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Welcome to A Day at DPL, the thought leadership series of the Advisor Revelations podcast.
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In this episode, DPL founder and CEO David Lau is joined by Galen Schaefer of EOS Ventures.
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Tune in as they discuss the macro forces reshaping retirement from solving the income challenge for 70 million Americans retiring this decade to why the next frontier of holistic advice must bridge the gap between investment management and sophisticated insurance protection.
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Hello, Galen Sheffer.
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Welcome to a Day at DPL podcast.
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I'm so happy to have you on.
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This will be uh nice to have a conversation where I get to lead the questions for a change between us.
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Galen is with EOS Ventures, who is you know one of the investment partners of DPL.
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And welcome, Galen.
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So glad to be joining you here, David.
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Thanks for having me.
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Terrific.
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So we generally have an audience, you have lots of financial advisors and some individual consumers.
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And you know, one of the things you know they like to hear from our guests are you know forward thinking and you know, forward-looking thoughts.
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You know, we have a reputation of being innovative and you know at the forefront of different things.
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And you know, as a you know venture firm, you're also kind of at the forefront of a lot of different things and seeing a lot of different businesses and deals.
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And so maybe you can just start with you know, what about DPL kind of spurred the interest in the investment and what trends do we fit into in a grander perspective that you think are really interesting?
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David, that's a great question.
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Maybe let me start by sharing a little bit more about EOS.
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Perfect.
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And then I can also give you a bit of context on my background, which I think will help locate this discussion for the advisors who are listening.
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Yep.
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So EOS, we're an early stage insurance specialist venture capital fund.
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We invest across, think traditional insurance, so personal, commercial, life, supplemental health, major medical, and we also invest in adjacent areas.
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So wealth and retirement, cybersecurity, employee benefits.
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So we have an appetite both in sort of direct insurance solutions as well as sort of the adjacencies that surround the insurance ecosystem.
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So DPL's always sort of been on our radar as one of the foremost players in the annuity segment, one of the ways in which RIAs are really able to access fee-based annuities sort of uniquely.
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We're a team of 12.
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We're spread out across London, New York, and Los Angeles.
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All of us come from the insurance sector.
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On my side, I actually started my career at HVS doing research for their strategy division, largely on the insurance sector, picked up my MBA at MIT, and then I was in McKinsey's North American insurance practice for nearly five years.
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So I worked with a lot of the major life and annuities players, worked with a lot of big asset managers, and so you know, have been sort of deep in the retirement longevity and income protection space for a number of years.
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Yeah, and when you say HBS, you mean Harvard Business School.
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Yeah, I do.
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That's great.
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Just for that clarity, for those who may not have made the connection, which is always valuable to founder, an entrepreneur that you've got experience on the business side.
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So not only doing like research, you know, time with HBS, but really at McKinsey spending time in those roles supporting insurance businesses and adjacent businesses from the actual operational side, which is fantastic.
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You know, I'm not sure if people remember this, but from the advisor standpoint, I was actually working with a lot of the big life and annuities carriers before and during COVID.
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I don't know if you remember this, but e-signature was such a debate in the industry.
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Yeah.
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Because people wanted to have that touch point of a wet signature.
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And then suddenly it was just such a battle inside carriers because of the paperwork it created, but they still wanted to respect the advisor relationship.
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And so it was never sort of high on the tech roadmap.
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And then COVID hit and suddenly everything ground to a halt, and everyone had to sort of just lean into that really fast.
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And so it was fun sort of seeing, you know, how the remote life has sort of changed the technology landscape quite rapidly compared to what used to happen.
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Yeah, that's incredible.
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You just even forget about it, right?
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I mean, it just seems like one from the beginning, like, why would that be a problem?
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Like, wouldn't you do everyone's doing e-signature?
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I mean, that's one of the things, you know, we kind of have to drive in the insurance in our world, the annuity industry, not a lot of great technology and process.
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So we have to drive a lot of it with carriers and things that you know seem so simple and expected in other aspects of your life, like having his signature on just about anything would be a given.
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And I guess grateful in a way that we experience remote work to have to drive innovation in the insurance world.
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Yeah, it's certainly an interesting industry to be operating in.
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And maybe the final thing that's helpful for your listeners to know is that most of the investors in our fund are large carriers and reinsurers.
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We have a close strategic relationship with them.
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And so when we're thinking about, you know, the insurance landscape, trends that are happening, it's not just sort of us sitting in an office in Silicon Valley thinking big thoughts about tech.
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We're sort of actively out in the industry talking with the carriers and reinsurers that we know about what growth looks like, who's really moving the needle, what they need to reach the next level of sort of product development and how they can best serve their policyholders as well as their agents.
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And so we think that's important, staying close to the industry as we invest in the industry.
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Yeah, that's great.
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That's helpful.
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A lot of people think about venture firms or private equity, you know, raising from wealthy people and having their LPs being a lot of you know, rich families, family offices, you know, things like that.
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But there's also a dynamic of this corporate VC notion that works within industries and specialties like VIOS does, you know, on the insurance side, which makes a lot of sense.
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Right.
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I think what you're saying also is like, I'm gonna touch on this, and I hope that everyone thinks I'm being polite when I say it.
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But I think there's a part of insurance companies culture that is like by necessity conservative and I don't want to say slow moving, but very intentional.
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And you have these companies risk averse, risk averse, right?
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Yes, and you know, you can only survive a hundred or more years because you have that intentionality.
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And it's in many ways like a culture driven by the actuaries, and that's wonderful because it's one of the very few products where you don't know your cogs until potentially years after you sell the product.
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And so, you know, an aggressive insurance company doesn't tend to last in the landscape very long.
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But that necessarily means that sometimes when you're pushing the edge of what innovation looks like, whether that's using new AI tooling, whether that's reaching a new customer segment, whether that's incorporating a different type of underwriting, sometimes you can access the people at the forefront of that better through an external partnership with an early stage company rather than incubating that internally, just because very often that the culture of these large carriers, I think just sometimes can face a lot of challenges with um with like a test and learn sort of faster tech culture.
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Yes, exactly.
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I explain that to people all the time when I talk about like some of our challenges.
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You know, our insurance partners are fantastic, but they're also, as you're explaining, by nature, risk management companies, you know, who are aren't necessarily at the forefront of doing the latest things.
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And like you said, this kind of relationship that they might have with a firm like yours at EOS gives them a way of bringing in some outside expertise on helping drive innovation within their industry while at the same time providing some diversification within their investment portfolio into different alternative assets.
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David, you say it better than I could.
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You know, thank you.
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Yeah, we both live it every day.
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Maybe I feel the pain of the risk aversion of the carriers a little more acutely.
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It benefits you, it hurts me.
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I've got to work through it.
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It becomes a driver of your business.
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But that's one of the things, yeah, as we work to drive innovation in the insurance carrier space, and it's part of their risk-averse nature, is the commission world has always been what's driven, is still largely what drives the annuity and life insurance space.
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And at the same time, in the financial advisory world, it's really moved away from commissions and into fees.
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You know, people are working on advice models, not sales models anymore in terms of the firm.
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And that's where we kind of you know sit and helping drive that innovation within the annuity space.
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Yeah.
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So let's talk like why DPL.
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Yeah.
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Because I think that's a great topic.
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And I love talking with other people about how we found you guys, what excited us.
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Maybe to give the listeners a bit of context, we led your Series C in late 2024.
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And so are some of the newest institutional investors in the company.
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What we really like as like a broader sort of investment standpoint is we love when a company is hitting a macro and meets that macro with a really sort of unique perspective or edge.
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Like in other words, they're able to answer why now and why me in a very compelling and unique way.
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And when we met DPL, we felt like you met that perfectly.
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And so from a macro standpoint, you're hitting on this phenomenal macro around annuities as well as RIAs.
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And then from a micro standpoint, you guys have the technology, the distribution relationships, the carrier relationships to like really make that happen.
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So, like, maybe let me talk about that in a little bit more detail.
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So, like from a macro standpoint, annuities, I'm sure your audience is like so familiar with this, but like we are ripping in terms of annuity sales.
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Like the last four years have been record sales driven by sort of peak demographics in the US.
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Between like 2023 and 2028, people 65 and grow older will grow by nearly 10 million.
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We think there'll be around 70 million retirees by the turn of the decade.
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These retirees they want stability, they want income protection, and annuities are the perfect tool for that.
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Yep.
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So you have this enormous generation that's retiring, that doesn't have pensions, and that's seeking for a way to sort of protect their income going forward.
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And the annuity is frankly one of the only solutions available to the everyday American when they're thinking about what's that replacement for the traditional company pension.
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That's right.
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And I think it's a phenomenally fit product.
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And carriers have also been releasing a lot of very interesting and helpful iterations to, you know, when you're thinking about someone's appetite for growth, someone's appetite for protection, you know, you can really find what you seek within the newer annuities that are being released now.
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Yeah, and annuities, they're so divisive and they shouldn't be.
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And they're divisive because of the commission.
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And of course, when it started, that wasn't so divisive, but just the way the world has evolved, where you've got these divergent business models of advisors who still accept commissions.
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Very few still work on commissions alone, but you know, they'll still use insurance on a commission basis.
