I've had the good fortune to meet and work with Frank Maselli. He is a brilliant, affable and hilarious adviser to advisers. Below I've simply cut and pasted a great and timely article he just wrote for us advisers.
Author of "Referrals The Professional Way", Keynote Speaker
I never pitch products in my training programs or keynotes because I believe that advanced skills are product neutral. It's up to each advisor to decide what's best for the client. But I am seeing a confluence of market and demographic forces right now that is causing me to line up enthusiastically behind one particular product strategy.
I think we have entered the Age of the Annuity!
If you've never done one before, it's time to take a hard look at them. And if you're already using them…you might want to double your efforts for the next couple of decades.
DOL & the “F-Word!”The Department of Labor “fiduciary rule” is currently stuck in the mud of Washington confusion at the moment. No one can say today if this thing is going to survive or what form it might take after all the bureaucratic sputtering is finished.
But even if DOL disappears completely...The F-word will not. “FIDUCIARY” is here to stay!
Acting in our clients' best interests is what we do every day. So this is not a major shift in anyone's business philosophy. But it is a big shift in perception.
The public is being told by regulators and the media to ask advisors right up front, “Are you a fiduciary?”
Few clients understand the implications of that word, but they're certain a “No” answer, or any hesitation, is bad news. And it's likely to become a major differentiation.
The choice to become a fiduciary is a big one and there are several sides to this issue. But being a fiduciary means a lot more than simply avoiding high fee products. In fact, when you identify the greatest threat to financial survival that most Americans are facing, fees and commissions are a minor concern.
By far the biggest danger ahead is the very real risk of outliving our money and not having a reliable income in retirement.
The second biggest danger is in trying to navigate retirement without some kind of professional help. Sadly, that's what the DOL rule may mean for millions of Americans.
Combined...these two risks mean that if you DON'T show the client an annuity option, you may be in for a seriously expensive lawsuit down the road.
There's a classic episode of Seinfeld where Frank Costanza (George's father) tried to reduce his stress by shouting “Serenity now!” My annuity mantra may be a slight modification, but the idea is the same.
To effectively reduce the stress and fear that millions of retiring Boomers are about to face, an annuity in some form may be the best, if not the only answer.
And you have a wide range of options to accommodate nearly every need including immediate, fixed, indexed, variable and investment only...so there really are no excuses anymore. There may be a slight learning curve, but the effort will be richly rewarded.
Bottom line: If annuities are not part of your product mix in a major way…you need to re-think your approach fast.
From Hater to Fan
As a former wirehouse stock-jockey, I used to pitch against annuities. I was never a fan. But times have changed.
John Maynard Keynes famously said, “When my information changes, I alter my conclusions. What do you do, sir?”
I believe today that annuities are the only reliable way to guarantee a steady stream of income in retirement. And before you say “Bonds do that too.” I hasten to point out that the 33-year falling interest rate cycle is over. Very few advisors today know the pain of destroying client wealth in a bond portfolio.
The reality is that most people are living far longer than their money will last. Given that fact, annuities might be the only salvation for tens of millions of Americans.
Plenty of advisors are already on board with annuities, but far too many are not yet. Add to that the fact that the whole DOL debacle feels like a direct assault on the annuity industry just at the time Americans need these programs most. The irony there is painfully sad.
Best Interests! Really?
So go back to the whole “fiduciary” thing for a minute. What is truly in the client's best interests? (Allowing for different needs and objectives of course.)
Is it better to show a client an annuity with some kind of commission charge…
Or should you try to build a portfolio of super low-fee, passive ETFs or mutual funds and craft a lifetime income stream from that?
If you said “Both” that's fine! But at least put a portion of the portfolio into something that's protected forever. Why would anyone disagree with that?
And if costs are your concern...what if the annuity itself was also low fee?
Annuity firms right now are bringing new programs to market that look better than anything we've ever seen with lower fees, great investment choices, fantastic liquidity, and more income flexibility. They might never get as cheap as an index fund, but let's say for the sake of argument that the incremental fee for an annuity was around 100 basis points per year. How would you ever go to a client who had depleted their assets by age 80 and say,“Gee Bob, I'm really sorry. I had a chance to guarantee a portion of your retirement income...but I was really worried about charging you 1% more in annual fees!”
