Leadership Perspectives | 04.11.18
Candid Conversations: Marc Vosen Part Two
This is part two of our Candid Conversations interview series with Marc Vosen of Key Investment Services. Read the first installment here.
On Responding to the Fiduciary Rule
The financial crisis caused lots of trouble in many areas. It led to a whole bunch of changes in compliance and technology. To some extent, maybe the DOL rule was an indirect outgrowth of what happened then. How is compliance today changing the business and the channel, and what is it likely to do to the channel in the future?
I do have some strong opinions on this. Our industry is changing rapidly, but that is nothing new to our industry. I mean it’s been changing for decades, and for the better. What's happening now is we are moving to a fiduciary standard. The DOL had something to do with it, but we were going to go to a fiduciary standard anyway. The SEC hopefully will get control of this. It’s where this issue belongs. The reason that the DOL got involved in the first place is because, really, the SEC dropped the ball, and now they're picking that ball up and are going to run with it. That will be good because it will create one standard for our entire industry.
You can't have the Department of Labor creating standards for qualified plans and IRAs while there's another standard for regular-way business. You can't have two standards of care for a customer. It has got to be one standard. We are going to move to a fiduciary world, which I think is great. Obviously, it's more care and protection for the customers, but it also allows us to do things that we've always wanted to do anyway but that we just never got around to it because we would upset the brokers. The silver lining in this cloud is that the government allows us to now do things that we know we should have been doing anyway, or wanted to do anyway, but now we get to blame the government. So, that's kind of the silver lining.
Anyway, the FAs know that the world is changing. We're moving more into managed accounts, we're doing a lot more planning and we're doing a lot more insurance work, and these are things that we should have been doing anyway. That's where the industry is going. I don't know to what exactly, but I can see over the next five to ten years, the way that we are compensated in this business is going to change. The government or the regulators are going to force us in that direction, or competition will force us in that direction. Now, you've got all this technology entering the game, and the thing that I find interesting is that I believe there are going to be two service models to help our business and help our customers over the next 20 years.
Remember, there are still 15 years’ worth of baby boomers to retire, and they want to be serviced in one fashion, yet the younger generations wants to be serviced in another fashion. “Boomers” are where the money is, and you can't ignore the money, nor can you ignore the way they want to be serviced. You need to continue to service the boomers and the silent generation, the ones who are still alive that haven't even passed their wealth to the boomers.
As the boomers retire and eventually pass away, the new way of servicing will come through on the other end. As one disappears, the other one continues to grow. That's a 15-year process, and God only knows what technology will look like 15 years. Look what it looked like 15 years ago; few even had a cell phone.
Right. The change is monumental.
Today, there's more technology in your cell phone than put Neil Armstrong on the moon, We’ll see what happens in the next 15 years, but what I will say is this: The industry must evolve. I've said this before. I use the railroad analogy all the time. The railroads, in the late 1800s and early 1900s, had all the money. Those barons had everything. They were the wealthiest people in the world, but they didn't understand the business that they were in. I mean suddenly, here comes the invention of the automobile: "Well, no big deal. That's not going to be such a big deal." Then, suddenly, the airplane is invented: "No big deal." Meanwhile, fast forward another 30 or 40 years. The railroads are out of business, and yet the motorcar companies are booming and the airlines are booming. What the barons didn't realize is that they weren't in the railroad business, they were in the transportation business. They should have owned Ford and General Motors and Boeing, but they didn't.
Success doesn’t necessarily equal vision.
I think that is what's going to happen to our industry if we don't learn to change and evolve, because the business we're in is providing financial services to people. That's the business we're in, and we better adapt to the new ways of delivering those financial services. If not, our industry will become a railroad.
Well said. Part of that change and evolution involves moving advisors away from what arguably was a historical orientation around product, say a "product culture", to a “process” culture.
How have you seen that unfold, and what do you think happens in the future as it regards a more processed-focused business?
Now, this is not a Marc Vosen quote, this is a quote from Peter Bielan, who is one of the principals in Kehrer Bielan. Some years ago, he was talking about the changes in our industry, and I agree with him. He said, "In the past, what we have done is we have made our money by selling products and giving the advice away for free. In the future, we're going to have to start charging for advice because we'll be giving away the products for free."
