Driving Disruption in the Insurance Industry with David Lau
Comfort is the enemy of progress, especially in business. Adapting to new models and driving change is frightening, due to fear and risk of failure. Some industries are better than others at embracing disruption, but the insurance industry often needs to catch up. When systems are working well enough, not everyone sees value in taking a different approach. Change may be uneasy, but it also brings the possibility to improve, grow, and advance.
This week, Jack talks with David Lau, Founder and Chief Executive Officer of DPL Financial Partners about disrupting the insurance industry. David has been an innovator for every business he has built, with extensive experience dating back to his role as the Chief Marketing Officer of E*Trade Bank, and its predecessor TeleBank. David has been at the forefront of developing products, platforms, and distribution systems that allow RIAs to implement commission-free annuities into their clients’ portfolios.
In this episode, David talks to Jack about how DPL drives change in the insurance industry by offering commission-free annuities. They discuss how annuities can enhance outcomes, which mistakes financial advisors should avoid with their clients, and where David sees the industry going.
What David has to say
“It’s easy to become beholden to your existing distribution, but anybody could see that the way the world was going and continues to go, is away from commissions and towards fees.”
Read the full transcript
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. Now, we should get caught up with someone who were I said is sitting, 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 RAS 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 the last time but 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 tele bank, 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 teller bank, 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’re doing. And from there, we built the Mac House chief marketing officer there built the bank very dramatically in about five years, from pretty much nothing to about 16 billion net assets. And we merged it with each raid in the round 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 2995 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 them 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 realize the number of different things that won, it was going to be hard to disrupt the insurance industry from a single manufacturers point of view, because that’s what a insurance carrier is 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 that DPL we really help drive that change, as well as bring these products out for RAs 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, get 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 what you do.
David Lau: Yeah, so DPL, where we are an annuity marketplace. So kind of the model for me was really like Charles Schwab one source, you know, where they were one of the first if not the first, no load mutual fund marketplaces, I thought, Let’s build the same thing, but do it for insurance and annuities. So DPL launched, you know, four and a half years ago with, you know, half a dozen carriers and maybe 15 products, today, we’ve got over 20, carriers, you know, I don’t know 7080 different products, we keep bringing out more carriers and more products to help get into the market. We then work with, you know, RAS and advisors on the other side of the marketplace to help them use, you know, annuities and insurance in their business to help deliver better outcomes for their clients. And this is a really critical part of the business, because not just the education on annuities and products and what’s out there and how you use them. But it’s how do you incorporate it into your financial plan? How do you build on these assets? How do you know what are the operational processes, we basically handhold you through all of that. And in between the two, we build technology. So we build technology, which with the overall mandate in our technical design, is we want to build technology that will help you find best product for your client, based on needs, not based on products. So you tell us or tell the technology, what problem you’re trying to solve, and for whom, and we’ll give you the best products to do it. And we’ll do that in a way that integrates really nicely into your desktop and your portfolio management system, your planning system, anything like that. So we make it super easy to use, we make it integrated. And importantly, when you remove the Commission’s from these products, you’re dropping the price by 80ish percent. So you’re getting a far better value and a far different product than people traditionally assume when they think of old commission-based annuities.
Jack Sharry: So talk a little bit of, if you will, around the distribution aspect, as I know, you take kind of a conscious approach in terms of servicing the RIAS, talk a little bit about the type of RIA that tends to use what you have to offer, maybe talk just about the distribution aspect, because you got to get the products down. And you got the technology and maybe a little more on the technology and how that human element comes to bear on the technology piece.
David Lau: Yeah, so one of you know, one of the things is 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 our 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 and process so that it becomes you know, we try to act like the RAS 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 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 and 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 of real extension and growth arm of your business.
Jack Sharry: Talk a little bit more about that if you would, around kind of the role that you play. And I’m thinking at the RAA level, so they’re putting together portfolios. So 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, as he tries to describe all that you guys do, I think, an exceptional job in that regard.
David Lau: 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 knows, you know, building Jefferson National, and you’re 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 IRA world. So to the extent that RIAS use annuities, they use that product or a product or any somebody else’s product, like it was simply a super low cost annuity, let’s get my client out and have an existing annuity and put them in this cheap one, they’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 use that 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 and investment only variable annuities 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 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 12 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 Mike has fixed annuities, because the rates are so strong, I mean, we have three and four year Maiga 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 in 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%. It’s 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 and retirement will tell you the best product to do it. You don’t need to know anything about the product types. We’re agnostic to at all, we’re solving problems, not selling products.
