Nest Eggs Aplenty
Originally published by National Underwriter Life & Health. Reprinted with permission.
Cracking the Retirement Planning Market
Since they burst onto the scene in 1946, the baby boom generation has had a spell-like hold over Madison Avenue, influencing everything from fashion design to musical tastes to adventure travel packaging. Now, as they enter their golden years, boomers are forcing insurance and financial professionals to take notice—and see big dollars in retirement and distribution planning.
"Given all of the baby boomers who are not entering retirement and dealing with the same issues, you can’t go wrong specializing in retirement and income planning," says Jon Dewar, founder and president of LLG Financial, Raleigh, N.C. "It’s a huge market. If you’re just talking about life insurance, then you’re really missing out on where all the activity is happening."
Bradley Bofford, a chartered financial consultant at Financial Principles, LLC, Fairfield, N.J. agrees, adding: "Our experience has shown that having a niche for one’s practice helps an advisor to be an expert in a given field, and therefore be sought out for his/her specialty. Specializing in retirement and distribution planning is an area our firm has focused on [because of] the trend of baby boomers retiring, coupled with the fact that people are living longer."
Indeed they are. A January, 2011 report of the National Research Council of the National Academies, Washington, D.C., finds that life expectancy at birth for U.S. males increased by 5.5 years from 1980 to 2006, the equivalent of two years per decade. Over the same period, life expectancy for U.S. women rose to 80.7 years from 77.5.
Add to this the fact that 13,000 of 78 million boomers are daily turning age 65 and you have a fast-burgeoning number of prospects in need of retirement and income distribution planning to ensure they don’t outlive their nest eggs. No surprise, then, that IBISWorld, Los Angeles, has projected the retirement planning field will grow by 133.7% and named it the second fastest growing industry from 2010 to 2019.
In tandem with the market’s white-hot expansion is an increasingly crowded field of insurance and financial service professionals, as well as organizations with aspirations to secure a national footprint in this space. Witness the launch in recent years of insurance distributors and franchise operations—Futurity First Insurance Group, America’s IRA Centers, and (unveiled in January) Parsonex Financial Services, among others—that specialize in retirement and income distribution planning.
What’s required to succeed in this highly competitive arena? From an educational standpoint, observers uniformly agree on this much: a life insurance life license alone won’t suffice.
Of course, the license lets producers sell many products that may be needed for a retirement plan, including life, disability income and long-term care insurance, plus both fixed and fixed indexed annuities. And with a Series 6 securities license, agents can also market mutual funds, variable annuities and variable life insurance.
But many clients, particularly the high net worth, might wish to leverage a broader range of equities and debt instruments (e.g., stocks, bonds, exchange-traded funds and managed accounts) and alternative investments (venture capital, private equity, hedge funds, real estate, etc.) to achieve a more diversified portfolio and optimize asset growth. Hence the need for additional licensing, the most comprehensive of which is the Series 7. Administered by FINRA, the Series 7 provides the qualifications necessary to trade all corporate securities, except for commodities and futures.
"Producers and advisors acting without advanced training cannot be effective; and they actually risk causing much damage to clients’ financial situations," says Dewar. "Advisors must have access to all products and services in the market to be effective."
Bruce Cotter disagrees. A San Antonio based advisor who develops qualified plans for small businesses, Cotter says his practice took a turn for the better 10 years ago when he narrowed his focus almost exclusively to mutual funds and creating SIMPLE IRAs for company employees.
"If you’re going to sell ETFs, stocks, managed accounts and other investments, then you’re trying to be all things to all people," says Cotter. "And I decided that I’m not comfortable with this because I would be doing a disservice to clients."
Perhaps. But market-watchers agree that advisors who lack knowledge about certain product lines or planning techniques should partner with a financial professional with the requisite expertise. Dewar says he can tap several in-house advisors holding expertise in insurance, investment, taxation and financial planning software. His firm also teams up with outside advisors, including estate planning attorneys, CPAs, plus real estate and mortgage specialists.
Producers who have the necessary technical knowledge but little actual experience handling cases, he adds, should also work with a seasoned expert on cases before opting to go it alone.
"This is much more important than any certification," says Dewar. "More training helps. But if the advisor has only book smarts, then they still have much to learn in the real world of planning."
Fellow professionals can also help bring in new business by marketing related products. Bob Rockwell, a certified financial planner at CCB Financial Services, Sandy, Ore., says that retirement planning has been a great cross-selling vehicle for health, life and disability income insurance, all products handled by an in-house agent.
Business partners and technical skills aside, agents pursuing careers in retirement planning also have to decide on a compensation model. Can one develop a successful practice by simply selling products for a commission? Or is it necessary to transition to a fee-based practice encompassing both product sales and pay for investment advisory services?
Many producers say that having a fee-based practice is essential, in part because it allows them to develop long-term relationships with clients. Fee-based compensation—typically including an hourly and/or flat fee for creating, implementing, reviewing and updating a plan; and, separately, a fee assessed as a percentage of assets under management—frees the advisor from depending exclusively on product sales to new clients to generate revenue.
As a Series 65-licensed registered investment advisor—or, alternatively, an investment advisor rep of an affiliated broker-dealer’s RIA—financial professionals can also protect themselves against state securities regulators looking to crack down on wayward producers.
"Securities offices have visited five of my agents in five states because they provided investment advice without a license," says Matthew Rettick a principal of Covenant Reliance Producers, LLC, Nashville, Tenn. "If you move money out of a security and into a life insurance policy or fixed annuity then you’re deemed to be giving investment advice. So getting a series 65 license should be a top priority to protect your backside."
But agents who secure a series 65, or such credibility-enhancing designations like the CFP and ChFC marks, also operate as fiduciaries. As such, they are held to a higher standard of care—one requiring them to act in the client’s best interest—than are agents who, because they do not offer investment advice, have only to satisfy their state’s product suitability requirement. Advisors thus can not recommend a high-commission product if a comparable solution yielding a lower payout would serve equally well.
That seems straightforward. But advisors disagree as to the business model and comp structure that lends itself best to upholding a fiduciary standard. Some insist that only independent RIAs who recommend (but do not sell) products can be free of conflicts. Other are equally adamant that dual registration—working as commission-based registered reps under their broker-dealer and as investment advisor reps under an independent RIA—is essential to comprehensively meeting client objectives.
Getting the Business
Wherever the truth lay, questions as to conflicts of interest are moot if there isn’t a client to serve. Hence the importance, observers say, of having a plan that generates a dependable stream of referrals and introductions to client prospects.
For Bofford, a well-crafted marketing plan must narrowly define the target audience and outreach strategies and techniques accordingly. Among these are sales tools and contacts, such as seminars, direct mail and centers of influence, with which to connect with prospects.
And win their business. However impressive the advisor’s educational credentials, product expertise and powers of persuasion, says Rettick, many prospects won’t buy into a plan absent one final ingredient: the added credibility that comes with independent backing of the advisor’s recommendations.
"To really present yourself as an expert, you need to have an arsenal of great third-party articles from different publications," he says. "I also always carry with me an FDIC annual report to make a point. This literature allows the prospect to feel more confident in my recommendations because what I’m suggesting is not just from me, but also from credible, third-party sources."