That makes sense, and that makes even more sense when you think of the impact of technology.
Not only the impact of technology, the combination of the impact of technology and moving towards a fiduciary standard.
Right, and now these forces come together — fiduciary standard, technology, compliance — and this promotes a commoditization of advice and products. You can see it where compensation on products is being forced downward, where features of products become relatively similar — the playing field is leveling and commoditization becomes the industry’s gravest challenge. It seems to me that the most important thing going forward then, in order to mitigate the effects of commoditization, is going to be to find creative ways, value-based ways, process-based ways, to attract more customers and more customer assets.
I agree a hundred percent.
On Understanding Client Assets Holistically
: You and I work together in order to capitalize on the opportunity in retirement income distribution planning. The thing that I always like to tell people about retirement income distribution is that to craft a thoughtful income plan, you must understand all of the client's assets and needs. In creating the income plan, to give the client a pathway to creating a lifetime of inflation-adjusted income, you must incorporate all of the assets. This is why the process almost always leads to a 100 percent consolidation of the customer’s investment assets. The pie is expanded, and very slice of the pie — the product sale — becomes larger.
: That is true.
: My question to you is channel-wide: Do you think that message is getting through?
: You know what? It's not getting through as well as it should be, and I think it's not getting through because it's kind of clumsy, but I will tell you that to get into a fiduciary world, you're going to have to know this information. You're going to have to base recommendations on more than suitability at the time, because product recommendations need a context that fits into a comprehensive plan of what is the customer trying to achieve throughout their lifetime. This is especially true of retirement income planning. Can I use an example of retirement income planning?
: Of course.
: There is no question that retirement income, outliving one’s money, is the number one financial concern of individuals in the United States. "Will I have enough money in retirement to live?" That is the overwhelming, number one concern of people. What's interesting about that is that not many people really know what it's going to take for them to retire, and they can't get their arms around it. I'm going to talk about my personal example here, okay? There was a commercial years ago by ING shown on TV: “What's your number? What's your number? Is it $2.1 million, $1.4 million, $875,000.00?" People are walking around with their number, and that number was how much lump sum of assets you need to accumulate to retire. I'm literally in the shower one day thinking about this commercial. I had been in the business now for probably 35 years, and I didn’t know what my number was. In fact, I didn't even know where all my assets were. I mean I knew I had a 401(k). Did I really look at it all that much? No, "I don't need the money for another 20 years.” I really wasn't paying attention to my own financial situation, very similar to doctors who don't go to a doctor. It's the same kind of thing. But, anyway, I finally said, "I need to get my arms around this," and, at the same time, my mother passed away and we were going through her stuff. It got really complicated, and so I finally figured this whole thing out. When I figured the whole thing out, I realized, "Oh my lord. I actually have more assets than I thought." I was facing a very simple assumption of, "Okay, I've identified this amount of assets."
Remember, this was a number of years ago. "If I just did four percent, this is what I need.” But, I had a shortfall. I said, "Okay, I'm just going to be working for another ten years, so I know what my shortfall is, and I need to build up for that. I'm feeling pretty good. Then, I was introduced to your solution David, The Income for Life Model, from Wealth2k, which I really didn't understand originally. I said, "I'm never going to understand this unless somebody does it for me.” And so, I remember that somebody from your company took me through everything — the Social Security, my wife's pension, my pension from the other bank, what we had, the whole thing.
We came up with my personal plan of The Income for Life Model, and what happened was, I realized I'm in a much better situation than I thought I was in, as far as having enough income to retire on. I say, "Wow, this is great," because if I didn't know this, being in the business, I'm sure the vast, vast majority of our customers are in the same situation. They don't have their arms around this issue, and they really need to get their arms around this because, first, it's going to give them a lot more peace of mind, and at least they'll have a direction of where they need to go to. That's important.
: Like you said, there's no issue more important, given the customers’ concerns, right?
Check back next week for part three of the interview with Marc Vosen. Did you miss part one? You can find it here.