminar of mine during that transfer period, that gives my clients the confidence they made the right decision.

SMA: Anything else?
SD: After everything is in, my staff will call them and ask if they would like to come to another workshop or if they would like to just come into my office. I deliver it at either place. So we give them two choices. But I always want to deliver the plan that I implement. I want it delivered in person.

SMA: It provides a bit of a personal touch.
SD: I don’t like doing it by mail. I like doing it in person and make sure they are happy and go through all the different programs that we implemented and answer their questions and just to make sure that everybody’s happy.

SMA: I’m sure that in a crowded field, personal service has got to make a big difference.
SD: I have three staff people, so, clients can always talk to somebody. I may be in a meeting and I don’t want to be disturbed, so a lot of times it is simple things that my staff can answer. Things like, “When am I supposed to take my IRA distribution?” Or, “I have an address change.” So instead of waiting for my return call, a lot of times my staff can handle the things they are calling me for. If they are calling me with something only I can handle, my staff will say, “Steve’s in a meeting, he probably will finish around 4 p.m. and he’ll probably call you shortly thereafter.” They know I usually am able to call them back at the end of the day, that same day. A lot of people like that. They say, “Steve, I’ve dealt with other advisors before, and they were anxious to do business with me. But when it was time to return phone calls, they weren’t as prompt.” That’s a pet peeve of mine, so I make sure I call them back that same day. It might be 6 or 6:30, but I will call them back the same day.

SMA: What importance do you place on professional designations?
SD: I think some of these designations are fine. Those that are relatively easy to obtain are fine as long as you are using it for your further knowledge and education, but not to say, “I have this particular designation, that makes me an expert,” when perhaps all it was was an open-book exam, or if it was a weekend course or something like that. That’s why I like people to see advisors getting some of these professional designations like the ChFC, CLU, CFP, some of these very rigorous designations that they invested a lot of their time. I think that’s good for the profession. The more of us that have it, I think the better it is for us.

SMA: You said retirement plans should be multigenerational. Can you explain what you mean by that and how you go about accomplishing that?
SD: If a person has an IRA or a 401(k) or a 403(b) or some type of a qualified retirement plan, the money will transfer to the spouse income tax free when that person passes away. Where the problem happens is when the last surviving spouse passes away, before the kids or grandkids or godchildren or sisters or brothers or nephews or nieces inherit the money. Unless it is properly structured, multigenerational, the beneficiaries will end up having to pay income tax on those proceeds. This has nothing to do with an estate tax. If a person is worth more than $2 million this year, that person has an estate tax plus the income tax. Let’s just assume, for illustrative purposes, that a person doesn’t have an estate tax but still has the income tax. Well, there are documents out there that if structured properly will give the beneficiaries the opportunity to keep the qualified plan as their own IRA without paying that large income tax. In fact, I recommend a book for any of your readers out there, Ed Slott has a couple of books out. Any of your advisors, if they get involved with qualified plans, they should read his books.

SMA: Tell me about the Delott Charitable Foundation.
SD: I’ve been in this profession for over 30 years. My first contract went into effect Jan. 15, 1976, with a company called American General Life. They’re now part of AIG. That’s when I first started. The profession has been great to me. I don’t know how I could have made this kind of money without [being a doctor]. After I sold my company, my wife and I created the Delott Charitable Foundation because we want to start giving back because it’s been so good to us. We focus in on Alzheimer’s and cancer charities. We donate money and time. We want to help find cures for those diseases. My dad had Alzheimer’s and ended up in a nursing home. His mother had Alzheimer’s. I want a cure for that disease. I remember how devastating it was for my dad and my dad’s mother. I don’t know if I have that gene. My wife is very active in various cancer charities. We don’t limit our donations just to those two, but that’s where we focus most of our energy.

SMA: Is this something you hope to grow and hold fundraisers for in the future?
SD: Yes. We do hold fundraisers with one of the cancer organizations. But, we want to increase this. Obviously, I am no Bill Gates or Warren Buffet, but I can do my small share and every bit counts. Every little bit counts.

SMA: Can you still find satisfaction in what you do?
SD: You know what is nice? Sometimes I deal with a husband and wife. Last year I had 15 or 16 clients pass away just because of the sheer volume of business I do. As an example, maybe it was the husband and he made all the financial decisions and the wife was at the meeting because I insist that both husband and wife attend. Maybe she had no input at all. The husband dies and she comes in to see me. She says, “Steve, I don’t know what I would have done had my husband not had all his confidence in you because I wouldn’t have known where to turn. I’ve never made a decision on my own. I feel very comfortable with you helping me.” That’s where I get a lot of satisfaction. Can you imagine a 75-year-old widow never making a financial decision in her life having to make it all of a sudden? Who does she turn to and how do you know that person is not going to take advantage of her? That’s what makes me feel good.

SMA: How can an advisor, someone who has hit a sales plateau, fight through that?
SD: No. 1, he should start taking various courses. I recommend that they go to a lot of industry meetings. They can listen to speakers. They can go to private sessions. They can talk at the booths. They can talk at the bar or at dinner or the pool. There might be something that sparks their interest. I always urge them to attend these types of meetings.

SMA: Would you say mentoring or coaching is a good way to go?
SD: Yes, absolutely. I do that myself. I have various training programs offered in Chicago, probably four or five times a year.

SMA: What are two or three things you look for in potential clients, and are there any red flags that come up that cause you to turn potential clients away?
SD: Almost always, the prospects and I seem to bond. I would say about 97 percent of the time. The 3 percent of the time that I just don’t feel comfortable with that prospect for whatever reason, I walk away from the business. It’s easier for me to sever that relationship before it gets started. Although it’s rare, I would say it happens about 3 percent of the time. Otherwise, I really don’t know until the prospect and I are sitting at the conference table in my office. At the beginning of our conversation, I just make small talk, because I want to know that person, and I want that person to know me. The person knows me from my seminar, but it gives them a chance to ask me some questions that they did not ask me at the seminar. I want to know about that person. I want to know what that person’s philosophy is regarding his investments.

SMA: Is investment philosophy one of the big characteristics that needs to match up with yours?
SD: Absolutely. If a person is sitting there and debating me and arguing with me about everything we are discussing, that usually falls within one of the 3 percent that I walk away from.

SMA: Does that happen to all advisors?
SD: Every advisor gets that once in a while. If the person makes me feel uneasy for whatever reason, I’ll walk away. Even if I could make this person a client, if I have a feeling this person is going to come back and cause headaches for me, I walk away. With the 97 percent, it’s a nice conversation; we laugh, we get serious, they thank me. This might sound corny to you, but when I do work for a client, after I get done implementing a program for the client, even though I made money from that client, I feel he benefited more by me handling his financial affairs than I did by making money from him. That’s why I feel I am contributing to society. I feel that I have done that person a wonderful thing. I know it sounds corny.


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