Jack Sharry: So David, I know you’ve done some interesting work with Wade Pfau his business partner. Tell us about that. It’s pretty exciting what you guys are working on.
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 D accumulation or their retirement income? Because there’s a big difference. Yeah, 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 risk, 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 in 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 inequities and trying to tell them, it’s going to be okay, during retirement, even though the markets 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 risk of 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 with 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 risk. 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 at the fault 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 of 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, one of the observations I made coming out of COVID maybe 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 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 concurrent with more people retiring than any prior time, 10 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 be where the investor 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 the advice I got wasn’t quite wasn’t conceived 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 it And ignoring the fact that you see this huge trend. I think you do it at your own peril that 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, it they’ve reminded me of like the old Yogi Berra thing, like nobody goes to that restaurant anymore. It’s too crowded. Right? So you’re like, dismissing these products, because too many people want them. It’s just the sales guys, whatever. I mean, come on, like, let’s listen to our clients and what the clients want. And this is one of the ways that clients are speaking, they’re buying the products that are delivering the benefits that they want. And protection. And guarantees are something that clients want. And, and a lot of advisors still go to the oh, you know, it’s all or nothing, basically, which is ironic is like nobody’s saying an annuity should be 100% of somebody’s allocation. But should there be per some percentage of the portfolio that’s guaranteed and has protections? Darn right? For most people, that’s what they’re looking for.
Jack Sharry: And has tax advantages, and the potential for a guaranteed income stream, yes. 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. And 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. For years, we’ll have the fifth year going out serving 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 the answer is like, Hmm, 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: Yep. 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, we have some comfort.
David Lau: 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’re starting to take a foothold. And we see annuities, replacing bonds and 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.
Jack Sharry: So I have no new going back to the Jefferson National days, which was that had probably about 15 years ago that we got together. I can’t remember. Yeah, good. Terrible on dates that far. Probably a little longer. Yeah, maybe 22, we would age ourselves. So yeah, it’s been fun to watch what you’ve done, you’ve really brought this industry to, I think new levels of important levels. Where do you see the world going? What’s next? What’s coming down the pike?
David Lau: I still think one we’re in the, you know, as to beat up and all 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 will 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 that 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’re 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 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 10s 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 and portfolio management system. So, you know, you were where the money’s being managed, and you can use our tools to enhance your portfolios, and you can see the annuity integrated in your portfolio. And I mean, that’s the thing from, you know, back in the early days, you know, when we first met, you’re talking about using the annuity for asset location, which is something you guys do you know, so Well, it’s a great solution, Nobody argues with the solution, there’s tremendous benefit, you know, it was too hard to do. But now you’ve got systems like LifeYield, you’ve got products that do it on a commission free basis, like ours, there are ways and you get those systems and products integrated into the rest of what you do. And now all of a sudden, you can deliver a better client outcome, because asset location isn’t hard anymore. And having the products to do it with are right there. And it’s not hard anymore. So that’s really a big part of what I see coming down the future. And, you know, I don’t mean to make it sound like we’re just patting each other on the back. But I mean, the things we both do are important structural benefits to portfolios, and that’s the way you get alpha, right? It’s not because I can invest better than the next guy, it’s because I’m going to use structure better than the next guy, I’m going to do asset location, I’m going to do tax optimization, I’m going to leverage the benefits and structure of products like annuities or, or things like trusts, it’s using those kind of structures, that helps you become a better adviser deliver better outcomes for your clients, rather than I can pick the best fund managers or the most high flying stocks or whatever. I mean, those are dated old notions, the future is in leveraging structure. And the good news for advisors is that it’s easier and easier to do that all the time.
Jack Sharry: David, it’s been a real pleasure to spend this time with you. I’ve always enjoyed getting together and talking about what you’re doing and where the world’s going and really pleased for the way it’s working out in terms of what you’ve been doing. DPL. So this is always my favorite question as we close out all of our podcasts. So what is something you do outside of work that you are excited or passionate about that white find interesting or surprising?
David Lau: Yeah, that’s, that’s a great question. I did the I do all the shopping for my wife. So I can 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 are 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 well effect on deck. We’re available wherever you get your podcasts. David again, thanks. It’s been a real pleasure.
David Lau: Absolutely, Jack. Anytime so good to see you. Good to see you.