- 10,806
I always thought it was way more than just 3. I could be wrong.
Breakdown of IMO Vs. Insurance Company Channel
- Thread starter nickzimmer
- Start date
I always thought it was way more than just 3. I could be wrong.
- 11,505
I think the last thing I heard remotely related to this, was in Colorado and using the term "safe money" when talking about fixed insurance products. Apparently, you can't do that anymore in Colorado... but that was about a year ago or so.
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I shouldn't have said 'stupid'. I think and do my planning in terms of cash flow, rather than 'portfolio allocation'.
If you don't have enough to retire on, the allocation isn't going to matter much.
If you don't have enough guaranteed lifetime income, the allocation won't matter much - unless it takes a dive 50% - like in 2008.
So allocation, to me, would be a secondary concern, not something to hammer in a sale for an annuity.
If you're retiring at 65 with only a $250,000 portfolio... you'd better make sure your social security is claimed well, your home is paid off (and/or reverse mortgage line of credit to grow the non-borrowed portion), and your living expenses are quite low. Even then, $250,000 in a portfolio isn't that much and the retiree would probably be better suited for 100% allocation into 1 or more annuities with lifetime income.
Just my thoughts.
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I shouldn't have said 'stupid'. I think and do my planning in terms of cash flow, rather than 'portfolio allocation'.
If you don't have enough to retire on, the allocation isn't going to matter much.
If you don't have enough guaranteed lifetime income, the allocation won't matter much - unless it takes a dive 50% - like in 2008.
So allocation, to me, would be a secondary concern, not something to hammer in a sale for an annuity.
If you're retiring at 65 with only a $250,000 portfolio... you'd better make sure your social security is claimed well, your home is paid off (and/or reverse mortgage line of credit to grow the non-borrowed portion), and your living expenses are quite low. Even then, $250,000 in a portfolio isn't that much and the retiree would probably be better suited for 100% allocation into 1 or more annuities with lifetime income.
Just my thoughts.
I gotta say .. this is how I understood all the terms mentioned above.. I was thinking I would have to start researching the financial advice landscape all over again .. because the KTmorgan and DHK convo was going over my head..
What I still need clarification on is that ..there is an actual FUND called Registered Investment Adviser?? .. like a mutual fund?
as far as the bond alternative.. That was the whole premise of the Wade Pfau academic study which he calls "actuarial bonds"
https://www.forbes.com/sites/wadepf...-insurance-and-income-annuities/#34056af37aba
- 11,505
RIA firms can actually manage money for clients. They get a custodian (such as Schwab, TD Ameritrade, or even TradePMR) to hold the assets and facilitate trades for RIA firms.
For reference, here is TradePMR's website: TradePMR – Brokerage and Custody Services for Registered Investment Advisors
This isn't new. One guy I partnered with years ago ran a $50 million "fund" with discretionary authority when he was at Smith Barney. Discretionary authority means that you don't have to get authorization from your client every time you want to make a trade (buy or sell securities) within the fund.
This would be the 'hands-on' approach to portfolio management for an RIA.
For me personally, I would prefer a 'hands-off' approach and have other portfolio managers manage portfolios according to a strategic or tactical asset management strategy. I'd rather be in the role of planner, rather than 'money manager'. Yes, it would be more expensive to hire money managers, but I'd rather have them manage portfolios so I can work with more clients... than try to do it all myself. I know my strengths and weaknesses... and portfolio management would be one of my bigger weaknesses. Better to delegate or outsource it.
But if you wanted to manage a portfolio yourself as an RIA, you certainly can do it.
For reference, here is TradePMR's website: TradePMR – Brokerage and Custody Services for Registered Investment Advisors
This isn't new. One guy I partnered with years ago ran a $50 million "fund" with discretionary authority when he was at Smith Barney. Discretionary authority means that you don't have to get authorization from your client every time you want to make a trade (buy or sell securities) within the fund.
This would be the 'hands-on' approach to portfolio management for an RIA.
For me personally, I would prefer a 'hands-off' approach and have other portfolio managers manage portfolios according to a strategic or tactical asset management strategy. I'd rather be in the role of planner, rather than 'money manager'. Yes, it would be more expensive to hire money managers, but I'd rather have them manage portfolios so I can work with more clients... than try to do it all myself. I know my strengths and weaknesses... and portfolio management would be one of my bigger weaknesses. Better to delegate or outsource it.
But if you wanted to manage a portfolio yourself as an RIA, you certainly can do it.
- 11,505
Exactly. There is no "RIA fund" aside from assets that RIAs manage.