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But everyone's moved to the asset management side and doing it on you know fees for advice.
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And so annuities in the course of that change in the advisors' business model have become pretty divisive because you can't get paid traditionally if commissions were the only available option.
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So we kind of remove some of that conflict and some of the issue with being able to use annuities in an advice model and still just include it as a piece of AUM.
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And it doesn't have to be that divisive thing, which is terrific for the end client because they are really powerful as you're talking about retirement products, which meet unique needs.
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And if you're just working on investments alone in an advice model, you're really lacking in your tools to meet retirement needs.
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Absolutely.
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You know, and that's the other macro that we felt like you guys hit really well, which is the growth of the RIA channel and the advisor as a fiduciary.
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And this idea that like it no longer makes sense for the consumer, but also when you're thinking about your practice long-term for your sale value to base most of your revenue on commission earning products.
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You know, it's very hard for the individual to say, hey, am I getting the best advice out there if you have a conflict of interest here?
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And so we've been seeing just increased appetite towards that channel and towards the fiduciary model.
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But then that means they need a specific annuity product for that.
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And that's the fee-based annuity, which has been growing in popularity recently, but still, frankly, we think isn't where it needs to be in terms of the true appetite for this asset class.
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Yeah, agreed.
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And we're seeing some movement in that because we're still relatively new into this whole notion that there's a fee-based marketplace of annuities rather than just commission.
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And so it really starts to again get reinforced by the advisor's business model.
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If you're in an advice relationship with your client for 99% of what you're doing and talking to them about, it's really odd then to go into let me put my salesperson hat on now in the middle of a conversation, and basically now I'm acting as an appointed sales rep of an insurance carrier outside of our advice model now.
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And now I think people are catching up to the fact, both from like compliance people at the big RAs we work for and FINRA and other people catching up to like that doesn't seem right.
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And that seems like you should at least be considering fee-based products and keeping the advice model complete with your client rather than switching hats on rare occasion to sell a product, which doesn't really seem to make sense.
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Oh, completely.
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Yeah.
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It always also surprises me how many financial advisors are able to have a conversation about asset management without having a conversation about asset protection as well.
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I know we're talking right now about the annuity side of your platform, but you guys also have a rapidly growing insurance platform as well that has wonderful products around term, around permanent life, around long-term care.
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And it's just very surprising to me how few financial advisors are willing to look at the opposite side of that coin and say, hey, what if something happens to your life?
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Let's talk in a more holistic way about how we should be protecting your assets and your family going forward.
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And that should be a single conversation.
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You shouldn't be handed off to someone different or handed off to a different way of making money when you start having that broader conversation.
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That's right.
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And I think that's an evolution too.
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When you talk about the macro trends, when I started in the RIA business 20 years ago, RIAs were asset managers, and most financial advisors were more asset managers.
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And now it's becoming that they're more holistic planners around protection, around estate planning, tax planning, encompassing your whole financial life.
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And you're seeing the growth and size of firms that are supporting their clients, and they're becoming these massive firms with all kinds of capabilities.
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And so it makes sense to have it all in one place.
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And I think that's also driving a lot of our success in what we're seeing is advisors need to provide more than just asset management these days.
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They need to be looking at insurance and protection and estate planning and all of those things.
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And one of the other things that's important about it is putting it all together into their desktop.
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So it's not all this disparate relationships and technology and data feeds that they've got to try to manage.
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And so that's one of the other things we really try to drive is that integration and deep embedding of our technology into the advisor's desktop, which we think is really important for them to deliver the completeness that they need to for their clients.
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Yeah, I love what you're saying here because that sort of dovetails with, you know, we love the macro of annuities, we love the macro of the RIA segment.
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But then you guys came in and you said, hey, we have relationships with more than two-thirds of the sort of accessible advisor universe through these like main technology partnerships with Orion, with Black Diamond, with Tamarak, and that we are uniquely able to sit within their technology stack.
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We have the carriers on this side, we have the advisors on this side, and it's not a separate conversation to talk about income or life protection within that discussion.
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And that to us was a really key feature when we were like, who is going to win in the market?
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The person who's going to win is the person that sits at the middle of the existing ecosystems and is able to speak in the language of the advisor through those portals and to make that sale almost as easy as a mutual fund sale, you know, which is That's where we're driving.
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Maybe that's a little bit aspirational, it's a complicated product, but like those were really the things that excited us about DPL and why we've been so thrilled to join the company on its growth journey.
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That's terrific.
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And that's awesome.
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And what else are you seeing in the market that you think is interesting and particularly as it may pertain to advisors and their businesses?
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What other kind of innovative things do you see in the market?
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We're seeing a few sort of themes of interest that VCs are really leaning into around the AI wealth space.
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One is like the tech enabled RIAs.
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You have like further finance, savvy wealth.
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These guys are sort of building their own tech platforms from zero.
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There's a lot of interest in terms of bringing on new advisors to the platforms.
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I've heard they've been relatively aggressive in this space in terms of what they want their growth to look like.
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There are also a wealth of AI note takers.
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And you might be like, oh, an AI note taker, that's incredibly boring.
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But actually, if you think about it, they are actually a really important part of the ecosystem.
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If you can have a note taker sit there, listen to your meetings, integrate into your CRM, complete a lot of the next steps that have to happen, pre-draft your emails, follow up automatically.
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So it's not just a note taker, it's almost think of it like an executive assistant within your computer.
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And so, you know, these are relatively early in terms of like actually the full cycle that they aim to take over, but jump, Zocks, these companies are really raising heavy rounds as well as growing quite aggressively in the wealth management space.
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We're also seeing a lot around tax optimization.
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And so both from sort of a small business standpoint, a high net worth standpoint, an individual standpoint, being better able to sort of automatically review your past filings, flag audit risk, help the everyday advisor have a more tax-forward conversation before they bring in a professor, professional, so that way they can begin sort of adding value immediately and then really sort of like teasing what a broader relationship could look like.
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Yeah, that's great.
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Like you said, it's a great time from a price point on AI.
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Where do you think that's gonna go, though?
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It's not always gonna be like this.
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And how would firms utilizing AI kind of protect themselves from getting deeply in bed with some AI technology driving their business and now all of a sudden it's quite expensive?
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Like, where do you think the pricing's gonna go?
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How are they gonna get you ultimately?
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So, this is something that we worry about when we think about investing in the space, which is why we haven't made a big AI bet yet.
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And I think there's one question, which is what's the long-term advantage of these tools?
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You saw last week a few of the large language models introduced their own like AI legal assistance, which makes you really question the value of some of these large funded companies like Harvey and a few others.
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If the foundational models are going to do vertical SaaS services as well, what does it look like to be building sort of a thin layer on top of them?
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What's the real long-term advantage here?
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And so I do think there's a world in which maybe some of these foundational models start providing these services directly.
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Maybe cost continues to be low, but maybe if I were an advisor, I would keep my core technology stack with my like traditional players, with my Orions, with my Black Diamonds.
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They're here today.
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I'm very confident they're going to be here in five to 10 years.
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They do a wonderful job.
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And then I would selectively augment in a sort of very plug-and-play way with some of these more AI native solutions.
00:20:57.119 --> 00:21:05.359
And so that way, if my note-taking app in three years gets acquired or goes out of business or something happens, I can find a new one.
00:21:05.519 --> 00:21:14.000
But I'm not necessarily shifting my full technology stack to a company that was started 12 months ago by an 18-year-old who's fun out of open AI.
00:21:15.440 --> 00:21:19.119
Yes, even if that 18-year-old's now driving 100 million in revenue.
00:21:20.480 --> 00:21:30.880
Well, I mean, David, you actually once you start digging into these companies, though, you would be astonished by the levels of churn in some of them that everyone is willing to pilot.
00:21:31.039 --> 00:21:38.160
Everyone will kiss around, but when it actually comes to getting married and signing a contract, we're seeing a lot of churn in some of these companies.
00:21:38.400 --> 00:21:49.519
And so I would also highly recommend piloting before serving a long term contract because I think sometimes the accuracy in some of them might be very compelling.
00:21:49.599 --> 00:21:51.599
It might get you 85% of the way there.
00:21:51.839 --> 00:21:55.440
You really have to ask yourself as a business are we okay with 85%?
00:21:55.920 --> 00:21:57.920
Does that fit the use case we need?
00:21:58.079 --> 00:21:59.759
Or are we sort of losing some of the fidden?
00:22:00.400 --> 00:22:02.960
That really makes our high-touch relationships important.
00:22:03.279 --> 00:22:03.599
Yeah.
00:22:03.759 --> 00:22:11.119
And the evolution, it's things that are state of the art today are literally obsolete two months from now, right now.
00:22:11.279 --> 00:22:13.680
I mean, it's just evolving so fast.
00:22:14.160 --> 00:22:17.599
Making long-term commitments doesn't feel right right now.
00:22:17.680 --> 00:22:21.680
You've got to remain nimble and continue to spec out the market.
00:22:21.920 --> 00:22:42.640
And I think the final thing that concerns me when I think about the AI boom, specifically when it pertains to vertical software, like software for the insurance industry or for the wealth management industry, is even though it's great, even though it's useful, will we get dramatically different exit multiples than we've historically seen in this space?
