InsuranceNewsNet Magazine March 2015 by InsuranceNewsNet

How BRANDON STUERKE is Changing the Industry with MARKETING AUTOMATION

T H E AU TO M AT I O N AU T H O R I T Y

How BRANDON STUERKE’S Revolutionary Approach to Marketing is Transforming the Way Advisors Build Their Practices In this Q&A, founder of Automated Advisor, Brandon Stuerke shares how he brought marketing automation to the financial services industry and why it’s a must for advisors wanting to build profitable practices. How did you get involved with marketing automation? I’ve been an advisor since 2001 and struggled early on like we all do building our businesses. I was drawn to the idea of marketing automation because I saw how it was working in other industries to save entrepreneurs substantial time, money and energy, while getting them in front of more qualified clients. I struggled initially though, thinking marketing automation was all about the software – platforms like Salesforce, Infusionsoft, Marketo, etc. At first I was just like most who purchase these tools, only leveraging 5-10% of their capabilities. So what exactly is marketing automation, if it’s not the software itself? While the software is an important piece, what really makes marketing automation effective is your strategy and how you use the software. Learning how to truly leverage marketing automation took me years of intense focus. I sought out, hired and mentored with the best automation marketers in the country. I then worked diligently applying all that I’d learned to the financial services industry. When launching Automated Advisor, I drew upon my twelve years of experience as an advisor as well as the collective experience of dozens of the most successful advisors in the country. Together we mapped out the opportunities for advisors to leverage automation. We designed funnels and campaigns to help advisors reach more prospects, capture more leads, nurture those opportunities and finally, increase client retention and referrals.

How do you help advisors develop the funnels to guide prospects down the path to conversion? We start by mapping all of the potential paths a prospect might take. We then work with the advisor to develop custom educational tracks and predetermined campaigns and follow-up sequences to develop the opportunity. The result is a funnel that produces qualified appointments with prospects who are pre-educated, pre-qualified and predisposed to doing business with you. We’ve effectively automated the first 60% of the sales process. How is Automated Advisor different from other automated marketing services? One thing is how long we’ve been focused on automation. It takes years to really learn to create effective MAPs (marketing automation plans), not to mention the time it takes to test and refine those strategies based upon real world results.

“If you’re not implementing automation now, then over the next 2-3 years you’re going to get crushed by the advisors who are.” Another differentiator is our “done for you” business model. We don’t just help advisors MAP strategies for their businesses, but we bring the team to the table to help them implement those strategies as well, so they aren’t bogged down with having to learn or hire new skill sets. Also, because we’re not an IMO or broker dealer, we’re able to stay laser focused on what we do better than anyone else: helping advisors escape the trap of living from one sale to the next and instead build scalable, efficient businesses.

What do you see for the future of marketing automation? It’s going to be huge. Just follow the dollars. The companies that provide marketing automation software have been growing fast, and large investment firms are pouring resources into these companies. InfusionSoft for example secured $109 Million in funding from Goldman Sachs, and Bain Capital from 20132014 alone. To me, this speaks volumes. These investment firms know that mass adoption is right around the corner and that marketing automation is set to explode onto the scene in a big way. The truth is, if you’re not implementing automation now, then over the next 2-3 years you’re going to get crushed by the advisors who are. But for those with vision, who do begin implementing automation now, by the time your competitors catch on you’ll be too far ahead to even compete with. You sound like you have a lot of enthusiasm for this industry and marketing automation. Where does your passion come from? I know intimately the pain and struggle of striving to solve all of the challenges that we face as advisors. It’s tough being an entrepreneur; in fact, it’s the hardest thing I’ve ever done. We work so hard to get to where we want to be and it’s easy to become frustrated with the process along the way. So when an advisor comes to me with their unique challenges and goals, I feel an instant entrepreneurial bond with them. It’s exciting to look with them at their business, see the opportunities and then use the skills I’ve developed to create a unique strategy to help them grow. To me there’s nothing more professionally rewarding. •

Discover the power of marketing automation and how you can use it to transform your business – download Brandon Stuerke’s FREE report, “Introduction to Automation: How Financial Advisors are Combining Strategic Marketing with Automation Technology for Explosive Growth” at

www.AutomateMyPractice.com.

ENROLLMENT YEAR 2

THE SQUEEZE IS ON Higher out-of-pocket costs are zinging consumers and lower commissions are slamming advisors. WHERE IS THE AFFORDABLE PART OF THE ACA? PAGE 22

ALSO INSIDE

Frank Kern Shows You How to Land Big Cases • PAGE 12

Insider’s Guide to

INDEXED UNIVERSAL LIFE Expert Advisors Share their Strategies on these Hot Sellers

IULs and the “Tax Torpedo” PAGE 1

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MARCH 2015 » VOLUME 8, NUMBER 3

ANNUITY

42 P reserving Wealth With SPIAs

By William R. Buslee and Stephen O. Kroeger A wealth replacement trust funded through a single premium immediate annuity can help your clients create a legacy while reducing tax exposure.

46 F IA Pioneer Looks Back at Annuities’ 20 Years of Success

22 INFRONT

10 NAIFA Taps Reserve for Deficit as It Fights Against Membership Decline By Cyril Tuohy The National Association of Insurance and Financial Advisors looks to the ranks of independent advisors as one way to boost its membership base.

By Linda Koco As fixed index annuities celebrate their 20th birthday, industry leaders take a look at what gives the product its staying power in the marketplace.

Insider’s Guide to

INDEXED 19 SPECIAL INSERT: UNIVERSAL Insider’s Guide to Indexed Universal Life LIFE Expert advisors share their strategies for these hot sellers.

Expert Advisors Share their Strategies on these Hot Sellers

IULs and the “Tax Torpedo” PAGE 1

Selling IULs as an Asset Class PAGE 3

Staying Mum on the Death Benefit

PAGE 6

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22 ACA Enrollment Year 2: The Squeeze Is On By Susan Rupe Higher out-of-pocket costs for health insurance are zinging consumers and raising concerns for advisors. What good is improving access to health coverage if people can’t afford it?

LIFE

HEALTH

50 T alkin’ About My Generation’s Benefits By Elizabeth Halkos Today’s employers have three generations represented in their workforces. But while those three generations may work together, their members don’t have the same views about employee benefits.

32 When ‘No Exam’ Life Insurance Is the Best Option for Your Client

INTERVIEW

12 How to Be a Whaler

An interview with Frank Kern He’s the self-proclaimed “King of the Internet,” having sold millions of dollars’ worth of products and services online. Frank Kern is convinced that the reason advisors don’t land “whale” clients is because they use minnow bait in a minnow pond. In an interview with InsuranceNewsNet Publisher Paul Feldman, Kern gives his secrets for attracting bigger clients so you can spend less time chasing small clients.

InsuranceNewsNet Magazine » March 2015

By Brian Greenberg Clients may be spooked by the prospect of a medical exam, or they may be in a hurry to obtain coverage. Here are some scenarios in which “no-exam” insurance may be the solution for your client.

36 Consider a Cover Letter to Help Your Client’s Underwriting By Gregory E. Schwabe Do you think the job is done when you submit the life insurance application? Think again! If you don’t submit a cover letter along with the life app, you could be missing an opportunity to serve your client and secure the sale.

FINANCIAL

56 Which Asset Placement Offers the Best Tax Efficiency? By Douglas Wolff This may be a good time to introduce a variable annuity to your clients’ retirement savings portfolio in order to help maintain their ability to reallocate their assets while positioning them for maximum tax savings.

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How to Build a $40 Million Practice this Year

ALSO IN THIS ISSUE MARCH 2015 » VOLUME 8, NUMBER 3

BUSINESS

60 Seven Trial Closes That Lead to Sales

By Lloyd Lofton During the sales process, your prospects often will make statements, ask questions or voice objections. Here’s how to recognize what prospects are really saying and use that information to close the sale.

INSIGHTS

62 SOCIETY OF FSP: To Midlife and Beyond! Help Your Clients Thrive During the Journey

COMPLIMENTARY

REPORT

By Richard M. Weber Being successful in the second half of life is about more than money – it’s also about attitudes and resources.

64 MDRT: An Alternative IRA Strategy

By Anthony Engrassia Why your clients need to start treating their individual retirement accounts like pensions.

65 NAIFA: Winning in the DI Market

By Ayo Mseka and John Nichols The desire to serve others and help them improve their lives is one key to success for this NAIFA advisor.

66 THE AMERICAN COLLEGE: Industry Must Get Serious About Preventing Elder Financial Abuse By Julie Anne Ragatz A startling number of senior citizens are victims of financial abuse. The industry must take the reins in preventing these crimes.

68 L IMRA: Americans Aren’t Saving Enough Despite Good Intentions By Paul S. Henry Americans say their top financial concern is saving enough for retirement. But low levels of financial literacy and higher life expectancies aren’t working in their favor.

EVERY ISSUE What does it take to get to that next level? If you want to be a multi-million dollar producer, then you must act like one.

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INSURANCENEWSNET.COM, INC. 3500 Market Street, Suite 202, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli MANAGING EDITOR Susan Rupe EDITOR-AT-LARGE Linda Koco SENIOR WRITER Cyril Tuohy WASHINGTON BUREAU CHIEF Arthur D. Postal VP FINANCES AND OPERATIONS David Kefford PRODUCTION EDITOR Natasha Clague DIRECTOR OF MARKETING Katie Hyp CREATIVE STRATEGIST Christina I. Keith CREATIVE DIRECTOR Jake Haas SENIOR GRAPHIC DESIGNER Carlos Centeno

ADVERTISING COORDINATOR TECHNOLOGY DIRECTOR DIRECTOR OF SALES REGIONAL ACCOUNT MANAGER (NORTHEAST) REGIONAL ACCOUNT MANAGER (CENTRAL) REGIONAL ACCOUNT MANAGER (SOUTHEAST) REGIONAL ACCOUNT MANAGER (WEST) SALES RELATIONSHIP COORDINATOR

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15 INN 03.15 March 2015 » InsuranceNewsNet Magazine 5

WELCOME LETTER FROM THE PUBLISHER

The Answer Is You

his might sound familiar to many in this industry: Where are the business builders of tomorrow going to come from? How are we going to develop competent and responsible workers and managers? And perhaps most important, who will light the fire of entrepreneurship in the next generation?

made fun of. While we didn’t have the three letter acronym “WTF?” back then, that was basically the feedback I got from my peers at the time. Unfortunately, where I grew up, there weren’t any Junior Achievement programs. I took quite a few stumbles on the way to my first stable and successful business. I look back and wonder what life would have looked like if I’d had some successful mentors outside of my family. I wonder if many years and heartbreak could have been avoided. I was reminded of this in BizTown. I had the likes of Tony Robbins to inspire me, but will these kids get their vision from people like Tony? Most likely not. That’s where you step in. What are you giving back? In my case, I looked back at 2014 and was pretty proud of the things I did with Junior Achievement and of my donations to a few charities. But the hard question I asked myself was “Did I do enough?” Then, on Dec. 30, I received an email from Tom Russell, the president of our regional Junior Achievement, asking for year-end help. Apparently, our region was short on volunteers and short on money to purchase the kits required for classroom instruction. Being on the regional council, I am well aware of some of the difficulties the organization faces – but for our region, our challenge was demand. We’ve had more teachers and classrooms requesting Junior Achievement instruction than ever before. So, my answer was “Now is the time to do more. No complaints, no whining – now is the perfect time and I am going to put both my time and my money where my mouth is. Now is my time to step up.”

one-day simulated town. It really is where it all finally makes sense to them. Henry was a little shy, a bit nerdy. Smart and nice, but tentative. I was the advisor to a real estate firm that helped other tenants in our fictitious business park occupy their space and manage their energy costs. Privately, I was a little unsure of the prospects These questions of our “success,” drove me crazy as a especially because business owner. They our business was really raged whenunderstaffed and we ever we posted a job weren’t the coolest opening. Not only business in “town” did applicants not (though we were the have the skills or the most important). drive to do the work, That impression but they also didn’t changed soon enough even know how to when the pressure present themselves was on to make this at an interview. And enterprise work. Henthese were well-payry came out of his ing jobs for creative shell and loved every types. I got a sense minute of it. that people thought It brought me they were entitled to back to when I was a Publisher Paul Feldman assists a teacher during a job just for being couple of years oldBizTown, a simulated town for a day conducted by them. er than Henry. I was Junior Achievement of South Central Pennsylvania. I have heard the an unusual 17-yearsame thing from agency owners lamenting old because I knew I wanted to be in busithat they had nobody to take on the business ness. What made me even weirder was that they worked so hard to build. I knew it would be in insurance, just like Here is my challenge to you: Do something my dad and his dad before him. While my about it. peers were busy being teens, I was reading I am trying to do my part by helping out my first Tony Robbins book. It’s funny to Continued on bottom of page 8 Junior Achievement. When I started volun- reminisce back to those days, because I got teering, the kids I met were bright and enthusiastic, but it was apparent they had nobody teaching them the real things they will need in the world after graduation. Teachers might be experts on teaching, but few if any have ever run a business (let alone a successful one). They didn’t know the anguish of facing a month when you didn’t know how you were going to make payroll. Sometimes it takes a trip to a new place to find clarity. For me, it was BizTown. That was where I saw “Henry” light up with excitement and at the same time become a little nervous at the thought of being a CEO. InsuranceNewsNet presents a $10,000 donation to the Junior Achievement (JA) of South (I’m not using his real name here.) BizTown Central Pennsylvania. From left are: INN Publisher Paul Feldman, INN VP of Operations Dave is a Junior Achievement project where the Kefford, JA Regional President Tom Russell and INN Director of Marketing Katie Hyp. skills young people learn come together in a 6

InsuranceNewsNet Magazine » March 2015

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WELCOME LETTER FROM THE EDITOR

When 911 Doesn’t Work for the ACA

f the Affordable Care Act were a patient, it would need a defibrillator about now. As Managing Editor Susan Rupe points out in this month’s feature article, things are not looking great after the second ACA enrollment. More people might have health insurance, but they are paying substantially more for care. Health insurance agents are basically donating time to help people deal with insurance exchanges. The program has widened the pool, which was one important goal, but it is failing the “affordable” aspect. In fact, families are struggling with paying not only premiums, but deductibles and copays as well. Families can lay out more than $20,000 in a year, even if everybody is relatively healthy. The ACA needs reform, but no one is going to do it. Republicans want the whole thing repealed, and Democrats don’t want to open the door on adjustments because Republicans are likely to seize that opportunity to destroy the program. As of print time, the GOP was preparing an ACA replacement apparently based on The Patient Choice, Affordability, Responsibility and Empowerment (CARE) Act from last year. It offers tax breaks (subsidies), market reforms and medical malpractice lawsuit limits. The act has some good ideas but is built on a shaky foundation. It requires insurance companies to accept pre-existing conditions and limits what companies can charge for premiums, but it does not in-

clude an individual mandate. Odds are good that young and healthy people would jump out of the risk pool. It is not clear how insurance companies can afford to do all those things and insure only the sickest of people without charging enough to cover those costs. The few market reforms in the bill would mean nothing because few insurance companies would be able to participate. Essentially, no matter what the answer is, we would trade one set of problems for another. Any significant program will require fixing. As I have said before, the ACA was a market-based answer to what were significant access issues. But we still have the problem of paying the most for health care but having the worst outcomes among industrialized nations. Is starting from scratch a real answer? If it is, would it be possible for both parties to bring their good ideas to the redrafting table? Admit it, you at least chuckled while reading that last question. But a real bipartisan solution would ensure that one side does not devote its every waking moment to destroying the program. That opportunity might arrive this year with the Supreme Court looking at aspects of the ACA. A few possible decisions could derail the program. Obviously, the majority of Congress would not be likely to fix those issues, but instead would use the opportunity to scrap the ACA. The process just to get a new program established would be daunting. That would be

followed by a years-long rollout with all its snags that about half of the Congress would be unhelpful in fixing. In the end, if the new plan is similar to the CARE Act, I don’t see how our problems would be solved. I could be wrong in that estimation, but it is certainly possible that the nation would endure several more years of health system agony just to have the same access and affordability problems. One good outcome would be restoring commissions for insurance agents, assuming those restrictions are removed. That is good news, if insurance companies are still in the market. The fact remains that if legislators require insurers to ignore pre-existing conditions, restrict what they can charge in premiums, and allow young, healthy people to opt out of the risk pool, simple logic would tell us that carriers would find that very difficult to bear. This would be, in fact, the worst of all possible worlds for private insurance companies. What then? Single payer? That sure would be ironic – a decade and a half of squabbling to arrive at a system no one, Republican or Democrat, dared to even discuss. The future is unclear. But what is apparent is this: The ACA needs assistance. Its chances are fading fast. We can only hope that the ambulance doesn’t end up on the side of a road with the driver and medics arguing over the best route to get there.

Continued from page 6

this world live a life of “should,” and end up “should’ing” all over their life’s dreams. Our industry is based on giving more than we take, and I think that might be why I have such a passion for it. As the owner of your business and your life, the buck stops with you. If your goal is to take from life and not give back, don’t even bother reading this magazine. Sure, it would teach you how to sell better, but you still won’t be a truly trusted advisor. So, if you can’t find competent help for your office, create it. If you are worried about finding an heir for your business, develop one. If you care about the future of your country, step up. These days, I am not asking questions. I am

learning answers by doing. How about you? As someone who is part of an industry that gives back as much as ours does, I want to hear your story. How are you helping society? What do you do to give back? I want to know! I know so many of our readers give back to society, and I want to share those stories in our magazine and through our social media. If you are making a difference in your community, please send your story to paul@ insurancenewsnet.com, and maybe it will appear in this magazine. It is my intention to inspire this industry to do more, and with your help, we will.

For me, I am focusing primarily on Junior Achievement because that is where I feel I can have the biggest impact on my community and industry. After all, they have a program called Real Life that teaches young people the skills not just to manage their finances for their family and business, but also to be responsible, productive members of their community. Heck, it even features a game called “Insurance Jeopardy” that shows the value of auto, home and life insurance. For me, it was a no-brainer to get involved! All too often we know we “should” do more to give back, but those “shoulds” are easily ignored and forgotten when we are in the throes of life. Unfortunately, people in 8

InsuranceNewsNet Magazine » March 2015

Steven A. Morelli Editor-in-Chief

Paul Feldman Publisher

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March 2015 » InsuranceNewsNet Magazine

INFRONT TIMELY ISSUES THAT MATTER TO YOU

NAIFA Taps Reserve for Deficit as It Fights Against Membership Decline The National Association of Insurance and Financial Advisors (NAIFA) looks to the ranks of independent advisors as one way to boost its membership base.

“The value that NAIFA brings has grown in the past five or 10 years, and we just have to get in front of people.”

