Jack Sharry: Welcome, everyone. Thanks for joining us for this week’s edition of WealthTech on Deck. With all the conversations across the industry around platforms, risk and tax management, income generation, and providing concierge type services to advisors, I thought we should get caught up with someone who, from where I sit, is setting the pace for the innovation and disruption all around us on all these important issues. He also happens to be a leader in the annuity business and serving RIAs, he does both exceedingly well. Today, we’re going to have a conversation with my longtime friend in the business, David Lau. David is CEO of DPL, the leading platform for products and services in the annuity business with a focus on serving the RIA community. David has been a disruptor with every business he has built. And as we watch the annuity business grow at record pace, who better to explain why it’s happening and why it matters. So, David, great to have you back on the show, you’ve been on before. Welcome back to WealthTech on Deck.

David Lau: Fantastic, Jack. Terrific to see you as always. And I look forward to the discussion. I think we’ll have some fun.

Jack Sharry: So, David, you’ve been an innovator and tell that backstory, you told it last time, but it always bears repeating. I love people that think outside the box, you’ve done that your whole career. So if you would, share with our audience your background and how that wound up as the, with you forming DPL.

David Lau: Yeah, happy to. So I’ve been in financial services most of my career. And the first company that I joined financial services with was a company called TeleBank, it wasn’t even called that when I joined. But it turned into the first internet bank in the country. And the significance of it was not just that it was you know, internet banking, but it was importantly, branchless banking. Because the viewpoint of the company wasn’t, hey, let’s be on the internet, because that’s the cool thing to do. It was, the branch is not relatively useful, right? Relative to the cost of the branch, a branch is just an expensive way of selling and servicing commodity products. So if you can get rid of the branch, you can lower the overhead of the institution dramatically. And then you could provide much better products to the end consumer. So that was really the driving thesis. And then the internet turned into as you can tell by the name of the bank, TeleBank, it was first just a single branch and telephone and fax and mail. But you know, as the internet evolved, the internet was a great and perfectly aligned channel to what we were doing. And from there, we built the bank, I was chief marketing officer there, built the bank very dramatically in about five years, from pretty much nothing to about 16 billion in assets. And we merged it with E-trade in the, around the year 2000, perfect bubble timing. And it was the first merger of bank and brokerage in the, in the history of the country, but we were kind of culturally aligned. You know, the disruption E-Trade was creating was, you know, around, instead of branches, it was around fees and expenses, you know, lowering the cost of doing a trade from, you know, what might have been $300 at the time, if you wanted to buy a stock or trade a stock to, you know, offering it for $29.95 or something like that. So, you know, disruption and pricing, in the same way, leveraging technology to eliminate some traditional expenses. And so I spent then some time kind of consulting around the globe, teaching people how to build internet banks. But you know, prior, the last thing I did prior to DPL, was to help build an insurance carrier called Jefferson National, where I was the chief operating officer. The innovation there was to eliminate commission from annuity products. So instead of branches being the big inefficiency in the pricing, it was the commission and the distribution method, frankly, beyond the commission. You know, the wholesaling and all the expensive sales contests and things like that, that carriers do to, to, you know, sell their products. And in building that company, kind of realized a number of different things. That one, it was going to be hard to disrupt the insurance industry from a single manufacturer’s point of view, because that’s what a insurance carrier is, it’s just a product manufacturer effectively. So I thought a better way of doing it would be to do it from a platform because I could see that carriers really needed help in evolving from out of this commissioned model to, how do we do it? It’s easy to become beholden to your existing distribution and keep your focus on the needs of the existing distribution. But anybody could see that the way the world was going is and has gone, really, and continues to go is away from commissions and towards fees. And for carriers, it’s just imperative that they adapt to that new model. And they’ve really struggled to do it. And at DPL, we really help drive that change, as well as bring these products out for RIAs and any other fee based advisors who want to provide high quality, high value, low cost products for their clients.

Jack Sharry: If you would, for our audience that may not be familiar with annuities and/or DPL and the way you’ve, you’re really disrupting that industry like you did banking and like you did, initially, with a single carrier. Now you’re doing through a platform. Describe how long you’ve been in business, kind of an outline of the of the business, you know, how you go to market, who you serve, all that kind of stuff. Sort of a thumbnail on DPL, and who you are, and what you do.

