At the 2014 Advisor Network Summit in Las Vegas, Retirement Advisor magazine’s and Annuities Channel Editor here at LifeHealthPro.com Daniel Williams picked the brains of the top five Advisor of the Year finalists to discover their unique thoughts on education, holistic retirement planning, inflation, annuities, work-life balance, and the biggest challenges to the industry (and how to overcome them).
To learn each finalist’s background in more detail, see: The big five: The 2014 Advisor of the Year finalists
Here’s a recap of what Jay LaMalfa, Philip Rousseaux, Greg Hammer, Jason Jenkins, and Bill Danner had to say about how they’ve become so successful in their practices.
First topic: Educating the client
How does education play a role in your practice?
Rousseaux: We’re not high-pressure sales. We’re high-education, high touch. We lead them to the water. And on top of that, you always have to try and better yourself and become more educated as an advisor. Because if you’re not, your competitors are. It’s critical.
Jenkins: We saw a shift in our practice when we began to talk our clients’ language. How many times have you sat down with a client and they’ve said, “I don’t understand any of this.” That’s really the big challenge, to take what we know and speak their language. A big thing we’ve done in our practice is making sure our systems are simple for our clients to understand. It’s not a matter of how smart you are; it’s a matter of how well you’re able to communicate the plan to the client.
Hammer: The simpler you make it, the more approachable you are, the more clients are willing to be comfortable with you. And making them comfortable allows you to make an educated decision.
LaMalfa: Most people who are approaching retirement are really investing in risk and risk planning. And the average person doesn’t really understand risk. We tell people that there are three things you can do: you can avoid risk, you can manage it, or you can transfer it. Nothing’s too good to be true, but it’s usually too good to be free. So that’s the way we try and present it to people is educating, not selling. Asking, “Does this make sense for you?”
Danner: There are thousands and thousands of investments out there and the client generally doesn’t understand how any of them work. And they all have different potential outcomes. Our role has been to help them identify the plan and then try to bring the solution. It’s a matter of understanding what each type of investment can and can’t do for them, and then applying it based on what they want.
Up next: The holistic approach
Do you use a holistic approach with your clients?
Danner: I have come to believe that the only way I can properly serve the client is to know everything there is to know about that client. We talk about risk, as well. I try to get the client to identify and understand all the potential risks they could have in retirement — the health care issue, long-term care issue, investment risk, interest rate, inflation, tax risk, etc. — and understand how it applies to them so we can build the plan to address those obstacles.
Hammer: When I look at holistic planning, I view it as coordinating all the major concerns in your retirement path: how taxes come into play, how the legal end of it comes into play, how you look at Social Security, and even simple things like Medicare supplements. People don’t even know how to get signed up. I think creating that comfort level and having a knowledge of and relationship with other professionals, and coordinating and orchestrating all that, allows clients to go into the plan feeling better.
Up next: Inflation
How do you help your clients plan for inflation?
LaMalfa: I believe there is going to be massive inflation on the health care side of things and the costs faced by the average consumer. We’re trying to incorporate healthy living and trying to explain to our clients that it probably has more impact on their longevity than they think it does. Ask the average person who goes food shopping about inflation. Regardless of what the government is reporting, I think people feel it.
We use variable annuities because we feel it gives people that inflation edge. That’s one of the key positive elements. We have the guarantees, but we have the ability to be more aggressive in areas we probably wouldn’t do without those benefits.
Jenkins: I always ask the questions: “How much risk can you afford to take,” and “how much risk are you willing to take?” The “afford to take” is incorporating information and all of those key elements that we agree with, and making sure that whatever forecast tools you’re using are complete and that you’re stress-testing them. If hyperinflation does come over their lifespan, they have an honest snapshot of whether or not they’ll run out of assets.
Up next: Team-based practices
What are the benefits of a team-based practice?
Rousseaux: I was originally a sole practitioner. I had an intern and would go to events like this, but then I hit a plateau. I could only do a certain number of seminars. I capped out at $15 million [in AUM]. I didn’t want to be working 90 hours a week for 52 weeks a year. So I made a decision to transition my business, hire advisors, and become a mentor, a manager, if you will.
The most difficult thing is finding the right people and incentivizing those people, training those people, to create a team environment. In our office, everybody knows everybody else’s job. If you’re trying to do everything yourself, then when you’re not there, who’s helping your office?
Jenkins: I work with my younger brother. One of the things that my brother has brought to the practice that allowed us to do $44 million in eight months was efficiency. Want to talk about balance? Create efficiency. From the moment you start talking to your prospect — whether it’s radio, TV or direct mail — you’ve got to know: What is your message, who are you speaking to? So when they come into your office they know exactly what your focus is. When we started doing that, we noticed that the net worth of our clients began to leap.
Up next: Industry challenges
What do you think are the biggest challenges to the industry?
