Best Interest vs. Suitability: What Advisors Need to Know

[0:00] JD: Just the shot. Are the cameras rolling? [0:01] Chad: Don't forget, you and Justin are attached to wires in terms of standing up. [0:06] Justin: So we cannot move. [0:08] JD: Okay, so the concept of. With the dol. Fiduciary rules coming out, there's a huge concept of suitability versus best interest, which I thought was funny because in a past episode, Chad kept referring to suitability and we're talking about fiduciary rules, but now it came out April 6th. What's the deal? What's the big difference between something that's suitable versus something that's in the best interest of the client? Chad? [0:34] Chad: I'd say best interest is more all encompassing. Right. In my mind, suitability has to deal with determining if what you are offering to that client is suitable for them, that specific investment or decision is suitable for them. Whereas best interest has to do with looking at what they're in currently and all the parameters around. [0:54] JD: How old are they? What are the fees? Is there something cheap? [0:58] Chad: Why are we encouraging the move? Why does there need to be this move? Is this transition from what they're into, what we're proposing truly in their best interest, not just in what I'm offering. Is it suitable to you? [1:10] Justin: Suitable as in, like what they're coming from, you're saying, or what? [1:14] Chad: Well, I think that that's what this is addressing, that suitability has to do with what you're proposing, not necessarily the whole picture of where they're coming from to what they're going to. Costs, exposure, all the different things. [1:25] JD: Full 360 degree look at what you're offering them. [1:29] Mark: Does it make sense if we used an analogy for this, and I'm kind of hungry right now. [1:35] Chad: Suitability, always hungry. [1:37] Mark: Like a cheese. Like a cheese pizza. Right. And the best interest is like a combination. It's got everything on there. [1:45] JD: Sure. [1:47] Chad: It would be like in my mind, you wanted to purchase a pizza and I'm saying, hey, this cheese pizza is suitable for you. It's gonna help fill you up. It's tasty, it's yummy. Whereas if I in best interest, I would go, hey, are you lactose intolerant? Oh, you're not? Or oh, you are. Then maybe this cheese pizza is not good for you. [2:06] JD: You'd even have. Are you 10 pounds overweight? I'm not saying that you are. [2:11] Chad: Jeez. [2:12] JD: But you're gonna control. Is the pizza really the right thing for you to eat? Maybe you should be eating some. I don't think you should ever work [2:19] Mark: for a pizza parlor. [2:20] JD: Let's be honest. [2:21] Justin: If you're 10 pounds overweight, or 30 or 40. The funny thing is, probably should be [2:24] JD: eating suitability, best interest. [2:26] Chad: Let me say one more thing, though. I was sitting in a symposium, I was speaking at a Rotary club, and I had mentioned this exact conversation, suitability versus best interest. And an advisor stood up who's in the room and said, everybody in the room should know that advisors have had the obligation of best interest. It's brokers that would often only use suitability because advisors are looking at your whole picture. Brokers are trying to sell you a product. [2:48] Justin: Right. [2:48] Chad: It's a good way to think about it. [2:49] JD: You're talking RAA versus registered rep. Agreed, agreed, agreed. And that discussion can go on and on and on. [2:55] Chad: It's a fun one. [2:56] JD: All right, bring it in for me real quick. PDC on three. Pdc. I'm mic'd up, so I'm not coming too far. [3:03] Mark: I've been. We should. [3:04] JD: Yeah, no, hey, PDC on me. PDC three. One, two, three. I was waiting for. [3:11] Chad: Have it out here. [3:12] JD: All right. I am not going to call this beer 30. I'm going to call this the beer of the episode. Chad. Welcome, everybody, by the way, to episode number 12. [3:23] Chad: 12? [3:24] JD: Yes, 12. And the beer of the episode is [3:29] Chad: because today is Cinco de Mayo. [3:32] JD: And that's why we're wearing these. Awesome. [3:35] Chad: And where are we probably should have opened this. [3:36] JD: We are at the Bridges Golf Course in San ramon, California, the fourth annual. [3:43] Chad: I'm not gonna name the journey 401k golf invitational. I got it this year. [3:48] JD: No, it's something longer than that, isn't it? [3:50] Chad: Oh, 401k retirement golf invitational. [3:52] JD: Okay, that's it. So we are here once again, I will be playing golf today. [3:59] Chad: Cheers. [3:59] JD: You guys will be here manning the hole, talking to hundreds of financial advisors. It's gonna be a great day. [4:06] Chad: It's gonna be great, Chad. I've got a spider hanging