David Lau: Yeah, so one of, you know, one of the things as we built out the company, you know, we, when I first launched the company, we had, you know, a dozen employees. And you know, we’ve now got about 90. Most of them are client facing beyond our technologists. So we have, you know, 40-45 people who work with RIA firms, who you know, who are, you know, we call them consultants, because they really are consultants to the business. They, we make everything really easy and turnkey to, you know, to use. Not only, you know, the products, but the technology. We also have, you know, I don’t know, a dozen people in operations, who can help simplify applications and getting the business in process so that it becomes you know, we try to act like the RIA’s insurance department. So we’re gonna be an extension of the business and really the ultimate value proposition we’re delivering to an RIA is we’re giving you the ability to grow. And so we’re going to help you bring in held away assets, we’re going to help you get more wallet share, we’re going to help you attract new customers. You know, what better way of attracting a new customer than to show them a tangible value. You know, if they have an existing annuity, you can show them a much better one. It’s a great, great proof point of your value. And we really help the, you know, the RIA grow and we do it with really minimal commitment from the RIA. We charge you know, a small membership fee, you know, an annual membership fee for the firm. But you know, for that you’re gonna get technology, team, products, a real extension and growth arm of your business.

Jack Sharry: So talk a little bit more about that, if you would, around kind of the role that you play, and I’m thinking at the RIA level. So, they’re putting together portfolios. That’s what they like to do. The annuity has its place, I think you’re particularly good at highlighting or comparing it to other types of investment vehicles, you could talk about the tax advantages of the products, you could talk about income streams. So there’s a lot that you’re adding where they may not, their go to may not be annuity, but as they understand the product better, as your folks can help position it and explain it, and then demonstrate how it enhances the value of the portfolio… Describe all that, because you guys do, I think, an exceptional job in that regard. Yeah, there’s so much to that, Jack, as you know. So, you know, way back in the day, when we first met each other and I was, you know, building Jefferson National, and you were back at Phoenix, you know, we had this product at Jefferson National, which was an investment only variable annuity, and it kind of became the standard in the RIA world. So to the extent that RIAs used annuities, they used that product or a product, any, you know, somebody else’s product like it. It was simply a super low cost annuity. Let’s get my client out of an existing annuity and put them in this cheap one, and I’ll save them a bunch of fees. And so when we first launched, that was really still the primary use, you know, we brought out investment only variable annuities. That’s what people were used to doing. And we used it as kind of an entree point. Well, let’s teach you what an annuity can really do. When we bring out you know, when we’ve got products that actually have some living benefits, you know, that can provide income riders, that can provide downside protection, that can enhance outcomes and portfolios in ways an investment only variable annuity just can’t do. So we help advisors understand that. And so over the course of the last four years, we’ve really seen, you know, our product usage go from heavily investment only 1035 Exchange, to where now we do 75% new money, new assets coming into annuities, you know, a lot on the fixed, fixed income replacement side, I would say. So, and both for accumulation and retirement income. So, you know, right now, a great example, for the last twelve months or nine months, at least, you know, we’ve seen interest rates go up so much. Right? And in the course of that, the sales of annuities have had historic highs and what’s driving that is fixed annuities. So MYGAs, fixed annuities, because the rates are so strong. I mean, we have three and four year MYGA products that pay 6% guaranteed, you know, right now, in a tax deferred basis, it’s a tremendous product. So we’re seeing a lot of advisors use that and those products as bond replacements, because it makes great sense, you know, in a portfolio. We also see advisors leveraging products, like fixed indexed annuities, you know, for clients who are approaching or in retirement, because they can provide downside protection, you know, so that clients won’t lose assets due to market performance. And then once they get to retirement, they can provide tremendous income benefits. You know, you can use a fixed indexed annuity right and get guaranteed lifetime annual payout rates over 10% a year. I mean, you can’t replicate that through investment strategy, you know, and getting that you know, longevity protection at payout rates that are in excess of 10% is just a tremendous way of fortifying a retirement plan. And so, to your point, we do a lot of this education. And then, you know, we bring it to life with the technology. And by the way, this is, you know, all the education we base on is on academic research. We’re trying to bring forth academic research of this is the best way to use annuities to enhance portfolios and plans, and then our technology brings it to life. So you don’t, you know, we can compare it to your fixed income and show you where an annuity might outperform and by how much in generating retirement income, or we can give you, you know, ways of finding the best annuity to meet an income need in retirement once you’ve already defined it. And we do it, again, you don’t need to know anything, tell us what you’re solving for. You need to find $5,000 a month for your clients in retirement, we’ll tell you the best product to do it. You don’t need to know anything about the product types. We’re agnostic to it all. We’re solving problems, not selling products.

