Page 34 - Investment Advisor October 2022

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Next: “No-commission annuities will drive sales of variable You have to be very transparent upfront on what the fee
annuities and fixed indexed annuities. Fee-only RIAs will is and why you’re charging it. You have to justify it more.
expand the market for purchases of no-commission vari- There’s no one perfect model out there.
able annuities, including registered index-linked annuities,
or RILAs, and FIAs.” Why will this occur? What are your thoughts about the hourly fee model?
Because they have so much cost embedded in them, commission- [An advisor] doesn’t really get compensated for their
based [annuity] products don’t perform very well. But once you expertise using that model. I might give some incred-
strip out the commissions and some of the riders and make them ible advice in 15 minutes that took me a lifetime to learn.
low-cost products, they become pretty attractive as an asset class. Whereas somebody else might be able to give the same
The fixed annuity is a good investment concept. I’ve just never advice doing five or 10 hours of financial planning and
liked how the insurance companies were implementing them. research and analysis.

What’s the biggest benefit of the annuities you’re discussing? Finally: Trust will continue to grow in financial advi-
I like to call these [annuity] products Great Depression coun- sors once consumers will be able to make the distinction
ters because they help preserve the value of the portfolio between financial consultants [or some similar term], a
if we have a period of great depression. They can serve as fiduciary or a product salesperson. More consumers will
a buffer in a portfolio if the large non-option portion of the place trust in personal financial advisory. Demand for finan-
strategy is invested in safe fixed income securities. cial and investment advice will then soar.
Up until recently, there wasn’t a lot out there other than Consumers are starting to ask the right questions, such as
U.S. Treasurys that you could invest in to basically counter “Will you be a fiduciary to me at all times during the course
[a great depression]. The downside risk is that interest rates of our relationship?” Consumers will increasingly require the
have gone up recently, so the value of bonds with an average answers to these and other questions in writing.
duration of nine or 10 years has fallen. But that downside risk In a survey about whether people use a financial advisor
is capped [with the above annuities]. and why or why not, [a frequent answer] for not using one
Over the very long term, these products have the potential was that they don’t believe they can trust them. If you can
to exceed bond returns, but they possess returns lower than get away from Form CRS [relationship summary], which is
equities, making them lower-volatility products — an inter- atrocious, and just have a simple form that asks a couple of
esting asset class to add to an investment portfolio. questions, one would be, “Will you be a fiduciary to me at
all times?”
Another prediction: “Flat annual fees will continue to grow
and become more prevalent for financial planning.” Why? When an advisor tells a client they have a conflict of inter-
The success of XY Planning Network is a testament to this est, I would think many consumers get turned off. Do they?
approach. Flat fees for investment portfolio management or The fee-only advisors have a marketing advantage, obviously,
lower AUM fees will result, once financial planning is regard- in that regard. But every advisor has a conflict of interest
ed as a separate service with separate fixed or hourly fees. when it comes to setting their compensation.
If you’re doing an IRA rollover, for example, and looking to We’ve seen more and more advisors migrate to the invest-
do financial planning for that client and manage their assets, ment advisor side and also an indication of some compres-
the regulators are going to say, ‘We want you to separate out sion, whether it be from robo-advisors or hybrid advisors, like
those fees so the client can see and make a meaningful com- Personal Capital or Schwab or Vanguard, with low-cost finan-
parison of the portfolio management services and whether cial advice platforms. Those don’t give comprehensive advice,
they really need them or not.” but it’s probably 90% of what people need.
That’s a less conflicted model. In a way, I agree that it’s The marketplace is working. But it’s still way too difficult for
more fair to the client. a consumer to tell the difference between someone they can
really trust and someone they can’t.
What do you think of the AUM model? Over time, any diminution that has occurred in the fiduciary
Flat-fee and AUM are both good models. But consumers standard will eventually be corrected, as the field of financial
probably feel better under a flat-fee model. It doesn’t tend to planning and investment advisory moves closer to becoming
lower the overall fees paid. a true profession. —Jane Wollman Rusoff

32 INVESTMENT ADVISOR OCTOBER 2022 | ThinkAdvisor.com