00:22:42.960 --> 00:22:43.279
Right?
00:22:43.519 --> 00:22:48.559
Like a lot of the attention around AI has people talking about foundational models.
00:22:48.640 --> 00:22:52.000
And of course, you can get stratospheric valuations there.
00:22:52.160 --> 00:22:56.799
And then you also can think about sort of new markets like data centers in space.
00:22:56.960 --> 00:23:00.799
I don't know how you value that, but I'm assuming you can value that a lot more aggressively.
00:23:01.039 --> 00:23:07.920
But like when I think about, you know, a traditional wealth tech player, you know, there's a defined market for this.
00:23:08.000 --> 00:23:09.519
There's a clear buyer universe.
00:23:09.599 --> 00:23:11.680
There are clear private equity sponsors.
00:23:11.920 --> 00:23:25.200
I think on the insurance side of this, we really saw this when Willis Towers acquired Newfront earlier this year, which went for 15 times adjusted EBITDA, which is uh exactly what most brokers typically trade for.
00:23:25.359 --> 00:23:25.519
Right.
00:23:25.759 --> 00:23:37.039
And so there was sure there was probably some premium baked into that quote adjustment when you think about what the tech was actually worth, but you're not seeing Newfront go for 30 times EBITDA.
00:23:37.200 --> 00:23:38.799
You're not seeing it go for 40 times.
00:23:38.960 --> 00:23:39.119
Right.
00:23:39.279 --> 00:23:50.640
You're seeing these trade to traditional players at traditional or slightly higher than traditional multiples, which really makes me think, you know, it's really hard to redefine your exit universe.
00:23:50.799 --> 00:24:01.039
And so if I buy in at a valuation which is beyond that universe, how can I believe in a new reality going forward and what would be needed for that to happen?
00:24:01.200 --> 00:24:08.319
And I would say we still haven't seen enough proof points to fully believe that when we look at the vertical SaaS space in these areas.
00:24:08.720 --> 00:24:09.839
Interesting perspective.
00:24:10.000 --> 00:24:10.559
Appreciate it.
00:24:10.799 --> 00:24:21.119
It's a bit of a bummer perspective, but but I have to say, I think it's a perspective that'll make me a little bit more money than some of the other sort of high-flying big dreamers out there.
00:24:21.440 --> 00:24:23.759
So maybe can I talk to about some things I like?
00:24:23.920 --> 00:24:24.160
Sure.
00:24:24.319 --> 00:24:25.920
Because I've talked about things I don't like.
00:24:26.160 --> 00:24:26.559
Yep.
00:24:26.880 --> 00:24:27.200
Okay.
00:24:27.519 --> 00:24:32.240
Things that excite us right now are I would say a few areas.
00:24:32.559 --> 00:24:37.200
One, retirement and deaccumulation, which definitely aligns with you guys.
00:24:37.359 --> 00:24:50.160
But I think there's a broader question that like the US market is facing, which is as we move from defined benefit to defined contribution, how are people managing deaccumulation within their 401ks?
00:24:50.799 --> 00:24:54.559
And I think we're seeing record keepers often lose those assets.
00:24:54.799 --> 00:24:59.839
I think we're seeing people often individually manage when they ought not to be individually managing.
00:25:00.000 --> 00:25:00.240
Yep.
00:25:00.400 --> 00:25:01.279
You know, it's so funny.
00:25:01.359 --> 00:25:03.279
People actually don't tend to run out of money.
00:25:03.440 --> 00:25:08.240
It's that they tend to underspend the funds they have available due to excess conservatism.
00:25:08.400 --> 00:25:08.720
Yes.
00:25:08.880 --> 00:25:20.319
And I think we as a country haven't been able to compellingly answer like, what is our new retirement scheme and what are the supports people have to appropriately manage that large nested?
00:25:20.559 --> 00:25:20.799
Yep.
00:25:21.039 --> 00:25:23.039
And so I'd love to see more solutions there.
00:25:23.119 --> 00:25:24.640
We're very interested in that space.
00:25:24.960 --> 00:25:27.759
Yeah, that's again, annuities play into that space.
00:25:27.920 --> 00:25:40.240
And we hear it from our advisors directly that it enables, and you hear you see it in the academic research, you know, having an annuity enables people to spend more freely in retirement because they know that they've got that backstop.
00:25:40.319 --> 00:25:45.839
They don't have the fear of running out of money, it doesn't have to dominate their thinking throughout their retirement.
00:25:46.000 --> 00:25:59.680
They know that they've got essential expenses covered by guaranteed income through Social Security plus an annuity, maybe if they've got a pension, but it just enables that freedom of spending, which, as you say, is the bigger problem.
00:25:59.839 --> 00:26:19.359
I was, you know, I don't know, a year and a half ago in a room of a couple hundred advisors, and whoever the academic leading a discussion said, Among you, how many of you, as financial advisor, your bigger problem is getting people to spend in retirement or getting people to not overspend in retirement?
00:26:19.519 --> 00:26:24.799
And it was like three hands went up for the I've got to prevent my people from overspending.
00:26:24.880 --> 00:26:30.160
It's all they don't spend what they could be or or should be spending in retirement.
00:26:30.319 --> 00:26:39.200
And that is a challenging problem and issue, and you know, solutions around that are certainly interesting and not easy.
00:26:39.440 --> 00:26:39.759
Yeah.
00:26:39.920 --> 00:26:43.359
I mean, I think people understand how to spend a paycheck, right?
00:26:43.519 --> 00:26:47.039
But they don't understand how to spend a lump sum appropriately.
00:26:47.200 --> 00:26:47.519
Right.
00:26:47.759 --> 00:26:52.000
And it just creates a suboptimal retirement, you know, compared to what people deserve.
00:26:52.319 --> 00:26:52.480
Right.
00:26:52.559 --> 00:26:55.839
And that's why like an annuity is almost a replacement like that.
00:26:56.000 --> 00:27:12.000
So, you know, we talk a lot about the economic benefits of an annuity, but the behavioral ones are also important because you go from, you know, however much time, 40, 50 years you spent working and to your point, getting a paycheck, and you're very used to that paradigm.
00:27:12.079 --> 00:27:18.799
I know how much money I have to spend, I have my budget, I'm not dipping into my savings and seeing my nest egg dwindle.
00:27:18.880 --> 00:27:21.519
And now an annuity can replace your paycheck.
00:27:21.839 --> 00:27:36.960
And just behaviorally, that's a lot easier to understand rather than having to go to my financial advisor and say, How much money can we generate here this quarter for me to spend and seeing that coming out of my portfolio?
00:27:37.119 --> 00:27:39.279
And maybe it's not a great time to sell.
00:27:39.519 --> 00:27:53.039
There are just so many other benefits to annuities where that's part of what we get excited about working with advisors for you know, all those traditional advisors who've been the only investments only.
00:27:53.359 --> 00:27:59.839
Now we've got a way of starting to get them to pay attention to annuities and start learning about all the benefits again.
00:28:00.079 --> 00:28:00.880
Absolutely.
00:28:01.119 --> 00:28:09.680
So, in addition to this sort of de-accumulation question, we are also very interested in the intersection between wealth and insurance.
00:28:10.480 --> 00:28:18.880
And long-term care, I know is part of the DPL platform, but I think there can be so much more done in long-term care across the industry.
00:28:19.200 --> 00:28:23.200
Carriers have really redesigned what long-term care products look like.
00:28:23.279 --> 00:28:27.440
So they're much more sustainable and accessible for the everyday consumer.
00:28:27.599 --> 00:28:32.079
I know Washington State has stepped in and mandated sort of long-term care.
00:28:32.240 --> 00:28:34.720
And that sort of typically comes out of your paycheck.
00:28:34.880 --> 00:28:36.720
California is debating it.
00:28:36.880 --> 00:28:48.720
And then just when you look at individuals spend over time, having a health event later in life and getting into sort of an at-home care or facility care situation is one of the greatest destroyers of wealth.
00:28:49.279 --> 00:28:55.200
One of the largest reasons that people aren't able to appropriately pass down certain targeted assets to their children.
00:28:55.440 --> 00:28:57.839
You know, and I'm not sure the right answer to this, right?
00:28:57.920 --> 00:28:58.079
Yeah.
00:28:58.240 --> 00:29:12.000
But when I look at it and I look at the purchasing behavior of long-term care, when I look at carrier appetite here, there's a lot of potential, but we're just not seeing advisors yet able to sell long-term care in a compelling way.
00:29:12.160 --> 00:29:12.480
Yes.
00:29:12.640 --> 00:29:18.480
And maybe that's better illustrations, maybe that's an improved product experience.
00:29:18.640 --> 00:29:23.279
But I just wrestle with how to unlock such a valuable product for more Americans.
00:29:23.519 --> 00:29:23.839
Yeah.
00:29:24.000 --> 00:29:26.079
And it's one, I know we've talked about it before.
00:29:26.160 --> 00:29:28.240
It's one of the ones we hear from advisors.
00:29:28.400 --> 00:29:32.880
It's among the most interest, you know, other than some of the core annuity offerings.
00:29:33.039 --> 00:29:34.880
Long-term care is probably the next one.