- 10,806
No.
RIA (registered investment adviser) is a business entity.
They have a business name such as "Joe Plumber Financial".
They employ IARs (Investment Advisor Representatives).
These are the individual advisers who have a Series 65 or 66, and work with clients.
They place client assets in various stocks, bonds, mutual funds, etfs, etc. Generally speaking, the funds they use are 3rd party funds (such as Vanguard).
For general purposes, especially in a consumer facing environment (like what we work in), that is how it works.
The RIA is the business, IARs are the individual advisers. The RIA usually uses a 3rd party such as TD or Schwab to hold the assets and facilitate the trades.
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Now for the exceptions to all of what I just said.
RIAs can create their own Fund.
This is not the norm and happens at RIAs that operate on an institutional level, not a client facing level.
It is a Mutual Fund they create/own/manage. Often they create more than one. The Fund has a name separate from the RIA and its own ticker symbol and prospectus and all that.
This is what many TPAMs are (third party asset managers). RIAs who created Mutual Funds that they manage, and market them to RIAs who work directly with Consumers.
The regs are slightly different for them vs. a non-RIA owned fund.
RIAs can also create a Hedge Fund under their business entity. Many hedge funds are RIAs.
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ktmorgan
Expert
SC, I agree with the essential content of your thoughts except that in my opinion it's a mistake and confusing to use RIA/IAR in the same phrase with regard to what they may or may not do or what relationships they may or may not have.
As you rightly point out there is HUGE difference in Adviser and Advisor. In no way are they legally or practically the same thing. Congress wrote the Act using the word "Adviser." That's one reason using the term can be restricted.
(Everyone)
The reason that the overwhelming majority of RIA's (Adviser) do not use IMO's is simply because most Advisors who eventually form RIAdviser firms grow up in the Securities Industry being regulated by a particular regulatory compliance scheme that does not include the state's Dept of Insurance.
Most Advisors usually take the path coming from the Wirehouse world or B/D where they are Registered Reps holding a FINRA Series 7 & State "Blue Sky" Series 63 and/or NASAA 65/66. And they are very rarely exposed to any Insurance products other than Variable Annuities.
So, they have no idea what an IMO is. This includes the vast majority of RIAdviser firms in existence. This would also include any B/D owed by an Insurance Company, they most of all would not use an IMO or run the risk being caught "selling away."
When RIAdviser firms have a client who has a need for Insurance in some form they will either a) use their affiliated Bank's Insurance subsidiary or b) the will call the Insurance Broker with whom they have a relationship in one form or another c) use the Adviser they have registered with the SEC like an Insurance B/D, which are become quite rare these days with all the M&A going on.
I think the confusion must largely lie from the point of view one is associated with the whole thing. On this board we are all at least Insurance agents, I presume, and not necessarily Securities registered. So I think to large extent our only exposure to RIAdvisers are to those that are Insurance friendly and have associated IAR's (Advisor) so it's easy to believe they all operate similarly. However, not everyone is regulated by both FINRA/SEC and the state's DOI.
Granted we're all aware of the some RIAdviser firms, relatively very few in terms of the amount of RIAdvisers out there, that are formed who are Insurance friendly and allow non W-2 Investment Advisor Reps to associate with them.
Such as the big Indy B/D's who would also have a separate RIAdviser entity registered with the SEC, of course they may or may happen to use an IMO depending on their set up. If they do much business at all they're likely to have a direct connection to the Carrier's distribution channel. But certainly, some do allow their Investment Advisor Reps to use the IMO's of their choice as OBA. But they themselves would not.
The vast majority of RIAdvisers in existence are only regulated by FINRA/SEC so they do not know, or do not use, or would they even care what an IMO is because they have no reason to.
Most RIAdvisors are solely focused on increasing their AUM, thereby increasing their fee income. To place someone in an insurance product that does not produce fees is counterproductive to their whole mission.
In fact, the majority of RIAdvisers as well as CPA's believe only in Health, Term, DI and P&C Insurance. But when Insurance is needed they leave all of that lowly business to the mere Insurance Agent down the street somewhere. Most are hard and fast believers in "Buy Term and Invest the Rest." Most RIAdvisers don't hold Insurance or its agents in high regard.
And to go back a few posts further somewhere, they would never be caught dead recommending FIAnnuities. After stripping out all the cash flows & participation rate discounting you'll get some finance nerd that suddenly finds out the IRR is only 2.5%!!
"OH MY GOD!!! Where's the rest of it? It goes in your pocket as commission, doesn't it?!?! You Insurance Agents are CROOKS!!" They'll always say.
