Series 65 (RIA) pros and cons to your production/income/happiness?

[honestabe]

I am studying for my Series 65 license to build AUM. Currently Life and Health licensed in 7 states, focusing primarily on annuity and IUL business.

To those who have moved from being "just an insurance agent" (personally, I have loved being "just an insurance agent"), to one who can receive comp for financial advice, etc...

Has your insurance production faltered or increased, intentionally or not, as you build AUM?

For the effort and costs you put forth, how beneficial has it been to your practice and bottom line? In plain words, has it been worth it to you?

The one thing I should note is that I am very much a believer in the "scientific retirement" approach when it comes to retirement income, that of the Drs. Wade Pfau and Moshe Milevsky (among others) teachings/data, and I believe I will attract more annuity business by going after new customers in my AUM quest, and also capture AUM from my typical annuity clients. While it's great to write a $500K income annuity, I can't help but notice how much AUM I have missed out on over the years.

Thanks in advance for any help you can lend and wisdom you can hand down.

 

[DHK]

When I look at the planning I do - which is centered primarily around whole life insurance - I don't want to leave the funding accounts with another advisor. I want to either transfer them to an annuity and/or to AUM.

Knowing that annuities have limits on premium... it's good to know that I have another way to serve the client for larger asset relationships. However, my goal is that I DON'T want my clients to be paying fees continuously for the rest of their lives.

It's not about the "title" as I've been marketing myself as a tax exempt wealth educator. I believe in promoting yourself by the problems you solve as opposed to the products you sell. Very helpful positioning when you're looking to work with the more mass affluent.

Regarding getting set up, different RIA firms work differently. Most seem to require that you, as an individual advisor, are required to secure your own E&O (which is more costly compared to insurance E&O). If we look carefully, the E&O being secured is for the FIRM level activities which include individual practitioners.

The RIA I'm with is First Advisors National, LLC. They don't have any fees for getting started with them or require separate E&O. Now, they do have a technology fee, but they'll deduct that once you have AUM creating monthly cash flow. Payouts are .90 to 1%. They advocate for tactical asset management - active (as opposed to strategic asset management - passive). That means they'll make more frequent decisions based on a level of risk for a portfolio to get decent upside, but managing downside risks... but without any guarantees.

If you want to check them out, they're here: www.fanria.com

You can use my name as a referral: David Kinder

 

[Tahoe Ray]

The RIA I'm with is First Advisors National, LLC. They don't have any fees for getting started with them or require separate E&O. Now, they do have a technology fee, but they'll deduct that once you have AUM creating monthly cash flow. Payouts are .90 to 1%. They advocate for tactical asset management - active (as opposed to strategic asset management - passive). That means they'll make more frequent decisions based on a level of risk for a portfolio to get decent upside, but managing downside risks... but without any guarantees.

So I'm not trying to start an AUM strategy war here but I'm genuinely curious.

If a third-party money manager is making all of the decisions on allocations and strategy, why is a client paying you 1%?

I get that you're the quarterback of the whole plan, but 1% seems like a lot in my opinion (and I know that's the industry standard so I'm not attacking you here, David.)

I would rather pay a retainer to my financial professional on an annual basis, get their advice, and let the money manager do their thing.

I believe that as an industry if financial planning went the way of attorneys and accountants as to how they charge for their services, it would be viewed as a much more legitimate profession.

And to add, commissions are o.k. in both of those markets, they're just called "additional fees" (trusts, setting up retirement plans, etc.)

Thoughts?

 

[DHK]

Let's... make it worse.

My RIA has 4 levels of fees and, all-in, add up to about 2%:
- Advisor fee: .90 to 1.0%
- RIA fee: .35%
- TPAM fee: .65% (on average)
- Custodial fee: .20% (depending? I can't recall right now.)

(This is from memory; I'm sure it's all spelled out in the ADV Part 2, but I'm a bit lazy today.)

Is there much difference in the asset management decisions of a $2 million portfolio vs a $1 million portfolio? I doubt it.

Of course, paying a check out of pocket will feel differently than the industry practice of AUM fees. (One of the first SaaS recurring revenue platforms, if we really think about it.)

One reason to pay an AUM fee could be to "manage the managers". The RIA does have an open architecture to choose various asset managers. Does that REALLY warrant it being based on assets under management vs a retainer fee? Probably not.

Here's my thoughts (directly from my blog):

What will make you different from other fiduciary advisors?

I'm still very cognizant about ongoing fees. If you have 2% fees every year for 10 years... isn't that 20%? I don't want you to pay ongoing portfolio management fees throughout your entire retirement. It will only give you LESS INCOME!

I believe strongly in life insurance and annuity wealth contracts. It's just that sometimes, it's not yet appropriate for those contracts. So I'd rather have the assets working for you in an intelligent manner (with me) than anywhere else.

That's why I added this service.

https://www.dynamicadvancedwealth.com/post/i-am-now-an-investment-advisor-representative

My objective with AUM services is to effect an asset spend-down and re-allocation over (ideally) a 10-year time-frame. This would lower the total fees over that entire time because we're spending and/or re-allocating the accounts to life insurance and annuity contracts.

I'm not really leading with AUM as my "value-add", but as an additional capability for larger HNW clients where the planning should be split between AUM, FIA, and limited-pay WL.

Just my thoughts.

 

[scagnt83]

To be fair, not all RIAs charge clients a Custodial Fee or a "RIA Fee". Many clients of IARs are just paying the advisor fee and fund fee.