from my hat. That hat would be about 30 miles from here. [4:12] Justin: I literally do. Do you want it, Chad? [4:13] Chad: No, I'm good. [4:15] JD: I would like to jump into our first segment, which I will put under the umbrella of notyourtypical Mark. TPA advisor. He's the one I was sending. Not your typical advisor. [4:31] Mark: I wasn't paying attention. [4:32] JD: And we're gonna talk about participant education, which seems kind of cliche, but let's hash it out in 2016. What's going on from a participant education standpoint? What are advisors doing out there in the can? Separate themselves from the competition and what do we see? And I want to Kick off the conversation with giving you a little blast from the past. Paul Carlson, my father, the giver of my life, the founder of our company, sometimes referred to as OB1 10 years ago. [5:05] Mark: He's the nicest head of white hair I've ever seen. [5:08] JD: Wow, that's distinguished gentleman. That's kind of creepy Richard style. Ten years ago he would film. I should say I would stand behind the camera and film. But he would give an education presentation for employees to help out the advisor. We would film it and we would put it to a VHS tape. Sorry, that's the truth. [5:30] Chad: Single vhs. [5:31] JD: So for ABC company, they had a customized presentation just for their plan that they could then play in their lunch room or what have you on their VHS tape. [5:40] Mark: And you sent your documents via facsimile as well. [5:43] JD: For sure, for sure, for sure. That was 10 years ago. What's happening today? What's going on? Any idea, any things that people are doing that are fun, that are different, that are interesting? [5:55] Chad: Oh, absolutely. I think you see one of three kind of approaches. You see groups who do no education. You see groups who do only in person education. And then you see groups who hybrid it. They do a little bit of embracing technology and a little bit of using in person, one on one connection and group meetings. And there are some neat tools. I know you guys have seen some neat tools there. [6:14] Justin: Well, everything we talked about last year [6:16] JD: talked about V Wise in the last episode. So that's something that's kind of modern. I'm hoping that advisors have learned to entertain a bit, to not overwhelm people with fund analytics and kind of investment lingo. Right. [6:35] Chad: Just think truthfully about how this evolution of the education has changed. Jd, Everything you just mentioned was probably about design, right? When you can enroll, how you should save the differences between traditional and Roth. And is there a match even when [6:49] JD: the old man was doing it? [6:50] Chad: Yeah, when Obi Wan was doing it. Nowadays, I mean, that is the smallest little sliver of education. And it's all about how to use the website and employee friendliness and involvement within the plan. [7:05] JD: I have golf course seed in my beer now. [7:09] Chad: You also see people embracing. [7:11] Mark: Those guys are gonna win the tournament for sure. [7:13] Chad: Using their own web video, using the record keepers to get different solutions and strategies to engage the participant. And it's been successful. One of the best things that I've seen are advisors that are creating an education calendar. [7:29] JD: Okay, guys, let's stick to what he's talking about here. [7:31] Chad: This is different, I think. Can you talk about notyourtypicaladvisor creating an educational calendar for all your clients, regardless of plan size or anything that has specific drips. Let's say in April it's gonna be a drip on Roth contrib, June it's going to be a drip. [7:48] JD: And when you say drip, you kind of mean an email out of participants, right? [7:52] Chad: And most of the providers offer those web videos or modules that you can put into an email and send HR and have them go out. [7:59] JD: And who's doing that? What percentage of advisors are actually sending out a planned out campaign to participants on a regular basis? [8:07] Chad: In the market world, very few. [8:09] JD: Get on it, man, get on it. Do this right, that's easy for them to do. You can get it through compliance, that's not a big deal. [8:16] Chad: And use it across all plans so that when you're sitting at a point of sale, you can say, hey, here's what I'm doing with my clients this year, here's my education. [8:21] JD: Oh my God. You can win new business by doing it. [8:23] Justin: It's not like it's, I mean, yeah, it will require effort, but there's so many pieces out there that you can just grab and send off. It's not like you have to spend a ton of time on this. [8:30] JD: So much information. [8:31] Chad: You know the other thing along this topic