By Cyril Tuohy

ational Association of Insurance and Financial Advisors President Juli Y. McNeely said that boosting the organization’s membership base to about 42,000 members is a realistic goal, as NAIFA looks to recruit more deeply in the ranks of independent advisors. Membership is estimated at between 37,000 and 38,000 members. NAIFA officials project that the association will have to maintain a membership base of at least 42,000 by June 30 to avoid an increase in membership dues or running a budget deficit in fiscal 2016. “It’s doable, but it’s going to take a team effort,” said McNeely, who is also past chair of NAIFA’s National Membership Committee. As recently as June 2009, NAIFA counted 54,000 members. Annual membership dues total between $450 and $600, NAIFA said. At the 2013 annual meeting, members voted down a dues increase, which was proposed to support future lobbying efforts. Opponents of the increase said the organization should instead focus on widening the membership base. At that time, NAIFA said it had about 40,000 members. McNeely said people feel overloaded and have become choosy about where they devote their energy. “People are being selective with where they spend their time or their dollars,” said McNeely, owner and vice president of McNeely Financial Services in Spencer, Wis. “It’s not anything we’ve done to push people away. People are crunched for time and choose not to belong.” A shift away from agency distribution to the independent channel may have something to do with declining membership, as an estimated 50 percent of licensed 10

— Juli Y. McNeely, NAIFA president

insurance agents identify themselves as independent advisors, McNeely said. More broadly, baby boomers, a generation of “joiners,” are slowly giving way to Generation X and Generation Y, whose members identify less with institutions and interest groups, McNeely said. Recently, though, Generation Y members have shown an affinity for belonging. Revenue from membership dues for the year ended Aug. 31, 2014, was $11.3 million, a drop from $11.7 million in the yearago period, according to NAIFA’s financial statements. In 2012, membership dues reached more than $12 million. NAIFA Treasurer Matthew S. Tassey said the organization’s finances are stable, but added that dropping membership and

InsuranceNewsNet Magazine » March 2015

rising expenses don’t produce a sustainable model in the long run. The board has approved a deficit budget for fiscal year 2015, which began Oct. 1. “To avoid a dues increase, the board plans to allocate the 2014 budget surplus to offset the 2015 deficit,” Tassey wrote. “This is a short-term, stopgap solution. It is not sustainable.” NAIFA’s future lies in increasing membership. The question is, how? Other membership organizations that have experienced membership declines have fought back by focusing on making up the difference by mining the most profitable slivers or niches of members, or have found new members from abroad. Because NAIFA is a national advocacy

THE LUCK OF THE IRISH IS WITH YOU! organization, recruiting from abroad isn’t a viable long-term solution, McNeely said. McNeely said an effort begun three years ago to restructure its National Membership Team is ready to execute on a model split into separate channels. The corporate outreach channel targets affiliated companies, the independent outreach addresses the needs of independent advisors, a field management channel is aimed at general agents, and a diversity outreach initiative reaches groups of advisors based on gender, ethnic groups and income. A fifth channel, the direct marketing or direct mail channel, is handled through NAIFA’s national staff, McNeely said. Henceforth, members should see a much closer coordination of how the channels reach their respective audiences so that they feel welcome and “at home” under the NAIFA umbrella, McNeely told InsuranceNewsNet. “There are a lot of advisors out there who want a place to call home,” she said. In the independent advice channel, membership has increased 28 percent since the restructuring. In addition, NAIFA’s Congressional Conferences have brought more than 700 advisors to Washington in each of the past two years, McNeely said. Other initiatives include NAIFA’s Advisor 20/20 program, a workshop and research project conducted with the GAMA Foundation to help members implement the findings in their own advisory practices, and the Young Advisors Team for advisors under the age of 40 or with five years or less in the business. McNeely also said that the relaunch of the Life Underwriter Training Council Fellow program and a new partnership with the College of Financial Planning would each develop into a “significant member play,” and that NAIFA members would begin to see the value of membership. “It’s the time versus value debate,” McNeely said. “If you’re not getting the value, then people don’t give. But the value that NAIFA brings has grown in the past five or 10 years, and we just have to get in front of people.” Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@ innfeedback.com.

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March 2015 » InsuranceNewsNet Magazine

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InsuranceNewsNet Magazine Âť March 2015

rank Kern. Most likely you had one of two reactions to seeing that name. 1. Frank Kern! He’s the President of the Internet! He knows how to market online like nobody else! 2. Frank who? Frank Kern is one of the most successful Internet marketers on the planet and the self-proclaimed President of the Internet. He has been behind (and a key influencer in) many successful product launches, including StomperNet, a coaching and resource service for online marketing that sold more than $23 million in just 24 hours. But you might not have heard of Frank, because he isn’t headlining Million Dollar Round Table or other highvisibility venues. He shares his secrets in seminars and in consultations. Success didn’t come easy for Frank. When college didn’t pan out, he began his career as a door-to-door salesman for a credit card processing company. Frustrated with rejection, he turned to the Internet in 1999 (coincidentally, the same year InsuranceNewsNet started) to figure out how to sell credit card processing “without having to talk to anybody.” Little did he know how transformative that choice would be for his life. Fast-forward to today, and Frank is one of the highest-paid marketing consultants in the world. His laid-back style and delivery are unorthodox, yet he has inspired and coached hundreds of thousands of Internet marketers to reach incredible levels of success. His information products, including Mass Control, Infomillionaire, List Control and Mass Conversion (to name a few), have sold tens of millions. So why are we talking to an Internet guy? Because he has been coaching insurance agents and knows our business. And he is focusing on the key techniques that brought success to him and to all the people he has helped over the decades. In fact, even though he is associated most often with Internet marketing, it is the last thing that Frank talks about with agents. His magic bullet? It’s an actual thing sent in the real world through a parcel carrier to an ideal prospect.

HOW TO BE A WHALER INTERVIEW In this interview with InsuranceNewsNet Publisher Paul Feldman, Frank will explain how to attract bigger clients (whales) so you can spend less time chasing small clients (minnows). FELDMAN: You have talked about the importance of having an avatar of your ideal client. Yours used to be Bob, the insurance agent. Is he still your avatar? KERN: My ideal avatar has evolved since then, but having an avatar of your ideal client is absolutely essential. In fact, I have a story about that. I met Tony Robbins years ago, and he was doing well at the time. We worked on some stuff, and it was great. We’ve been friends ever since. I just saw him a month or so ago. I flew down to his house and did an interview with him about his business. I don’t know how much better his business is statistically, but my conservative guess would be that it has grown by about 10 times since I did that work with him. “Obviously things are going better than ever,” I said to him. “What happened?”

KERN: Just over the past few weeks, I’ve worked with about 20 advisors individually in hourlong consultative sessions to diagnose what’s going on with them. And if there was one who didn’t have this problem, I don’t remember it. Their main frustration was pain over not attracting the right people. Instead they were getting prospects with very few assets to put under management or small cases with people who don’t respect their time. All of that is a symptom of not targeting the proper customer. So that’s a big deal. Everything is about the people. The funny thing about advisors is when they do market, they go after whales. But they fish for whales using minnow bait in a minnow pond, and then they’re frustrated that they’re catching minnows. FELDMAN: What should they be doing? KERN: Marketing, for advisors, is not intended to sell product at all. I don’t know of any advisor ever who has had a client pick up a brochure about a life insurance policy, then call and say, “Would you sell me this life insurance policy I read about?” I don’t know of any advisor, really, who has ever closed a big case or gotten significant assets

THE FUNNY THING ABOUT ADVISORS IS WHEN THEY MARKET, THEY GO AFTER WHALES. BUT THEY FISH FOR WHALES USING MINNOW BAIT IN A MINNOW POND. He said the single biggest change that he had made was to change his customer avatar – essentially, to go after a business owner or entrepreneurial type of customer who could really have the resources to invest in everything he had to offer. I think that too few people really realize the importance of the avatar. FELDMAN: You have been working with agents and advisors for a long time. Is this a critical area for them?

under management where the person has gone online and filled out a form, and that just happened without human interaction. But then they will likely sell the seminar. No one really ever wakes up in the morning saying, “You know, honey, if only we could go to a financial advisor seminar today, then everything would be OK.” The reason advisors mail 10,000 pieces and then get only 30 people in a room,

March 2015 » InsuranceNewsNet Magazine

INTERVIEW HOW TO BE A WHALER with 15 of them being actual buyers, is because that’s not what people want. Advisors are stuck with this antiquated method of client-getting. FELDMAN: What are some steps to shifting marketing to attract “whales” instead of “minnows”? KERN: First of all, get out of the minnow pond. When advisors buy a mailing list to send their mailer by ZIP code, that’s barely targeted.

say your whale in this case is a man over 60 who just sold his business. He wants to protect that nest egg and grow it and also now structure his estate for his heirs. So you’re going to send this bait only to that kind of guy. You can buy a list of them nationally if you want to. And then the best possible whale bait would be to send out an offer for a free book or white paper titled “How to Grow Your Nest Egg After Selling Your Business and Structure Your Estate So Your Kids Will Be Taken Care of Without Them Squandering All

IF ADVISORS LOOK AT THE TOP 20 PERCENT OF THEIR CLIENTS, THEY ARE LIKELY TO FIND COMMONALITIES. ONLY PUT THE BAIT IN FRONT OF THE WHALES. If advisors look at the top 20 percent of their clients, they are likely to find commonalities. It could very well be a career commonality. For example, most of their clients may be doctors or dentists or other professional services folks. They might be of a certain age. They might have had a certain life occurrence, such as a child graduating college. If you can identify who that top 20 percent is, you can mail only to them. Let’s say there are just 1,000 of those guys and you’re mailing 10,000. Well, you can take that 10,000-strong marketing budget and direct it toward that 1,000 instead and mail them constantly. Only put the bait in front of the whales. FELDMAN: What are some examples of good whale bait? KERN: First, get them to raise their hand and say that they want the end result. Let’s 14

the Money You Worked Your Entire Life For,” or something like that. Like, literally offer him exactly what he wants. Now people are going to say, “This is just for me!” And this elevates the advisor above the salesman position and into the authoritative specialist position, which allows them to command higher fees and a greater deal of respect. Offer that expertise for free to the guy. Send him a letter: “Dear Mr. Jones, our research indicates you just sold your business. Congratulations. You face multiple challenges. You have just received a sizeable amount of cash, which means the vultures are likely going to be coming out in force. And you now have an estate that is subject to a tremendous amount of tax. If you’re like most guys who just sold a business, you want to accomplish these two things: protect and grow that money, and give it to your family without getting shafted on taxes. I have just created this

InsuranceNewsNet Magazine » March 2015

special book specifically and exclusively for people just like you.” So the next step is, when he requests that book, you send him a lot more than the book. You overdeliver by sending him an entire box of material that includes a DVD presentation by you where you explain all the dangers he faces and all the ways he can genuinely overcome the dangers he is facing. You also include a book of testimonials from people you’ve helped in the past. You include something trivial-sounding but important – a coffee mug with his name on it, some cocoa and a little note that says, “Dear Mr. Jones, I have enclosed this coffee mug and this cocoa so you can have something good to drink and enjoy while you go through this material, because there is a lot of it, and it’s all very, very important.” That stuff is called a “shock and awe” box. Where every other financial advisor might send him a book or might make him come into the office to get the book, you on the other hand have sent him this package of beautiful material and sent it to him promptly, maybe even by FedEx. Chances are, your prospect is not going to go through all that stuff, by the way. And we don’t really care. We just want him to remember you and feel like he liked you. And then, along with that, you enclose the secret weapon. FELDMAN: What’s the secret weapon? KERN: You include the irresistible entry offer. And there are five steps to making this offer. Step No. 1 is to offer to help for free. You might say something like, “Would you like me to personally help you come up with a strategic plan to shelter and grow your newfound nest egg and to transfer this new wealth to your children without paying undue taxes – for free?” You’re offering to do exactly what he wants you to do for him, for free. Step No. 2 is to explain the benefits you’re going to give him. You would say, “During our conversation, I’m going to analyze your situation. I am going to review any tax liabilities or dangers you might have. And then we’re going to uncover exactly how you want to distribute this. I’ll review all the relevant laws and come up with a way for you to X, Y and Z. So you’re

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INTERVIEW HOW TO BE A WHALER

“THE REAL SECRET TO SUCCESS IS TO GET OUT THERE AND WORK LIKE HELL.” – FRANK KERN restating and elaborating on the benefits. Step No. 3 is to be – and this is unheard of in modern-day advertising – upfront with the guy. So imagine you are someone reading this, and you’ve just gotten this nice package from this financial advisor. It’s beautiful, and there is a real book in there and a DVD and testimonials with cocoa and everything. Man, this is pretty serious. And he is offering to help you for free, and he is explaining the benefits of the help. What’s the first thing that’s going to come into your mind? “Why is he doing this?” So what we’re going to do is the unthinkable. We’re just going to tell him, “I genuinely enjoy helping families in this position protect and grow the fruits of a lifetime of labor. And sometimes after having these conversations, people like to become my client. As you can tell, I am a financial advisor and I specialize in helping XYZ.” But now he’s thinking, “Oh god, this is going to be a sales pitch in disguise.” So step No. 4 is to then eliminate the sales fear by saying, “Please understand that our conversation will by no means be a sales pitch in disguise. I can assure you that you won’t face any pressure to become a client. I won’t bother you about it in any way, and this will be incredibly valuable to you regardless of whether or not you make the decision to become a client.” So now he’s putting the weapons away. And he’s a little less afraid of this. But just because we told him it’s not going to be a sales pitch in disguise doesn’t mean that he’s going to just blindly say, “OK.” Which is why, in Step No. 5, I like to then add the extreme risk reversal. You would say, “In the event that you find our conversation to have been a waste of your time, let me know and I will immediately do the following. I’ll pay you $1,500 to compensate you for your time.” 16

InsuranceNewsNet Magazine » March 2015

Now, with an advisor, you’ve got to be careful with that because of compliance. So I always instruct the advisor to check with their compliance department to see what they can do. Usually it’s going to be “I’ll buy you dinner,” “I’ll give money to your charity in your name” or whatever it is. But you offer to self-impose some kind of intense penalty for wasting their time if they believe that you wasted their time. Now your prospect leans forward. He is intrigued. He is finding this offer irresistible. But we have them chase us by using takeaway selling. This is critical. If you look at every advisor out there, they chase. “Let me call you 9 million times to schedule an appointment” – if they have any follow-up at all. “Let me do everything that every other advisor under the sun does. Let me just be another drone in

your mind.” Right? Well, that’s ineffective. You want them to start chasing you and put you in that position of power. The way you do that in this offer is you say, “Please understand that I can’t help just anybody. In order for us to be a good match, you need to meet the following criteria.” Then, if the advisor has done the proper work, he lists the criteria of his ideal avatar. This is important because it makes prospects qualify themselves to the advisor instead of the other way around. The final step is to have them apply to speak to the advisor. Notice it’s not, “Call me to schedule an appointment.” It is literally, “Apply to talk to me.” Then you’ll say, “Once I review what you’ve sent, assuming I believe that I can help you, I will have my assistant reach out and schedule a time for us to talk.” FELDMAN: People talk about shock and awe packages, but they don’t have them because they say they’re too expensive. Is it because they don’t recognize the value of the right client? KERN: Yes. They don’t actually know how much they want to earn. They’ve never really thought about how much they want to earn per client. They also

YOU WANT THEM TO START CHASING YOU AND PUT YOU IN THAT POSITION OF POWER. IT MAKES PROSPECTS QUALIFY THEMSELVES TO THE ADVISOR INSTEAD OF THE OTHER WAY AROUND.

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Experience MARKET DOMINANCE when you Co-Author a Best-Selling Book® with Jack Canfield, Creator of the Chicken Soup for the Soul ® Empire Nick Nanton here, and I want to talk to you about the power of being an author and what it will do for your financial practice or insurance business. I want to start by sharing an underdog story my friend Jack Canfield told me a few years ago. Jack was a speaker, out on the circuit, as was his soon-to-be partner, Mark Victor Hansen. They would run into each other and talk about how they both wanted to impact one billion people around the world. When they looked around at the events they were speaking at, they realized continuing on this path was just not going to cut it. So they called on some of their friends with a crazy idea – which was to pull together the most heartfelt stories that their friends could tell and compile them all into a book. You may have heard of it. It was called Chicken Soup for the Soul®. This is the same strategy that we have used here at the Agency, ever since we published Big Ideas for Your Business back in 2008. We called upon 22 of our top clients to tell their best piece of business advice and turned it loose into the world. But I’ll get back to this later. From the day Jack Canfield and Mark Victor Hansen decided to put these stories into a book, everyone called them crazy. The book was turned down by every major publisher, some multiple times. But they pressed on.

And finally, the book was picked up by a small, self-help publisher in Florida called HCI. And they only took the book on a condition. The condition was that Jack and Mark pre-sell thousands of books before it ever goes to print. That didn’t stop Mark and Jack. And since that time back in 1993, they have gone on to put more than 500 million copies into print with more than 200 titles in the Chicken Soup for the Soul® series. The Chicken Soup for the Soul® brand has grown far beyond a book of stories. It has generated hope, motivation and world-changing advice for millions of people all over the world. It has also spawned spin-off products that continue to extend the brand from dog food to coffee mugs and gifts for any occasion in life. And today I want to invite you to associate yourself with that all-too-familiar brand, by co-authoring a brand new book by Jack Canfield, titled, The Soul of Success. But I want to do more than just extend to you an invitation to co-author this new book with Jack Canfield. I want you to understand the power of being an author. It is the power to command respect from your market. It is the power to have prospects hang on to every word and follow every piece of advice you give to them. This is the power we’ve helped more than 1,589 authors hold in their hands since back in 2008. And it’s not because you are changing your message. It’s because they see you in a new light. As an author. But my team takes it one step further. We guarantee that you are not only going to publish a new book alongside Jack Canfield,

but that the book becomes an instant Best-Seller on Amazon.com and/or Barnes and Noble.com, forever giving you the title of Best-Selling Author®. I want to tell you more about this publishing opportunity and how aligning yourself with Jack Canfield and the Chicken Soup for the Soul® brand will impact your production, your prospecting and the growth of your business. To do so, I have just recorded a new training call with Jack Canfield, which I would like to give you free access to. In addition to this special call with Jack, I am also offering you a digital copy of one of my own Best-Selling books, Celebrity Branding You®. In this book you will see how to build your own Celebrity Brand, the only thing that really distinguishes you from your competition.

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If you plan on being in business for the long haul, you must harness the power of being a Best-Selling Author – and there’s no better way to do that than by pairing up with Jack Canfield, the man who sold more than 500,000,000 copies of Chicken Soup for the Soul ®. Get in on it now at www.celebritybrandingagency.com/inncanfield or call (888) 717-1261. March 2015 » InsuranceNewsNet Magazine

INTERVIEW HOW TO BE A WHALER don’t know how many clients they need and how many conversations that means. If their average client is worth $15,000, it makes a pretty good bit of sense to spend $1,000 to acquire that client through marketing. That doesn’t mean every shock and awe box costs $1,000. That means if your shock and awe box costs you 10 bucks and you have to send out 100 of them to get one client, then you just spent $1,000 to get that client. You’ve netted $14,000 on that transaction. That’s not too bad. And you haven’t had to go through a lot of crap in terms of 50 little minnows. Over the course of the year, you send out 500 shock and awe boxes. You don’t need to spend the rest of the year sending out 500 more. Instead, you focus all of that marketing power on following up with those 500 people to get them to schedule the appointment. The way you do that is you might send a FedEx letter two days later: “Dear Mr. Jones, I hope you enjoyed the giant box I sent you. I hope you watched the DVD and read the stories of clients just like yourself, and I hope you enjoyed it. I also included a very, very important letter, which I have attached as well in this package. It’s critical that you review this and get back to me as soon as possible because my schedule is very, very full. However, considering the fact that it sounds like you are in serious need of help due to the recent sale of your business, I am willing to set aside some time for you if I could hear back from you quickly.” Then you make the offer again. And if you don’t hear from him within three days, you send him another FedEx package. You might even want to be creative with it. One of my favorite tricks is to send a baseball bat by FedEx. And the mailer says, “Dear Mr. Jones, it’s me again. I’m the guy who sent you the big box of cool stuff. You’re probably wondering why I’ve sent you this big bat. Well, it’s because I wanted to get your attention, and the other reason is because I am confident that when we sit down together and I create this plan for you, you will agree that we have actually hit it completely out of the park and gotten a home run for you.” It’s just another way to present that offer. But it all hinges on the irresistible, riskfree offer to provide genuine, solid value to your perfect person. That will trump 18

InsuranceNewsNet Magazine » March 2015

MARKETING, FOR ADVISORS, IS NOT INTENDED TO SELL PRODUCT AT ALL.

sending 10,000 dinner seminar invitations semi-randomly, every single time. FELDMAN: On following up, one thing that sets you apart from a lot of other marketers is that you don’t just rely on online contact; you don’t just rely on direct mail. You’ll actually pick the phone up and call. KERN: If they requested the shock and awe package, and they got the FedEx letter, and then they got the bat, I would have someone call them the next week. It wouldn’t be me personally. FELDMAN: You are a very effective marketer on Facebook and social media. Do you think that social media is a good medium for advisors to use for marketing? KERN: I think it’s OK. But my first move would be mail, because it’s so much easier to identify the perfect person. Guys who are 65-plus are on Facebook, but it’s going to be easier and faster to reach them through the mail. FELDMAN: Do you think direct mail is more effective than radio and TV? KERN: I do. It’s absolutely targeted. You get right to the person. And you can buy so much data. So if you say, “My perfect guy is going to be a physician who is 65 years old, owns two homes, has older kids, is an American Express Centurion cardholder and likes fishing,” I can

get a list of every single one of them. If you want to know everyone who has a net worth of $5 million within 10 miles of your office, you can buy a list of just them. And you could focus like a laser just on those people. FELDMAN: I hear a lot of advisors who claim that their only marketing and advertising is referrals. What do you say to advisors who don’t advertise because they don’t have the budget to do so? KERN: I would be very suspect if they didn’t have the budget to do so. If that is true, that person is probably a failing advisor. I’m not suggesting someone go and drop $100,000 on mail. But if you spend the time to identify, let’s say, 2,500 perfect people in your area, and you want to send them a letter, it’s $2,500. I’m not proposing for people to go out and drop a fortune on untested methodology. If they didn’t have the $2,500 to invest in their own advertising, they are probably not going to be in business for very long, so it’s probably not a conversation that I need to be having with them. Not to sound cold, but if you are at that point, you’re in so much trouble I don’t know how to fix you, because I can’t multiply zeroes. NEXT MONTH: Read more epic tales of sales adventure! In April’s main feature by Linda Koco, elite advisors will share their stories of landing the big cases.