David Lau: Yeah, it’s super interesting. So Wade Pfau, if people don’t know Wade, Wade is one of, if not the premier retirement researcher in the country. And with his business partner, Alex Murguia, who’s an RIA. He’s a financial advisor, who happens to be a PhD in psychology. They spent the last three plus years developing the RISA, which is retirement income style awareness. Think of it as almost like a risk tolerance questionnaire for your client. But instead of really being directed towards how do they feel about their accumulation, this is how do they feel about their decumulation, or their retirement income. Because there’s a big difference. You know, I’m a great example of that, like during accumulation, hey, I’m fine taking risk. And I understand the benefits of equities in accumulating wealth. But when it comes to retirement, I want some certainty in that. And so the RISA, what it does through a questionnaire is helps the client identify for the advisor, how do I want my retirement income delivered? And so it’s the answer to, you know, so many advisors issues with clients. I’ve been working with financial advisors for, you know, a couple of decades now. And whenever the market is going down, or is being volatile, you always hear the same thing, “I’m playing psychologist more than I’m a financial advisor,” right, “I need to calm my client down, I need them to stay the course,” whatever. And really, what the RISA does, is basically help you align that psychology. So maybe a lot of the reason why your clients are freaking out, Mr. or Mrs. Advisor, is because their investment strategy doesn’t match their psychology. You’ve got them all in the market and in equities and trying to tell them, it’s going to be okay during retirement, even though the market’s freaking out, have the stomach to get through it. Well, according to the research, three quarters of the people don’t have the stomach to get through it. Right? They want some contractual certainty in it. And the RISA really does a tremendous job of doing that, it becomes a terrific conversation piece between the advisor and their client, and what better way of helping a client, showing them your fiduciary, showing them that you care than helping them actually listening to what they want. And for us, the way this plays in, is we try to give our advisors kind of the end to end experience with supporting them with insurance. And that really can be step one, let’s provide you with the RISA. And so we deliver it to our members, you know, through our website, you know, for free usage with their clients. Let your client tell you how they’d like their retirement income. And then let’s give you all the tools and support you need in delivering that for your client. So I think it’s a tremendous innovation, I really believe it should be something that’s a default, system wide for all advisors to talk to their clients about because advisors have never really spoken to their clients about how they would like their retirement income. It’s always, here’s the way I do it for you, I’m gonna keep you in the market, I’m gonna use a 4% rule, you know, we might have to make some changes along the way. But don’t worry about it, I got you. And it’s like, maybe not everybody’s comfortable with that. But clients go long, because they don’t know there’s another way. You’re talking to your own advisor that you’ve had for a couple of decades, maybe, and you think that’s the only way. But here, you know, this allows the client to tell the advisor how I’d like it, and then the advisor can help deliver in a way that makes the client happy.

Jack Sharry: So I have a hunch you probably agree with me on this, but one of the observations I made coming out of COVID maybe, it was coming this way anyway. But there seemed to be a shift before, pre-COVID. You know, advisors told their clients what to do and why you should like it and all that, fine or not, whatever it was. Going through COVID, people started to, well, first of all, they started with big, fat 401k balances, they thought they could retire early. And then a lot of people did. This is concurrent with more people retiring than any prior time, 10,000-12,000 per day were retiring as COVID came about. And then the market got volatile, and inflation went crazy. And all of a sudden, they’re now in charge of their retirement, where they retired earlier than they should have. And then of course, they all went back, not all, but many went back to work and significant migration back to work. And so it seems to me, let’s see if you agree, it seems to me where the investor is is like, “Okay, I’m not gonna listen to your blah, blah, blah story about this, that, or the other thing. I really want to have some more certainty because I get it. I’m now responsible for my retirement because I… the advice I got wasn’t quite, wasn’t consider… it didn’t consider me. It considered whatever the advisor was promoting at the time.” So, your thoughts on that?

David Lau: Yeah, I think you see that in a number of ways. One, like I was saying earlier, 2022 was the highest year ever for annuity sales. And you know, a lot of people will say, “Oh, well, whatever, the salesmen are having a field day,” but the thing is, clients want it. They wouldn’t be buying the products, you know, I don’t care how good your sales pitch is, if it’s not something you want, you’re not going to buy it. Right? So these products are delivering benefits that clients want and ignoring the fact that you see this huge trend, I think you do it at your own peril. I was talking to an advisor the other day, he was like, talking about, “Oh, I don’t care how, you know, how many people are using, you know, annuities, whatever,” and kind of dismissing them. It’s like, these are your clients though, or your potential clients who want this.