That is not a conversation you want to have. Your Monte Carlo simulation and low-fee argument won't stand up in court. And folks, there's no doubt that as many retirees start running out of money, some attorney will dig into their portfolio to find where an advisor failed to recommend some kind of safety and a guaranteed income. We haven't seen the panic yet, but just look at the demographics...it's coming like a freight train!
In really good or bad times...prepare clients for the opposite!
The markets have been strong and I'm not predicting a downturn here. But none of us needs a massive loss to convince us to protect some of our client's retirement savings. It's just common sense. An annuity puts client assets into the hands of very large, very solvent and historically conservative companies who are much more tightly controlled than any bank. There is no better way to stabilize the retirement ship in a stormy sea and to take some of that longevity risk off the table!
“The AGE of the Annuity!” So the new era is upon us. I wrote about "The Year of the Annuity" in early 2016, but I think we are going to be in this protection business for the next 30 years. And whatever happens with the DOL rule, the F-word will likely be with us forever. Truly acting in a client's best interests transcends the trivia of commissions and fees.
It demands that we protect them from the greatest threat to their future…outliving their money.
It mandates that we instill and insure some kind of guarantee and peace of mind in what will be for most a long retirement.
It says that if you haven't done so already, it's time to open your mind to new financial instruments that help people safely DOWN the mountain...not up.
It puts annuities front and center, standing tall in the line-up of solutions we offer.
In the end we will all be judged on how well we got our people through to their goals. Annuities used to be one simple product choice among many…but not anymore.
I confess that my first reaction to outrageous behavior is, "there oughta' be a law!". One way I attempt to keep up with the times is to watch TV at least once a week, usually a news program on Sunday morning. Holy cow! A dozen "there oughta' be a law!" incidents come up in 15 minutes, most having to do with advertising:
Gambling is portrayed as entertainment, showing idiotically grinning couples. I've never seen people smiling in a casino, have you? There oughta' be a law against these ads.
Drugs are also paired with happy, healthy actors who, in reality, will probably never need a prescription in their lifetimes. Drug ads should be illegal.
Fashion is advertised as an essential source of happiness, acceptance and, well, evolving as humans! A top fashion consultant admitted that he doesn't follow consumers' fashion desires, he manufactures them. There oughta' be a law. (But in my case it's obvious I don't follow fashion.)
Food. If you just look around it's apparent that Americans get plenty of food. Yet billions are spent daily trying to get us to eat cheap, crappy "food". Or food that neither our budgets nor our bodies can afford. This should be illegal, just like hard liquor ads are.
Cars are a personal statement, instant evocations of status and coolness. Oh. And they can transport things and people. But we need fewer of them, not more of them. How are these ads any different than hard liquor, gambling, drugs or food?
Investing"porn" is everywhere. Really? You're going to plan out the rest of your life based on information from whoever spends the most money to catch your eye?? Where do they get all that money to spend on ads? From your money. There are rational, evidence-based rules & tools you can find online, most for free. Finally, there are honest, wise and experienced advisers in your community to help you curate the deluge of money madness. Investing & insurance ads should be illegal.
But then, several weeks after our Nuevo Vallarta vacation, it dawned on me what had been different- and profoundly relaxing -about Mexico. At the resort, what was it about the pool area, the weight room, the parking lot . . . everywhere that was so calming? No signs, no rules, no "Danger" or "Forbidden" or "Warning" placards at every turn. It felt clean, quiet, uncluttered, adult. They relied on the intelligence and character of their guests to make things run smoothly and so far it seemed to be working.
Wouldn't it be easier, less expensive and more effective to encourage consumers to be smarter and more discerning ? That's a transferrable skill. It would make us all better voters, parents, workers, entreprenuers and, yes, consumers. Absolutely there should still be laws and enforcement of them. But the path to perfect safety is more perilous. Which is why our current administration wants to tempt you with that path by making you dumber.
Ebay founder Pierre Omidyar is the latest tech bigwig to get behind the concept. His philanthropic investment firm, the Omidyar Network, announced Wednesday that it will give nearly half a million dollars to a group testing the policy in Kenya.
Universal basic income is the notion that a government should guarantee every citizen a yearly sum of money, no strings attached. The thinking is that such a program would relieve economic stress as automation technology severely reduces the demand for labor.
Theories along these lines have existed for centuries, but their proponents have never had much luck convincing governments to give them a shot. Thus, the only data on real-world effects come from a few scattered experiments throughout the years.
GiveDirectly is looking to add to that knowledge with one of the biggest trials of a basic income system in history.