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ndexed universal life (IUL) insurance products are hot, red-hot. And why not? From the death benefit to living benefit riders, from funding a grandchild’s college education to funding retirement, from upside potential to downside protection, from survivorship issues to Social Security withdrawals, from tax management to estate planning — IULs offer something for consumers in the middle market and the high-net-worth market alike. “IUL is very suitable as a component in an insurance portfolio,” said Randy Forcht, advanced sales director with Lincoln Financial Distributors. IULs are great at managing mortality Randy Forcht risk, or the risk of dying Lincoln Financial Distributors too soon, and the longevity risk of outliving income, he said. In the third quarter, individual life premium rose 19 percent compared to the year-ago quarter, according to the

insurance researcher LIMRA. In the third quarter, IUL represented 51 percent of universal life premium and 19 percent of overall individual life premium, LIMRA found. To say that IULs offer a bonanza to the agents and advisors who sell it would be an understatement, and some agents have taken an aggressive approach to illustrating the returns on IUL investments — so much so that regulators are looking into the sales practices of some agents. Are IULs simply the latest fad within life insurance sales? Time will tell. But while IUL sales are hot, the question for advisors is how to sell. In the 2015 issue of the Insider’s Guide to IULs, InsuranceNewsNet interviews four financial advisors with very distinct approaches to selling IULs.

IULS AND THE “TAX TORPEDO”

Independent financial advisor Doug Warren, in Temecula, Calif., says the biggest opportunity for selling IULs revolves around selling to people collecting or getting ready to collect Social Security benefits.

Annual Indexed Life Premium

$1,800

(in millions of dollars)

$1,350 $1,060 $973 $696 $512

$539

$531

2007

2008

2009

$352 $65

$62

$63

$85

$100

1998

1999

2000

2001

2002

*As of 3Q

$97 2003

$140

$187

2004

2005

Source: Wink’s Sales & Market Report, 3Q 2014

2006

2010

2011

2012

2013

March 2015

2014*

2015 IUL INSIDER GUIDE This is an opportunity so large, in fact, that it outweighs all other IUL sales opportunities combined, Warren said. “From the advisor’s Doug Warren perspective, the biggest Independent opportunity for IULs financial advisor today is to understand the advantage of using IULs in conjunction with a Social Security claiming strategy,” said Warren, author of the book The Synergy Effect. He even has a name for it: the “tax torpedo.” Warren said that for advisors looking to convert the Social Security seminar attendee into a client, there’s no more persuasive argument than talking about how to blow up the tax torpedo. When a Social Security recipient withdraws a dollar from a traditional individual retirement account or 401(k) that exceeds the top Social Security tax threshold, it creates $1.85 of taxable

income, said Warren in an interview with InsuranceNewsNet. For a married couple with that threshold of $44,000 and a marginal tax rate of 25 percent, “you just paid 46 cents in taxes on that dollar.” Enter the IUL and its connection to what he calls a potential “dramatic reduction” in Social Security taxes for some clients. “That tax torpedo is where the financial advisor should be focusing attention,” he said. Warren said that a Social Security recipient can take all the “withdrawals and cash value loans you want from a non-Modified Endowment Contract (MEC) IUL,” but that none of those distributions are counted toward the Social Security tax calculation. “The difference is the potential for no income tax and not having any Social Security tax created as well,” Warren said. He also said that since IULs are “frontend loaded” products not designed to

Torpedoed by Taxes Impact of withdrawing one extra dollar from a retirement plan on Social Security benefits

Withdrawal from IRA, SEP, 401(k), 403(b)*

$1.00

Additional taxable income on each $1 of Social Security

$0.85

Total taxable income

$1.85

(Marginal tax rate of 25 percent)

Total tax 2

March 2015

$0.46 *Each dollar over the $61,130 top income threshold for Social Security taxation Source: Doug Warren, advisorgrid.com

2015 IUL INSIDER GUIDE deliver income for 10 years at least, it’s illusion. Future taxes are going only one important to properly coordinate the IUL way: up. with the client’s Social Security and other Advisors with clients in their 30s and sources of retirement income. 40s should consider the liquidity of savWith 10,000 Americans a ings dollars available within day moving into retirement IULs. A 40-year-old with Advisors and many of them opting to $200,000 in a 401(k) has astake Social Security withwith clients in sets but can’t get to them to drawals sooner rather than a down payment for a their 30s and fund later, withdrawals around home, for example. Social Security is a full“You get hit with penalties 40s should time activity for specialist with an IRA, but with an IUL consider the advisors. you can take a policy loan Defusing the tax torpedo and it won’t have any impact liquidity of isn’t limited to IULs. It’s an on the income as long as you savings dolopportunity for fixed index pay the loan back,” Warren annuities as well. (Hint: Put said. lars available the annuity in a Roth IRA.) within IULs. Headlines obsessing solely SELLING IULS AS AN over how advisors can inASSET CLASS crease the amount of gross Social SecuAlternative assets are hot, and it’s easy to rity benefits are somewhat misguided besee why. cause it is the after-tax spendable income With fixed-income portfolios delivfrom Social Security that is important, ering anemic yields, alternative investWarren said. ments have generated a lot of chatter Using IULs as a strategy in tax among advisor circles. planning is nothing new, but the What’s an advisor to do? Repurpose potential tax bite on Social Security IULs as an alternative asset. Advisors benefits is very real for many inveswho do so should at least find a receptors who have used only traditional tive ear among clients in search of ways IRAs and 401(k)s to accumulate reto boost yield. tirement savings. “The real challenge is volatility with For their part, advisors are under no equities, and the IUL is well-suited as

Indexed Universal Life (IUL) sales as a percentage of universal life (UL) and IUL sales combined increased from 14 percent in 2010 to 31 percent during the first nine months of 2013. Source: Milliman UL and IUL 2013 survey

March 2015

2015 IUL INSIDER GUIDE an alternative asset portfolio,” said Mike Hamilton, a Lincoln Financial Distributors wholesaler who works directly with financial advisors. An IUL’s potential to offer investors a taste of market gains when markets rise and the protection from losses when markets fall makes IULs attractive at a time of volatility. IULs that generate income until age 59.5, when an investor is eligible to withdraw assets from a retirement account penalty free, are a good way to bridge the transition into retirement, Hamilton said. Independent advisor John Parise, managing director for Copper Beech, an RIA in Moorestown, N.J., likes IULs for several reasons. John Parise If there’s one idea Independent financial advisor that encapsulates all those reasons, it’s the word “flexibility.” IULs, Parise said, along with other insurance products, help him craft a protection plan that no other asset

class offers, and IULs offer flexibility and design latitude that no other insurance products offer. For Parise, selling IULs is less about “slotting” a product toward a need than it is about designing a bespoke insurance protection program for the high-networth clientele he serves. “One of the big issues around life is that it is a design issue, not a product issue,” said Parise. “It’s always based on the client objective, and (insurance sales) guys get away from that. … We have a plan, and we want to go somewhere (with it). It’s an asset class like bonds or real estate. It does something.” Financial advisors, he also said, should talk to clients about IULs as an asset class used to manage wealth from one generation to the next. IULs’ features help tailor a protection program around the complex needs of well-heeled investors, whether it’s the tax advantages or the lending power of an IUL. The components of an IUL provide ample flexibility for family financial planning purposes, he said.

IUL Growth Rates Based on new annualized planned recurring + 10% of single premium

44% 39%

36%

13% 2010

March 2015

2011

2012

2013

18% Q3 2014 YTD

Source: LIMRA’s U.S. individual Life Insurance Sales Survey

2015 IUL INSIDER GUIDE “It’s an asset protection strategy to protect you from in-laws and ‘outlaws,’ which is what we like to say.” One IUL offered by Pacific Life Insurance Co. delivers an additional 1.5 percent over the return of an index. Other carriers have different floors used to protect investors from downturns. Parise said the indexing options give investors plenty of freedom to be as aggressive as they want to be — so long as they accept the limitation to the index options that comes along with the caps to growth. “It’s all about the design,” he said. “With an IUL, you can pay less in premium or pay more in premium. It gives you flexibility for buy-sell agreements and for gifting.”

SELLER BEWARE

With IUL sales bounding along at a healthy clip, the sun is always shining for advisors and carriers selling IULs. To hear carriers tell it, there’s not a bad IUL product on the market, even if advisors have heard a range of opinions from clients who love their IULs and from those who detest them. Frank Seneco, president of Seneco & Associates in New Haven, Conn., reminds advisors to do business with carriers that intend to stay in the market over the long Frank Seneco term. President, Seneco & Associates With strong stock market returns over the past three years, it’s no surprise that the froth is beginning to collect around indexlinked insurance products as sales go through the roof. (Fixed index annuities have seen

Source for both data elements: Wink survey

Average age of IUL buyer 1Q 2014 similar market gains as index products deliver higher returns than many traditional fixed products.) Indeed, it even seems as if there’s no carrier with a bad IUL product out there. But IULs, like every other form of life insurance, carry risks, and not all IULs are equal. “Clients have to look at who’s issuing the policy,” he said. “Is the carrier committed to the long term? A lot of carriers are jumping into this space, but a life insurance policy is a unilateral contract and

More than

$200k Average assets of IUL buyers between the ages of 40 and 45 March 2015

2015 IUL INSIDER GUIDE the carriers are bound only to what’s in the contract.” The risks are revealed in the fine print. Carriers can drop cap rates or modify participation rates. That might happen in the wake of a merger, or if a company decides to exit the business. “They can change the participation rate, just like cap rate changes, depending upon the cost of the purchase of the options on the index,” he said. Seneco said advisors need to work with carriers committed to the IUL line of products. “The advisor needs to make sure they are working with a company committed to the marketplace,” he said. “That’s something we stress.” Seneco said that his “go-to” carrier is Pacific Life, but that he also likes Penn Mutual, Minnesota Life, John Hancock and Axa. Today’s IUL bonanza — one out of every six dollars in insurance premium is going to IULs, according to one estimate — has many carriers flooding into the IUL space. The stampede reminds Seneco of times over the years when carriers piled into the market with the new hot product of the day. Each era had its own trend of the new latest and greatest product, such as universal life, variable life and then back to whole life, only to see several carriers withdraw and the ebbing sales tide leave policyholders scrambling. When the market is hot, there’s pressure to add features to make IULs look even more attractive, but Seneco said

he won’t even touch some IUL features, such as variable loans. While the concept works, it has to be used with the right client who understands how it works and the risks of using it. Because IUL illustrations are incorrect the day after they are sold, loan rates are pretty much impossible to determine. “That’s a very dangerous feature, in my opinion,” he said. As regulators hash over how conservative or aggressive to make index crediting illustrations, Seneco doesn’t illustrate crediting scenarios of more than 6 or 7 percent. Anything above that would be “irresponsible,” he said. After a quarter-century in the insurance sales business, Seneco said he’s seen “an awful lot of things.” “You want to deal with companies in business for the long term for whatever it is,” he said.

One out of six dollars in insurance premium is going to IULs.

March 2015

STAYING MUM ON THE DEATH BENEFIT

Death benefit? Never heard of it. Well, not exactly, and certainly not if you’re Josh Mellberg, one of the top IUL sellers in the country. Mellberg, president Josh Mellberg President, J.D. of J.D. Mellberg FinanMellberg Financial cial in Tucson, Ariz., suggests advisors sell IULs by steering clear of mentioning the death benefit. “We never talk about the death benefits,” Mellberg said. It may sound counterintuitive, indeed

2015 IUL INSIDER GUIDE

$8,000– $10,000 Average annual premium per IUL even radical. Who buys insurance, if not he said, and stick to the big picture by for the death benefit? keeping the discussion agenda focused In the case of IULs, there’s plenty more on income, growth, tax advantages and to recommend investors than a simple liquidity. death benefit. IULs offer Often, that’s easier said savings, growth, liquidity than done, as most inAdvisors are and tax benefits. Advisors surance representatives are much better off talking can’t help themselves from much better about what IUL investors launching into the details have to live for than what of IUL features, with some off talking they or their estates can colpushing the boundaries of about what lect at death. index crediting expecta“People aren’t buying tions. IUL inves(IULs) for when they die,” he Advisors interviewed for said. this article scoffed at those tors have to Stay mum on the death kinds of promises, and no live for than benefit, and sell the IUL reputable insurance carrier as an investment in secure what they or or advisor should be promgrowth, not as an income ising anything of the sort, their estates vehicle. Clients are more they said. receptive to growth and li“There’s no insurance can collect at company out there that alquidity. Mellberg calls it “stripping lows anyone to illustrate death. out the features” and keeping at 12 percent,” said Jason it simple. There’s no point Konopik, chief financial offigetting bogged down in caps and floors, cer of AMZ Financial Insurance Services, fees and loads, one index over another, or a Des Moines, Iowa-based independent this or that carrier. marketing organization. “Take the objections out of the way,” Five or six years ago, index crediting

Source: Sheryl Moore, Wink survey

March 2015

2015 IUL INSIDER GUIDE may have been as high as 9 percent, “but today the maximum is 7.5 percent or 8.5 percent.” “That’s the highest any insurance company allows anyone to illustrate, and that’s aggressive,” Konopik said. State regulators and the National Association of Insurance Commissioners are looking into how to illustrate IUL crediting scenarios to give policyholders a realistic picture of what they can expect. Mellberg said that an IUL’s “minimum guarantee” of 1 percent to 2 percent is better than what any bank is prepared to cough up. But, he says, never draft it before getting an offer from the insurance carrier. Mellberg said the sweet spot for his IUL sales is buyers between the ages of 50 and 70 — people who can’t afford to make a mistake in life because they have neither the opportunity nor the time for a do-over.

It’s a time in life when investors turn risk averse, so advisors might describe an IUL using the language of risk: Why take any risk at all when you can get most of the (market) return with a lot less risk using an IUL? Mellberg says his team is selling IULs as liquid growth vehicles that deliver much better returns than investors can get in a bank — so long as IUL investors and the carrier stick to the terms of the contract. “We’re selling it as a liquid growth vehicle: Give me 5 to 7 percent and don’t hurt me,” Mellberg said.

Buyers who can’t afford a financial do-over are in the sweet spot for IUL sales.

•

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@ innfeedback.com.

$430k Average IUL face amount

March 2015

Source: Sheryl Moore, Wink survey

HOW TO SELL IUL TO THE

SENIOR MARKET

How advisors are positioning Indexed Universal Life to answer the biggest concerns seniors face today

SENIOR CLIENT “HOT BUTTONS” TAX-FREE INCOME

Have you ever heard you can’t utilize IUL in the senior market? With a properly-structured IUL you can provide tax-free income for your senior clients!

LONG-TERM CARE

Find out how IUL is a more cost-effective option with an easier underwriting process than other long-term care alternatives. Plus, IUL is not a use-it-or-lose-it program.

LEARN HOW TO FIND AND SELL SENIOR MARKET CLIENTS Download our FREE report at IULSellingGuide.com or call us directly at 866-268-2640 to learn more.

LEAVING A LEGACY

Unlike traditional planning, you can provide multigenerational income, tax free! Let’s see if your competition can match that.

FREE REPORT

Indexed Universal Life has quickly become the hottest product on the market today. While its benefits for preventing loss and providing tax-free income are well-known, advisors are still confused about how to sell and structure an IUL to benefit each market. This comprehensive free report dives deep into the market opportunities and sales techniques every advisor needs to know to sell more IUL.

to discover: Request your FREE REPORT today

• The top markets for IUL in 2015 in 21 days or less • How to get an IUL underwritten use when selling IUL • Market-specific “hot” buttons to high-income earners • What makes an IUL attractive to (k) tax-free income stream versus a 401 • How an IUL can create a greater

Download our FREE report at IULSellingGuide.com or call us directly at 866-268-2640 to learn more.

FREE REPORT

Indexed Universal Life has quickly become the hottest product on the market today. While its benefits for preventing loss and providing taxfree income are well-known, advisors are still confused about how to sell and structure an IUL to benefit each market. This comprehensive free report dives deep into the market opportunities and sales techniques every advisor needs to know to sell more IUL.

to discover: Request your FREE REPORT today

• The top markets for IUL in 2015 in 21 days or less • How to get an IUL underwritten use when selling IUL • Market-specific “hot” buttons to high-income earners • What makes an IUL attractive to e income stream versus a 401(k) -fre tax r ate gre a ate cre n ca L IU • How an

Download our FREE report at IULSellingGuide.com or call us directly at 866-268-2640 to learn more. March 2015 » InsuranceNewsNet Magazine

NEWSWIRES

The insurance industry’s greatest opportunity: helping fund retirement bitly.com/qrbiggest

Kim O’Brien Retires As NAFA CEO Kim O’Brien’s retirement as president and CEO of the National Association for Fixed Annuities (NAFA) surprised a lot of people inside the organization and out, but the 11-year NAFA leader said the time was right. O’Brien retired in January after dedicating a large portion of her career to the fixed annuity industry. As NAFA’s leader, she played a key role in promoting fixed annuities in her work with legislators and key members on Capitol Hill. The decision to retire from NAFA was helped along by realizing that “NAFA is in a good place,” O’Brien said. “It is humming along, doing well and looking toward building awareness about annuities in banks and broker/dealers, even as it continues to serve the independent marketing channel.” It’s financially strong too, she said. In 2003, when she first arrived, the group had a $90,000 commitment from one carrier plus donations of volunteer time and services. By year-end 2014, its revenues were more than $1 million. It employs a full-time staff and has others on retainer.