That's why I made the crack about them using the actual Term Structure as a Fixed Income replacement.
Personally, I believe the some Fixed Indexed Annuities products are perfectly fine to use in the right situation for the Income portion in a mixed portfolio to push the mean/variance "Efficient Frontier" up and in.
Of course, many on the Board already know this but everything is a tool. It can be a challenge overcoming the Dogma of the "BTIR" or the anti-Permanent Insurance Zealots at times.
But when you actually do you can count on a referral partner for life. Learn to speak their language in Excel preferably. The Multi-Billion $USD RIAdvisers out there will have very smart Analysts that they trust. Win those Brainiacs over and the referrals will flow.
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Not nit-picking at all
Adviser and Advisor are different and distinct. If they were no difference there would be no restrictions on the usage of the terms...among many other things. The Industry has done a great job in confusion only the Customers but their Agents as well.
(see my other post on where I think the confusion or lack of awareness comes from)
Plus, I do enjoy the board but I don't have time or the interest in looking up other people posts to find out the context of what they may have meant.
As you rightly point out there is HUGE difference in Adviser and Advisor. In no way are they legally or practically the same thing. Congress wrote the Act using the word "Adviser." That's one reason using the term can be restricted.
(Everyone)
The reason that the overwhelming majority of RIA's (Adviser) do not use IMO's is simply because most Advisors who eventually form RIAdviser firms grow up in the Securities Industry being regulated by a particular regulatory compliance scheme that does not include the state's Dept of Insurance.
Most Advisors usually take the path coming from the Wirehouse world or B/D where they are Registered Reps holding a FINRA Series 7 & State "Blue Sky" Series 63 and/or NASAA 65/66. And they are very rarely exposed to any Insurance products other than Variable Annuities.
So, they have no idea what an IMO is. This includes the vast majority of RIAdviser firms in existence. This would also include any B/D owed by an Insurance Company, they most of all would not use an IMO or run the risk being caught "selling away."
When RIAdviser firms have a client who has a need for Insurance in some form they will either a) use their affiliated Bank's Insurance subsidiary or b) the will call the Insurance Broker with whom they have a relationship in one form or another c) use the Adviser they have registered with the SEC like an Insurance B/D, which are become quite rare these days with all the M&A going on.
I think the confusion must largely lie from the point of view one is associated with the whole thing. On this board we are all at least Insurance agents, I presume, and not necessarily Securities registered. So I think to large extent our only exposure to RIAdvisers are to those that are Insurance friendly and have associated IAR's (Advisor) so it's easy to believe they all operate similarly. However, not everyone is regulated by both FINRA/SEC and the state's DOI.
Granted we're all aware of the some RIAdviser firms, relatively very few in terms of the amount of RIAdvisers out there, that are formed who are Insurance friendly and allow non W-2 Investment Advisor Reps to associate with them.
Such as the big Indy B/D's who would also have a separate RIAdviser entity registered with the SEC, of course they may or may happen to use an IMO depending on their set up. If they do much business at all they're likely to have a direct connection to the Carrier's distribution channel. But certainly, some do allow their Investment Advisor Reps to use the IMO's of their choice as OBA. But they themselves would not.
The vast majority of RIAdvisers in existence are only regulated by FINRA/SEC so they do not know, or do not use, or would they even care what an IMO is because they have no reason to.
Most RIAdvisors are solely focused on increasing their AUM, thereby increasing their fee income. To place someone in an insurance product that does not produce fees is counterproductive to their whole mission.
In fact, the majority of RIAdvisers as well as CPA's believe only in Health, Term, DI and P&C Insurance. But when Insurance is needed they leave all of that lowly business to the mere Insurance Agent down the street somewhere. Most are hard and fast believers in "Buy Term and Invest the Rest." Most RIAdvisers don't hold Insurance or its agents in high regard.
And to go back a few posts further somewhere, they would never be caught dead recommending FIAnnuities. After stripping out all the cash flows & participation rate discounting you'll get some finance nerd that suddenly finds out the IRR is only 2.5%!!
"OH MY GOD!!! Where's the rest of it? It goes in your pocket as commission, doesn't it?!?! You Insurance Agents are CROOKS!!" They'll always say.
That's why I made the crack about them using the actual Term Structure as a Fixed Income replacement.
Personally, I believe the some Fixed Indexed Annuities products are perfectly fine to use in the right situation for the Income portion in a mixed portfolio to push the mean/variance "Efficient Frontier" up and in.
