ThinkAdvisor
How DPL Partners' Lau Is Disrupting the Annuities Business
David Lau, founder and CEO of DPL Financial Partners, has turned the insurance industry upside down with a platform of commission-free annuities and other insurance products for registered investment advisors (RIAs).
Lau is being honored as part of ThinkAdvisor’s new recognition program, the LUMINARIES, for his executive leadership. He recently discussed his career and the development of DPL’s platform with ThinkAdvisor.
THINKADVISOR: What was the vision you had when you created DPL Financial Partners, and how has the firm evolved?
DAVID LAU: Looking at the financial services industry, I could see that the insurance industry was decades behind the rest of the industry in terms of driving out costs and commissions. While the vast majority of the rest of the financial services industry had long ago moved to low-cost, no-load (or commission-free) products, annuities and life insurance were still commission-driven products.
Not only does this no longer match the business models of financial advisors who primarily bill on fees, but drives product costs up significantly for the end customer.
As someone who has spent my 27-year career delivering better consumer value through my roles as chief marketing officer of the first internet bank and as chief operating officer at a no- load insurance carrier, this was a problem I wanted to tackle and was uniquely qualified to do.
The vision I have for the firm has remained true to its origins, but has not yet been fully rolled out. We continue to look to expand product offerings to include more life insurance, long- term care and disability products as well as expand the access to our products to additional audiences.
How did your positions at the first Internet bank and at a no-load insurance carrier lead eventually to starting your own firm?
The strategy at E-Trade Bank and its predecessor, TeleBank, was to lower overhead and distribution costs by eliminating bank branches. Our lower costs enabled us to offer better products and services to consumers through technology.
I took the same approach at Jefferson National, but instead of eliminating branches, the cost reduction was in the form of eliminating commissions and wholesaling costs. My success at Jefferson National was what enabled me to start DPL Financial Partners.
While the insurance industry had the desire to deliver commission-free products, carriers really didn’t know how — from the product creation to the technological and operational support required. Having proven myself in these areas at Jefferson National, carriers across the industry have been reaching out to work with DPL since our launch.
Additionally, my experience and success in raising capital and building startups was extremely helpful in getting funding from our capital partners.
How large is DPL now, and how much has it grown?
We launched DPL in 2018 and since that time we have grown to over 60 employees. We serve RIA firms through our direct membership model as well as through strategic partnerships with other RIA platforms.
Our direct membership represents over 1,300 firms with about $300 billion in combined AUM. Through our strategic partners, we support another 2,000-plus firms representing about $2 trillion in AUM. We are approaching $1 billion in annuities sold and about 500 life insurance policies since our launch.
What is the business model for the firm, and how is it different from other firms working in the annuity business?
Our business model is multifaceted: We work with carriers to bring new commission-free products to market and ensure they can support commission-free product offerings; we build technology designed around product discovery (helping to find the products that best fit client needs); and we support the growth of our RIA firms by serving in a consultative role to expand their offerings to include insurance.
While others build technology, the new ground we are breaking is in the development and delivery of low-cost, commission-free products — DPL is the driver of the commission-free annuity and life insurance space.
How does DPL Partners fill the needs of RIA firms and get insurance companies to participate on the platform?
We fill two primary needs for RIA firms; the first is from a business perspective. Without the ability to provide insurance solutions to their clients, RIAs have fallen behind the rest of the advisory industry, most of whom now bill on fees as RIAs do, but can also deliver more holistic planning and investing solutions by incorporating insurance.
By bringing commission-free insurance to market, RIAs can now better serve their clients, capture greater share of wallet, and deliver better retirement planning outcomes while keeping clients away from competitors.
Secondly, the challenges of retirement today are best met through a combination of investing and insurance. Without the ability to provide annuities in this era of low interest rates, while retirement durations are expanding and retirement is primarily self-funded, leaves RIA clients at a severe disadvantage.
Our groundbreaking efforts to deliver low-cost, commission-free products enable RIAs to better serve their clients while eliminating the historical conflict of interest they have had with annuities.
We have been fortunate, based on my prior track record and DPL’s success, to have many carriers approach us to work with them. We share our expertise with them in order to get more products built for the market.
Our goal is not to own the commission-free insurance market, but to create it. We want consumers to reap the benefits of these important products at lower costs and delivered through a fiduciary rather than a salesperson.
What is your vision of growing the firm now, and does it involve more deals like the one made with Black Diamond, which launched its own insurance marketplace for RIAs in partnership with DPL?
We will continue to grow the firm through all aspects of our focus — bring more products to market, create additional platform partnerships to make the products accessible and enhance our technology to enable better product selection and ease of implementation.
In addition, as the demand for our products and services continues to increase, we will deliver them through additional channels.
What do you anticipate for newer annuity products?
My guiding principle for bringing new products to market is “build products that can be used, not sold.” That focuses product development on better pricing and simpler products. Product complexity kills usage and adoption and is generally created to enable sales, not results.
Annuities are incredibly valuable and powerful tools for income generation and risk mitigation. Advisors and their clients need them, but they have to be easily understood to be used properly and be more widely adopted.
One of our big new initiatives will be to introduce the first ever commission-free MYGA (multi- year guaranteed annuity) marketplace in November. These products will be excellent additions to portfolios to replace low-yielding bonds, cash and CDs.
What is driving the growth of the annuity market, and how influential are changing demographics to the growing interest in annuities among the clients of RIAs?
There are many market dynamics that are driving the increased usage and interest in annuities.
First, traditional fixed income investments like bonds deliver so little yield that they add little benefit to a retirement plan. This has resulted in advisors leaving clients more exposed to equities and risk in their retirement plans. Our running bull market has masked the problems created by that risk, but it won’t last forever. Annuities are specifically built to solve these challenges.
Advisors who only employ investments in portfolios are either exposing clients to outsized equity risk or are creating additional risk in retirement plans by having low-yielding cash and fixed income positions. Annuities shine in this era of low rates and dramatically outperform fixed income investments in generating retirement income.
In addition, as more boomer clients age and face 30-year-plus retirements that they primarily need to self-fund, the notion of guaranteed lifetime income is tremendously appealing. The challenge is in getting RIAs who have traditionally sold against these products, because of their financial conflict of interest, to start employing them for clients. Once they look at the products with an eye toward their client, it’s a no-brainer.
Are you looking for more investment from institutions beyond the $26 million the firm recently received from Eldridge and Atlas Merchant Capital?
I started DPL by bootstrapping it myself, as many entrepreneurs do. As we got ready to launch, I was fortunate enough to bring Todd Boehly and Eldridge in as my original investors to fund our initial growth.
The success we had upon launch led me to bring in additional investment, which we received both from Eldridge and Bob Diamond and David Schamis at Atlas Merchant Capital. (Editor’s note: Todd Boehly is co-founder, chairman and CEO of Eldridge; Bob Diamond, CEO, and David Schamis, CIO. are founding partners of Atlas Merchant Capital.)
To date, we have received $26 million in funding from those partners. As we’ve continued to expand and grow, we will soon be looking for another round of funding.