CMS CHIEF RESIGNS: MARILYN TAVENNER RAN ACA ROLLOUT

The Affordable Care Act (ACA) has claimed another casualty in the Obama administration. Marilyn Tavenner, Medicare’s top administrator, unexpectedly resigned. Tavenner was head of the Centers for Medicare and Medicaid Services (CMS), and oversaw the rollout of the HealthCare.gov website in 2013. Tavenner’s chief of staff also is stepping down. Tavenner initially survived the technology paralysis surrounding the launch of HealthCare.gov. She remained on the job even as her boss, former Health and Human Services secretary Kathleen Sebelius, stepped down in the aftermath of the website’s meltdown. But Tavenner’s luck changed when she testified to Congress last fall that 7.3 million people were fully enrolled for private coverage under the health law. That number turned out to be an over-count that exaggerated the total by about 400,000 people. The error, discovered by Republican congressional DID YOU

KNOW

staff, was termed “unacceptable” by new HHS secretary Sylvia M. Burwell. In her farewell message, Tavenner said her job, which involves oversight of Medicare and Medicaid as well, was a “huge and complex responsibility” and “we had many additional challenges put before us” because of the health law. Roughly one in three Americans is covered by health insurance programs run by CMS.

ADMINISTRATION BACKTRACKS AMID WEBSITE PRIVACY CONCERNS

Speaking of the beleaguered ACA website, the Obama administration was forced to fix it once again. This time, the problem was the release of personal data of those who used the site to apply for health insurance. In the wake of protests over privacy concerns, the administration scaled back the release of consumers’ personal information from the ACA website to private companies with a commercial interest in the data. The administration made the changes to HealthCare.gov after The Associated Press

The Social Security Administration sent its first monthly benefit check 75 years ago. The check was sent to Ida May Fuller in the amount of $22.54. Source: MSN

InsuranceNewsNet Magazine » March 2015

QUOTABLE We have $18 trillion in debt. We have approximately $18.2 trillion sitting in retirement accounts. When we start connecting the dots, those vehicles are low-hanging fruit – easy for them to come after. — Kristine Aretha, consultant with M&O Marketing, who says she expects Congress to target retirement accounts and life insurance to some degree

reported that the website was quietly sending consumers’ personal data to companies that specialize in advertising and analyzing Internet data for performance and marketing. The personal details included age, income, ZIP code, tobacco use and whether a woman is pregnant.

US ECONOMY: THE BEST IS YET TO COME

The U.S. economy is poised to see its best years in a decade, federal forecasters say. The White House, Congressional Budget Office (CBO) and the Federal Reserve all agree that better years are just over the horizon. In its latest round of economic forecasts, the White House predicted the unemployment rate will fall below 5 percent by the end of 2016, the lowest rate since before the recession. The White House is calling for growth of 3 percent this year and next, which would be the best back-to-back years since 2004 and 2005. The White House, CBO and Fed all see growth strengthening in coming years, and all see unemployment declining. In making their predictions, they say that despite international turmoil, fierce budget battles and lingering scars from the financial crisis, the unemployment rate has steadily declined for more than five years. Economic growth has been both disappointingly slow but persistent.

MORE YOUNG ADULTS MAY LEAVE THE NEST

Another sign of an economy that is picking itself up – those millions of young adults who

[NEWSWIRES] still live with their parents soon could be flying the coop and getting homes of their own. It’s not that these young adults necessarily want to remain at home. Many have been staying put because of the recession, student debt and the housing crisis. But what the Census Bureau calls “household formation” – the addition of an owner- or renter-occupied unit to the U.S. housing stock – may finally be gaining some momentum. It could help boost the housing market and have a ripple effect across the economy. The Census Bureau said that the U.S. added 1.3 million occupied housing units in the fourth quarter and 1.7 million in 2014, mostly because of new renters. That’s up from an average of 570,000 units a year from 2007 to 2013, which was about half the normal rate based on population growth. With each new house or apartment comes an increase in employment. Construction of a single-family house adds an average 3.5 new jobs for a year, said Mark Zandi, chief economist of Moody’s Analytics. Building an apartment adds one job for a year. Even renting or buying existing homes provides an economic boost as residents buy items such as furniture and appliances.

THE FED SAYS IT REMAINS ‘PATIENT’ Fed Interest Rates

0.25% Even though the Fed says it will remain “patient” 2009 and not rush to hike inter-

0.25% 0.25% 0.25% est rates, observers pre2010 2011 2012 dict rate hikes will come

sooner rather than later. The Fed hinted recently that if the economy improves faster than expected, the market should be prepared for a rate hike “sooner than currently anticipated.” The Fed has not changed interest rates since cutting them to near zero in December 2008. So investors are obsessed with trying to pinpoint when those rates finally will be raised. Lower gas prices have given Americans more money to spend on other things, and 2014 was the best year for job growth since 1999. So if the unemployment rate continues to fall and consumers keep spending, the Fed should be able to keep its plan to raise interest rates at some point later this year, observers say.

0.25% 0.25% ???? 2013 2014 2015

Obama Proposes ‘Robin Hood’ Plan President Barack Obama is proposing to close what he calls “the trust fund loophole” in the capital gains tax. The changes would curtail the step-up in basis on estates of the wealthy. In his State of the Union address earlier this year, President Obama listed a number of proposals aiming to eliminate loopholes that – in the administration’s words – “let the wealthiest and big corporations avoid paying their fair share in taxes, and invest those savings to help middle-class families strengthen their standing in the 21st-century economy.” It is a modern variation of a take-from-the-rich-and-give-to-the-poor agenda. It has many interlocking fingers, but curtailing the existing tax law concerning the stepped-up basis appears to be the central theme. The proposal would close what the administration calls the “trust fund loophole” or the “single largest capital gains tax loophole” in current tax law. This refers to the part of the tax code that allows people to pass appreciated assets on to heirs free of capital gains tax. Specifically, the proposal calls for treating bequests and gifts – other than to charitable organizations – as “realization events, like other cases where assets change hands,” according to a fact sheet. Obama’s proposals also would increase the total top capital gains and dividend rate to 28 percent. It is currently 23.8 percent. The top rate applies to wealthy couples who have incomes over about $500,000, the White House said.

80 MILLION AT RISK FROM ANTHEM DATA HACK

First it was Target. Then it was Home Depot. And after that it was Sony. But the much-publicized information hacks against those corporations were small potatoes compared with the data breach against the nation’s second-largest health insurer, Anthem. Anthem said hackers breached databases containing personal information for about 80 million customers and employees. It is likely the largest disclosed data breach in U.S. corporate history. Company officials said the stolen information included birthdates, Social Security numbers, street addresses, medical identification numbers and employment information, including salary data. There is no evidence that credit card or medical history information was breached. Anthem, formerly known as Wellpoint, offers Blue Cross Blue Shield plans in New York, California and 12 other states. DID YOU

KNOW

World health care costs expected by 2018: Source: IMS Institute for Healthcare Informatics

Meanwhile, the insurance and financial industries are stepping up the fight against cybercrime by urging more intelligence sharing and warning companies of the growing risks. The Financial Services Roundtable urged a Senate committee to pass legislation that would allow financial institutions to share threat intelligence with law enforcement officials and other industry members without facing potential legal repercussions. In addition, the National Association of Insurance Commissioners (NAIC) named officers for its new Cybersecurity (EX) Task Force to monitor emerging cyber risks, their impact on the industry and whether regulatory action will be required. The task force will coordinate NAIC efforts regarding the protection of information housed in insurance departments and the NAIC; the protection of consumer information collected by insurers; and monitoring cyber-liability market, according to NAIC president Monica J. Lindeen.

$1 TRILLION March 2015 » InsuranceNewsNet Magazine

ENROLLMENT YEAR 2

THE SQUEEZE IS ON Higher out-of-pocket costs are zinging consumers and lower commissions are slamming advisors. WHERE IS THE AFFORDABLE PART OF THE ACA? BY SUSAN RUPE

InsuranceNewsNet Magazine Âť March 2015

Average 2015 Deductibles for ACA Plans Individual Coverage

Family Coverage

Bronze

$5,181

$10,545

Silver

$2,927

$6,010

Gold

$1,198

$2,626

Platinum

$243

$489

insurance in the same way they go online to buy an airline ticket? That turned out to be an apples-to-oranges comparison, according to Leavitt. “Sixty percent of what agents do occurs after the sale,” Leavitt said. “Health insurance is not a transactional sale like going online to buy a plane ticket or rent a hotel room. When you reserve a hotel room and then you go and stay in that room, the sale is over. With health insurance, people will continue to use it and have questions about it after you’ve already sold them a policy. They will continue to need their agent’s help.” One of the biggest challenges for agents has been helping clients find a balance of the lowest premiums and the most manageable out-of-pocket expenses. For some agents, that pool of clients grew this period with the employer mandate, in which companies with more than 100 full-time equivalent workers must offer health insurance to at least 70 percent of their staff or face a fine. In Phoenix, Lori Crandall started working in July 2014 to get her employer-group clients ready for the start of enrollment season on Nov. 15. Her challenge was

Source: HealthPocket

mid the national debate over raising the federal minimum wage to $10 per hour, Scott Leavitt of Boise says he and his fellow advisors have been enrolling clients in their state’s health insurance exchange for an hourly wage that works out to about $4.50 – and sometimes even less. “What is happening is that agents are making half the commission they previously made and doing twice as much work on the front end enrolling people in coverage,” he said, adding that many exchanges were still not functioning well. “If you’re earning $9 for each client you enroll and you have to spend two hours with each client to sign them up for a plan and you have 10 hours in a day – you do the math.” Leavitt, past president of the National Association of Health Underwriters (NAHU), said the combination of additional work plus lower commissions brought about by the Affordable Care Act (ACA) has prompted about 25 percent of health insurance agents nationwide to leave the business since the law took effect. “They either are giving their book of health insurance business to someone else, or retiring early or diversifying their practice,” Leavitt said. The relatively brief enrollment period added another burden to the advisors’ workload, Leavitt said. “Before the ACA, you could enroll people in coverage all year long. Now, we have to squeeze all this into three months.” Agents really felt the financial squeeze in the second enrollment under the ACA, but clients got a bigger surprise with the impact of deductibles and copays. That’s after getting clients past the balky enrollment process. “It’s taking some agents two or three hours on the phone with our state’s Department of Health and Welfare just to get their clients qualified for subsidies,” Leavitt said of Idaho’s exchange. “Then they get back to the clients to pick their plan, and it’s taking two or three days to get that information back to our exchange so that they can be enrolled. And it was the same way last year.” Remember before the first ACA enrollment period – back in 2013 – when President Barack Obama said that consumers would be able to go online and buy health

ACA ENROLLMENT YEAR 2: THE SQUEEZE IS ON FEATURE

not only to recommend plans that cover mandated coverage at the lowest possible cost, but also to help employers meet two requirements: that coverage must be comprehensive and affordable. Comprehensive means that the policy must cover at least 60 percent of the group’s collective medical expenses and cover the mandated list of essential health benefits. Those essential health benefits include ambulatory patient services, emergency service, hospitalization, maternity and newborn care, mental health and substance abuse treatment services, prescription drugs, rehabilitative services and devices, laboratory services, preventive and wellness programs, chronic disease management, and pediatric services. Under the ACA, plans must cover 100 percent of the cost of “preventive services,” which include various screenings including blood pressure, cholesterol, mammography and colonoscopy, as well as immunizations. Affordable means that premiums cannot cost an employee more than 9.56 percent of his income. This applies only to coverage on the employees themselves – not family coverage.

“Creating new health coverage access will be a wasted effort if people are unable to pay for their coverage.” National Association of Health Underwriters CEO Janet Trautwein March 2015 » InsuranceNewsNet Magazine

FEATURE ACA ENROLLMENT YEAR 2: THE SQUEEZE IS ON

The current out-of-pocket limits are $6,600 for an individual and $13,200 for a family. On top of that, consumers are responsible for copays that go toward their deductible. “But that premium percentage is based on the income of the lowest-paid employees,” Crandall said. “So, for example, if workers cannot pay more than $99 a month, the employer is on the hook for the rest of it. As a result, we are seeing plans with higher out-of-pocket costs for the employees.” Those higher out-of-pocket costs are zinging consumers and raising concerns for advisors. Creating new health coverage access “will be a wasted effort if people are unable to pay for their coverage,” NAHU CEO Janet Trautwein said in a statement earlier this year. Trautwein issued the statement in response to President Barack Obama’s 2015 State of the Union address in which he touted the millions of people who gained access to coverage as a result of the ACA. “Making coverage affordable for everyone doesn’t just mean providing generous subsidies to help people pay for coverage; it means examining what is causing the cost of coverage to skyrocket and taking a hard look at the cost of medical care,” Trautwein’s statement continued. “An accurate rendering of the affordability of health insurance must take skyrocketing deductibles, copays and coinsurance into account too,” she said. “Thus far, health care reform has not done so. Coverage won’t be truly accessible or affordable until our leaders address these other important components of the cost of health insurance.” These out-of-pocket costs aren’t cheap. ACA requires that health plans place a cap on the maximum out-of-pocket costs for enrollees, based on the out-of-pocket limits in high-deductible plans that are eligible to be paired with a Health Savings Account. The current out-of-pocket limits are $6,600 for an individual and $13,200 24

for a family. On top of that, workers are responsible for copays that go toward their deductible. The issue of premiums versus out-ofpocket costs is making health insurance even more complicated for consumers. Do consumers buy a lower-tier “metal” plan (bronze or silver) that has a lower monthly premium but higher out-of-pocket costs? Or do they pony up more money each month for premiums on a gold or platinum plan that provides fewer out-of-pocket surprises? It appears that most consumers are lining up somewhere in the middle on this, with about two-thirds of Americans selecting silver plans that cover 70 percent of costs. Just how much are consumer health care costs going up? It depends on whom you ask. First, a word about premiums. Kaiser Family Foundation analyzed benchmark silver and bronze plans across the nation in January and found that premium increases between 2014 and 2015 were an average of 2 percent for silver plans and 4 percent for bronze plans. However, the Kaiser analysis found some wild percentage swings in some parts of the nation.

Premiums for bronze plans in a section of western Minnesota increased by 43 percent while premiums for silver plans in southeast Alaska jumped by 34 percent. Meanwhile, bronze and silver plan premiums in Summit County, Colo., showed the steepest drops, at 40 percent and 45 percent, respectively. But premiums don’t tell the whole story about health care costs. Consumers also are on the hook for deductibles, copays and coinsurance. And those costs are rising and hitting policyholders right between the eyes. Sally Poblete is the CEO of Wellthie, a software company that provides services to health care website providers. “I think there still needs to be a lot of consumer education as to how a health plan looks,” she said. “People are looking at the premiums they have to pay but not the deductibles, copays and other out-of-pocket costs. Health insurers and advisors have an opportunity to educate consumers.” She cited an Avalere Health analysis that showed average deductibles increasing from 2014 to 2015 across all metal plans offered on the exchanges. Platinum plan deductibles went up the most, at 23 percent. They were followed by silver plans at 7 percent, gold plans at 6 percent and bronze plans at 4 percent. However, that same Avalere Health analysis showed that the majority of plans offered on the exchanges had deductibles that were less than the maximum dollar amount permitted under the ACA. Seventy-four percent of silver plans offered on the exchanges have maximum outof-pocket limits below what the ACA requires, with an average out-of-pocket cap of $2,500. For those who selected a platinum plan, 98 percent of those plans will

43%

of those with private insurance said their deductible was either difficult or impossible to afford.

InsuranceNewsNet Magazine » March 2015

Source: The Commonwealth Fund

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FEATURE ACA ENROLLMENT YEAR 2: THE SQUEEZE IS ON

Uninsured Adults Who Sought ACA Coverage in 2014 Said It Was Too Expensive

requirements, with the average out-of-pocket costs capped at $5,500. Meanwhile, a HealthPocket study of 2015 ACA plan deductibles showed out-of-pocket costs add ACA Eligibility in Fall 2014 up to an intimidating chunk of change for policyholders. HealthPocket showed that the averMedicaid age 2015 deductibles for Eligible bronze plans are $5,181 for individual coverage and $10,545 for a family. Average silver plan deductibles for 2015 were Not Eligible $2,927 for an individual and $6,010 for a family. Among gold plans, avSubsidy erage 2015 deductibles are $1,198 for individuals Eligible and $2,626 for a family. Platinum plan deductibles averaged $243 for individuals and $489 for families in 2015. Those who have health insurance are finding that out-of-pocket costs are Share Who: eating up a significant percentage of their income, according to The Are in a working Commonwealth Fund’s family report “Too High A Price: Out-of-Pocket Health Have difficulty paying Care Costs in the United for necessities States.” The report states that 21 percent of adults Are generally who have health insurfinancially insecure ance spent 5 percent or more of their income Have outstanding on out-of-pocket costs medical bills over the past year – not counting premiums. An additional 13 percent Have an ongoing of adults with coverage medical condition spent 10 percent or more of their income on those Source: 2014 Kaiser Survey of Low-Income Americans and the ACA same costs. Low-income adults were hit especialhave a maximum out-of-pocket below ly hard, with 41 percent of those making ACA limits, with an average out-of-pocket less than $11,490 a year spending 5 percent cap of $69. Among gold plans, 94 percent or more of their income on out-of-pocket will have out-of-pocket costs below ACA health care costs and 31 percent spending limits, with an average out-of-pocket cap 10 percent or more. of $860. Among bronze plans, 71 percent The report further states that many will have out-of-pocket limits below ACA individuals are selecting insurance plans

14%

41%

42%

70%

67%

51%

42%

38%

InsuranceNewsNet Magazine » March 2015

with higher out-of-pocket costs as a way to keep premium costs in check. These out-of-pocket costs are taking a bite out of income. The survey showed that 43 percent of respondents with private insurance said their deductible was either difficult or impossible to afford. Again, these costs are hitting low- and moderate-income people particularly hard. Nearly half of those making $22,980 to $45,960 a year, 64 percent of those making $11,490 to $22,980 a year, and 59 percent of those making less than $11,490 annually described having a difficult or impossible time affording their deductible. Deductibles are hitting not only those who are buying their own coverage but those who receive coverage through an employer. Another Commonwealth Fund report released at the end of 2014 states that premiums for employer-sponsored health insurance grew 4.1 percent per year between 2010 and 2013, following passage of the ACA, compared with 5.1 percent per year between 2003 and 2010, before the ACA was passed. But family incomes have grown even more slowly during that time period, meaning that workers are spending more of their income on their employer health insurance. Premiums rose 60 percent between 2003 and 2013; incomes grew only 11 percent. Employee premium contributions, meanwhile, increased 93 percent over this period. Premiums and deductibles have been eating up more of workers’ paychecks, according to The Commonwealth Fund report “National Trends in the Cost of Employer Health Insurance Coverage, 2003-2013.” Researchers found the following trends: » Premiums are consuming a larger share of workers’ incomes. Average total premiums for family coverage, including both employer and employee contributions, reached $16,029 in 2013, or 23 percent of median family income. This is an increase from 15 percent in 2003. In 2010 and 2013, employees contributed 4 percent of their median income for employee-only, single coverage, up from to 2 percent in 2003. » Employees are spending more on premiums. Workers contributed an average of 21 percent to their employer health plan premiums in 2013 for employee-only

ACA ENROLLMENT YEAR 2: THE SQUEEZE IS ON FEATURE coverage. This was unchanged from 2010, but up from 17 percent since 2003. However, while the percentage of employee contributions stayed the same between 2010 and 2013, the actual dollar amounts rose because premium costs went up. In 2010, employees contributed $1,021 on average to their health insurance premium; in 2013, they spent $1,170. Over the 10 years between 2003 and 2013, the report found a 93 percent increase in the dollar amount that workers contributed to their insurance premiums. » More employees are paying deductibles and those deductibles are higher. In 2013, 81 percent of workers had deductibles, compared with only 52 percent in 2003. During this time, average deductibles also more than doubled, rising from $518 in 2003 to $1,025 in 2010 and $1,273 in 2013. Deductibles were 2 percent of median income in 2003, rising to 5 percent in 2013.