Rousseaux: The biggest challenge is educating the client and, like Jason was saying, asking “How much are you willing to lose?” I had a meeting with a prospect who told me, “This is what I want,” but his investments were the opposite. I hear it all the time. We must explain to consumers that annuities are the only investment in the world that can protect them in retirement, period. I still think there’s a lot that can be told. We’ve come a long way, but getting that word “annuity” to not be associated with negative connotations is still one our biggest challenges.
Jenkins: The biggest challenge is that lack of communication. Every advisor in here has sat down with prospects who are on their third or fourth advisor. Someone has not taken the proper time to establish a plan that they really understand.
I think the elite advisor of the future is going to be the advisor who has the ability to take their knowledge set and have the right process in place — and who ultimately is able to communicate that so the client for the first time can say, “That advisor is creating an environment for me to be successful. They’re really looking at the entire picture.” But how you decide to communicate that consistently is going to be critical.
Hammer: One of the biggest challenges I face is that I’m kind of a creature of habit. I do not like change. I’m very resistant to doing new things. I’m thankful that I’m involved with the group that I am now because I’ve become a part of a mastermind alliance. There’s a lot of mentoring and confidence-building. I never would have done it on my own. The biggest challenge in our industry is giving up some of the things that we shouldn’t be doing.
LaMalfa: The low interest rate environment right now sometimes has people doing things that may be inappropriate for them to be doing. Chasing yield and things they don’t understand — complex structures, alternative structures. I’ve seen some things out there that I still can’t figure out — and I’ve been in this business for 30 years. I can’t imagine how the client could. But the average person understands it if you fully disclose it. A reasonable person doesn’t expect you to be a miracle worker; they just expect you to tell them the truth and explain the pros and cons of things, and make sure it fits into what they’re trying to do.
Danner: The biggest challenge that I come across is folks who have been working with advisors or at least have been sold a product and don’t understand how it works or could work to their benefit. And in most cases, it probably wasn’t the right tool for the job they were looking for. I hope there’s going to be a change over time.
Up next: Annuities’ bad rap
Why do you think annuities get a bad rap?
Jenkins: I’m just going to call it like I see it. Annuities have a bad rap because there are advisors out there who aren’t disclosing the truth. What is the number one type of annuity that’s sold nationwide? Variable annuities, because they walk into the bank and can see the full disclosure of their assets, and the teller says, “Hey, would you like to sit down with our financial advisor?” And sure enough, that financial advisor sells them a VA. They’re going to get a guarantee. And all of a sudden, markets adjust and they realize, “I’ve got two different numbers on this sheet.” Because it takes about three or four years to realize it. The advisor says, “Don’t worry about that; just focus on the shiny object called income.” That’s the problem. We need more advisors who are being direct and honest about that.
Fixed index annuities and fixed products are going to help retirees walk through a very uncertain world that I think we would all agree is facing us. All you have to do is turn on the TV and one person says “This is the best time to buy,” and the other guy says, “This is Armageddon, you need to get out right now.”
And so what does the consumer do? They freeze. They need advisors that are doing the right things for the clients.
Danner: There’s just not one product that fits every solution. I love annuities; I love fixed index annuities. I’m not married to any product; I’m married to the solution. The challenge is to sometimes forget about amounts of money that can be made, and instead, do the right thing for the right outcome for the client long term. We need to find the right product for the right process for the right outcome for the client, not for ourselves.
Up next: Work-life balance
How do you make sure to maintain a healthy work-life balance?
Danner: I made a conscious decision a long time ago that my career would not interfere with my family life. We are all workaholics and most of us know or have known of someone whose business took their life or took their family away from them. This is a wonderful business to be in, but frankly, there are things that are far more important than business.
LaMalfa: One of the main reasons I joined the firm I’m with about five years ago was the fact that I was a managing partner for many years for a financial services company and I really got burned out. My family life suffered partly from the amount of time I spent doing that. At the firm I’m with now, we all work the same way. If one of my partners is out, I can walk into that meeting five minutes before, take a look at the scenario and be able to have an intelligent conversation with that client with no problem, because we’re both doing it the same way. We can all take care of each other. I used to have trouble taking vacations because I was on the phone nonstop; it was miserable. Now I can go away and feel very confident and comfortable that the people at the office have it covered. It adds a lot of years to your life.
Hammer: It’s always been pretty simple for me. Friday evening, I don’t think about work until Monday morning. It works. You’ve just got to separate yourself from it.
Rousseaux: I’m a big advocate of balance. I come from a very modest upbringing and I love what I do. You can’t fake it. If you balance it and you hire people like the staff we have, you can travel. Every year I take my parents somewhere; we just did a cruise this summer. It’s important that you get away. Come back refreshed, especially when you go to events like this. You’re getting a lot of new ideas. Don’t try to incorporate all of them. Take one or two of those ideas and run with them. See if it works. They’re not all going to work for you. Find the ones that work and just keep it going. You’ve got to balance everything: your personal life, your professional life, your marketing ideas, the ideas you get from industry events like this. It’s all about balance.
More words of wisdom from the 2014 Advisor Network Summit: