Friday, May 27, 2016

Embracing Annuities

Here at Table Bay Financial, we love annuities. I continue to be amazed at the reticence of some consumers and their advisors to use annuities to help solve the intractable challenges of financial security in retirement. Whether seeking a secure way to accumulate additional savings for retirement or a way to guarantee a
stream of lifetime income, it seems that non-annuity alternatives continue to be explored and promoted as the only viable alternatives. However, what often is missing in the equation is the simplicity with which annuities can help consumers reach their financial goals. As one ages, it seems that simplicity is an increasingly important virtue.

As clients age and experience cognitive decline, financial solutions that are self-completing and require little if any oversight would seem to be of value. While complex withdrawal strategies have their place in providing more liquid non-annuity alternatives that some retirees and their financial professionals prefer, the fact remains that there can be no guarantee that the professional oversight required to execute a complex strategy will remain consistent and present throughout the retiree’s life.

Given these considerations, it would seem that a core holding of many retirees needing sustainable retirement solutions should include annuities, either classic income annuities or deferred annuities with lifetime withdrawal features. Rather than minimize the value of the financial professional in the process, these self-completing solutions can be a core holding and ensure that the financial professional’s legacy of prudent planning is executed throughout the client’s lifetime, regardless of the presence of the financial professional.

Wednesday, May 25, 2016

Why You Should Buy an FIA

The biggest fear of retirees is outliving their money. In the past, people could live on social security and interest on their savings because the rates of return were in the double digits. With the current 1% or 2% rates of return, there is a strong possibility that you will have to invade the principal of your savings. This could prove to be catastrophic if you live too long. How much of your savings must you deplete each year to maintain a standard of living that is acceptable to you? Yes, there are surrender charges with annuities, but this typically applies if you take more than 10% per year. How many people are going to spend more than 10% per year of their qualified retirement plan?

Where can you get the potential for an inflation-beating return and have 100% protection against market risk of not only your principal, but also of all your previous years of gains? For the past 17 years, our clients have enjoyed the guarantees annuities provide, along with the upside potential of market indexes. With the wave of new products hitting the market the Fixed Index Annuity marketplace is making huge inroads with American’s. What product do you feel suits you best? Sometimes, it’s a variety of strategies depending on your risk tolerance.  I regularly show people the miracle of FIAs - it is about what is best for you!

Monday, May 23, 2016

Pension Maximization


Answer: It depends on what options your plan offers, whether you are married at the time of retirement, and what your retirement goals are. Even if you are married, a Joint and Survivor Annuity may not be the best way to care for your spouse should (s)he outlive you.

A life insurance strategy called “pension maximization” or sometimes “pension enhancement,” may provide a more attractive overall benefit package for married couples than the normal Joint and Survivor (J&S) annuity option from a qualified plan. The concept is simple: rather than electing to receive the normal default J&S annuity from a pension plan, the retiring participant, (with the consent of his or her spouse), selects the higher benefit payable under the Single Life (SL) annuity option. The couple then purchases life insurance on the participant to ensure the financial security of the spouse in the event the participant dies first and pension benefits cease. The difference between the pension benefit payable under the SL annuity and the lower joint benefit payable under the J&S annuity is then used to pay premiums on the insurance.

A fundamental but often misunderstood concept is that a J&S annuity is a type of insurance. Whenever a couple selects some form of J&S annuity, rather than the SL annuity, they are essentially buying insurance to ensure survivor benefits for the spouse. The “premiums” they pay for this protection are equal to the difference between the benefit payable under the SL annuity and the joint benefit payable under the J&S annuity.

For example, if the pension would pay $3,000 a month under the SL annuity option, but only $2,550 under the normal benefit and 50% survivor annuity option (which will then pay the surviving spouse $1,275 per month after the death of the plan participant spouse), the couple is effectively paying a $450 monthly premium to ensure that the spouse will be paid $1,275 per month (50% of the $2,550 joint benefit) in the event the plan participant dies first.

A couple can use the basic strategy of a Joint and Survivor annuity to maximize their pension benefits during the lifetime of the participant and still ensure the financial security of the surviving spouse if participant dies first and pension benefits cease. By using the difference in the benefit amounts to purchase life insurance, the spouse can replace the value of the pension income. The life insurance proceeds may be tax-free instead of fully taxable like the pension amounts!*

*Death benefit payments are generally income tax-free.

Friday, May 20, 2016

Penny Wise, Pound Foolish?

Penny Wise and Pound Foolish is an old idiom that talks about the tendency that some advisors have to be over careful with trivial things and under careful about important ones. The literal image is of the person who fusses over small amounts of money to such an extent that they miss opportunities to make large amounts. After 30+ years of leading financial organizations I continue on a daily basis to be amazed at how many
people let their penny wise, and pound foolish mentalities rob them of tremendous suc­cesses.

In some cases, this is as simple as the advisor who deliberates about hiring a $35,000 per year staff member. They decide against it and contin­ue to do tasks that prevent them from doing what only they are uniquely qualified to do, thereby squandering enormous income opportunities in an effort to save the $35,000.

Regrettably however, I see many advisors who continue to focus on “payout rates” and not “revenue generation” as their main focus when selecting an FMO with whom to do business. Is this wise? I would submit that the mistaken be­lief that some advisors hold that payout rate and revenue generation is one in the same. They are not!

Let’s consider the case of Bill who is currently doing $2 million per year in FIA sales. He is evaluating Table Bay and other FMOs to partner with. One firm offers him 50 basis points more than he’s currently being paid at full street level commissions. The other FMO also talks about its ability to show him how to do seminars. Bill does not choose Table Bay but rather the other FMO believing that he will make more money in 2012 because they are willing to pay him 50 basis points more on his production.

So let’s look and see if this was wise or foolish? Because he chose an FMO who is willing to pay 50 basis points more on his production, Bill made an additional $10,000 on his $2 million of pro­duction. Because he did not choose Table Bay, he lost the opportunity to access our world-class cutting edge marketing and unsurpassed training ability, thereby losing the opportunity to in­crease his income between 200 and 500%. Had Bill joined Table Bay, he would have seen his $2 million in annuity sales grow to $5 million in the next 12 months. That represents an increase in his income of $210,000 in the next 12 months which is $200,000 more than he made with the other FMO. I would submit that Bill’s choice was penny wise and pound foolish.

The moral of the story – those that are willing to pay you a piece of their override probably have nothing worthwhile to offer you. If your goal is to increase your revenue, you need to be with the firm that can offer you world-class unique and proven marketing as well as an unsurpassed training system.

Wednesday, May 18, 2016

Know Thy Client

What is your client’s true risk tolerance? One of the most useful ways to gain a better understanding of a client is to better understand how environmental factors and stressors will affect their response behavior.
Blaise Pascal, a 17th century mathematical genius, discovered “uncertainty is about people, their beliefs and their courage, while calculated risk is based on information, knowledge and credible scenarios. Together, with his colleague, Pierre de Fermat, he came to the conclusion that people are naturally risk averse.”1 Unfortunately, many investors have a distorted perception of the risk they are taking on.

Over the last decade, the study of investor behavior has become a growing subject of interest among university researchers. In an effort to provide due diligence in client asset allocation, many major financial institutions have created written suitability questionnaires, to include such information as investment experience, time horizon, liquidity needs, risk tolerance, other holdings, financial situation, tax status, and investment objectives. But still clients complain and seek litigation for money lost during market volatility even when the written risk assessment concludes that they should be able to tolerate the prescribed level of volatility. Could we be living in an environment where short written assessments yielding Conservative, Moderate, or Aggressive are not good enough?

Even if the client has all of the information and knowledge before investing, “…it won’t help much unless the investor really and truly understands the amount of money they stand to lose, the probability that this
will occur, and the personal or psychological effects this loss may cause.”2 Maybe instead of talking about losses in percentages, we should talk in real dollars. Most risk tolerance questions ask, “Mr. Client, if your investment declined 5% in six months, would you be able to tolerate that?” Now change your question to, “Mr. Client, if you invested $1,000,000 and the market declined resulting in a $50,000 loss, would you be able to tolerate that?” Now watch their risk tolerance change in a heartbeat. Maybe the client is telling you they really don’t want to lose any money at all.

Today, many fixed index annuities offer time horizons as short as 5 and 6 years, no negative annual returns, liberal liquidity options and principle guarantees. If you know that your client seeks safety and guarantees, why take the risk to unnecessarily expose your client to market volatility? By using simple logic and asking the right questions, you can help your client determine their true risk tolerance.
Today, it’s truly better to... KNOW THY CLIENT.