The group recently launched a 12-year pilot program in which it plans to give 6,000 Kenyans regular stipends for the entire duration. Around 20,000 more will receive at least some form of cash transfer.
The Omidyar Network is hoping the study will help advance the debate around basic income from broad theoretical terms to more practical considerations.
"While the discussion has generated a lot of heat, it hasn’t produced very much light," wrote the Omidyar Network's Mike Kubzansky and Tracy Williams in a blog post announcing the pledge. "There is very little research and empirical evidence on how and when UBI could best be used."
Omidyar isn't the only tech mogul backing efforts to take the theory from paper to practice.
Startup incubator Y-Combinator is in the midst of one such study in the Bay Area, and its president, Sam Altman, and Facebook co-founder Chris Hughes have kicked $10 million towards another research project.
A number of other tests have also cropped up in recent months as universal basic income finds more mainstream acceptance.
Because it is excellent, I've cut and pasted from a fascinating- and chilling -article by Berit Anderson and Brett Horvath from scout.ai If you wanted reasons to spend less time on line, well here you go. The full article is at https://scout.ai/story/the-rise-of-the-weaponized-ai-propaganda-machine This is a must read. Thanks Tom Civiletti for your post.
The upshot: political, social and economic propagandizers now have the capacity to customize their message to every single individual with an online presence. They can build a total experience for you, complete with a large group of fake friends, that is emotionally addicting and intellectually manipulative. They can construct a complete world just for you, solely for the purpose of contolling your decisions. Which doesn't feel like control at all.
This is why I believe people who run face-to-face businesses like I do will never become extinct. In fact, now is our time. We must counteract this powerful, pervasive and unConstitutional manipulation of one another.
At Scout, we’ve been speaking with political strategists, technologists, and machine learning experts about how AI propaganda will spread through society in the near future. We want to work with you, the Scout community, to scenario plan what happens next. Here are some implications to get the conversation started.
Public Sentiment Turns Into High-Frequency Trading
Thanks to stock-trading algorithms, large portions of public stock and commodity markets no longer resemble a human system and, some would argue, no longer serve their purpose as a signal of value. Instead they’re a battleground for high-frequency trading algorithms attempting to influence price or find nano-leverage in price position.
In the near future, we may see a similar process unfold in our public debates. Instead of battling press conferences and opinion articles, public opinion about companies and politicians may turn into multi-billion dollar battles between competing algorithms, each deployed to sway public sentiment. Stock trading algorithms already exist that analyze millions of Tweets and online posts in real-time and make trades in a matter of milliseconds based on changes in public sentiment. Algorithmic trading and ‘algorithmic public opinion’ are already connected. It’s likely they will continue to converge.
Personalized, Automated Propaganda That Adapts to Your Weaknesses
What if President Trump’s 2020 re-election campaign didn’t just have the best political messaging, but 250 million algorithmic versions of their political message all updating in real-time, personalized to precisely fit the worldview and attack the insecurities of their targets? Instead of having to deal with misleading politicians, we may soon witness a cambrian explosion of pathologically-lying political and corporate bots that constantly improve at manipulating us.
Not Just a Bubble, But Trapped in Your Own Ideological Matrix
Imagine that in 2020 you found out that your favorite politics page or group on Facebook didn’t actually have any other human members, but was filled with dozens or hundreds of bots that made you feel at home and your opinions validated? Is it possible that you might never find out?
To be perfectly frank, I really don't know if this is a myth or not. But it's definitely the wrong question. It's like asking, "If I kill my neighbor, will that create jobs?" Yes. It will help create jobs. For lawyers, prosecuters, judges and corrections officers.
The tobacco industry's lies about the effects of their product created thousands of jobs. For people who develop, make, sell and use cancer drugs. For oncology doctors and nurses. For undertakers and funeral homes.
The relevant question should be, "Will Trump's killing of the EPA have a net benefit to all Americans?"
The resounding answer is, "Of course not". Any idiot knows it's a bad idea to dump coal mining waste into waterways. The vast majority of people understand that we no longer need coal nor can we afford to keep burning it if we want our grandchildren to have a place to live. Finally, economically, if your business has to cause harm in order to survive then you don't reallly have a business, you have a scam. Those externalized costs are incalculably expensive to the rest of us and should not be allowed. It's as simple as that.
Good jobs are sustainable jobs. Let's quit wasting time on living in the past. Keep in mind, most occupations today did not exist 20 years ago!
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