So how are consumers dealing with outof-pocket costs? Many are dealing with

Premium increases between 2014 and 2015 increased an average of 2 percent for silver plans and 4 percent for bronze plans. these costs by sitting at home instead of sitting in a doctor’s waiting room. The Commonwealth Fund reported that 46 percent of those earning less than $22,980 a year have skipped going to a doctor or filling a prescription because they can’t afford the copayment or coinsurance. Forty percent of those whose deductibles amounted to 5 percent or more of their income also reported that they skipped medical care because of the out-of-pocket cost. A sizeable percentage of the public says the cost of health coverage has forced them to go without it. The Kaiser Family Foundation studied adults who remained

uninsured as of the end of 2014 and found that two-thirds of those who didn’t purchase coverage said it was because they either did not qualify for a subsidy or that the coverage was too expensive. An estimated 4 million adults fall into what is known as the “coverage gap,” with incomes too high to qualify for their state’s Medicaid program but unable to afford coverage even with a subsidy. Under the ACA, low-income people who earn too much to qualify for Medicaid have to pay between 2 percent and 9.6 percent of their incomes on premiums before the government subsidies start. Kaiser’s researchers found that

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March 2015 » InsuranceNewsNet Magazine

FEATURE ACA ENROLLMENT YEAR 2: THE SQUEEZE IS ON most members of this uninsured group planned to sit out the most recent enrollment period as well. The trend toward consumers having to pay more toward health care costs seems to show no sign of reversing, according to one industry observer. “I do think we’re going to see more and more high-deductible plans become the norm,” said Laura Adams, senior analyst with InsuraceQuotes.com. “If that’s what it takes for people to get an affordable policy, that’s the route they will go.” Adams predicted that health savings accounts, combined with high-deductible plans, will increase in popularity as consumers find them to be a way of managing health care costs. Meanwhile, Scott Leavitt, the NAHU past president from Idaho, said that what consumers often don’t realize is that while out-of-pocket costs may be an unexpected punch to the wallet, “the health care plans available since the ACA was enacted are much richer than the plans that were on the market prior to the law taking effect.” For one thing, he said, the ACA prohibits health insurers from putting annual or lifetime dollar limits on most benefits that policyholders receive. Before the ACA, many insurers set a dollar limit on what they would spend on covered benefits during the entire time an enrollee participated in the plan. Many plans also set an annual dollar limit on their spending for an enrollee’s covered benefits. “Now, under the ACA, we also have the essential health benefits that must be covered, the preventive services that must be covered, unisex rates – which we did not have before – and no one can be denied coverage because of a pre-existing condition,” Leavitt continued. “So all that means consumers can get better coverage than was available to them before. But there is a cost associated with all of it. That’s the trade-off.” In addition, Leavitt said, consumers who previously had been in high-risk pools and consumers who previously were consid-

During the first open enrollment period, NAHU members vented their frustrations over longer hours and smaller payments. About 44 percent of those who responded to NAHU’s Broker Barometer Study said that it was taking them two hours or more to enroll each client in coverage. At the same time, about two-thirds of those who serve the individual and small-group markets saw their commissions drop, with the majority seeing a decrease of less than 20 percent. NAHU has continued to conduct monthly surveys of its members during the 2014-2015 enrollment period. The most recent survey showed that individual exchange purchases accounted for less than 25 percent of volume for most advisors. For those who purchased individual exchange products, nearly 75 percent previously had individual insurance. ered too sick to obtain coverage are entering the insurance marketplace, and that also contributes to higher costs. Despite the costs and confusion surrounding the continuing implementation of the ACA, opportunities exist in the industry, said one technology consultant to the industry. “I foresee a time when people will be able to buy down their deductibles on the individual market,” said Brian Poger, CEO of Benefitter, a San Francisco-based provider of technology for health insurance advisors. “Consumers will see that health insurance is a payment protection plan and their deductible is a prepaid medical plan.” Poger predicted that health care providers will be forced to become more flexible in how care is paid for, even offering ways for consumers to finance their health care needs. “Health care reform is driving the need for brokers – especially those who deal in the employer market – to be more holistic in how they deal with employees’ health care needs,” Poger said.

Forty percent of those whose deductibles amounted to 5 percent or more of their income reported that they skipped medical care because of the out-of-pocket cost.

Source: The Commonwealth Fund

InsuranceNewsNet Magazine » March 2015

Poger said he believes the ACA “offers a really big opportunity for health insurance advisors but it requires a different way of thinking than in the past.” “Like with any major change, there will be a whole bunch of winners and a whole bunch of losers,” he continued. “I think the brokers who reinvent themselves will be the successful ones.” Advisors could charge their employer clients a fee for service, Poger suggested. Or maybe advisors could determine whether employees have needs other than health insurance that the advisor could provide. Poger suggested that advisors take a three-pronged approach to figuring out how to adapt their practice to the ACA world. “They need to have a strategy on how they are going to provide group coverage, how they will sell on the private exchanges and how they will sell on the public exchanges,” he said. “And then they will need to plan how they will present solutions in all three of these areas to their clients. I think there is a path down each of these three strategies that will make advisors more money.” Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Contact her at Susan. Rupe@innfeedback.com.

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Life Insurance Activity Dips in 2014

0.6%

An end-of-year boost in life insurance application activity could not fend off an overall decrease for all of 2014. Individual life insurance applications for 2014 dropped by 0.6 percent over the previous year, according to the MIB Life Index. November and December were strong months for life activity, with increases of 5.2 percent and 2.6 percent compared with the final two months of 2013. But it wasn’t enough to make up for the slow start of 2014, which saw a first-quarter decline of 5.4 percent compared with the same period in 2013. Those in the 60-plus age group represented the biggest gains in life insurance activity, with applications up 2.8 percent over the previous year for that age group. Those ages 44 and younger showed the biggest drop in activity over the prior year, down 1.5 percent.

LIFE EXECS SEE OPPORTUNITIES IN 2015

Low interest rates may be clouding the crystal ball, but life insurance executives say they are predicting opportunities for the industry in 2015. The LOMA 2015 Life Insurance Industry Forecast says that improvements in the economy and employment, combined with the younger generation’s move toward more conservative investments, will open new or increased sales prospects this year. Here are some additional survey highlights: » Millions of Americans are uninsured or underinsured, and this is an opportunity for the industry. » Increasingly important target markets are millennials and Generation X, who want conservative savings vehicles, easy-tounderstand propositions and digital offerings. » On the technology side, predictive analytics and data mining tools have captured much attention. Life insurers are especially interested in using analytics for customer and market insights. DID YOU

KNOW

57%

» Online and mobile environments, especially social media, are playing a growing role in engaging and communicating with the consumer.

METLIFE CHALLENGES ‘TOO BIG TO FAIL’

MetLife is suing the federal government over the insurance company’s designation as a systemically important financial institution (SIFI). MetLife said it had filed suit in the U.S. District Court challenging the decision. American International Group (AIG) and Prudential already have been designated as nonbank, insurance SIFIs. The Treasury Department issued an immediate response, saying it believed its designation of MetLife as a SIFI will be upheld. Under a provision of the Dodd-Frank Act (DFA) that allows the Financial Stability Oversight Council (FSOC) to designate nonbanks as SIFIs, Treasury secretary Jacob Lew heads the council of regulators, which includes the heads of the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Consumer Financial Protection Bureau. MetLife said its SIFI designation “will harm competition among life insurers and negatively impact availability and

of industry leaders agree that within the next five years, an outside source (such as Amazon or Google) will be a disruptive force in the life insurance market. Source: LIMRA

InsuranceNewsNet Magazine » March 2015

QUOTABLE After sluggish sales activity in the beginning of 2014, we saw increasing levels of momentum for the majority of the year and we are hopeful these favorable trends continue into 2015, despite a less than inspiring economy. — Lee Oliphant, CEO, MIB Group

affordability of financial protection for consumers.”

GENERATION X REPRESENTS OPPORTUNITY NOW

When it comes to an immediate opportunity to reach a segment of the market that is ripe for life insurance, X marks the spot. That’s X as in Generation X. LIMRA researchers said that while Gen Xers are more likely than members of Generation Y to own life insurance, insured Gen Xers are the most likely to indicate that they do not have enough life insurance coverage. Further, among those who do not have any life insurance coverage, Gen Xers are the most likely to say they need to be protected. Gen X presents the greatest demand for life insurance for “traditional” reasons, such as getting married, buying a home and having children. Gen X is the ultimate “sandwich generation,” LIMRA said. Gen Xers have to save for their children’s college education while preparing for their own retirement and helping their parents as they get older. It’s no wonder this generation is financially stressed!

FIDELITY & GUARANTY LIFE CEO TO RETIRE

Lee Launer, Fidelity & Guaranty Life’s (FGL’s) CEO, announced he will retire April 30. The company’s president, Christopher J. Littlefield, will become Lee Launer CEO upon Launer’s retirement. Littlefield, who joined FGL as president in 2014, was formerly the president and CEO of Aviva USA Corp., overseeing a business with more than $60 billion of assets under management and serving the insurance needs of more than 1 million customers.

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For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public. March 2015 » InsuranceNewsNet Magazine

LIFE

When ‘No Exam’ Life Insurance Is the Best Option for Your Client W hether your client is short on time or is afraid of needles, a no-exam policy might be the best way to obtain coverage. By Brian Greenberg

“N

o exam” life insurance can be a conundrum for advisors seeking to ascertain when it’s a viable option for their clients. 32

On the downside, the product typically offers smaller amounts of coverage, generally under $400,000. It is also more expensive than medically underwritten policies, and the companies offering these policies often lack the name recognition of some of their larger counterparts. However, despite the limitations of no-exam options, there are certainly times when this policy type is the best choice for a client.

InsuranceNewsNet Magazine » March 2015

To help advisors better assess when a no-exam life insurance policy might be advantageous, here are five scenarios in which this product is likely to be in a client’s best interest.

1. Convenience

For many clients, the convenience of no-medical-exam policies far outweighs paying a higher premium. Some clients

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LIFE WHEN ‘NO EXAM’ LIFE INSURANCE IS THE BEST OPTION FOR YOUR CLIENT are simply too busy to fit a medical exam into their schedules, although they know they need the coverage. Instead of waiting for the client to make time for a medical exam, the client can schedule a simple phone call or short meeting with you to complete the no-medical-exam application. No-exam applications can be finished in as little as 20 minutes, and your client can have coverage in 24 hours from an A-rated company. The client can always opt to procure a fully medically underwritten policy at a later time to try to get a lower premium.

2. Coverage Needed Quickly

I frequently encounter clients who need coverage quickly. This can be for a variety of reasons, ranging from the need to secure a business loan or a mortgage, to court-ordered divorce arrangements. The no-medical-exam options are perfect in these scenarios as policies can be issued in just 24 hours. For those customers who want the convenience and speed of the no-exam policy but need coverage in excess of $400,000, you can use the “stack policy” approach. For example, if a client needs more than $1 million in coverage but does not have the time to undergo a full underwriting process, you can secure the client multiple no-exam policies from separate companies to get the desired amount of death benefit. Of course, you must always be transparent to the companies when employing this strategy, because there are rules governing how much coverage a person can receive, which is usually determined as a multiple of the applicant’s income and age.

3. Smaller Policies

When you have a client who requires only a small amount of insurance coverage, the cost and time of a fully underwritten policy may not be worth it for them. This is especially true for younger clients. The price difference can be so small that the time and inconvenience of a fully underwritten policy just don’t make sense. For a client born in 1984 requiring a $100,000, 20-year term policy, the preferred rate for a fully underwritten policy runs about $11 a month compared with a no-exam preferred rate policy that costs $12 a month. In these cases, the price difference for your client is less than 10 percent. The decision is, of course, up to 34

the client, although the quicker no-exam option is a great thing to offer your clients now. Although no-medical-exam policies go up to $400,000 in coverage, the industry can expect to see these policy options continue to increase the amount of coverage offered.

4. Fear of Doctors or Needles

Some people simply don’t like to go to the doctor. Although the paramedical exam required in a fully underwritten process is never fun, some people regard it as downright “torture” on the extreme end, and downright unpleasant at best. The paramedical exam requires blood and urine samples, and often requires that a stranger come to a private home or office to conduct the exam. I’ve taken a few paramedical exams in my time and, while the examiners were nice people, overall it was not the most comfortable experience.

paramedical exams. From a diabetes diagnosis to irregular electrocardiograms, these clients were lucky to have found out about these serious medical conditions. However, they concurrently found out they would either be declined the insurance coverage or be required to pay more in premiums. It is possible to protect clients from such adverse outcomes. When a client has not seen a physician in a long time, it’s wise to recommend that they apply for an instant-issue, no-medical-exam policy first so they can secure coverage quickly – within 24 to 48 hours. Go ahead and begin the fully underwritten policy paperwork at the same time; just make sure your client gets some level of coverage before taking the paramedical exam. No-medical-exam policies are a relatively new product that can fill a specific and valuable function in the “product arsenal” of a life insurance advisor. Although some advisors have been putting

Just the thought of needles can stop some clients from securing life insurance. For these people, a no-medical-exam policy is a blessing. Some people also have a fear of needles. In fact, reports indicate that at least 10 percent of American adults have a fear of needles, and it is likely that the actual number is larger, as the most severe cases are never documented due to the tendency of the sufferer to avoid all medical treatment. Just the thought of needles can stop some clients from securing life insurance. For these people, a no-medical-exam policy is a blessing. I make it a habit of asking clients whether they have any issues with the medical exam or an acute fear of needles. Clients can have all sorts of reservations about the medical exam, so I make sure to let them know that such testing is not always a requirement to obtain life insurance.

5. Haven’t Seen a Doctor in a Long Time

Many advisors have had the experience of clients receiving bad news from their

InsuranceNewsNet Magazine » March 2015

off adding the no-exam products to their portfolio as these policies are typically more expensive than fully underwritten policies, I strongly believe it is an advisor’s responsibility to get clients life insurance coverage when needed. And, although clients often put off securing coverage for one reason or another, it is also the insurance professional’s responsibility to ensure clients are aware of all viable options – including that a medical exam is no longer a requirement in order to secure life insurance. If you have not yet started to offer no-exam life insurance to your clients, there is no better time than now. Brian Greenberg is president of True Blue Life Insurance. Brian may be contacted at brian.greenberg@ innfeedback.com.

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LIFE

Consider a Cover Letter to Help Your Client’s Underwriting A cover letter accompanying the life insurance application can help bring your client alive in the underwriter’s eyes. By Gregory E. Schwabe

W 36

e all can agree that a life insurance application is an objective document that

accurately describes an applicant’s personal and medical history, as well as an applicant’s risk-worthiness for an insurance company. If the app tells the story, what else is needed? Most advisors believe that the job is done when they submit the app, since very few consider having a cover letter accompany their life applications.

InsuranceNewsNet Magazine » March 2015

And that’s a missed opportunity. Advisors don’t consider the positive impact a cover letter can make in helping the applicant “come alive” to the underwriter who receives the application. As such, it’s a perfect tool for an advisor to talk about other aspects of a client’s life that may be beneficial to the outcome. A carefully written cover letter also

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2.90%

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3.05%

1 Rate based on $20,000 or more in premium for the initial guaranteed period. Interest rates effective 2-1-2015 and are subject to change. Call for current rates. The Oxford Life Multi-SelectTM annuity is issued by Oxford Life Insurance Company. A comprehensive description of the policy benefits, costs, exclusions, limitations and terms is available to you upon request. An investment in this contract is subject to possible loss of principal and earnings, since a surrender charge and market value adjustment may apply to withdrawals or upon surrender of the contract. Not available in all states. For more information, please refer to policy form ICC14-MYGA0814, DA520 and state-specific variations where applicable.

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LIFE CONSIDER A COVER LETTER TO HELP YOUR CLIENT’S UNDERWRITING sends the message that the advisor is proactive and committed to securing the best possible offer for the client. Having the full story expedites the underwriting process by answering an underwriter’s questions before they’re asked. Often it’s the back-and-forth between underwriter and advisor that draws out this process and plants seeds of doubt about the advisor’s competence in the applicant’s mind. The added delay also can tarnish the client’s satisfaction in getting a problem-solving policy issued, and in most cases, the advisor must “resell” the need for the coverage. What should go into an applicant’s cover letter? The letter should paint an accurate, thoughtful picture of the applicant for the underwriter, including employment, life achievements and social involvement. What can the client’s lifestyle add to the picture? Are there hobbies, special interests, or exercise regimens that may improve the underwriting or answer possible questions or concerns? For example, we have seen this work successfully for body builders when underwriters were concerned about an applicant’s physique. The cover letter is the place to share this information. If you know the client well and can vouch for the person’s character, let the underwriter know about it. Are there any other applications pending on the life of the applicant? If so, what is the amount and with what insurance company? Will the total amount of the coverage being applied for be placed? Although some underwriters downplay the value of seeing an applicant’s photo because they can’t verify the identity, it can pay dividends when you attach a copy of a photo ID (a driver’s license, for example). This identifies the applicant and validates any other photos presented. In recent months, we had two “build” cases where providing a photo of the applicant actually improved the final underwriting class. For business applications, the cover letter should address how the sale was developed. If the purpose of the application is to fund a buy-sell agreement, let the underwriter know how the value of the business was determined. Has there been a recent valuation? Are all of the owners covered to satisfy the agreement? If any partners are applying for coverage 38

from other insurance companies, that information should be noted as well. If the purpose of the sale is key person life insurance, address any special circumstances that stress the value of the applicant to the business. Relate whatever industry experience the applicant has and how that experience contributes to the company’s value. If the application is being made to cover a business loan, state the reason for the loan and the terms of the arrangement. If the application is for estate planning purposes, the cover letter should indicate how the value of the estate was determined. Are there special needs individuals involved or any unusual pattern of gifting or charitable interests? Is there a trust being

benefit being requested. Assets such as club memberships, company cars, performance bonuses and stock offerings can enhance the amount of coverage an applicant can qualify for, but it’s up to the advisor to bring the necessary information to the underwriter’s attention. In cases where applicants have an avocation that can require a rating, a cover letter can help. Typically, any kind of questionnaire about the activity will just address the basic statistics and certification to perform the activity. A cover letter can speak to any awards, advanced training and skill levels that the applicant has attained, as well as any specific safety measures that can put the underwriter more at ease with the risk.

Advisors don’t consider the positive impact a cover letter can make in helping the applicant “come alive” to the underwriter who receives the application. created that will own the policy, and might that lead to a replacement application being submitted later in the underwriting process? These are issues that, if explained upfront, can smooth and shorten the underwriting timeline. For applications where the applicant has a criminal background, address the probation and parole timelines, and give the underwriter a sense of what the applicant’s life has been like since the debt to society was paid. If you are applying for larger amounts of coverage but think the applicant’s financials could be a concern, the cover letter should provide assurances of why the coverage is justified. Because advisors know that some clients tend to minimize their income and assets on applications, it’s the advisor’s task to identify all sources of income to build the case for the

InsuranceNewsNet Magazine » March 2015

Although only a small percentage of life insurance applications are accompanied with an advisor’s cover letter, those advisors who do send a letter experience an easier underwriting process. Make it a habit to bring your client alive in the eyes of the underwriter by providing an introduction. It will add efficiency to your applications and give your client the most favorable impression possible with the person making the final underwriting decision. Gregory E. Schwabe, FLMI, is national marketing director for First American Insurance Underwriters, a Needham, Mass.-based insurance brokerage firm. He may be contacted at gregory. schwabe@innfeedback.com.