00:29:35.039 --> 00:29:41.200
Everybody wants to know about it, everybody wants to know what the options are, but very few people act on it.
00:29:41.440 --> 00:29:47.200
They go into my client will just self-insure on long-term care, which everybody uses that term.
00:29:47.279 --> 00:29:49.039
And technically, you actually can't do that.
00:29:49.200 --> 00:29:51.279
You mean you're just going to cover the cost yourself.
00:29:51.359 --> 00:29:53.119
You're not actually self-insuring.
00:29:53.279 --> 00:30:02.559
But it's a tricky one because it's very much like longevity risk in some ways, because you don't know what the period is you're trying to plan for.
00:30:02.799 --> 00:30:05.359
Is this going to be a two-year long-term care stay?
00:30:05.519 --> 00:30:08.559
Is this going to be a 15-year long-term care stay?
00:30:08.799 --> 00:30:13.200
Much like longevity, you just don't know how to prepare for that or plan for it.
00:30:13.359 --> 00:30:16.799
So that's really a great use case for insurance, right?
00:30:16.960 --> 00:30:22.319
When you have an undefined risk, you know, that you don't know what the magnitude can be.
00:30:22.799 --> 00:30:26.960
I think advisors are kind of kicking the tires and exploring more.
00:30:27.039 --> 00:30:31.200
And I do think it's a very natural use case for insurance.
00:30:31.279 --> 00:30:40.559
And I would hope that more start taking up the use of insurance in those plans rather than kicking it to, you know, we'll cover the cost within the portfolio.
00:30:40.640 --> 00:30:45.599
Because, like you said, it can completely destroy wealth, a long, long-term care stay.
00:30:45.839 --> 00:30:56.160
And speaking of completely destroying wealth, I also wish more financial advisors would have a more holistic discussion around traditional P and C products.
00:30:56.559 --> 00:31:02.400
And I know many people are just like, oh, home auto, like go to your local personalized agent.
00:31:02.480 --> 00:31:04.160
It sort of isn't worth my time.
00:31:04.319 --> 00:31:10.799
But when you actually look at the risks people are exposed to, your advisor ought to have a better perspective on this.
00:31:10.960 --> 00:31:11.200
Yes.
00:31:11.359 --> 00:31:13.519
Like, for instance, I used to live in California.
00:31:13.759 --> 00:31:15.119
I work in insurance, right?
00:31:15.279 --> 00:31:28.799
And it wasn't until I chatted with a friend where I was like, oh my gosh, my UIUM, my uninsured motorist coverage is far too low, given like 25 to 30% of LA drivers are under uninsured.
00:31:28.960 --> 00:31:31.200
And I just, I jacked that up the next day.
00:31:31.680 --> 00:31:35.920
I sat back for a second and I was like, why has no one tried to sell me umbrella?
00:31:36.079 --> 00:31:38.480
I should have gotten an umbrella years ago.
00:31:38.720 --> 00:31:47.759
And, you know, it really makes you think like, yeah, my typical P and C agent is going to give me a really basic home and auto policy and call it a debt.
00:31:47.839 --> 00:31:50.000
They're going to make my mortgage carrier happier.
00:31:50.079 --> 00:31:54.559
They're going to make the state regulator happier because I'm going to be like insured appropriately.
00:31:54.720 --> 00:32:19.119
But the point is when you have a holistic view of someone's assets, you're able to see, hey, actually, you really need a more comprehensive portfolio of coverage because given the litigation environment that we have in the US and the number of uninsured motorists or the number of liability events, you're significantly leaving yourself exposed if your P and C coverage doesn't have sort of basic elevated limits in certain areas.
00:32:19.359 --> 00:32:23.519
And we're seeing a little bit of that happening within firms, not too much though.
00:32:23.680 --> 00:32:28.880
And I think mostly like advisors don't want to be the front line of a claim.
00:32:29.119 --> 00:32:34.799
Like so you've got an auto claim, you're calling your financial advisor, and that like they don't want to be in that spot.
00:32:34.960 --> 00:32:45.440
But like you said, it's an important part of risk of your financial well-being, making sure you're properly insured in all the various aspects of your life.
00:32:45.759 --> 00:32:46.559
Absolutely.
00:32:46.880 --> 00:32:49.279
Well, Galen, this has been fantastic.
00:32:49.519 --> 00:32:53.759
Appreciate your time and your thoughts, and it's been a really great conversation.
00:32:53.920 --> 00:32:58.720
I don't know if there's anything you want to leave our listeners with or in general.
00:32:59.119 --> 00:33:01.039
Well, appreciate you having me here.
00:33:01.279 --> 00:33:03.279
Thanks for having me participate in this conversation.
00:33:03.359 --> 00:33:04.640
It's free to chat, David.
00:33:04.799 --> 00:33:05.440
Thanks, Galen.
00:33:08.880 --> 00:33:10.079
Thanks for listening.
00:33:10.240 --> 00:33:17.119
To hear more advisor revelations, go to dplfp.com and subscribe on your favorite podcast streaming app.
00:00:03.759 --> 00:00:10.080
Welcome to A Day at DPL, the thought leadership series of the Advisor Revelations podcast.
00:00:10.320 --> 00:00:17.519
In this episode, DPL founder and CEO David Lau is joined by Galen Schaefer of EOS Ventures.
00:00:17.920 --> 00:00:32.479
Tune in as they discuss the macro forces reshaping retirement from solving the income challenge for 70 million Americans retiring this decade to why the next frontier of holistic advice must bridge the gap between investment management and sophisticated insurance protection.
00:00:35.280 --> 00:00:37.039
Hello, Galen Sheffer.
00:00:37.119 --> 00:00:39.920
Welcome to a Day at DPL podcast.
00:00:40.079 --> 00:00:41.920
I'm so happy to have you on.
00:00:42.159 --> 00:00:48.240
This will be uh nice to have a conversation where I get to lead the questions for a change between us.
00:00:48.479 --> 00:00:54.159
Galen is with EOS Ventures, who is you know one of the investment partners of DPL.
00:00:54.320 --> 00:00:55.439
And welcome, Galen.
00:00:56.000 --> 00:00:57.600
So glad to be joining you here, David.
00:00:57.679 --> 00:00:58.479
Thanks for having me.
00:00:58.799 --> 00:00:59.359
Terrific.
00:00:59.600 --> 00:01:05.439
So we generally have an audience, you have lots of financial advisors and some individual consumers.
00:01:05.519 --> 00:01:11.599
And you know, one of the things you know they like to hear from our guests are you know forward thinking and you know, forward-looking thoughts.
00:01:11.680 --> 00:01:16.719
You know, we have a reputation of being innovative and you know at the forefront of different things.
00:01:16.799 --> 00:01:25.120
And you know, as a you know venture firm, you're also kind of at the forefront of a lot of different things and seeing a lot of different businesses and deals.
00:01:25.280 --> 00:01:36.560
And so maybe you can just start with you know, what about DPL kind of spurred the interest in the investment and what trends do we fit into in a grander perspective that you think are really interesting?
00:01:36.799 --> 00:01:38.079
David, that's a great question.
00:01:38.239 --> 00:01:41.200
Maybe let me start by sharing a little bit more about EOS.
00:01:41.439 --> 00:01:41.760
Perfect.
00:01:41.920 --> 00:01:48.879
And then I can also give you a bit of context on my background, which I think will help locate this discussion for the advisors who are listening.
00:01:49.120 --> 00:01:49.280
Yep.
00:01:49.519 --> 00:01:53.840
So EOS, we're an early stage insurance specialist venture capital fund.
00:01:54.159 --> 00:02:02.799
We invest across, think traditional insurance, so personal, commercial, life, supplemental health, major medical, and we also invest in adjacent areas.
00:02:02.959 --> 00:02:07.200
So wealth and retirement, cybersecurity, employee benefits.
00:02:07.359 --> 00:02:15.919
So we have an appetite both in sort of direct insurance solutions as well as sort of the adjacencies that surround the insurance ecosystem.
00:02:16.159 --> 00:02:27.840
So DPL's always sort of been on our radar as one of the foremost players in the annuity segment, one of the ways in which RIAs are really able to access fee-based annuities sort of uniquely.
00:02:28.159 --> 00:02:29.120
We're a team of 12.
00:02:29.199 --> 00:02:32.400
We're spread out across London, New York, and Los Angeles.
00:02:32.639 --> 00:02:34.719
All of us come from the insurance sector.
00:02:34.960 --> 00:02:48.960
On my side, I actually started my career at HVS doing research for their strategy division, largely on the insurance sector, picked up my MBA at MIT, and then I was in McKinsey's North American insurance practice for nearly five years.
00:02:49.120 --> 00:03:02.560
So I worked with a lot of the major life and annuities players, worked with a lot of big asset managers, and so you know, have been sort of deep in the retirement longevity and income protection space for a number of years.
00:03:02.800 --> 00:03:05.919
Yeah, and when you say HBS, you mean Harvard Business School.
00:03:07.280 --> 00:03:07.919
Yeah, I do.
00:03:09.680 --> 00:03:10.400
That's great.
00:03:10.560 --> 00:03:20.400
Just for that clarity, for those who may not have made the connection, which is always valuable to founder, an entrepreneur that you've got experience on the business side.