1Brian Bloch, “Using Logic to Examine Risk”, Investopedia, July 23, 2011;

2Brian Bloch, “Using Logic to Examine Risk”, Investopedia, July 23, 2011

Monday, May 16, 2016

72(t) Basics

 If you have an IRA and are under age 59½ but want to take distributions from your IRA, one exception to the 10% penalty for early IRA withdrawals is found in the Internal Revenue Code under I.R.C. 72(t). This section of the code permits an IRA owner to set up substantially equal periodic payments (SEPPs) from his/her IRA.

Here are some of the basics:

Most Modifications are Prohibited and a modification will trigger penalties that apply retroactively PLUS interest to all distributions made before age 59 ½! No contributions or other additional withdrawals are permitted – the balance may only change due to earnings and losses credited to the account.

Any Change in Your Financial Need is irrelevant – you must continue with 72(t) distributions even if you no longer need the money! Also, any unneeded distributions cannot be rolled into another IRA or converted to a Roth IRA.

A FULL 5 Year Minimum SEPP Commitment is required under a 72(t) payment plan. You must wait until the longer of the end of that 5th year or when the owner turns 59½ to make any modifications to the IRA, i.e., contributions, additional distributions.

*TIP: Segregate the IRA Funds to avoid triggering a modification if you are using the balance of more than one IRA for establishing a plan and calculating the payments.

*CAUTION: Once committed, you are basically stuck with it – the rules are very restrictive so be sure there are no other options available before you decide to choose a 72(t) distribution plan.

Friday, May 13, 2016

Life Insurance: The Greatest Gift of Love

Many years ago an iconic life insurance agent by the name of Tom Wolfe taught me a phrase which I use to this day – “how much money will it take to keep your family in their own world, the world which you created?”

Think about the power of that question. Isn't it true that our children will love us no matter what? We've all heard that our children love us no matter where they live and no matter what conditions they live in. Is not it equally true however that we have created worlds for them that are designed to give them security, happiness, and opportunities to be whatever they want in life? Don’t we have an obligation then to make sure that world is maintained even after we are gone?

You don't sell insurance, you sell love and leaving the ones we love better off, not worse off when the worst event in their life happens. I am convinced that until an advisor processes a death claim and sees how much difference the insurance makes in the life’s of the beneficiaries, you really have no idea how much good you truly do for the people you serve.

Many times I hear and read in various publications that life insurance is not a good deal. When the claim is filed, no one questions if life insurance was a good deal. Today there is a renaissance in the life insurance business largely because of the tax favored status of life insurance payments and the ability to accumulate cash inside of a contract and then pay it out tax-free for retirement purposes. This is a long awaited and amazing opportunity for people to retire using one of the greatest tax breaks inside of the Internal Revenue Code.

That said, forgetting the true miracle of life insurance would be a mistake. As I talk to advisors and even my own staff I hear them constantly talking about what's the commission rate; what's the target premium; what's the override. Sometimes I have to resist the urge to grab them and explain how they don't understand the true miracle of this great industry and the products that we have the privilege to represent.

Have pride in what you do. Our business is not about rates of return, commission rates, trips and contest, or all of the other nonsense that permeates our business. What you do is noble and honorable. You create money when the money is needed the most.

Never lose sight that what you do allows people to give the greatest gift of love- which is allowing the people we love to remain in their own world after we’re gone.

Wednesday, May 11, 2016

What CPAs Want

Many advisors find it hard to form an effective alliance with a local CPA firm? Here’s some information that should help.

How many CPA firms do you know? More important, how many are you working with to develop your practice? If the answer is “none” it’s time to make alliances with CPAs a key part of your business building efforts.

Here’s why: almost 82% of wealth managers report that referrals from other professionals, such as CPAs, are their #1 source of new clients. What’s more, referrals from accountants are a key driver of these wealth managers success. The same percentage (almost 82%) told us their five best new clients were the result of referrals from CPAs. Nothing else compared!

One reason is that advisors don’t know what CPAs really need and want. The conventional wisdom is that CPAs often distrust financial advisors and don’t want to work with them. However, we believe that over the past decade that Table Bay Financial has developed a unique program to form strong alliances with accountants in your communities. Here are some of our key findings over the past decade.

First, most CPA firms desire to take a collaborative approach to offering wealth preservation services to their clients. This means that they are extremely interested in partnering with the “right” financial advisor. At the end of the day CPAs do not want to sell products and services to their clients, rather they want to take a team approach in offering their clients these critical services. Most importantly CPA firms are interested in helping your clients eliminate heavy, immediate, and unnecessary taxation that can destroy their retirement programs. Recently CPAs have also become aware of and concerned about the devastating effects that a long-term care illness on the client or spouse can have on the ultimate success of the retirement program.

