Moving to recurring revenue.
Last month, Steve from Arizona e-mailed me and asked, "Brent, I always enjoy reading your column in the magazine and I need some advice. My income is only about 20% recurring and I want to grow it to at least 85% like you have done. What advice/direction can you give me on how you were able to do it? Do you mainly write variable annuities (VAs) with trails or do you mostly just do managed money? With the managed money, are you doing everything yourself or just using TAMPs (turn-key asset management programs)?"
Here's how I responded to Steve: "We first started out recommending Pacific Innovations Select using the Ibbotson Models (now with an income guarantee) to help clients. Though the M&E was 1.65%, we contrasted the VA with A-, B- and C-share mutual funds and to a managed money model to somewhat level the playing field.
"Draw this chart on a legal pad or on the white board in your office:
"With the Pacific Innovations CDSC at only three years, clients elected the shorter CDSC even though it had a slightly higher M&E fee. Even though we elected the lower commission option, over a period of years, the recurring revenue became more important than the upfront commissions. Today, we recommend Proactive
Wealth Management to every client and we bill them a fee for this service on a monthly basis. Clients love it because we align our interests with theirs, and they have a process that helps them advance and protect their lifetime incomes."
Whether you are recommending life insurance, fixed or variable annuities, group health insurance, mutual funds, fee-only wealth management or 401(k) plans, you should always choose the recurring commission option if your objective is to build a more secure practice.
Sid Friedman told me once, "If I was in the investment management business, I'd build my assets under management to $200 million and build a team to serve my clients. After expenses, I'd still make a good living." Another friend, Bob Plybon, built enough recurring revenue through his group health insurance practice to cover all his expenses. How about you? What are your plans to move your business from a sales model to a management model? As Mike Raeburn said, "Be willing to do what others will not."
* Note: The sources for this information are the company prospectuses and Morningstar, Inc. Advisor Workstation. Please consult company prospectuses for detailed investing, fees are different for each product. Investments contain risk and are not guaranteed. Past performance is no guarantee of future results. Life Insurance Selling magazine, Brent Welch and Welshire Capital, LLC are NOT recommending the use of any specific product.
By Brent Welch, CFP, ChFC, CLU
A Brent Welch, CFP, ChFC, CLU, started as a financial planner in 1984 and is founder and managing member of Welshire Capital, LLC, a firm specializing in private wealth management, retirement and estate planning. He is a past president of The International Forum, a past board member for the AALU, a 17-year MDRT member and an 8-year TOT member. You can reach him through his Web site at www.welshirecapital.com.
Category of fees VA w/ 3 yr VA w/ 7 yr A-share for comparison CCDSC CDSC funds Front-end load? 0% 0% 4.5% CDSC penalty 3 years 7 years N/A for withdrawal M&E costs 1.65% 1.4% N/A Fund costs .85 .85 1.3% Advisor Fee N/A N/A N/A Total Average 2.5% 2.25% 1.3% (front- Fees (varies end load is with product *) extra) Category of fees B-share C-share No-load funds for comparison funds funds w/ a fee Front-end load? 0% 0% 0% CDSC penalty 6 years 1 yr-1% N/A for withdrawal M&E costs N/A N/A N/A Fund costs 2% 2% 1.2% Advisor Fee N/A N/A 1.5% Total Average 2% 2% 2.7% Fees (varies with product *)