 

[Tahoe Ray]

Is there much difference in the asset management decisions of a $2 million portfolio vs a $1 million portfolio? I doubt it.

There is no difference and that's kind of my point. Why should the person w/ 2m pay double the fees that the person w/ 1m pays?

Some RIAs have a sliding scale but we all know that the smallest accounts typically require the most service (talking them off the ledge, getting them to understand that the market doesn't make 20% every year, etc.) so I do understand using AUM for them.

I'm talking about as a profession, wouldn't we all be better served just charging fees?

I am currently exploring doing this with some of my disability insurance clients. They need help but don't want an extra layer of fees on their straightforward ETFs (since they are pretty young (40 something is still young, right, I hope, lol).

I don't really know if this is viable for an insurance agent, that's why I wanted to start this dialogue.

 

[scagnt83]

So I'm not trying to start an AUM strategy war here but I'm genuinely curious.

If a third-party money manager is making all of the decisions on allocations and strategy, why is a client paying you 1%?

I get that you're the quarterback of the whole plan, but 1% seems like a lot in my opinion (and I know that's the industry standard so I'm not attacking you here, David.)

I would rather pay a retainer to my financial professional on an annual basis, get their advice, and let the money manager do their thing.

I believe that as an industry if financial planning went the way of attorneys and accountants as to how they charge for their services, it would be viewed as a much more legitimate profession.

And to add, commissions are o.k. in both of those markets, they're just called "additional fees" (trusts, setting up retirement plans, etc.)

Thoughts?

I agree for the most part. Over the past decade, generally speaking TPAMs have not outperformed the market. Nor have they outperformed other risk based allocation models.

Now, IARs provide access to those managers at lower minimum asset requirements than going directly to the TPAMs funds. That is often a selling point they use with clients.

But what exactly is the IAR doing? Does choosing a single fund and monitoring it quarterly justify $10k a year on a $1m account? Certainly not imo. Those clients will most likely have an extra $150k by just choosing a risk based fund of some type on their own. Not to mention the fact that most TPAMs charge much higher fees than most risk based funds. 0.60% certainly is not the industry average for TPAMs for accounts under $2m... its closer to double that number.

And think about this, you are paying a "fund picker" more or as much as the actual Fund Manager. The person working daily on your behalf is getting the same or less than the person meeting with you once or twice a year??

For 1%, the advisor should be the one building the portfolio and managing it. Which is not hard for an advisor to do if they have the right RIA behind them. Paying 1% for a fund picker, just to pay the Fund another 1%... is robbery imo.

Now, if the advisor created a comprehensive financial/retirement/estate plan.... and is updating it 2x per year.... then maybe they could justify a 1% fee... but even then, it would be much more fair to the client to charge a flat fee for the financial plan and charge separately for the "asset management"... if choosing a TPAM could be called asset management.

An advisor could create model portfolios for clients using ETFs/Stocks/Bonds and the clients "fund cost" would be in the 0.10% range. And that Advisor would be actually earning their 1% fee.

 

[DHK]

Of course, for anything RIA related, Michael Kitces has an article on it.

Here's Kitces article on a fee-for-service client service calendar:
Crafting An Annual Financial Planning Service Calendar

The problem is, I believe, the mixing of business models to maximize one's success: Jim Ruta talks about the mixing of business model criteria can be detrimental to them.



Based on Jim Ruta's points (arbitrary client limits, client segmentation) that may not apply to a life insurance agent... if I were considering a fee-for-service business model... why not just reciprocate back to a NAPFA member who is good at what they do? (If I remember right, you get pretty good referrals from them, why not reciprocate back?)

Free up your time and let them do what they do best?

 

[scagnt83]

I'm talking about as a profession, wouldn't we all be better served just charging fees?

I am currently exploring doing this with some of my disability insurance clients. They need help but don't want an extra layer of fees on their straightforward ETFs (since they are pretty young (40 something is still young, right, I hope, lol).

I don't really know if this is viable for an insurance agent, that's why I wanted to start this dialogue.

In my opinion, yes. Why should an advisor get a 20% pay bump when they are not the ones managing the assets?

Consumers prefer the flat fee model in most surveys the industry has performed. But AUM fees/Wrap Fees/Management Fees/etc. are the biggest cash cow for the industry. And it "cost nothing out of pocket" .... lol.

Now the real kicker is this, an RIA/IAR could set up a Fee structure where a flat fee is deducted from the AUM. So there is no "out of pocket" cost. But we all know why they dont do this.

Funny thing is, many RIA firms have gone to "no fee structures" for trading or asset management. They found getting kickbacks from funds for being "approved vendors" is much more lucrative.

 

[scagnt83]

I am currently exploring doing this with some of my disability insurance clients. They need help but don't want an extra layer of fees on their straightforward ETFs (since they are pretty young (40 something is still young, right, I hope, lol).

I don't really know if this is viable for an insurance agent, that's why I wanted to start this dialogue.

What do you imagine charging for this? I think its perfectly viable to do. I cant tell you how many times insurance clients have picked my brain about their investments or the market or estate issues or other financial questions.

Most traditional fee based planners are charging in the $8k-$10k range for a "financial plan". Which is exactly why most 40 year olds dont have one.

Im not sure what the "sweet spot" is for the fee. Maybe you could do $5K? If you can automate the info gathering aspect of it, then you could probably charge $2500 and it would still make sense.