Working collaboratively with an advisor who is highly skilled and trained in distribution planning to provide their clients with beneficiary reviews, custodial reviews, guaranteed income strategies, and protection from long-term care events are currently driving significant new business opportunities for the CPA. When examining non-tax -related revenues for CPA firms we find that the average firm working in a fully collaborative environment utilizing a systematic approach are generating on average $660,000 of new annual revenues.

Firm’s willingness to turn to outsiders is a response to market factors such as increasing complexity of financial products, Social Security issues, and greater client challenges due to market volatility. The top five reasons that CPA’s site for seeking these alliances are as follows:
  1. The alliance partner provided them a turn-key marketing and practice management program.
  2. The alliance partner was willing to commit resources to help them incorporate wealth preservation strategies into their existing tax practice.
  3. The alliance partner was able to help them identify critical issues their clients face and how to effectively communicate those issues to the client along with a resolution.
  4. The alliance partner provided systematic and ongoing high-level training regarding tax issues related to distribution planning.
  5. The alliance partner was a recognized “expert” in life insurance and IRA distribution planning with respect to effective tax planning for clients and specifically clients nearing retirement.

It is also important to know that the CPA focuses on wanting to partner with top advisers who bring a significant set of resources along with them. Therefore, it is imperative for the advisor to be seen as part of a larger scale operation than simply their own local advisory firm. The CPA wants to be assured that the advisory bringing more to the table than simply an ability to sell product to their clients. Therefore, for advisors who are serious about building strong alliances with CPAs they must partner with a firm that is focused on and devoted to assisting CPAs build their practices. This is why we believe so many CPA referral programs fail because CPA determines quickly that the advisor and the firm to represent only has interest in accessing their database to sell more product. While the CPA is and should be interested in revenue generation opportunities their first concern will be practice building considerations and client retention issues that the advisor can help them with.

If you are interested in learning more about Table Bay’s CPA Advantage Edge Program™ please give Samantha Mayer a call at 866-225-1786.

Monday, May 9, 2016

Stock Blunders

When it comes to stocks, big blunders can be devastating. Big mistakes picking stocks can be nearly impossible to bounce back from. Why?

It's really a mathematical exercise. Here's an example. If you buy a stock for $100/ share and it falls to $60 a share that's a bruising 40% loss. Some investors assume a 40% gain would erase that loss. That's not true, unfortunately. A 40% gain would only get you back to $84 a share. To get back even after a 40% loss an investor would need a 67% gain.

Climbing back from stock losses is extremely difficult due to the harsh reality of math. That's why investors picking individual stocks need to be extra careful to not allow losses to get so big that they are nearly insurmountable.

The sheer difficulty of coming back from a big market loss isn't just theoretical. A study of actual returns of the Standard & Poor's 500 stocks bear out how investors who get hammered with a big loss have such a difficult time coming back. What does all this mean? For the average investor it means avoiding the loss in the first place is the key to success. A wise investor should be willing to give up some of the upside of the market in return for downside protection.

The world of fixed indexed annuities (FIAs) offers exactly that. The opportunity to have 100% downside protection in return for a smaller portion of the upside return is the main value proposition of an indexed annuity.

There are three miracles of indexed annuities:

1. No loss of principal
2. Ability to reset and measure gains from the low point of the index annually.
3. The Ability to capture and lock-in all gains annually.

The advantage of a fixed- indexed annuity is that you can't lose your principal, regardless of indexed performance unless during the early withdrawal period you withdraw your money by surrendering your contract.  With FIAs, your clients can have their cake and eat it too.

Friday, May 6, 2016

Summer Educational Conference 2016

Our annual Summer Educational Conference is shaping up to be quite the event this year, and you definitely DO NOT want to miss it!

Our preliminary agenda includes the following:

  • "You Can't Lie to the FBI" - a special profiler workshop that can lead to better sales
  • Evening BBQ - Bulakites residence
  • Golfing at beautiful, historic Torrey Pines
  • "The 4  Retirement Risks" presentation
  • Athene products presentation
  • Allianz presentation
  • Retirement Analyzer software training
  • One America presentation and training
  • "How to Generate 2,400 Selling Opportunities Annually" - a marketing strategy bootcamp
  • "Questions Questions Questions" presentation
  • National Western presentation

And there is still much more to come.

Call us today to find out if you qualify for this incredible conference!