00:03:20.479 --> 00:03:35.360
So not only doing like research, you know, time with HBS, but really at McKinsey spending time in those roles supporting insurance businesses and adjacent businesses from the actual operational side, which is fantastic.
00:03:35.599 --> 00:03:45.120
You know, I'm not sure if people remember this, but from the advisor standpoint, I was actually working with a lot of the big life and annuities carriers before and during COVID.
00:03:45.360 --> 00:03:49.840
I don't know if you remember this, but e-signature was such a debate in the industry.
00:03:50.000 --> 00:03:50.319
Yeah.
00:03:50.560 --> 00:03:53.919
Because people wanted to have that touch point of a wet signature.
00:03:54.080 --> 00:04:01.520
And then suddenly it was just such a battle inside carriers because of the paperwork it created, but they still wanted to respect the advisor relationship.
00:04:01.680 --> 00:04:04.159
And so it was never sort of high on the tech roadmap.
00:04:04.240 --> 00:04:10.800
And then COVID hit and suddenly everything ground to a halt, and everyone had to sort of just lean into that really fast.
00:04:11.039 --> 00:04:19.759
And so it was fun sort of seeing, you know, how the remote life has sort of changed the technology landscape quite rapidly compared to what used to happen.
00:04:20.000 --> 00:04:20.959
Yeah, that's incredible.
00:04:21.120 --> 00:04:22.639
You just even forget about it, right?
00:04:22.720 --> 00:04:27.759
I mean, it just seems like one from the beginning, like, why would that be a problem?
00:04:28.000 --> 00:04:30.879
Like, wouldn't you do everyone's doing e-signature?
00:04:31.040 --> 00:04:40.480
I mean, that's one of the things, you know, we kind of have to drive in the insurance in our world, the annuity industry, not a lot of great technology and process.
00:04:40.639 --> 00:04:54.079
So we have to drive a lot of it with carriers and things that you know seem so simple and expected in other aspects of your life, like having his signature on just about anything would be a given.
00:04:54.319 --> 00:05:01.360
And I guess grateful in a way that we experience remote work to have to drive innovation in the insurance world.
00:05:01.600 --> 00:05:04.639
Yeah, it's certainly an interesting industry to be operating in.
00:05:04.879 --> 00:05:12.240
And maybe the final thing that's helpful for your listeners to know is that most of the investors in our fund are large carriers and reinsurers.
00:05:12.399 --> 00:05:14.800
We have a close strategic relationship with them.
00:05:15.040 --> 00:05:25.680
And so when we're thinking about, you know, the insurance landscape, trends that are happening, it's not just sort of us sitting in an office in Silicon Valley thinking big thoughts about tech.
00:05:25.839 --> 00:05:41.600
We're sort of actively out in the industry talking with the carriers and reinsurers that we know about what growth looks like, who's really moving the needle, what they need to reach the next level of sort of product development and how they can best serve their policyholders as well as their agents.
00:05:41.839 --> 00:05:46.639
And so we think that's important, staying close to the industry as we invest in the industry.
00:05:46.959 --> 00:05:47.680
Yeah, that's great.
00:05:47.759 --> 00:05:48.480
That's helpful.
00:05:48.639 --> 00:05:59.519
A lot of people think about venture firms or private equity, you know, raising from wealthy people and having their LPs being a lot of you know, rich families, family offices, you know, things like that.
00:05:59.600 --> 00:06:10.000
But there's also a dynamic of this corporate VC notion that works within industries and specialties like VIOS does, you know, on the insurance side, which makes a lot of sense.
00:06:10.240 --> 00:06:10.480
Right.
00:06:10.639 --> 00:06:17.839
I think what you're saying also is like, I'm gonna touch on this, and I hope that everyone thinks I'm being polite when I say it.
00:06:18.000 --> 00:06:29.040
But I think there's a part of insurance companies culture that is like by necessity conservative and I don't want to say slow moving, but very intentional.
00:06:29.279 --> 00:06:32.959
And you have these companies risk averse, risk averse, right?
00:06:33.040 --> 00:06:38.240
Yes, and you know, you can only survive a hundred or more years because you have that intentionality.
00:06:38.399 --> 00:06:49.600
And it's in many ways like a culture driven by the actuaries, and that's wonderful because it's one of the very few products where you don't know your cogs until potentially years after you sell the product.
00:06:49.839 --> 00:06:54.720
And so, you know, an aggressive insurance company doesn't tend to last in the landscape very long.
00:06:54.959 --> 00:07:28.959
But that necessarily means that sometimes when you're pushing the edge of what innovation looks like, whether that's using new AI tooling, whether that's reaching a new customer segment, whether that's incorporating a different type of underwriting, sometimes you can access the people at the forefront of that better through an external partnership with an early stage company rather than incubating that internally, just because very often that the culture of these large carriers, I think just sometimes can face a lot of challenges with um with like a test and learn sort of faster tech culture.
00:07:29.199 --> 00:07:29.839
Yes, exactly.
00:07:30.000 --> 00:07:34.079
I explain that to people all the time when I talk about like some of our challenges.
00:07:34.240 --> 00:07:45.600
You know, our insurance partners are fantastic, but they're also, as you're explaining, by nature, risk management companies, you know, who are aren't necessarily at the forefront of doing the latest things.
00:07:45.680 --> 00:08:05.279
And like you said, this kind of relationship that they might have with a firm like yours at EOS gives them a way of bringing in some outside expertise on helping drive innovation within their industry while at the same time providing some diversification within their investment portfolio into different alternative assets.
00:08:05.600 --> 00:08:07.360
David, you say it better than I could.
00:08:07.680 --> 00:08:08.879
You know, thank you.
00:08:09.439 --> 00:08:10.800
Yeah, we both live it every day.
00:08:10.879 --> 00:08:14.560
Maybe I feel the pain of the risk aversion of the carriers a little more acutely.
00:08:14.720 --> 00:08:16.800
It benefits you, it hurts me.
00:08:16.959 --> 00:08:18.240
I've got to work through it.
00:08:18.399 --> 00:08:20.399
It becomes a driver of your business.
00:08:20.639 --> 00:08:36.480
But that's one of the things, yeah, as we work to drive innovation in the insurance carrier space, and it's part of their risk-averse nature, is the commission world has always been what's driven, is still largely what drives the annuity and life insurance space.
00:08:36.720 --> 00:08:44.000
And at the same time, in the financial advisory world, it's really moved away from commissions and into fees.
00:08:44.080 --> 00:08:49.279
You know, people are working on advice models, not sales models anymore in terms of the firm.
00:08:49.440 --> 00:08:55.039
And that's where we kind of you know sit and helping drive that innovation within the annuity space.
00:08:55.279 --> 00:08:55.600
Yeah.
00:08:55.759 --> 00:08:57.600
So let's talk like why DPL.
00:08:57.679 --> 00:08:57.919
Yeah.
00:08:58.080 --> 00:08:59.519
Because I think that's a great topic.
00:08:59.679 --> 00:09:04.799
And I love talking with other people about how we found you guys, what excited us.
00:09:05.039 --> 00:09:10.799
Maybe to give the listeners a bit of context, we led your Series C in late 2024.
00:09:10.879 --> 00:09:14.480
And so are some of the newest institutional investors in the company.
00:09:14.799 --> 00:09:26.960
What we really like as like a broader sort of investment standpoint is we love when a company is hitting a macro and meets that macro with a really sort of unique perspective or edge.
00:09:27.519 --> 00:09:34.639
Like in other words, they're able to answer why now and why me in a very compelling and unique way.
00:09:34.879 --> 00:09:38.960
And when we met DPL, we felt like you met that perfectly.
00:09:39.120 --> 00:09:46.080
And so from a macro standpoint, you're hitting on this phenomenal macro around annuities as well as RIAs.
00:09:46.240 --> 00:09:54.480
And then from a micro standpoint, you guys have the technology, the distribution relationships, the carrier relationships to like really make that happen.
00:09:54.720 --> 00:09:58.399
So, like, maybe let me talk about that in a little bit more detail.
00:09:58.639 --> 00:10:06.960
So, like from a macro standpoint, annuities, I'm sure your audience is like so familiar with this, but like we are ripping in terms of annuity sales.
00:10:07.120 --> 00:10:13.600
Like the last four years have been record sales driven by sort of peak demographics in the US.
00:10:13.840 --> 00:10:20.240
Between like 2023 and 2028, people 65 and grow older will grow by nearly 10 million.
00:10:20.399 --> 00:10:24.159
We think there'll be around 70 million retirees by the turn of the decade.
00:10:24.320 --> 00:10:30.000
These retirees they want stability, they want income protection, and annuities are the perfect tool for that.
00:10:30.080 --> 00:10:30.320
Yep.
00:10:30.480 --> 00:10:39.120
So you have this enormous generation that's retiring, that doesn't have pensions, and that's seeking for a way to sort of protect their income going forward.
00:10:39.279 --> 00:10:49.360
And the annuity is frankly one of the only solutions available to the everyday American when they're thinking about what's that replacement for the traditional company pension.
00:10:49.519 --> 00:10:50.000
That's right.
00:10:50.159 --> 00:10:52.320
And I think it's a phenomenally fit product.