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A team approach has helped Morgan 24/7 Financial Services ascend to the top of Kansas City Life Insurance Company. Pictured (from left): Field Managers Jose Molina; Rob Greco, LUTCFTM; Glenn Castillo; Kansas City Life President, CEO and Chairman of the Board Phil Bixby; General Agent Thomas Vanlaarhoven and Field Managers Eric Rosenthal and Dave Vermeuel.

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March 2015 » InsuranceNewsNet Magazine

$2.71 BILLION

Bank holding companies found annuities to be an increasing source of income in the first three quarters of 2014. Income earned from 1Q-3Q 2014 the sale of annuities at bank holding companies rose 8.4 percent to $2.71 billion in the first three quarters of 2014, compared with the first three quarters of 2013, according to the bank insurance consultancy Michael White Associates. Third-quarter bank holding company annuity commissions rose 2.6 percent to $897.4 million from the year-ago period, the bank insurance consultant also reported. Income earned from bank-sold annuities reached a record $3.34 billion in 2013, an increase of 9 percent from 2012, Michael White Associates previously reported. Of the 425 large top-tier bank holding companies reporting annuity fee income in the first nine months of last year, 214 (50.4 percent) were on track to earn at least $250,000 in 2014, the consultancy added. Of those 2014 banking institutions, 53.3 percent have achieved double-digit growth in annuity fee income.

CARRIER AIMS ANNUITY AT YOUNGER BUYERS

Annuities are only for “old people” – right? Wrong, according to one carrier who is targeting a sliver of the marketplace that is ripe for guarantees. First Investors Life’s introduction of a flexible pay deferred income annuity (DIA) represents a vote of confidence for that sector of the annuity market, as life insurers look to attract younger buyers to a sizzling product category. The flexible pay DIA gives investors more leeway in terms of paying into the annuity and complements First Investors Life’s single pay DIA introduced last year. Longevity annuity payment options appeal to young workers looking to plan for the future as much as to company veterans working at companies with no retirement plan, a company spokeswoman said.

INDUSTRY URGES FEDS TO REQUIRE ANNUITIES IN RETIREMENT PLANS

Insurance industry advocates are applauding the introduction of bills in the House and Senate to make it easier for small businesses to join multiple-employer retirement plans, but they are also encouraging 40

lawmakers to require annuities to be one of the options for employees. The bills are the Retirement Security Act of 2015, SB 266 in the Senate and HR 557 in the House. Senate sponsors are Sens. Susan Collins, R-Maine, and Bill Nelson, D-Fla. House sponsors are Reps. Vern Buchanan, R-Fla., and Ron Kind, D-Wis. The Insured Retirement Institute (IRI) and the American Council of Life Insurers (ACLI) commended the proposals as a way to bolster the nation’s voluntary, private retirement plan system and will help encourage small businesses and startups to sponsor retirement savings vehicles such as IRAs and annuities for their employees. But IRI also said the plans should be required to offer an annuity option in their multiple employer plans (MEPs) to ensure an income into retirement. The ACLI said the legislation would encourage greater use of auto-enrollment and auto-escalation features and would allow employers to use a “stretch match,” which encourages greater employee saving to receive matching contributions from employers. Also, the ACLI said, the bill would expand tax incentives for small businesses to offer retirement plans, an important consideration for many employers.

InsuranceNewsNet Magazine » March 2015

4 IN 5 SAY RETIREMENT SAVING ‘NOT MAIN PRIORITY’

The majority of working Americans say they are juggling a number of financial priorities – and saving for retirement does not rank high on the list. Research from HSBC shows that most workers are focusing on more immediate financial needs – particularly paying off a mortgage or other debts. About one-third of these workers are so focused on paying off debt that they have forgone saving for their children’s education in addition to saving for retirement. Although 81 percent of working Americans reported that retirement saving is not their main priority, 76 percent said that they have seen their retirement savings impacted by a life event such as buying a home, becoming unemployed, divorce or illness. The research showed a number of factors that influence working Americans’ view of retirement saving. Almost half said that the cost of living was increasing faster than their income. Four out of 10 said they had insufficient knowledge of how to plan for retirement. More than half didn’t start saving for retirement until they were past the age of 30. One positive note from the HSBC research was that working-age Americans outpace the rest of the world when it comes to planning for later life, as 75 percent report saving for retirement compared with the international average of 62 percent.

Go to AnnuityNews.com for exclusive sales ideas and more!

Longevity Risk Leads To Growth Opportunity Longevity risk may be opening the door to the biggest growth opportunity for annuity carriers, according to the Deloitte Center for Financial Services. Should that happen, it could mean a big growth opportunity lies ahead for advisors who work with annuity products too. bitly.com/qrlongevity

@Annuity_ News

RETIREMENT SAVINGS

Bank Annuity Income Rises 8.4% in First 9 Months of 2014

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March 2015 Âť InsuranceNewsNet Magazine

ANNUITY

Preserving Wealth With SPIAs A single premium immediate annuity can help your clients pass along assets that they will not need in retirement.

SCENARIO 1

The Gift That Keeps on Giving – Tax-free

By William R. Buslee and Stephen O. Kroeger

Josephine Smith is 72, in good health and lives in Colorado. She’s in the 33 percent tax bracket. She has three children and four grandchildren. She has funds in several nonqualified annuities, which total $1 million. Her total basis in the annuities is $500,000. She intends to pass these funds to her heirs, and she wants to distribute them in the most taxefficient manner.

state taxes are just one component of the estate-planning process. That fact seems to have gotten lost since the estate tax exemption was raised to more than $5 million for individuals and more than $10 million for couples. This does not take into account the possibility of estate tax changes in the future and, generally speaking, the most efficient ways to transfer wealth from generation to generation. The Wealth Replacement Trust (WRT) remains an effective estateplanning technique for your most successful clients. This is for clients who have built substantial net worth and are now concerned with creating and maintaining their financial legacy. The idea works hand in hand with the financial life cycle concept. Individuals can accumulate assets more aggressively when they are younger (such as in qualified plans, individual retirement accounts, their businesses, etc.) because they have the time to recover from possible losses. As people move into middle age, they typically need to become more conservative with their investments. Eventually they should move out of growth and other instruments with larger risk components, and into income and guaranteed financial vehicles. Finally, if clients will not need some of their money for their remaining years, optimum legacy planning dictates that they seek the most tax-efficient method of transferring that wealth to the next generation. Qualified plans (QPs) and annuities are often the assets of choice when it comes to the wealth transfer concept. Although both are excellent accumulation vehicles, they are not particularly effective assets to hold until death. Neither asset is eligible for a “step-up in basis” at death. Further, both are subject to income taxes and will be included in the decedent’s final estate calculation. There 42

She can take the balance of her nonqualified annuities and effect a 1035 exchange into an SPIA. If she chooses a life-only payment option for the SPIA, she will receive an annual income of $73,787.72. Based on her tax bracket, she will owe $14,229.96 on the nonexcluded portion. This leaves her with annual after-tax income of $59,557.76. Josephine can establish a trust and gift a portion of her annual payment to the trust. Because her trust has seven potential beneficiaries (Crummey beneficiaries), she could choose to gift the entire after-tax amount to the trust

is the potential for Income in Respect of Decedent (IRD) as well. A strategy for wealth replacement starts by identifying assets your clients will not need during their retirement and will most likely be passing on to their direct beneficiaries. These assets are converted into income streams via single premium immediate annuities (SPIAs). Using a lifeonly payout option eliminates the asset from inclusion in the final estate tax calculation. All taxes should be appropriately netted out of the transaction, including the taxes due on the annual payment and any

InsuranceNewsNet Magazine » March 2015

each year. However, she has other plans. The trust would need to spend only a portion of the annual gift ($25,209.20) to purchase a $1,000,000 policy on her life in order to replace the value of her annuities. She decides that she will fund the trust at $25,500 per year and will retain the remaining $34,057.76 and spend it as she wishes. Of course, the proceeds from the trust will pass on to her beneficiaries, estate tax-free. Following this strategy, Josephine is able to achieve a number of goals. She has » Avoided gift taxes. » Spread the income taxes on her annuities over the remainder of her life. » Passed the total equivalent of her annuities to her heirs, both estate and income tax-free. » Created a substantial after-tax income stream that she can use to enhance her lifestyle.

taxes due on the sale of the asset prior to its conversion to an SPIA. This is another reason why funds from qualified plans and annuities are so well-suited for this process – they can be transformed directly into income streams without having to recognize any tax until the distributions are received, while at the same time satisfying minimum distribution requirements. Any remainder of the SPIA distribution is gifted to a trust with appropriate gift tax recognition as necessary. The trust purchases a life insurance policy to replace the asset. So what has happened here? The as-

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ANNUITY PRESERVING WEALTH WITH SPIAs

SCENARIO 2

More Income and Less Tax Josephine has suggested that we speak to her friends Kent and Kathi. Kent is 72 years old. His wife, Kathi, is 70. Both are in good health for their age and can qualify for preferred nontobacco underwriting. They also reside in Colorado and are in the 35 percent tax bracket. They have five children and enjoy being the grandparents to two grandchildren. They have $1 million in several qualified plans comprising just a fraction of their joint estate. Kent is concerned about estate taxes and wants to take steps to minimize their impact. The couple can purchase an SPIA with these funds. They can effect a 1035 exchange and elect a joint survivor payment option. They will receive an annual income of $62,081.94. They will owe $21,728.68 in taxes on each annual payment. Kent and Kathi use a portion of the remainder ($20,000) to fund an irrevocable life insurance trust (ILIT). Since they have a potential total of 14 Crummey beneficiaries, they have no problem avoiding gift taxes. In turn, the ILIT uses a portion of the gifted funds ($19,662.03) to purchase a $1,000,000 survivorship contract on the couple. Kent and Kathi still have an after-tax balance on their annual annuity payment of $20,353,26. They could use this sum of money for just about anything – to purchase a new car or help pay for a cruise; Kathi has a list of ideas. Kent is still worried about conserving his assets. He could purchase a pair

set has been removed from the clients’ estate and, through the wording of the trust, the clients have gained post-mortem control over the benefits it provides. Consider the scenario on page 42. The trust document can also control how and when assets can pass on to a 44

of long-term care policies. The policies they select have a 90-day elimination period for both home care and facility care. In addition to other benefits such as a payment for home modifications, this plan also provides a monthly pool of money to reimburse the clients for possible additional costs. The cost to provide this coverage for both Kent and Kathi is $11,070.47, of which a portion may be taxdeductible in 2014. In addition to all that, with this strategy, Kent and Kathi are left with $9,282 of additional income. We achieved a number of goals. We have » Avoided gift taxes. » Reduced the couple’s estate tax exposure by $1 million. »

Effectively doubled the amount of their qualified plan assets that will pass on to their beneficiaries (and it now transfers free of estate and income taxes).

» Spread the income taxes on the assets over the remainder of their lives. » Protected the assets from the high cost of a long-term illness. » Possibly created a tax deduction based on their LTCi premium. » Supplied them with additional funds to enhance their lifestyle today.

clients’ heirs. For example, incentives can be added to the trust so that assets allocated for the children and/or grandchildren are only distributed at attainment of a specific landmark in their lives such as graduation from college or reaching a specific age. The trust provides post-mortem

InsuranceNewsNet Magazine » March 2015

control of the asset, which truly establishes your clients’ legacy. The obvious downside to this plan is the possibility that a portion of the asset will be needed at a later date for something such as unforeseen medical expenses. This specific issue can be mitigated by factoring a long-term care insurance (LTCi) premium into the income stream (and the advisor picking up another sale along the way). It is important to keep in mind that you are looking for a client who can say “I’ve been so financially successful during my life that I won’t need my IRA, QP or whatever asset in order to maintain my standard of living. I want it to go to my children or grandchildren or charity, etc.” This is simply a repositioning of your clients’ assets that they will not need in retirement so they can be transferred to the next generation in a more tax-efficient manner. Also, because we are using an SPIA, if the client needs money, the trustee can always take a reduced paid-up policy and the client can then redirect the income stream wherever desired. Take the scenario on this page. Please keep in mind that whenever necessary, we should always work in concert with our clients’ qualified professionals, such as tax advisors and estate planning attorneys, as necessary. Additionally, while insurance products can play an important part in developing an effective estate plan, the products themselves are not “estate plans” and agents should not refer to their services as estate planning unless qualified to do so. The bottom line is estate planning in terms of creating your clients’ financial legacy remains as critical as it has ever been. For your more successful clients, a wealth replacement trust may prove to be a viable option regardless of whatever future legislative changes may occur! William R. Buslee, MS, ABD, CLU, ChFC, is director of advanced sales for Crump Life Insurance Services. He may be contacted at bill.buslee@ innfeedback.com. Stephen O. Kroeger, CLU, HIA, MBA, is senior director of advanced sales for Crump Life Insurance Services. He may be contacted at steve.kroeger@ innfeedback.com.

March 2015 Âť InsuranceNewsNet Magazine

ANNUITY

FIA Pioneer Looks Back at Annuities’ 20 Years of Success A s fixed index annuities pass the 20-year mark, the leaders of one carrier take a look at why they are still selling the product and why FIAs continue in popularity. By Linda Koco

ase of purchase, simplicity, income planning – those are some of the themes that drive fixed index annuity (FIA) business at a carrier that has been in the FIA market for 19 years. That carrier is Life Insurance Company of the Southwest (LSW), Addison, Texas. The company issued its first index annuity on April 7, 1996. It continues to write FIA business today, 19 years later, as an operating business of its parent, National Life, Montpelier, Vt. Other players from that early FIA era have stopped writing FIAs in their own names, merged their FIA books with other carriers and/or otherwise left the FIA business. That makes LSW the industry’s oldest FIA carrier still writing FIAs in its own name. In a wide-ranging interview with InsuranceNewsNet, LSW head of retirement Wade Mayo and LSW executive vice presiWade Mayo dent Carl Lutz provided some insight into their company’s staying power in the FIA market, and into the FIA industry in general. The observations come on the occasion Carl Lutz of the 20th anniversary of the debut of FIAs to the public. That’s when Keyport Life launched KeyIndex, the nation’s first-ever FIA policy. Keyport later merged into Sun Life Financial, but that first policy altered the product profile of the entire fixed annuity industry. It did this by offering a fixed annuity that offers upside potential with 46

downside protection and features an interest crediting strategy that links to a financial index. Today, the FIA business has grown into a multibillion-dollar industry. At year-end 2013, the industry’s total sales came to more than $38.6 billion, according to figures from Wink Inc.

The LSW Story

“LSW is the largest provider of FIAs in employer-sponsored plans,” Mayo said. The company’s niche is selling FIAs to teachers and government workers in 403(b) and 457 plans, respectively. In terms of industrywide sales, the FIA production of LSW combined with its parent put the company in the top third of the 40 players shown on Wink’s list of FIA writers for the first nine months of 2014. The carrier was in 13th place at that time. The company’s lead product type is flexible-premium FIAs, which Mayo said are compatible with the monthly-pay nature of its market. It also sells singlepremium FIAs and accepts “single sum” rollovers from other qualified plans. The primary distribution channel is independent agents and agencies in the taxsheltered annuity market, but LSW also sells through career agents of its parent company, National Life. This targeted structure sets LSW apart from the many FIA carriers that do brisk FIA business selling single-premium FIAs through insurance marketing organizations (IMOs) and other channels.

A Formula That Works

Mayo thinks the LSW approach helps explain why the carrier has stayed in business as an operating FIA company for the past 19 years. As he sees it, selling FIAs that are easy to sell and purchase (via monthly payments), are simple to understand (not too many options and crediting approaches), and provide for lifetime income is a formula that works.

InsuranceNewsNet Magazine » March 2015

Easy to sell and understand. “We don’t play in the IMO world,” Lutz said. The teachers and government workers market is a defined benefit type of market, he noted. The buyers tend to be risk averse. They also are receptive toward making periodic contributions (as opposed to paying single premiums). So the FIAs that LSW offers are not designed for sale on spreadsheets or based on commissions and rates, he said. Instead, LSW keeps the focus on offering agents a way to differentiate themselves with a product that provides accumulation and (once LSW added its living benefits rider) guaranteed lifetime income. “Our intent is not to compete with equities,” Mayo said. Rather, he said, the company focuses on offering opportunity to earn better interest than in a traditional fixed annuity if the buyer is willing to accept a little more risk. “We say, ‘There won’t be gyrations or volatility, and there will be no downside such as a 40 percent decline in one year,’” Lutz added. “We show the value of the guarantee that the policies offer even when the equities market drops – when ‘zero is your hero.’” Simple to understand. Innovation in the FIA business has been a constant throughout the years. That has led a number of carriers to develop contracts that offer lots of index-linking options and interest crediting strategies. The carriers that have these multifeatured products may be trying to differentiate themselves that way, Mayo speculated. “But I think that has obscured things.” By comparison, he said, LSW keeps its FIAs “as simple as possible.” For instance, he said, the products credit interest annually, and they have a floor and cap but no spread loads. The policies offer only two indexes and two crediting options. “We don’t compete on complexity,” Mayo said. “We don’t want our products to be seen as obscure.”

FIA PIONEER LOOKS BACK AT ANNUITIES’ 20 YEARS OF SUCCESS ANNUITY Regarding the customized indexing strategies that some carriers are offering today, Mayo said he thinks they’ve been generated by back-casting to find the strategy that looks best. He predicts that over time “people will gravitate back to the S&P 500” and other index options that are simpler. The specialty indexes are “something new for agents to talk about,” Lutz reasoned. “But I think the client’s money will go to where they get the best execution and the best value.” Lifetime income. A variety of approaches is bound to occur in the guaranteed living benefits riders that FIA carriers are increasingly offering with their policies, Lutz predicted. The riders are attracting money to the contracts industrywide, he noted. The LSW leaders definitely see this as an important innovation in the market. The company has been offering a guaranteed lifetime withdrawal benefit in the 403(b) market since 2007, and overall about 40 percent of policyholders have elected the rider, Lutz said. In 2014, most of LSW’s single-premium sales had the rider attached. The buyers tend to be aged 55 and up.

“Now people are finding that a product that delivers a paycheck for life is attractive,” Mayo commented. The riders plus the policy annuitization options built into the annuities provide people with a range of guarantees and benefits from which to choose. Mayo predicts FIA income features will continue to grow in popularity industrywide. With more and more baby boomers retiring, and with more and more corporations no longer offering defined benefit pensions, “income planning has become a huge deal.”

The FIA as Security Battle

The Dodd-Frank Act of 2010 brought to an end the multiyear effort by the Securities and Exchange Commission to have FIAs treated as securities. Looking back on that battle, Mayo described the contentions that FIAs are securities as “bogus, disingenuous and with no substance.” As he sees it, “a lot of companies in the mutual fund and variable annuity space didn’t want us to be in this business. So they produced theoretical complaints that were never proven.”

Today, he said, “plenty of people still don’t want the competition, so they will always complain about something.” For instance, recent complaints have tended to deal with disclosure, suitability and other sales practice issues. The Indexed Annuity Leadership Council, of which LSW is a member, is “all for disclosure and straightforward crediting methodologies, and we’re willing to complete,” he said. “Can we make it better? Sure, we’re happy to do that. It makes for a better market.” But taking issue with the sales practice is not the same as taking issue with the product itself, he stressed. People should be able to construct portfolios they want with the products they want, he said, adding that “the closer to retirement they get, the more important it is.” There is room for FIAs in the market, he indicated, and based on LSW’s experience with the product, there is demand for it. Linda Koco, MBA, is editor-at-large for InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at linda.koco@ innfeedback.com.