Of course, many on the Board already know this but everything is a tool. It can be a challenge overcoming the Dogma of the "BTIR" or the anti-Permanent Insurance Zealots at times.
But when you actually do you can count on a referral partner for life. Learn to speak their language in Excel preferably. The Multi-Billion $USD RIAdvisers out there will have very smart Analysts that they trust. Win those Brainiacs over and the referrals will flow.
----------
Not nit-picking at all
Adviser and Advisor are different and distinct. If they were no difference there would be no restrictions on the usage of the terms...among many other things. The Industry has done a great job in confusion only the Customers but their Agents as well.
(see my other post on where I think the confusion or lack of awareness comes from)
Plus, I do enjoy the board but I don't have time or the interest in looking up other people posts to find out the context of what they may have meant.
- 10,806
KT,
The term RIA and IAR often must be used in the same sentence. It would be completely inaccurate not to. The IAR is restricted to what the RIA allows them to sell.
Its a fact.
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All this talk about who has oversight over the RIA firm is completely irrelevant.
It in no way affects what insurance products are sold or how they are sold.
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Basically what you are saying through all that is this:
"Investment Advisers dont sell insurance products. Especially FIAs."
Which is 100% wrong. I am extremely familiar with that side of the business and plenty of them do.
Its not a majority of Investment Advisers that use FIAs. But it is becoming more and more common. Especially now that they can include it in their AUM.
That is why there are "no load" FIAs out there now that can only be sold by an IAR.
(btw, not all FIAs are sold for income)
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If an Investment Adviser wants to place insurance business, any kind of insurance business, they must Contract with the Insurance Carrier.
Majority of Annuity Carriers do not allow Direct Contracts. An FMO/IMO must be used.
Some RIAs own their own FMO/IMO. But most just have an "approved" IMO they require thier Investment Adviser to use.
This is a fact. It is actually very well known to those who have real world experience on the RIA/IAR side of the business.
No offense, but you talk like you read all this in a book.
I know IMO owners who are the approved IMO for RIA firms. I almost joined LPL Financial (one of the largest BDs and RIAs in the US)... they own their own IMO that I would have been required to run my insurance biz through (FIAs included... they have a list of "approved" FIAs). You can find approved insurance product lists for RIAs and you can see FIAs on there.
It exists, it happens, and its becoming more and more common. And to sell the annuity, RIA or no RIA, IAR or no IAR; an upline of some type must be used for 99% of Annuity carriers.
The term RIA and IAR often must be used in the same sentence. It would be completely inaccurate not to. The IAR is restricted to what the RIA allows them to sell.
Its a fact.
-----
All this talk about who has oversight over the RIA firm is completely irrelevant.
It in no way affects what insurance products are sold or how they are sold.
--------------
Basically what you are saying through all that is this:
"Investment Advisers dont sell insurance products. Especially FIAs."
Which is 100% wrong. I am extremely familiar with that side of the business and plenty of them do.
Its not a majority of Investment Advisers that use FIAs. But it is becoming more and more common. Especially now that they can include it in their AUM.
That is why there are "no load" FIAs out there now that can only be sold by an IAR.
(btw, not all FIAs are sold for income)
-----------
If an Investment Adviser wants to place insurance business, any kind of insurance business, they must Contract with the Insurance Carrier.
Majority of Annuity Carriers do not allow Direct Contracts. An FMO/IMO must be used.
Some RIAs own their own FMO/IMO. But most just have an "approved" IMO they require thier Investment Adviser to use.
This is a fact. It is actually very well known to those who have real world experience on the RIA/IAR side of the business.
No offense, but you talk like you read all this in a book.
I know IMO owners who are the approved IMO for RIA firms. I almost joined LPL Financial (one of the largest BDs and RIAs in the US)... they own their own IMO that I would have been required to run my insurance biz through (FIAs included... they have a list of "approved" FIAs). You can find approved insurance product lists for RIAs and you can see FIAs on there.
It exists, it happens, and its becoming more and more common. And to sell the annuity, RIA or no RIA, IAR or no IAR; an upline of some type must be used for 99% of Annuity carriers.
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Got it .. RIA's from what I understand it could be someone like myself if I decide to get a 65.. but if I don't want the liability of being an RIA ..I can be an IAR operating under an RIA. I was just confused by when KT said .. "RIA, the fund" .. he must have been talking about RIA's managing their own fund.
Now as far as being able to sell insurance. I thought both RIA's and IAR's would be allowed to sell insurance and get paid commissions but that's what they call a "fee based" .. but the fee only RIA's/IAR's are the ones who get paid by AUM or flat fees.