00:10:52.399 --> 00:11:07.120
And carriers have also been releasing a lot of very interesting and helpful iterations to, you know, when you're thinking about someone's appetite for growth, someone's appetite for protection, you know, you can really find what you seek within the newer annuities that are being released now.
00:11:07.440 --> 00:11:12.159
Yeah, and annuities, they're so divisive and they shouldn't be.
00:11:12.320 --> 00:11:14.559
And they're divisive because of the commission.
00:11:14.799 --> 00:11:25.600
And of course, when it started, that wasn't so divisive, but just the way the world has evolved, where you've got these divergent business models of advisors who still accept commissions.
00:11:25.840 --> 00:11:31.200
Very few still work on commissions alone, but you know, they'll still use insurance on a commission basis.
00:11:31.360 --> 00:11:35.600
But everyone's moved to the asset management side and doing it on you know fees for advice.
00:11:35.679 --> 00:11:46.639
And so annuities in the course of that change in the advisors' business model have become pretty divisive because you can't get paid traditionally if commissions were the only available option.
00:11:46.879 --> 00:11:56.480
So we kind of remove some of that conflict and some of the issue with being able to use annuities in an advice model and still just include it as a piece of AUM.
00:11:56.639 --> 00:12:07.440
And it doesn't have to be that divisive thing, which is terrific for the end client because they are really powerful as you're talking about retirement products, which meet unique needs.
00:12:07.759 --> 00:12:16.000
And if you're just working on investments alone in an advice model, you're really lacking in your tools to meet retirement needs.
00:12:16.320 --> 00:12:17.039
Absolutely.
00:12:17.200 --> 00:12:27.919
You know, and that's the other macro that we felt like you guys hit really well, which is the growth of the RIA channel and the advisor as a fiduciary.
00:12:28.080 --> 00:12:41.279
And this idea that like it no longer makes sense for the consumer, but also when you're thinking about your practice long-term for your sale value to base most of your revenue on commission earning products.
00:12:41.440 --> 00:12:48.559
You know, it's very hard for the individual to say, hey, am I getting the best advice out there if you have a conflict of interest here?
00:12:48.720 --> 00:12:54.000
And so we've been seeing just increased appetite towards that channel and towards the fiduciary model.
00:12:54.240 --> 00:12:58.159
But then that means they need a specific annuity product for that.
00:12:58.320 --> 00:13:08.320
And that's the fee-based annuity, which has been growing in popularity recently, but still, frankly, we think isn't where it needs to be in terms of the true appetite for this asset class.
00:13:08.559 --> 00:13:09.360
Yeah, agreed.
00:13:09.440 --> 00:13:19.440
And we're seeing some movement in that because we're still relatively new into this whole notion that there's a fee-based marketplace of annuities rather than just commission.
00:13:19.600 --> 00:13:24.240
And so it really starts to again get reinforced by the advisor's business model.
00:13:24.320 --> 00:13:45.519
If you're in an advice relationship with your client for 99% of what you're doing and talking to them about, it's really odd then to go into let me put my salesperson hat on now in the middle of a conversation, and basically now I'm acting as an appointed sales rep of an insurance carrier outside of our advice model now.
00:13:45.679 --> 00:13:56.799
And now I think people are catching up to the fact, both from like compliance people at the big RAs we work for and FINRA and other people catching up to like that doesn't seem right.
00:13:56.879 --> 00:14:10.960
And that seems like you should at least be considering fee-based products and keeping the advice model complete with your client rather than switching hats on rare occasion to sell a product, which doesn't really seem to make sense.
00:14:11.279 --> 00:14:12.240
Oh, completely.
00:14:12.399 --> 00:14:12.720
Yeah.
00:14:12.960 --> 00:14:24.960
It always also surprises me how many financial advisors are able to have a conversation about asset management without having a conversation about asset protection as well.
00:14:25.200 --> 00:14:39.440
I know we're talking right now about the annuity side of your platform, but you guys also have a rapidly growing insurance platform as well that has wonderful products around term, around permanent life, around long-term care.
00:14:39.679 --> 00:14:48.559
And it's just very surprising to me how few financial advisors are willing to look at the opposite side of that coin and say, hey, what if something happens to your life?
00:14:48.720 --> 00:14:54.240
Let's talk in a more holistic way about how we should be protecting your assets and your family going forward.
00:14:54.399 --> 00:14:56.240
And that should be a single conversation.
00:14:56.399 --> 00:15:03.600
You shouldn't be handed off to someone different or handed off to a different way of making money when you start having that broader conversation.
00:15:03.840 --> 00:15:04.240
That's right.
00:15:04.320 --> 00:15:05.919
And I think that's an evolution too.
00:15:06.240 --> 00:15:16.799
When you talk about the macro trends, when I started in the RIA business 20 years ago, RIAs were asset managers, and most financial advisors were more asset managers.
00:15:16.960 --> 00:15:26.879
And now it's becoming that they're more holistic planners around protection, around estate planning, tax planning, encompassing your whole financial life.
00:15:27.039 --> 00:15:36.159
And you're seeing the growth and size of firms that are supporting their clients, and they're becoming these massive firms with all kinds of capabilities.
00:15:36.320 --> 00:15:38.960
And so it makes sense to have it all in one place.
00:15:39.120 --> 00:15:48.559
And I think that's also driving a lot of our success in what we're seeing is advisors need to provide more than just asset management these days.
00:15:48.720 --> 00:15:54.240
They need to be looking at insurance and protection and estate planning and all of those things.
00:15:54.559 --> 00:15:59.919
And one of the other things that's important about it is putting it all together into their desktop.
00:16:00.080 --> 00:16:06.000
So it's not all this disparate relationships and technology and data feeds that they've got to try to manage.
00:16:06.159 --> 00:16:21.120
And so that's one of the other things we really try to drive is that integration and deep embedding of our technology into the advisor's desktop, which we think is really important for them to deliver the completeness that they need to for their clients.
00:16:21.360 --> 00:16:29.759
Yeah, I love what you're saying here because that sort of dovetails with, you know, we love the macro of annuities, we love the macro of the RIA segment.
00:16:29.919 --> 00:16:47.200
But then you guys came in and you said, hey, we have relationships with more than two-thirds of the sort of accessible advisor universe through these like main technology partnerships with Orion, with Black Diamond, with Tamarak, and that we are uniquely able to sit within their technology stack.
00:16:47.360 --> 00:16:57.919
We have the carriers on this side, we have the advisors on this side, and it's not a separate conversation to talk about income or life protection within that discussion.
00:16:58.080 --> 00:17:03.360
And that to us was a really key feature when we were like, who is going to win in the market?
00:17:03.679 --> 00:17:18.880
The person who's going to win is the person that sits at the middle of the existing ecosystems and is able to speak in the language of the advisor through those portals and to make that sale almost as easy as a mutual fund sale, you know, which is That's where we're driving.
00:17:19.119 --> 00:17:28.559
Maybe that's a little bit aspirational, it's a complicated product, but like those were really the things that excited us about DPL and why we've been so thrilled to join the company on its growth journey.
00:17:28.799 --> 00:17:29.440
That's terrific.
00:17:29.519 --> 00:17:30.160
And that's awesome.
00:17:30.240 --> 00:17:37.519
And what else are you seeing in the market that you think is interesting and particularly as it may pertain to advisors and their businesses?
00:17:37.680 --> 00:17:40.319
What other kind of innovative things do you see in the market?
00:17:40.640 --> 00:17:47.920
We're seeing a few sort of themes of interest that VCs are really leaning into around the AI wealth space.
00:17:48.160 --> 00:17:50.880
One is like the tech enabled RIAs.
00:17:51.039 --> 00:17:53.599
You have like further finance, savvy wealth.
00:17:53.920 --> 00:17:57.279
These guys are sort of building their own tech platforms from zero.
00:17:57.440 --> 00:18:01.519
There's a lot of interest in terms of bringing on new advisors to the platforms.
00:18:01.680 --> 00:18:07.519
I've heard they've been relatively aggressive in this space in terms of what they want their growth to look like.
00:18:07.759 --> 00:18:11.119
There are also a wealth of AI note takers.
00:18:11.279 --> 00:18:14.880
And you might be like, oh, an AI note taker, that's incredibly boring.
00:18:15.039 --> 00:18:20.000
But actually, if you think about it, they are actually a really important part of the ecosystem.
00:18:20.079 --> 00:18:32.799
If you can have a note taker sit there, listen to your meetings, integrate into your CRM, complete a lot of the next steps that have to happen, pre-draft your emails, follow up automatically.
00:18:32.960 --> 00:18:38.000
So it's not just a note taker, it's almost think of it like an executive assistant within your computer.
00:18:38.240 --> 00:18:54.079
And so, you know, these are relatively early in terms of like actually the full cycle that they aim to take over, but jump, Zocks, these companies are really raising heavy rounds as well as growing quite aggressively in the wealth management space.
00:18:54.319 --> 00:18:56.720
We're also seeing a lot around tax optimization.
00:18:57.359 --> 00:19:23.839
And so both from sort of a small business standpoint, a high net worth standpoint, an individual standpoint, being better able to sort of automatically review your past filings, flag audit risk, help the everyday advisor have a more tax-forward conversation before they bring in a professor, professional, so that way they can begin sort of adding value immediately and then really sort of like teasing what a broader relationship could look like.