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HEALTHWIRES

Can the health care industry save the ACA? bitly.com/qrhealth

6 Million Could Face ACA Penalty Those who did not obtain health insurance last year will have to pay the piper this year. As many as 6 million U.S. taxpayers will have to pay a penalty of as much as 1 percent of income because they went without health insurance in part or all of 2014, the Treasury Department said. The penalty, part of the Affordable Care Act (ACA), would apply to about 2 percent to 4 percent of all taxpayers for 2014. Those who file income tax returns for 2014 will see a line on IRS Form 1040 asking if they have health insurance. Three-quarters of taxpayers won’t have to do anything more than check that box, IRS officials said. About 3 percent to 5 percent of taxpayers got tax credits last year to help them absorb the cost of paying premiums on ACA insurance plans. Ten percent to 20 percent weren’t insured for all or part of the year but will be able to claim an exemption. About 8 million people purchased health care policies through the insurance exchanges in 2014. About 85 percent of those who initially enrolled received subsidies, which went directly to insurance companies during 2014. The IRS receives about 150 million income tax returns a year.

SOME BALKED AT COST, STUDY FINDS

And why didn’t these taxpayers buy health insurance during the past year? A study by the Kaiser Family Foundation reveals that nearly half of those who didn’t obtain insurance thought that they either were ineligible for subsidies or could not afford the coverage. Those people in the so-called coverage gap – about 4 million – don’t qualify for their states’ existing Medicaid program and don’t earn enough to qualify for the other financial assistance created in the ACA. The survey found that nearly six out of 10 uninsured people who appeared eligible for coverage through the health law did not attempt to get it last year. Cost was the main reason cited by more than half of the people who seemed eligible for coverage but who remained uninsured.

BUDGET OFFICE SLASHES ESTIMATED COST OF ACA

The Congressional Budget Office significantly lowered its estimate of the cost of providing health insurance coverage to millions of Americans under the ACA. DID YOU

KNOW

Douglas W. Elmendorf, director of the budget office, said the changes resulted from many factors, including a general “slowdown in the growth of health care costs” and lower projections of insurance premiums that are subsidized by the federal government. In March 2010, when President Barack Obama signed the health care law, the Congressional Budget Office estimated that the expansion of coverage would cost the federal government $710 billion in the fiscal years 2015 through 2019, Elmendorf said. The newest projections indicate that those provisions will cost $571 billion over that same period, a reduction of 20 percent, he said. What is driving this lower estimate? Subsidies given to enrollees who qualify are amounting to less than previously figured, Elmendorf said, plus fewer workers have been dropped from employer-sponsored coverage than originally anticipated.

LTCi RATES TAKE A JUMP

The cost of obtaining long-term care insurance (LTCi) has risen since 2013. Overall costs for new LTCi coverage increased 8.6 percent compared with prices one year ago, according to the 2015 Long Term Care Insurance Price Index.

12.9%

The uninsured rate among U.S. adults for the fourth quarter of 2014 averaged Source: Gallup

InsuranceNewsNet Magazine » March 2015

QUOTABLE I think it was sold as that it would help a lot of people, but not that the premiums would go up so much. — Stephen Walker of Acceptable Answers to Insurance, Zionsville, Ind., on the effect of the ACA on consumers

“A healthy 55-year-old man can expect to pay $1,060 per year for $164,000 of potential benefits, compared to $925 last year,” reported Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI). “The average cost for a 55-year-old single woman is $1,390, an increase from $1,225 per year (2014).” Each January, the trade group releases the findings based on top-selling policies offered by leading insurers. “Rate increases are the result of both higher claim costs and the historic period of low interest rates,” Slome explained. Last year, longterm care insurers paid out a record $7.5 billion in claim benefits, and the association predicts the industry will pay some $34 billion in annual claim benefits by 2032. According to the 2015 Price Index, a married couple both age 60 would pay $2,170 per year combined for a total of $328,000 of long-term care insurance coverage. In 2014, the association reported a couple could expect to pay $1,980. Adding an inflation growth option that builds their benefit pool to a combined $730,000 at age 85 will add $1,760 to the couple’s yearly cost.

SMOKING BURNS UP MILLIONS

If you use cigarettes or other tobacco products, you could see a million dollars or more go up in smoke over your lifetime. That’s the finding from a WalletHub study, which found that smokers burn up megabucks, not only from the cost of the cigarettes themselves but in related health care costs and loss of income. Smokers in Alaska burn up the most money over their lifetimes – $2,032,916 – followed by Connecticut with $1,992,690 and New York with $1,982,856. South Carolina was lowest with $1,097,690, with West Virginia and Kentucky rounding out the bottom three with $1,105,977 and $1,115,619, respectively.

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BROKER SERVICES

HEALTH

Talkin’ About My Generation’s Benefits E ach generation has a different take on life and work, so voluntary benefits advisors can help employers increase their hiring edge with a tailored approach. By Elizabeth Halkos

oday’s employers have three different generations represented in their workforce – millennials, Generation X and baby boomers. Each generation looks at work, life, and money in totally different ways and has varying benefits needs and preferences. Brokers and advisors who assist their business clients in matching their employees’ life-stage needs to voluntary benefits offerings will build stronger 50

client relationships and increase their revenue at the same time. Well-designed benefits plans should be based on employees’ desires and needs in addition to supporting the employer’s business objective of providing a benefits package that aids in recruiting and retaining its workforce. Once considered just a nice extra for a more comprehensive benefits package, voluntary benefits are now an essential element of the employee benefits program because they allow workers to customize their benefits and assist with the employee’s overall financial wellness. Financial wellness is a concern for most of today’s employees. In a July 2014 Harris Poll, 80 percent of employ-

InsuranceNewsNet Magazine » March 2015

ees working full-time said they have financial stress today. Their stress is related to both long-term and shortterm financial needs. Specifically, 67 percent indicated the stress is related to long-term financial needs (savings, retirement plan, etc.), while 60 percent said it was short-term-related (everyday living expenses as well as unexpected financial needs such as a car repair, appliance replacement or emergency medical expenses). Voluntary benefits can address some financial wellness needs for employees. Traditional voluntary benefits are generally straightforward when it comes to employee selection as they most likely are

TALKIN’ ABOUT MY GENERATION’S BENEFITS HEALTH chosen to complement the core insurance program. Traditional voluntary products can fill in the gaps in core benefits left by scaledback benefits, higher deductibles and more consumer-driven health plans. Not surprisingly, these benefits are also the most popular. But nontraditional voluntary benefits break it wide open. Nontraditional voluntary products in the marketplace provide a wide array of benefits that employees can choose from to enhance their lifestyle, protect their well-being, and improve their financial wellness in both the short and long term. There’s a multitude of opportunities to meet employees’ diverse needs. By looking at nontraditional voluntary benefits offerings based on generational preferences, employers can hit a home run with their workforce.

Defining the Generations

Baby Boomers (born 1946-1964) The boomers are the oldest generation in the workforce. They are generally the

NING E TRAI

FRE

Voluntary benefits are now an essential element of the employee benefits program because they allow workers to customize their benefits. ones holding the top positions in their companies. Some are already contemplating retiring. And according to AARP, they make up 38 percent of the workforce nationwide. Boomers are worried. For the most part, if there’s something boomers want, they are able to buy it. However, many will question whether they should buy it or save the money instead. Many are trying to be financially responsible and scaling back from a materialistic lifestyle. Boomers, even if they are high earners, worry about retirement – both having enough

money for retirement and wondering when is the right time to retire. Generation X (born 1965-1979) The middle generation is Generation X, which has a distinctly individualistic outlook. The U.S. Bureau of Labor Statistics reports that Gen Xers make up one-third of the workforce. Generation X is stretched thin. Gen Xers’ work ethic is balanced and flexible with a “work hard, play hard” attitude. This generation’s financial stressors come from multiple angles. They are raising children,

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March 2015 » InsuranceNewsNet Magazine

HEALTH TALKIN’ ABOUT MY GENERATION’S BENEFITS preparing for the care of their aging parents and trying to save for their own financial futures. They appear to be having the toughest time financially. They find it difficult to meet their household expenses on time each month and are the most likely to carry balances on their credit cards. Millennials (born 1980-2000) The youngest generation in the workforce is the millennials, also referred to as Generation Y. They have higher expectations than those of other generations when it comes to promotions and recognition. Millennials are confused. They often juggle many jobs and move from job to job frequently. Their greatest fears are silence, unplugging, routine and eternal internship. Keys to job retention for millennials are personal relationships, multiple tasks and fast rewards. Their benefits needs include portable benefits, forced savings, financial education and concierge services. Key values for millennials include future financial security and better quality of life. To improve their financial situation, they need a better job or a promotion, and expert advice on how to make the most of their money in addition to beginning a 401(k) or other retirement plan. The average millennial has $29,000 in student loan debt alone. Not surprisingly, millennials also are more worried about getting rid of or incurring additional debt than they are about meeting their day-to-day expenses. The nontraditional voluntary products in the marketplace provide a wide array of benefits that employees can choose from to enhance their lifestyle, protect their well-being and improve their financial wellness. By recognizing the value in voluntary benefits and adding to their voluntary offerings, employers not only can provide for their employees’ financial wellness, but can retain a loyal, motivated workforce as well. For brokers and advisors, providing this kind of benefits approach to employers helps build a more meaningful benefits package. Elizabeth Halkos is chief revenue officer of Purchasing Power, which offers employersponsored voluntary benefits. Elizabeth may be contacted at elizabeth.halkos@ innfeedback.com.

InsuranceNewsNet Magazine » March 2015

What’s Available in the Nontraditional Voluntary Benefit Category?

What Nontraditional Voluntary Benefits Will Each Generation Prefer?

Here’s a fairly comprehensive list of what’s available as a nontraditional voluntary product today, categorized by purpose:

Taking the list of nontraditional voluntary benefits available, here’s a breakdown applying them to the generations. This list is based on our company’s focus groups with employees from all generations, outlining the nontraditional voluntary benefits that they say best address their financial situations.

Buying & banking options • Paycards • Short-term loans • Employee purchase programs • Employee discount programs • Credit unions • Flexible spending accounts Lifestyle & convenience options • Child care • Elder care • Pet insurance • Auto insurance • Adoption assistance • Cybersecurity insurance • Legal assistance Personal care & improvement • Financial counseling services • Wellness programs • Employee assistance programs • Tuition assistance programs Financial safety nets • Home warranty insurance • Homeowners insurance • Identity theft protection • Long-term care insurance

Nontraditional voluntary benefits that would appeal to baby boomers include: • Discount programs • Financial counseling • Legal assistance • Group auto insurance • Home warranty insurance • Wellness programs • Long-term care insurance Nontraditional voluntary benefits that would appeal to Gen Xers include: • Discount programs • Employee purchase programs • Flexible spending accounts • Financial counseling • Wellness programs • Employee assistance programs • Child care • Cybersecurity insurance • Homeowners insurance • Identity theft protection • Long-term care insurance Nontraditional benefits that would appeal to millennials include: • Employee purchase programs • Discount programs • Tuition assistance • Employee assistance programs • Wellness programs • Flexible spending accounts • Financial counseling • Identity theft protection

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Phone: (800) 345-8816 F www.piu.org F piu@piu.org March 2015 Âť InsuranceNewsNet Magazine

FINANCIALWIRES

Why Continuing to Work Is Not a Good Retirement Strategy bitly.com/qrstrategy

Almost Half of U.S. Households Exhaust Their Salaries Many Americans are living on the edge financially, according to several reports. Nearly half of U.S. households – 47 percent – said they spend all of their income, go into debt or dip into their savings to meet their annual expenses. This is according to an analysis of Federal Reserve survey data released by the Pew Charitable Trusts. If a typical middle-class household had to weather a period of joblessness without any income, they would exhaust their available savings within 21 days, the analysis found. If that same family also cashed in all their retirement investments to get by, those assets would be used up within four months. Family budgets are about as flexible as a sheet of ice, according to the analysis. Americans are devoting more of their income to housing, health care and personal insurance, and pensions since 1984. After adjusting for inflation, their average annual expenses have risen 6 percent to $51,105 during that period. Their earnings have largely been flat for three decades – increasing only when factoring in government “transfers” such as tax cuts and Social Security checks. And for those who are forced to borrow money, the situation looks even worse. A separate economic scorecard reported that 55.6 percent of U.S. consumers have subprime or near-prime credit scores, meaning they must pay a premium to borrow if they qualify at all for traditional loans and credit cards. Roughly 20 percent of households must routinely depend on “fringe financial services” such as payday lenders, according to the report by the nonprofit Corporation for Enterprise Development.

1 IN 6 OVERSPENT DURING THE HOLIDAYS

Perhaps one sign that family budgets are near the breaking point is that fewer Americans reported breaking the bank Money Money Spending over the holiday season. Money Only one in six Americans said they spent more than expected this holiday season, according to Bankrate.com. Millennials (those ages 18-29) were twice as likely as those ages 30-49 to have spent more during the holidays than intended. A greater percentage of Americans – 25 percent – said they spent less than expected this holiday season. Perhaps not surprisingly, the highestincome households were the most likely to have spent more than expected and the lowest-income households were most likely to have spent less than expected. However, among all income groups, those who spent Spending

Money

Spending

Money

DID YOU

KNOW

65%

less than expected outnumbered those who spent more.

MORE AMERICANS STASHING THEIR CASH

If financial advisors hope to gain more clients, they will have to convince Americans to open the freezer or lift the mattress. Twenty-nine percent say they’re keeping at least some savings in cash bills and coins outside of a bank account, according to an American Express survey. Of those holding cash, 53 percent are hiding it in a secret location. Millennials are even more apt than other generations to go the mattress or freezer route, with 67 percent of those saving cash saying that they hide it outside a bank account. “We’ve long asked people about how they’ve planned to keep their savings, and for the past few years, we’ve seen an uptick

ofON investors their quality of life THE AVERAGE RETURN AN INITIALexpect PUBLIC OFFERING was 20 percent this year. The averagein increase in the firstto daybe (or better “pop”) is than 13 percent. retirement that of Source: Renaissance Capital

their parents. Source: John Hancock Source: Fidelity Investments

InsuranceNewsNet Magazine » March 2015

QUOTABLE Americans’ feelings of financial security hit a record high, not because things got better, as much as they got ‘less bad.’ — Greg McBride, chief financial analyst, Bankrate

in people saving cash,” said Kimberly Litt, public affairs manager at American Express. This is the first year the company has specifically asked Americans about tucking away cash. A Marist College survey showed that the most popular place to stash cash – with 27 percent of the vote – is the freezer. A little less than 20 percent of Americans hide cash in a sock drawer, while 11 percent put it under the mattress and 10 percent secure it in a cookie jar.

NUMBER OF 401(k) MILLIONAIRES SURGES

72,000

Not everyone is hoarding cash in the sock drawer. Many folks still sock away funds in 401(k) accounts, and they are getting richer from it, according to a report. Retirement savers achieved record balances in their 401(k)s in 2014 – thanks in part to the stock market’s gains. The biggest winners were the thousands of workers who became newly minted millionaires. The average 401(k) balance hit a record high of $91,300 at the end of 2014, according to new data from Fidelity Investments. Although only a tiny fraction of the company’s 13 million plan participants ever amass a million or more, that number has grown sharply in the past two years. About 72,000 workers had $1 million or more in their 401(k) retirement plans at the end of 2014, according to Fidelity. That’s nearly twice as many as in 2012 and almost five times as many as a decade ago. The stock market wasn’t the only reason these workers became 401(k) millionaires, Fidelity said. They also contributed at least 10-15 percent of their pay and took advantage of employer matches.

401(k) Millionaires in 2014

Affluent & High Net Worth Prospects Have A Distrust Of You And What You Do Before You Ever Get A Chance To Show Them How You Can Help Them...

Let Me Show You 4 Key Reasons Why Your Clients & Prospects Don't Trust You... And The Solution To Overcome Each Of Them! Over the past few years it has become increasingly harder to gain the attention and establish trust with the affluent clientele you want on your roster. This is especially true when every planner in your backyard is using the same song and dance, the same steak dinner at the same restaurants, trying to impress the same prospects. Ultimately no one is impressed or moved to take action because they don’t know who to trust!

have worked in the trenches for their entire lives, but they don’t know what you know and so they are scared and skeptical.

Trust is earned. It is built by establishing who you are, telling your personal story through known media you use and building a relationship through a specific system that’s proven to find and create connections.

#3 They Don’t Know You From The Guy Down The Block

In talking with top producing advisors and high net worth business owners on my radio show, my private clients and our extensive trust based research, I want to share with you four of the most eye-opening reasons that the prospects you are spending money to advertise to, are simply not paying attention to you…because they don’t trust you!

#1 They’ve Been Burned Before

Whether it was the market crash in ‘07 and ‘08, their employer stripping away their benefits or plain bad advice, you are at an immediate disadvantage due to the baggage a prospect carries from advisors who got there before you ever crossed their path. This creates a huge trust barrier that you must overcome. And you won’t overcome it with invitations to dinner seminars, flimsy 4x6 postcards or “me too” marketing and advertising that you saw another advisor use so you copied them. This just makes you look like the guys that steered them wrong in the first place. Read on, because there is an answer for you…

#2 They Don’t Know Or Understand What It Is That You Do

How can someone trust you if they don’t understand what it is that you do? That is the case with most consumers, and especially for buyers of investment products and annuities. They don’t know the things you know. They are good at being an engineer, an account executive, a Realtor or whatever profession they

The general public and even high net worth individuals are unfamiliar with how your charts and graphs work and many see them as sales-y pieces that are used to manipulate them and scare them into using your services. But read on, because there is a solution for you…

You showed up, unannounced in the mailbox, or a radio ad, or in the sports section of their newspaper with an invitation for them to leave their home to attend a workshop with a room full of people they don’t know, to see a person they don’t know try and sell them something. Why should they trust you enough to respond? Your core responsibility needs to be establishing a relationship with the folks you want on your client roster, so they instantly recognize you, and your importance in their life. Do you let your prospects “see” who you are in your marketing in order to make a connection with you, or are you selling the steak, or even worse, the features of your complicated service or product?

#4 No Proof That You Can Do What You Do

There are three ways to try and sell someone something. You can tell them what you do. Someone else can tell them what you do. You can demonstrate what you do. When you have a set of Trust Tools working for you in your business, you are able to display your Magic Powers and demonstrate your ability to help your prospect to reach their financial goals. Nothing builds trust faster than demonstration. Without these Trust Tools working for you, like a machine, you are living in a world of “he said, she said” and you will be on the losing battle more often than not, as you have not established trust, authority or demonstration of your worth. Today, I want to show you how to create Unbreakable Trust in your business, by creating the tools and the system you need at all times if you desire to attract high net worth clients

and put more assets under your trusting management. My name is Greg Rollett and I run a high level consulting and done for you marketing mastermind, known as the Ambitious Advisor. I’m also coauthor of the Best-Selling book, Celebrity Branding You®. And today I want to demonstrate to you exactly how to get Greg Rollett, Best-Selling your market to Trust Author & Trust Marketing Expert You. I’ve just written a brand new report, called The Trust Triangle and produced an in-depth case study on how one advisor has built unbreakable trust using our done for you marketing systems and how you can apply them into your own practice immediately. I am doing this to show you exactly how to answer and overcome the four points above. There is no cost to you for any of this content rich, Trust Building information. In addition to these 2 reports, I have just filmed a new training video that walks you through the Trust Triangle System with real examples that you can copy and implement into your practice right away. I want to use this training to demonstrate how advisors who are even less skilled and knowledgeable than you are using these tools to overcome skepticism and advisor blindness to close new business, move up the chain to higher net worth clients and ultimately have the business and lifestyle you deserve.

