In this issue’s “Advisor Spotlight,” we spoke with Angela Brill, who has been with Cetera for 14 years and is a member of the IRI Advisor Council. Prior to embarking on a career as a financial advisor, Angela worked in retail product development and marketing at Fidelity Investments and Scudder Kemper Investments. We asked Angela to tell us about her practice, her views on managing clients and investments, and how she’s navigated COVID.
How do you onboard new clients, and how do you educate clients about the risks they will face and how to plan for them?
The first thing we do is get to know the client and find out their objectives. We try to unpack their background and understand what they’re trying to achieve, and one of the first things we jump right into is creating a financial plan. Some advisors charge for this, we don’t because we think of it as an essential part of the initial conversation to find out what we’re working with – what are the assets, needs, and wants.
We want to look at whether resources match goals, and our philosophy as a firm is “enough is greater than more.” What that means is we look at how much is enough, and we only take as much risk as we need to get to enough, and we use guaranteed income as part of that equation. We use risk tolerance as a client management tool more than as an investment tool because we might be taking more risk than the client is comfortable with to get to their investment goals, or less risk than they might be otherwise comfortable with if they have enough [income].
Managing clients through the ups and downs of the market is probably the most challenging thing we deal with, especially if they got in at a high point. We use JP Morgan charts showing the average peak-to-trough drop is 14%, but 75% of the time the market ended up positive for the year despite that drop, which really helps them understand that it’s not us, it’s not a bad decision, it’s just a matter of timing and it will work its way out if they’re patient.
Do you find that clients are surprised by the amount of income that their savings produce?
It’s a barbell; you have clients on one end who are super savers and don’t think they’ll ever have enough, and we have to convince them they can spend. Then on the other end there are those who are shocked by how little their savings will provide in retirement.
On that end sometimes they didn’t save enough or start early enough, but to be honest it’s often they don’t have a good handle on how much they spend now, and they just haven’t done the math to know how much they’ll need in retirement and might have some rose-colored glasses on with regard to that.
What concepts do clients have the hardest time understanding and/or addressing?
Clients have a hard time understanding market movements in general. Interestingly I have a client who is always anxious out about the markets. I called him right after the COVID market meltdown and asked how he was doing; he was fine because he knew why the market had gone down and what it would take to recover.
Every other market meltdown, the financial crisis or what have you, he did not understand what was happening, but this time he knew exactly why it happened. That was very insightful for me. We live and breathe this, but clients are fearful because they don’t understand why the down, and what has to change for the up to happen.
One of the hardest things for people to get their minds around in terms of retirement risks is long-term care. First, they don’t want to talk about morbidity, but they also put it in a different mental bucket, where they think in terms of, ‘if I don’t use it, I wasted all that money.’ It’s probably the biggest retirement risk we face, but most people put their heads in the sand about it, so we look for different solutions like the hybrid policy for either a lump sum or a ten-pay, so if you don’t use it, you have a death benefit.
Unfortunately, we also find that most people have under-saved in nonqualified assets, almost everything they have saved is taxable so that just made their expenses 30% higher.
I am sure COVID-19 disrupted many of the processes and approaches you were using when working with clients, transacting business, and servicing accounts. What tools or resources have been particularly helpful in the past year?
The biggest thing was that prior to COVID the industry really resisted e-Signature. We would have clients that would say, ‘I bought a house and just clicked a few places and you’re handing me a stack of papers this thick!’ After COVID e-signature came a long way fast. We needed it and the receiving end, the processors, needed it. That was probably the biggest step forward due to COVID.
We were using Zoom prior to COVID, to a certain extent bringing clients kicking and screaming to it. Pre-COVID, though, the clients would never turn their cameras on…we would, but they wouldn’t [turn them on]. Then all of a sudden, because their friends and family were using it, they got used to it and started turning their cameras on. This was great not only because we could see clients we never got to see because they’re out of town, but we also got a glimpse of their homes which provides visual cues about them, it’s like you’re just in their kitchen. We also would hear from clients that coming to the financial advisor’s office felt like going to the dentist or the principal’s office, so I think they felt more comfortable being in their homes. And often, now we had the spouse, who couldn’t or wouldn’t show up for meetings in the office. Our retired clients will probably want to come back to the office, but our working clients, the ones with young kids, we think they’ll be happy to continue to do Zoom meetings. We also got a great new client portal, and another big one was a compliant texting system.
Where do you see opportunities for broker-dealers and insurance companies to really improve in terms of supporting your needs?
It’s really the volume of paperwork and data gathering, putting the same information on multiple forms, pushing it all up through compliance to see if you get a NIGO (Not In Good Order) or not; to a certain extent you’ve got to really want to do an annuity, you’ve got to have a lot of conviction around it, because this is not going to be easy, this is going to take time and effort.
To the extent they can make it easier the more I think advisors are going to say yes, we’ll do more of that. I’m not saying they shouldn’t do all of this, I get it from a compliance perspective, but it’s a lot of work and I wish they could simplify it.
Also eliminating some of the friction that occurs, for example the first time we put though a structured annuity we put it through as moderately conservative, but compliance viewed it as extremely risky because it was 100 percent S&P 500. Solving for these kinds of barriers between supervision and the advisors, and how do we get on the same page would be helpful.
Also, annuities are the most difficult products for our clients to understand, and we could really use more materials that explain annuities in simple terms. One of the most confusing things is spousal continuation. Typically clients believe that the contract continues on but that’s not always the case so we could use more simplicity and explanation in that area.
The word “annuity” can have negative associations for consumers because of unfavorable articles and attack ads in marketing campaigns for other solutions. Tell us about a time you overcame bias against annuities when they represented the best approach to solving for the client’s financial goals?
Just last week I had a meeting with a prospective client, a double Ph.D. scientist, and one of her questions was, ‘do you sell annuities?’ She didn’t like them, and we often have people say annuities are evil and terrible and we say, ‘Let’s talk about it. There are some very good products if you need guaranteed income, and we’ve had some amazing death benefits.’ We talk through what their concerns are, see if there is a product that does what they need, and not over concentrate. And now we have fee-based annuities, which takes a lot of the conflict out of the conversation, and from a fee aggregation standpoint it helps the client. We have a breakpoint system so in the fee-based structure the annuity can help get them to a breakpoint and lower their fees.
All investments are subject to risk, including the possible loss of principal.
Although it is possible to have guaranteed income for life with a fixed annuity there is no assurance that this income will keep up with inflation. There is a surrender charge imposed generally during the first 5 to 7 years or during the rate guarantee period.
Index annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any of a stock market index. Such contracts have substantial variation in terms, cost of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity. Investors are cautioned to carefully review an index annuity for its features, costs, risks and how the variables are calculated.