00:19:24.160 --> 00:19:25.119
Yeah, that's great.
00:19:25.279 --> 00:19:28.880
Like you said, it's a great time from a price point on AI.
00:19:29.039 --> 00:19:30.640
Where do you think that's gonna go, though?
00:19:30.799 --> 00:19:32.079
It's not always gonna be like this.
00:19:32.240 --> 00:19:43.279
And how would firms utilizing AI kind of protect themselves from getting deeply in bed with some AI technology driving their business and now all of a sudden it's quite expensive?
00:19:43.440 --> 00:19:45.039
Like, where do you think the pricing's gonna go?
00:19:45.119 --> 00:19:46.880
How are they gonna get you ultimately?
00:19:47.119 --> 00:19:53.680
So, this is something that we worry about when we think about investing in the space, which is why we haven't made a big AI bet yet.
00:19:53.920 --> 00:19:58.480
And I think there's one question, which is what's the long-term advantage of these tools?
00:19:58.720 --> 00:20:11.039
You saw last week a few of the large language models introduced their own like AI legal assistance, which makes you really question the value of some of these large funded companies like Harvey and a few others.
00:20:11.279 --> 00:20:19.920
If the foundational models are going to do vertical SaaS services as well, what does it look like to be building sort of a thin layer on top of them?
00:20:20.160 --> 00:20:22.160
What's the real long-term advantage here?
00:20:22.319 --> 00:20:28.240
And so I do think there's a world in which maybe some of these foundational models start providing these services directly.
00:20:28.480 --> 00:20:41.279
Maybe cost continues to be low, but maybe if I were an advisor, I would keep my core technology stack with my like traditional players, with my Orions, with my Black Diamonds.
00:20:41.440 --> 00:20:42.400
They're here today.
00:20:42.559 --> 00:20:45.759
I'm very confident they're going to be here in five to 10 years.
00:20:45.920 --> 00:20:47.680
They do a wonderful job.
00:20:47.920 --> 00:20:56.720
And then I would selectively augment in a sort of very plug-and-play way with some of these more AI native solutions.
00:20:57.119 --> 00:21:05.359
And so that way, if my note-taking app in three years gets acquired or goes out of business or something happens, I can find a new one.
00:21:05.519 --> 00:21:14.000
But I'm not necessarily shifting my full technology stack to a company that was started 12 months ago by an 18-year-old who's fun out of open AI.
00:21:15.440 --> 00:21:19.119
Yes, even if that 18-year-old's now driving 100 million in revenue.
00:21:20.480 --> 00:21:30.880
Well, I mean, David, you actually once you start digging into these companies, though, you would be astonished by the levels of churn in some of them that everyone is willing to pilot.
00:21:31.039 --> 00:21:38.160
Everyone will kiss around, but when it actually comes to getting married and signing a contract, we're seeing a lot of churn in some of these companies.
00:21:38.400 --> 00:21:49.519
And so I would also highly recommend piloting before serving a long term contract because I think sometimes the accuracy in some of them might be very compelling.
00:21:49.599 --> 00:21:51.599
It might get you 85% of the way there.
00:21:51.839 --> 00:21:55.440
You really have to ask yourself as a business are we okay with 85%?
00:21:55.920 --> 00:21:57.920
Does that fit the use case we need?
00:21:58.079 --> 00:21:59.759
Or are we sort of losing some of the fidden?
00:22:00.400 --> 00:22:02.960
That really makes our high-touch relationships important.
00:22:03.279 --> 00:22:03.599
Yeah.
00:22:03.759 --> 00:22:11.119
And the evolution, it's things that are state of the art today are literally obsolete two months from now, right now.
00:22:11.279 --> 00:22:13.680
I mean, it's just evolving so fast.
00:22:14.160 --> 00:22:17.599
Making long-term commitments doesn't feel right right now.
00:22:17.680 --> 00:22:21.680
You've got to remain nimble and continue to spec out the market.
00:22:21.920 --> 00:22:42.640
And I think the final thing that concerns me when I think about the AI boom, specifically when it pertains to vertical software, like software for the insurance industry or for the wealth management industry, is even though it's great, even though it's useful, will we get dramatically different exit multiples than we've historically seen in this space?
00:22:42.960 --> 00:22:43.279
Right?
00:22:43.519 --> 00:22:48.559
Like a lot of the attention around AI has people talking about foundational models.
00:22:48.640 --> 00:22:52.000
And of course, you can get stratospheric valuations there.
00:22:52.160 --> 00:22:56.799
And then you also can think about sort of new markets like data centers in space.
00:22:56.960 --> 00:23:00.799
I don't know how you value that, but I'm assuming you can value that a lot more aggressively.
00:23:01.039 --> 00:23:07.920
But like when I think about, you know, a traditional wealth tech player, you know, there's a defined market for this.
00:23:08.000 --> 00:23:09.519
There's a clear buyer universe.
00:23:09.599 --> 00:23:11.680
There are clear private equity sponsors.
00:23:11.920 --> 00:23:25.200
I think on the insurance side of this, we really saw this when Willis Towers acquired Newfront earlier this year, which went for 15 times adjusted EBITDA, which is uh exactly what most brokers typically trade for.
00:23:25.359 --> 00:23:25.519
Right.
00:23:25.759 --> 00:23:37.039
And so there was sure there was probably some premium baked into that quote adjustment when you think about what the tech was actually worth, but you're not seeing Newfront go for 30 times EBITDA.
00:23:37.200 --> 00:23:38.799
You're not seeing it go for 40 times.
00:23:38.960 --> 00:23:39.119
Right.
00:23:39.279 --> 00:23:50.640
You're seeing these trade to traditional players at traditional or slightly higher than traditional multiples, which really makes me think, you know, it's really hard to redefine your exit universe.
00:23:50.799 --> 00:24:01.039
And so if I buy in at a valuation which is beyond that universe, how can I believe in a new reality going forward and what would be needed for that to happen?
00:24:01.200 --> 00:24:08.319
And I would say we still haven't seen enough proof points to fully believe that when we look at the vertical SaaS space in these areas.
00:24:08.720 --> 00:24:09.839
Interesting perspective.
00:24:10.000 --> 00:24:10.559
Appreciate it.
00:24:10.799 --> 00:24:21.119
It's a bit of a bummer perspective, but but I have to say, I think it's a perspective that'll make me a little bit more money than some of the other sort of high-flying big dreamers out there.
00:24:21.440 --> 00:24:23.759
So maybe can I talk to about some things I like?
00:24:23.920 --> 00:24:24.160
Sure.
00:24:24.319 --> 00:24:25.920
Because I've talked about things I don't like.
00:24:26.160 --> 00:24:26.559
Yep.
00:24:26.880 --> 00:24:27.200
Okay.
00:24:27.519 --> 00:24:32.240
Things that excite us right now are I would say a few areas.
00:24:32.559 --> 00:24:37.200
One, retirement and deaccumulation, which definitely aligns with you guys.
00:24:37.359 --> 00:24:50.160
But I think there's a broader question that like the US market is facing, which is as we move from defined benefit to defined contribution, how are people managing deaccumulation within their 401ks?
00:24:50.799 --> 00:24:54.559
And I think we're seeing record keepers often lose those assets.
00:24:54.799 --> 00:24:59.839
I think we're seeing people often individually manage when they ought not to be individually managing.
00:25:00.000 --> 00:25:00.240
Yep.
00:25:00.400 --> 00:25:01.279
You know, it's so funny.
00:25:01.359 --> 00:25:03.279
People actually don't tend to run out of money.
00:25:03.440 --> 00:25:08.240
It's that they tend to underspend the funds they have available due to excess conservatism.
00:25:08.400 --> 00:25:08.720
Yes.
00:25:08.880 --> 00:25:20.319
And I think we as a country haven't been able to compellingly answer like, what is our new retirement scheme and what are the supports people have to appropriately manage that large nested?
00:25:20.559 --> 00:25:20.799
Yep.
00:25:21.039 --> 00:25:23.039
And so I'd love to see more solutions there.
00:25:23.119 --> 00:25:24.640
We're very interested in that space.
00:25:24.960 --> 00:25:27.759
Yeah, that's again, annuities play into that space.
00:25:27.920 --> 00:25:40.240
And we hear it from our advisors directly that it enables, and you hear you see it in the academic research, you know, having an annuity enables people to spend more freely in retirement because they know that they've got that backstop.
00:25:40.319 --> 00:25:45.839
They don't have the fear of running out of money, it doesn't have to dominate their thinking throughout their retirement.
00:25:46.000 --> 00:25:59.680
They know that they've got essential expenses covered by guaranteed income through Social Security plus an annuity, maybe if they've got a pension, but it just enables that freedom of spending, which, as you say, is the bigger problem.
00:25:59.839 --> 00:26:19.359
I was, you know, I don't know, a year and a half ago in a room of a couple hundred advisors, and whoever the academic leading a discussion said, Among you, how many of you, as financial advisor, your bigger problem is getting people to spend in retirement or getting people to not overspend in retirement?