that I don't see advisors do, we've seen one specifically do it because my wife works for me. [8:40] Mark: You do look hot in that. [8:41] Chad: Jd, These advisors are sending out to their private wealth clients often a market overview or something that talks about their impressions of the market. Right now, usually they're getting it from back office or from some other resource. Why not put that in HR's inbox and say, hey, look, here's what I send to my private wealth clients. Why don't you shoot this out to the participants? If you don't have the participants web address, put it in HR's hands and give them the opportunity to send it [9:06] JD: out should they choose to. I'd like to wrap the subject by saying I think that's the best value ad for our audience. Why are you not creating some type of drip campaign that's going to the participants that's fun, it's engaging, it's keeping them involved in the 401k. Because the biggest problem with our industry is this kind of set it and forget it kind of flow where people enroll and you could come to them and ask them where their investments are, what their strategy is. They don't have a clue. And this is a great way in the modern Day World to keep people tuned in and separate yourself. And then, like you mentioned, if you're doing that for your current clients, show that to your prospects and win some new business, man. I mean, right? [9:45] Mark: And think about it this way, too. And you, you hinted towards Ursula. I thought you were gonna take it from me, but you said entertain, right? And so when we look at education, we call it edutainment, right? It's a little bit of fun, but there's still some content there that you're gonna learn. [10:00] JD: Throw a fucking poncho on when you do your education. [10:03] Chad: Do you think Paul was his education on vhs? [10:06] JD: He was good at what he did. [10:07] Chad: I'm sure. It's just a different world now in terms of the looseness of these types of education. [10:13] JD: We'll wrap it with this one. You know, it's making me cringe with my dad, he would tell people if they had a match, he would tell the audience, we have a match here. You know, it's 100% of your first 3%. If you're not doing the match, you're stupid. That's what he'd say. [10:26] Chad: You're stupid. [10:27] JD: And I'd be like, oh, dad, don't call them stupid. Anyways, love you, Paul, but it's true. [10:32] Justin: And now you're dropping f bombs on Retire Hawk. [10:34] JD: It is time for the Wheel of Ice. Wheel of Ice. The Wheel of Ice. [10:45] Chad: Hands, man. [10:46] JD: Here it comes. Oh, he just knocked over. Great. [10:49] Mark: It's gonna be nice. [10:50] JD: And fans are lovely. [10:51] Chad: Did you hear our fans go by and honk their horns too, [10:56] JD: by the way, as the Wheel spins. I would like to say thank you to all the supporters out there. We are getting a lot of feedback. [11:02] Chad: We are. [11:02] JD: Thank you. [11:04] Chad: Thank you for the Open. [11:06] JD: That might be Mark. Is it Mark? Fancy. [11:08] Chad: How far down is the arrow going? Like, is it just landed on Mark? [11:12] Mark: But no, see, I disagree. [11:13] JD: Mark, shut up and drink your smear off. Ice. Drop to a knee. And while you do that, I'm gonna give our audience some valuable content. So just be careful. I'd like to know for the audience that it should go all the way down. So everybody should have one. I don't even know what the board looks like. [11:26] Mark: Maybe lose. You would like to see. There you go. [11:29] JD: Oh, wow. Oh, I get it. [11:30] Chad: JD's got one name. JD has a drink every single time. [11:32] JD: I like that design. That's awesome. While you're doing that, I do want to thank the people that are watching the show. It's starting to really build. We got a drink. Got A lot of great people that are giving us feedback, engagement. And while he does this, if the contest is still on, I don't know if it'll be by the time the show comes out. Go to our LinkedIn, go to our Facebook, comment on what beer you'd like to see on a future episode and you get a chance to win beer delivered to your home on the retireholics. [12:01] Chad: I love the way you position it to your beer delivered for life. If you only live for six months. [12:07] JD: Yeah, it's only a six month thing. That was the genius of Brandon. Hey, can you move your bottle off the set? [12:13] Chad: My goodness. [12:14] JD: Born in a barn. [12:16] Mark: I was born in a barn. How dare you. [12:18] Chad: Congratulations. [12:19] JD: Okay. All right. We recently, believe it or not, we actually do work from time to time and we had a beating. I conference called in because I wasn't feeling that well with MassMutual and they talked about their product map