Jack Sharry: And has, and has tax advantages, and the potential for a guaranteed income stream.

David Lau: Yes.

Jack Sharry: Like what they want.

David Lau: Exactly. They’ve got structural benefits that can’t be delivered through investing alone. And this is just an augmentation to what you’re already doing as an advisor. And it’s interesting, we do annual surveys, we have done it since day one of DPL. We’ve done it now four years, we’ll have the fifth year going out, surveying our advisors on all these retirement issues, right. And we’re asking them every year, same questions, almost, you know, change them up a little bit, but same questions. What’s more important to your clients in retirement, predictable income or asset growth? 85%, predictable income. That’s what the advisors are telling us? How do you do that? We keep them in stocks. Just like, basically, this is the answer. It’s like, “Huh. Okay, so you know, your clients are looking for predictable income over growth, yet your strategy is still total return portfolio.” It’s like, you know, there are different ways of doing that, better ways of doing that.

Jack Sharry: Yeah. And like you said, which somehow gets missed, it’s all or nothing. It’s not, it’s just that some portion of the portfolio just, where you have some comfort. Yeah. And to circle it back to what you were asking earlier. That’s what we’re starting to see. Which is, you know, for me, really gratifying. So you see the work that you’re doing, the education you’re putting out, you know, starting to take a foothold. And we see annuities replacing bonds in retirement income strategies, we see annuities taking the place of bonds in accumulation, we see annuities taking the place of some equity allocations in order to provide some protection on the equity side. So you love to see that, you know, good prudent use of the products to deliver what clients are looking for. So I have known you going back to the Jefferson National days, which, what is that? Probably about 15 years ago that we got together. I can’t remember.

David Lau: Yeah.

Jack Sharry: Terrible on dates, at least that far.

David Lau: Probably a little longer.

Jack Sharry: Yeah, maybe 20. We would age ourselves, David. So yeah, it’s been fun to watch what you’ve done. You’ve really brought this industry to, I think new levels and important levels. Where do you see the world going? What’s, what’s, what’s next? What’s, what’s coming down the pike? I still think, one, we’re in the, you know, as to beat up an… a saying now, we’re in the early innings. You know, we’re still in the first/second inning of this. You know, so if you think about it in the way of, you know, commission free annuities in a similar vein to technology, you know, we’re kind of getting through the early adopters into the fast followers, you know, soon we’ll be to the mainstream, and seeing that widespread adoption, but you know, it’s doing anything new is always hard. And so, you know, for a financial advisor, one of our advisors made the comment that, you know, it’s once you’re beyond five employees at a financial advisory firm, it’s hard to be a fiduciary. Because it’s hard to change. It’s hard to do anything different. And so, you know, right now, you know, and tying back to a question also, you were asking earlier, Jack, we’ve seen our client base change in the last four and a half years. First, we start off doing, we’re working with a lot of smaller firms, anybody who would do business with you, you’ll do business with them, early on. Now, it’s the biggest firms in the industry that are working with us. It’s the high towers, the dynasties, the beacon points, wealth enhancement groups, you know, the largest, the firms that are managing tens of billions, if not hundreds of billions of dollars, because they know this, we can make it work for them at scale. And this is just better, you know, better outcomes for clients. And what I see is just more adoption and more ease of use. So you know, we focus a lot on that ease of use, so we do integrations in portfolio management systems. So, you know.

David Lau: Yeah. That’s, that’s a great question. I did the, I do all the shopping for my wife. So I can’t use that one again. I play golf, that’s not all that interesting, particularly the way I play it. So that, I mean, one of the things I am passionate about, I’ll put a plug in for this. Chip Roame, who we both know quite well, he does an outing every year to go build homes in Mexico for truly, truly impoverished, underprivileged people. I’ve been doing that for the last number of years. It’s something I contribute to and do even though, you know, I don’t do the same work I do down there, I don’t do around my own house. We go down and build homes. It’s one of the most rewarding things that I do. And I just love it. You change the lives of these people by just putting a roof over their heads and a concrete slab under their feet. You bring health and wealth and well being to people who were previously living in dirt and squalor. It’s incredibly rewarding. It’s something I look forward to every year.

Jack Sharry: That’s great. Great. Thanks for doing that. Thanks for sharing that. So David, thank you. As always, this has been a lot of fun. I’ve learned some things, which always happens when we have a chance to catch up. For our audience, if you’ve enjoyed our podcast, please rate, review, subscribe, and share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts. David, again, thanks. It’s been a real pleasure.