00:26:19.519 --> 00:26:24.799
And it was like three hands went up for the I've got to prevent my people from overspending.
00:26:24.880 --> 00:26:30.160
It's all they don't spend what they could be or or should be spending in retirement.
00:26:30.319 --> 00:26:39.200
And that is a challenging problem and issue, and you know, solutions around that are certainly interesting and not easy.
00:26:39.440 --> 00:26:39.759
Yeah.
00:26:39.920 --> 00:26:43.359
I mean, I think people understand how to spend a paycheck, right?
00:26:43.519 --> 00:26:47.039
But they don't understand how to spend a lump sum appropriately.
00:26:47.200 --> 00:26:47.519
Right.
00:26:47.759 --> 00:26:52.000
And it just creates a suboptimal retirement, you know, compared to what people deserve.
00:26:52.319 --> 00:26:52.480
Right.
00:26:52.559 --> 00:26:55.839
And that's why like an annuity is almost a replacement like that.
00:26:56.000 --> 00:27:12.000
So, you know, we talk a lot about the economic benefits of an annuity, but the behavioral ones are also important because you go from, you know, however much time, 40, 50 years you spent working and to your point, getting a paycheck, and you're very used to that paradigm.
00:27:12.079 --> 00:27:18.799
I know how much money I have to spend, I have my budget, I'm not dipping into my savings and seeing my nest egg dwindle.
00:27:18.880 --> 00:27:21.519
And now an annuity can replace your paycheck.
00:27:21.839 --> 00:27:36.960
And just behaviorally, that's a lot easier to understand rather than having to go to my financial advisor and say, How much money can we generate here this quarter for me to spend and seeing that coming out of my portfolio?
00:27:37.119 --> 00:27:39.279
And maybe it's not a great time to sell.
00:27:39.519 --> 00:27:53.039
There are just so many other benefits to annuities where that's part of what we get excited about working with advisors for you know, all those traditional advisors who've been the only investments only.
00:27:53.359 --> 00:27:59.839
Now we've got a way of starting to get them to pay attention to annuities and start learning about all the benefits again.
00:28:00.079 --> 00:28:00.880
Absolutely.
00:28:01.119 --> 00:28:09.680
So, in addition to this sort of de-accumulation question, we are also very interested in the intersection between wealth and insurance.
00:28:10.480 --> 00:28:18.880
And long-term care, I know is part of the DPL platform, but I think there can be so much more done in long-term care across the industry.
00:28:19.200 --> 00:28:23.200
Carriers have really redesigned what long-term care products look like.
00:28:23.279 --> 00:28:27.440
So they're much more sustainable and accessible for the everyday consumer.
00:28:27.599 --> 00:28:32.079
I know Washington State has stepped in and mandated sort of long-term care.
00:28:32.240 --> 00:28:34.720
And that sort of typically comes out of your paycheck.
00:28:34.880 --> 00:28:36.720
California is debating it.
00:28:36.880 --> 00:28:48.720
And then just when you look at individuals spend over time, having a health event later in life and getting into sort of an at-home care or facility care situation is one of the greatest destroyers of wealth.
00:28:49.279 --> 00:28:55.200
One of the largest reasons that people aren't able to appropriately pass down certain targeted assets to their children.
00:28:55.440 --> 00:28:57.839
You know, and I'm not sure the right answer to this, right?
00:28:57.920 --> 00:28:58.079
Yeah.
00:28:58.240 --> 00:29:12.000
But when I look at it and I look at the purchasing behavior of long-term care, when I look at carrier appetite here, there's a lot of potential, but we're just not seeing advisors yet able to sell long-term care in a compelling way.
00:29:12.160 --> 00:29:12.480
Yes.
00:29:12.640 --> 00:29:18.480
And maybe that's better illustrations, maybe that's an improved product experience.
00:29:18.640 --> 00:29:23.279
But I just wrestle with how to unlock such a valuable product for more Americans.
00:29:23.519 --> 00:29:23.839
Yeah.
00:29:24.000 --> 00:29:26.079
And it's one, I know we've talked about it before.
00:29:26.160 --> 00:29:28.240
It's one of the ones we hear from advisors.
00:29:28.400 --> 00:29:32.880
It's among the most interest, you know, other than some of the core annuity offerings.
00:29:33.039 --> 00:29:34.880
Long-term care is probably the next one.
00:29:35.039 --> 00:29:41.200
Everybody wants to know about it, everybody wants to know what the options are, but very few people act on it.
00:29:41.440 --> 00:29:47.200
They go into my client will just self-insure on long-term care, which everybody uses that term.
00:29:47.279 --> 00:29:49.039
And technically, you actually can't do that.
00:29:49.200 --> 00:29:51.279
You mean you're just going to cover the cost yourself.
00:29:51.359 --> 00:29:53.119
You're not actually self-insuring.
00:29:53.279 --> 00:30:02.559
But it's a tricky one because it's very much like longevity risk in some ways, because you don't know what the period is you're trying to plan for.
00:30:02.799 --> 00:30:05.359
Is this going to be a two-year long-term care stay?
00:30:05.519 --> 00:30:08.559
Is this going to be a 15-year long-term care stay?
00:30:08.799 --> 00:30:13.200
Much like longevity, you just don't know how to prepare for that or plan for it.
00:30:13.359 --> 00:30:16.799
So that's really a great use case for insurance, right?
00:30:16.960 --> 00:30:22.319
When you have an undefined risk, you know, that you don't know what the magnitude can be.
00:30:22.799 --> 00:30:26.960
I think advisors are kind of kicking the tires and exploring more.
00:30:27.039 --> 00:30:31.200
And I do think it's a very natural use case for insurance.
00:30:31.279 --> 00:30:40.559
And I would hope that more start taking up the use of insurance in those plans rather than kicking it to, you know, we'll cover the cost within the portfolio.
00:30:40.640 --> 00:30:45.599
Because, like you said, it can completely destroy wealth, a long, long-term care stay.
00:30:45.839 --> 00:30:56.160
And speaking of completely destroying wealth, I also wish more financial advisors would have a more holistic discussion around traditional P and C products.
00:30:56.559 --> 00:31:02.400
And I know many people are just like, oh, home auto, like go to your local personalized agent.
00:31:02.480 --> 00:31:04.160
It sort of isn't worth my time.
00:31:04.319 --> 00:31:10.799
But when you actually look at the risks people are exposed to, your advisor ought to have a better perspective on this.
00:31:10.960 --> 00:31:11.200
Yes.
00:31:11.359 --> 00:31:13.519
Like, for instance, I used to live in California.
00:31:13.759 --> 00:31:15.119
I work in insurance, right?
00:31:15.279 --> 00:31:28.799
And it wasn't until I chatted with a friend where I was like, oh my gosh, my UIUM, my uninsured motorist coverage is far too low, given like 25 to 30% of LA drivers are under uninsured.
00:31:28.960 --> 00:31:31.200
And I just, I jacked that up the next day.
00:31:31.680 --> 00:31:35.920
I sat back for a second and I was like, why has no one tried to sell me umbrella?
00:31:36.079 --> 00:31:38.480
I should have gotten an umbrella years ago.
00:31:38.720 --> 00:31:47.759
And, you know, it really makes you think like, yeah, my typical P and C agent is going to give me a really basic home and auto policy and call it a debt.
00:31:47.839 --> 00:31:50.000
They're going to make my mortgage carrier happier.
00:31:50.079 --> 00:31:54.559
They're going to make the state regulator happier because I'm going to be like insured appropriately.
00:31:54.720 --> 00:32:19.119
But the point is when you have a holistic view of someone's assets, you're able to see, hey, actually, you really need a more comprehensive portfolio of coverage because given the litigation environment that we have in the US and the number of uninsured motorists or the number of liability events, you're significantly leaving yourself exposed if your P and C coverage doesn't have sort of basic elevated limits in certain areas.
00:32:19.359 --> 00:32:23.519
And we're seeing a little bit of that happening within firms, not too much though.
00:32:23.680 --> 00:32:28.880
And I think mostly like advisors don't want to be the front line of a claim.
00:32:29.119 --> 00:32:34.799
Like so you've got an auto claim, you're calling your financial advisor, and that like they don't want to be in that spot.
00:32:34.960 --> 00:32:45.440
But like you said, it's an important part of risk of your financial well-being, making sure you're properly insured in all the various aspects of your life.
00:32:45.759 --> 00:32:46.559
Absolutely.
00:32:46.880 --> 00:32:49.279
Well, Galen, this has been fantastic.
00:32:49.519 --> 00:32:53.759
Appreciate your time and your thoughts, and it's been a really great conversation.
00:32:53.920 --> 00:32:58.720
I don't know if there's anything you want to leave our listeners with or in general.
00:32:59.119 --> 00:33:01.039
Well, appreciate you having me here.
00:33:01.279 --> 00:33:03.279
Thanks for having me participate in this conversation.
00:33:03.359 --> 00:33:04.640
It's free to chat, David.
00:33:04.799 --> 00:33:05.440
Thanks, Galen.
00:33:08.880 --> 00:33:10.079
Thanks for listening.
00:33:10.240 --> 00:33:17.119
To hear more advisor revelations, go to dplfp.com and subscribe on your favorite podcast streaming app.