my benefits, which was very cool. And so if you're an advisor that works in the health space as well as the advisor space, check that out. [12:46] Chad: But let's give one more shout out to that tool that they have that reviews. It really reviews the gap between participants getting to be retirement ready. Replacement ratio on a plan level with real live data. [13:02] JD: You know you're not playing golf today, right? Why do you have spikes? [13:06] Chad: Okay, he said he's on the golf course. [13:07] JD: We are golf course. Sorry. [13:09] Mark: You wear golf shoes on the golf course. [13:12] Chad: We recently used it in a conversation in a live opportunity, saying to a client, hey, we finally have a way of reviewing whether or not we are succeeding and engaging participants and getting them involved and helping people become retirement ready. Because we can do a plan level snapshot each and every year that looks at what people have saved, what data they've inputted. Live true data for that participant on a plan level and see if we're meeting needs. And we're growing the gap between what they need in retirement and where we're currently saving at. That's freaking cool. [13:41] JD: It's cool. [13:41] Chad: It's cool. [13:42] JD: But what came up, which I didn't even know about is their kind of charity efforts. [13:47] Mark: Yeah. [13:48] JD: Which is called Help me out Life Bridge. Life Bridge. And I may not have all the details nailed down, but if you meet their requirements, this is mass mutual. If you make less than $40,000 a year, I think it was, if you're a single parent, they will give you for free a fifty thousand dollar life insurance policy. I mean you just sign up and you're in. And when I heard that Yep. Same way you thought I was. Like, people need to know this. Like, that's cool. [14:22] Mark: Super easy. [14:22] Chad: That needs to be shouted from the rooftop. [14:26] JD: I pay mark 20,000 a year, I think. I think you'd qualify. [14:30] Chad: It's like 19:5. The papers are in, but she's still sticking with no. [14:35] JD: But in all seriousness, that's awesome. I mean, and I think everyone that watches the show needs to know that and spread that. That word. I mean, free life insurance, 50 grand. I know it's a little bit. It's not a massive thing. [14:47] Chad: If you're making $40,000 a year, that's over. It's. You know, it's over. Your annual. [14:51] JD: Good for you. [14:55] Chad: In all honesty, it's a great conversation amongst themselves. And he has actually mic'd up today, so they'll be able to hear him this time. [15:02] Justin: Well, it's not even helping. You guys are just talking. We're just having our own conversation. [15:06] JD: That's not how a show works, Justin. That's really not how a show works where you have your own conversation. [15:11] Mark: You also have people hitting in on you. [15:13] JD: What if we got hit by a golf ball? We were literally on the 18th green keeping an eye. [15:17] Mark: I'm not gonna lie. Full honesty. I played golf yesterday. One of the people in my foursome almost killed somebody. [15:23] Chad: Did it actually hit? [15:24] Mark: No. They were in the backyard of a home, a golf course, had homes on it, and hit one there, and the guy came out of the. Behind the fence like. Yeah, came real close. [15:33] JD: It's coming in lefty. [15:35] Chad: Lefty, too. [15:35] JD: Is the guy gonna hit the green? [15:36] Chad: He's probably flicked. [15:37] JD: Is he gonna hit the green? I say no. [15:39] Chad: Cheers. Hey, I respect. [15:40] JD: I say he will not hit the green. [15:41] Chad: I won $1 from Bren Batman on an approach. [15:44] JD: Will he hit the green, yes or no? No. I say no. [15:47] Mark: If he. [15:48] JD: If he does, we all pound these beers. [15:50] Chad: I say yes. That's not. [15:52] Mark: Good luck with that, Chad. [15:53] JD: Oh. Oh. [15:55] Chad: Come left. Come left a bit. [15:58] JD: No. No way. [15:59] Chad: Good strike. [16:00] JD: That was a good strike. Good try, bro. Good try. Green's over here. All right. We are the retireholics. We are changing the retirement plan industry. [16:12] Mark: We are sexy in ponchos. [16:14] Justin: Coming in, guys. [16:15] JD: One beer. What? One beer at a time. [16:19] Chad: One beer at a time. [16:20] Mark: Uno cerveza. [16:22] JD: Uno cerveza. I can't say at a time, but thanks for tuning in. We'll catch you on the flip side. [16:29] Chad: Peace. [16:30] JD: Peace. Oh, and, mike, I might not. [16:40] Chad: Terrible. [16:41] JD: No, Really, really important. Everything which makes Audi participation. [17:12] Mark: When I say retire and you say hollow. [17:19] JD: Retire. Retire. [17:23] Chad: Retire. [17:25] JD: And the winner is. You have to be present. Is Sean Bissler here?