You can claim your FREE copy of the Trust Triangle Report, The Tales Of The Ambitious Advisor and your example filled training video, please visit www.ambitiousadvisor.com/video or call (888) 905-5580 today.

You can claim your FREE copy of The Trust Triangle, The Tales Of The Ambitious Advisor And Your Training Video, with instant access by calling (888) 905-5580 or by visiting www.ambitiousadvisor.com/video

FINANCIAL

Clients generally have one goal in common: They want more retirement savings from their invested dollar.

Which Asset Placement Offers the Best Tax Efficiency? C lients might be looking for the greatest gain, but they might not be paying enough attention to tax impact. By Douglas Wolff

asset classes by tax efficiency, from least efficient (top of the following list) to most efficient (bottom of the list). Here is his list:

Identify the Prime Candidates

Morningstar’s mutual fund tax-cost ratios give a general sense of the relative tax efficiency of these asset classes. These taxcost ratios measure how much a fund’s annualized return is reduced by the taxes investors pay on distributions, including ordinary income tax, short-term capital

When it comes to tax efficiency of investments, asset class and investment style generally will trump all else. Taylor Larimore, a retired chief of the Small Business Administration’s finance division and a former IRS officer, ranks

InsuranceNewsNet Magazine » March 2015

» High-yield bonds » Taxable bonds » Real estate investment trusts » Small-cap stocks » Large-cap stocks » International stocks » EE and I bonds » Tax-exempt bonds

LEAST

EFFICIENCY

etirement goals, investable assets and tax circumstances are unique to every client. Yet clients generally have one goal in common: They want more retirement savings from their invested dollar. For many clients, this may be what attracts them to a variable annuity. An annuity’s built-in tax deferral may help clients accumulate more per dollar invested (as compared with a taxable investment). In fact, tax deferral may be as important to some investors as guarantees. According to the Committee of Annuity Insurers’ “2013 Survey of Owners of Individual Annuity Contracts,” 86

percent of policyholders cited tax deferral as an important reason for buying an annuity, while 81 percent said guaranteed lifetime payments were an important consideration. Awareness of asset placement is critical to making the most of a variable annuity’s tax deferral advantage: Asset classes that may be more likely to generate high levels of taxable income may be more appropriate within a variable annuity, while more tax-efficient assets might be better placed in taxable accounts.

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GAIN INSIGHT.

Paragon Partners likes to work with us because we have voluntary products that change the game and the tools to Transform Tomorrow.® Find out about both at www.transamericabenefits.com. Products underwritten by Transamerica Life Insurance Company, Cedar Rapids, Iowa. CHOINN-0514

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March 2015 » InsuranceNewsNet Magazine

FINANCIAL WHICH ASSET PLACEMENT OFFERS THE BEST TAX EFFICIENCY?

Mutual Fund Category

Tax-Cost Ratio (as of 1/2/2015) 3 Years

5 Years

10 Years

High-yield bonds

2.49

2.52

2.57

Taxable bonds

1.40

1.47

1.60

Small-cap Stocks

1.77

1.22

1.17

Large-cap Stocks

1.44

0.99

0.86

International Stocks

0.99

0.78

1.02

Tax-exempt Bonds

0.04

0.02

Source: Morningstar Premium, Jan. 2, 2015. Tax-cost ratios for large caps average the ratios for large-blend, large-growth and large-value funds. Tax-cost ratios for small caps average the ratios for small-blend, small-growth and small-value funds.

gain tax and long-term capital gain tax. Morningstar assumes ordinary income tax liabilities based on the top federal income tax bracket and top long-term capital gain tax rate for each year (e.g., 39.6 percent income tax rate and 20 percent long-term capital gain tax rate in 2014). To put the impact of these tax costs into perspective, compare the average before- and after-tax three-year returns for high-yield bonds, the least efficient asset class in the list above. The average highyield bond fund tracked by Morningstar returned 7.41 percent before taxes in the three years ended Jan. 2, 2015. Subtracting the average three-year tax-cost ratio cuts the return, after taxes, by one-third, to 4.92 percent. This is a strong argument for holding these investments within a variable annuity to minimize the tax bite. The same could be said of real estate investment trusts (REITs). Dividends represent a large portion of returns from the asset class, but in most cases, REIT dividends are taxed at the clientâ&#x20AC;&#x2122;s ordinary income tax rate, up to 39.6 percent. On top of this, married clients with modified adjusted gross income above $250,000 ($200,000 for singles) are subject to an additional 3.8 percent tax on their net investment income, whether from ordinary income or from capital gains. Given the present low-yield environment, some investors may opt for REITs and high-yield bonds over less volatile fixed-income investments. They can be a source of potentially greater yields while providing an additional measure of 58

portfolio diversification, since both have a modestly low correlation with the core stock and bond asset classes. But the tax inefficiency of these asset classes may outweigh the benefits of yield and diversification. Clients could rein in current tax liabilities on various asset classes by investing in less actively traded funds such as index or exchange-traded funds (ETFs). However, this may not be an ideal solution for some clients. While limiting the clientâ&#x20AC;&#x2122;s exposure to the capital gains generated by actively traded mutual funds, index funds and ETFs do not prevent the distribution of, or change the character of, dividends. For example, in most cases, REIT dividends still will be taxable at ordinary income tax rates, and largecap stocks will still put forth taxable dividends. The three-year tax efficiency of large-cap index funds tracked by Morningstar ranged from 0.17 percent to 3.51 percent. The majority carried tax-cost ratios between 0.50 percent and 1.25 percent, according to Morningstar Premium Fund Screener data. The lesser-traded index funds resulted in a relatively modest savings over the average three-year tax-cost ratio of 1.44 percent for actively traded large-cap funds. For many clients, buying and selling fund shares increasingly creates another layer of tax costs. More aware of risk in the wake of the financial crisis, clients may be demanding tactical investment strategies that trade portfolio positions more frequently as market and economic conditions change. With

InsuranceNewsNet Magazine Âť March 2015

increased trading comes the potential for more taxable events. Contemporary variable annuities may stave off the tax costs of tax-inefficient asset classes. Modifications to variable annuities in recent years are designed to decrease basic annuity and separate account expenses and expand investment options. Hundreds of investment options including alternative asset classes, combined with low-cost or free exchanges between subaccounts, make broad diversification and tactical trading possible without triggering current tax obligations. Assets can be positioned where they make sense and minimize current tax liability. In this way, you can help your client make the most of tax deferral while maintaining the ability to alter the investment mix as needed. Now that the Federal Reserve has ended its bond-buying program and U.S. economic growth is accelerating, higher interest rates are in the offing. As a result, many clients are thinking about reallocating their portfolios in order to leverage those trends. This may be an opportune time to introduce a variable annuity to their retirement savings portfolio, which may help maintain their ability to reallocate their assets while positioning them for maximum tax savings. Douglas Wolff is president of Security Benefit Life Insurance Co. (SBLI) and First Security Benefit Life Insurance and Annuity Co. of New York. Doug may be contacted at doug. wolff@innfeedback.com.

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March 2015 » InsuranceNewsNet Magazine

BUSINESS

Seven Trial Closes That Lead to Sales W ays in which statements, questions and objections can be used to help the prospect take action. By Lloyd Lofton

elling is the process that uses needs-based techniques to bring about a desired change in the prospect’s behavior. Customers today can purchase insurance from many avenues, whether from telemarketers or over the Internet. One reason carriers have contracted with advisors is that it is easy for people to procrastinate when purchasing financial and insurance products. Advisors help in bringing about action on the part of the prospect. Advisors can uncover prospects’ sources of dissatisfaction, remove their complacency, instill a desire to change the status quo, offer an intelligent and acceptable solution, and affect a decision to buy. Sales skills, which involve personality and personal habits, account for the major portion of the sales process. But although these skills alone seldom make sales, they often break sales. Remember, agents and advisors are selling reliability and trust – in them and in the carriers and products they market.

Statements, Questions and Objections

Your prospects often will make statements, ask questions or voice objections. It’s helpful to be able to recognize what your prospects are conveying through these statements, questions or objections. Statements report a fact or opinion, such as “I don’t like it.” Questions gather information, or make a statement that attempts to gain information, as in “Isn’t it true that insurance companies don’t pay their claims?” Objections disclose, or make a statement based on a fact or feeling of disapproval, such as “I won’t buy it because I don’t like the deductible.” So now that we know how to determine what we are hearing, let’s look at some sample “trial” closes on a variety of topics. For illustration purposes, we will use 60

life/health insurance. However, you can modify these for whatever market in which you may be working.

1. General Trial Close – Need, Like, Cost

“During our lifetime, we buy many things – cars, televisions, homes, etc. And always, before investing our money, we consider three things: “Do I need it? “Do I like it? “Can I afford it? “Regardless of what you buy, you either accept or reject a purchase based on asking yourself these three questions, right? “Now let’s look at the policy you designed: » Do you like the plan you designed today? » Do you believe you and your family need this protection? » Do you feel comfortable with the company? » Can you handle the cost? “Do you have health insurance for your best health year or for your worst health year? Let’s get your protection in place so you have the choice to manage your finances in your worst health year.”

2. No Money

“Suppose you needed a new job. You walk into one place of business and are offered

InsuranceNewsNet Magazine » March 2015

your current salary with no health benefits. When you get sick or hurt, or a member of your family goes to the hospital, your employer will not pay anything toward your medical bills. That’s what your current job is now, isn’t it? “Then, suppose you walked down the street and talked to another employer who offered a job that had the same hours and duties. He said he would pay you (whatever the health insurance premium is) less than what you are currently getting. However, he would pay you (list all the benefits of the plan you and your prospect designed). “Which job would you take? “Why? “This is exactly the choice you have now. It’s the choice you can make so your family doesn’t have to make these choices when they may have fewer options, right?”

3. No Need

“Let’s look at it this way: Let’s weigh your obligation against our obligation.

Yours (Write cost of plan)

Ours (List plan benefits)

“First of all, your obligation is to set aside each month (state premium amount here). “On the other hand, our obligation is to pay (list all the benefits provided by the plan under consideration). “However, if you do not live up to your obligation and set aside (state premium amount), then our obligation becomes

yours (put ‘Y’ in front of ‘our’) and you have to meet these expenses as well as your other regular expenses. “Certainly the wisest decision here is to set aside (state premium amount) and let (state carrier name) help pay these expenses for you.”

4. No Hurry

This could be a trial close for life insurance or ancillary products. “If this were a purchase of a product where a few days wouldn’t matter, I’d say fine. However, let me point out that protection of this kind is never on sale. “In other words, it will never be any cheaper. “As a matter of fact, it will be more expensive and could possibly ‘go off the market’ as far as your health is concerned. “Today it looks as if you are in good health, but before tomorrow your health can fail. When you wait one day, you may be one of those who cannot qualify for coverage. “Remember, Mr. (name), you take the chance but when you lose, your family pays.”

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“Let’s look at the features – which one can your family do without? “Is it more than you are willing to pay or is this plan more than you expected to pay? “In what price range did you expect to stay?”

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6. You Don’t Have a Better Policy

“What are the features of your policy that you have used the most? “If we do have a better policy, are there any health issues that would prevent you from qualifying? “That’s a good idea; let’s look at it and see.”

7. Better Price

“What features does that price include? What is the price you believe you can get? “Do you mind if I ask, why am I here? In other words, is there a specific reason you did not take that plan?” The selling process includes presenting objective facts and making subjective impressions. Remember, prospects will do business with someone they like. Be yourself. Otherwise, prospects will regard you as insincere. Know your products. Product knowledge is a sales strength and promotes confidence. Always expect the best from your prospects. Finally, keep in mind one of the long-standing truisms in selling: It’s hard to justify the cost of something if you don’t see the value in it. So what does the prospect have to do when the value exceeds the cost? Buy! Lloyd Lofton, CSA, LUTCF, is the chief operating officer of American Eagle Financial Services, Smyrna, Ga. Lloyd may be reached at lloyd.lofton@ innfeedback.com.

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March 2015 » InsuranceNewsNet Magazine

For more than 80 years, the Society of Financial Service Professionals has been helping individuals, families and businesses achieve financial security.

SOCIETY OF FSP INSIGHTS

To Midlife and Beyond! Help Clients Thrive During the Journey Y our clients need a map to help them navigate their postchild-rearing years. By Richard M. Weber

veryone knows the statistic: 78 million or so people born in the U.S. between 1946 and 1964 have been labeled baby boomers. Entire industries were transformed to accommodate or appeal to this group. Their impact on society – especially in the 1960s and ’70s as they reached adulthood – was nothing short of astonishing. (Boomers gladly accept credit for the musical contributions made by the Beatles and the Rolling Stones, while at the same time rejecting responsibility for leisure suits). Boomers are proud to know they’ve played such a significant role in America since 1946, and they continue to do so as an estimated 10,000 boomers turn 65 each day and join the aging demographic. Half of the leading-edge cohort will likely live beyond age 90, while the trailing edge probably can add 10 or more years to that life expectancy if biotechnology and gene therapies fulfill even a fraction of their promises. Recent polls of leading-edge baby boomers indicate that maintaining good health of body – and finances – worries them the most. Concerns over stock market volatility, low rates of return on savings, and loss of company-funded pension plans in favor of worker-funded 401(k) plans certainly are fueling their anxiety about having enough money to retire in comfort. The average 65-to-75-year-old has saved only slightly more than $50,000 for retirement – leaving only $10 in spending money per day during a 15-year retirement period. Paradoxically, the more science promises to extend lives, the greater the fear of “outliving the money.” Whether maintaining good health or living the lifestyle to which they’d like to become accustomed, baby boomers’ real underlying imperative for the next 30-plus years is the desire to thrive. 62

Many are asking how they can achieve this goal through midlife and beyond. Authors E. Craig MacBean and Henry C. Simmons, in their book Thriving Beyond Midlife, suggest that having a “map” to help you understand the journey and its issues is one practical key to thriving. “Midlife” (or “middle age”) is identified as the first of three stable periods that probably start after the kids have been educated and are on their own. Midlife does not extend to a specific age but rather to a specific event they call “Ready or Not.” Ready or Not is a

sudden life change that can include loss of a spouse, a significant illness and resulting care for a spouse, or one’s own prolonged illness. This event typically occurs in a relatively short period; it’s quite intense, and it’s more dramatic than the periods leading up to and following it. Ready or Not leads to a stable time period called “The New Me.” Imagine the death of a spouse; after the grief and sense of loss have somewhat subsided, the surviving spouse must completely redefine themselves. For example, a widow is no longer “Mrs. Jones” in the context of having a husband. To thrive (and many widowed people do), she must move on and accept a new persona: herself as a single person. The New Me is ideally a period of stability and thriving, but eventually another

InsuranceNewsNet Magazine » March 2015

event comes along (sometimes many years into the future; sometimes just months away), and it’s called “Like it or Not.” While probably just as intense as Ready or Not, this event is more personal as it defines our own transition into frailty and dependence. The relatively stable period that follows is referred to as “The Rest of Living,” with emphasis on “rest.” It’s a time of expression in realms other than the physical, and can be brief or prolonged … leading to the last phase which is, of course, “Dying.” One of the most valuable aspects of the map is that it helps to define the future in terms of phases and events rather than ages. Instead of contemplating when “old age” might begin, it allows one to see that most people will progress through the map’s stages, and to think in conceptual, rather than chronological, terms. Discussion of the map also suggests that some notions (and vocabulary) about the next 30-plus years are in need of revamping. “Retirement” is thought of as synonymous with “old age,” but retirement is simply a transition from going someplace five days a week at 7:30 a.m. – and then not. “Retirement” is an entirely inadequate word to describe the richness of those many years. “Old” is certainly a relative term; everyone knows people in their 40s who seem “old” and others in their 70s who seem “young.” Leading-edge and trailing-edge boomers are best served by financial service professionals who help them explore “beyond the money” by paying attention to their attitudes and resources in terms of the concepts defined in the map. This can be accomplished by engaging in conversations that focus on the common boomer aspiration of thriving in the experiences beyond midlife. Richard M. Weber, MBA, CLU, AEP, is past president of the Society of Financial Service Professionals. He may be contacted at richard.weber@ innfeedback.com.

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March 2015 » InsuranceNewsNet Magazine

The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.

MDRT INSIGHTS

An Alternative IRA Strategy I ndividual retirement accounts were meant to provide income for your clients, but too many people see them as a means of passing wealth to the next generation. By Anthony Engrassia

o one questions that individual retirement accounts (IRAs) are an excellent way for your clients to build wealth for their retirement years. They dedicate money in small increments, and over the years their investment will grow. Certainly, it is important to mention that no rate-of-return on any investment is guaranteed, but historically the stock market has grown, which means IRAs have grown as a result.

Don’t let your clients’ IRAs get eaten up in one big cash-out. What if, instead, you could treat them like pensions?

The Problems With the IRA Strategy

While the IRA market has grown, many individuals approach their strategy incorrectly and make the following mistakes: » Most investors do not begin withdrawing money until after they turn 70 years old. This is the age when the IRS says they must take an annual required minimum distribution (RMD). Since the holder has let their investment grow and it is based on the life expectancy table, this RMD is usually a rather large amount. Often, the IRA holder isn’t able to enjoy the money they so wisely invested due to health reasons, and they pass away before the fund is exhausted. » Many investors view their IRA as an inheritance. They hold on to it so they can pass it along to their children, but this is not the intention of IRAs. IRAs were designed to generate income for the holder during their retirement years.

What Really Happens

Your clients hold on to their IRAs, taking only the RMD. When your client dies, the fund is passed to a non-spousal beneficiary (typically your client’s children), but all too often the IRA gets liquidated within the first year. This equates to a 64

large percentage of the fund being taxed by the IRS – never to be used by the family as your client intended. To avoid the cash-out scenario, many parents sit down with their children and a financial professional to set up a stretchIRA, which ensures that each of the beneficiaries gets a smaller amount over their lifetime. This gives the parent peace of mind that their hard-earned money will benefit the children for decades to come. However, upon a holder’s death, the stretch-IRA often is not being upheld. The beneficiaries instead choose to take a lump-sum distribution anyway, despite the tax ramifications, to pay off a home or take the vacation of a lifetime.

An Alternative IRA Strategy

I saw it as senseless that folks were hanging on to their IRAs until they are required to take RMDs. Over and over again, I saw them not fully enjoying their money before they passed away and I watched their kids liquidate their investments. I knew I needed to find a solution to this recurring scenario, one that would make people feel comfortable to spend their

InsuranceNewsNet Magazine » March 2015

hard-earned and wisely invested monies earlier in their golden years. This way they could use it for vacations, or to buy a second home and enjoy their investment. This is when I thought, “What if you could treat your IRA like a pension?” When they existed, pensions provided guaranteed income during a person’s golden years. An employee worked diligently for a company for many years, and upon retirement, they received their pension – a fixed amount of money every month for the rest of their lives. A pension allowed people to enjoy their retirement years – and they’d earned it. Remember, IRAs were not meant to pass on wealth. IRAs were designed to generate income so your clients can enjoy their retirement. Anthony Engrassia is the founder of Wealth Management Strategies, a fee-based financial planning and wealth management firm serving the Rocky Mount, N.C ., area. He is a member of the Million Dollar Round Table with multiple Court of the Table and Top of the Table qualifications over his 18 years of membership. He may be contacted at anthony.engrassia@innfeedback.com.

NAIFA INSIGHTS

Founded in 1890, NAIFA is one of the nation’s oldest and largest associations representing the interests of insurance professionals from every congressional district in the United States.

Winning in the DI Market T he desire to serve others, combined with a positive mindset, are the keys to success. By Ayo Mseka and John Nichols

o find out what it takes to operate a thriving disability insurance (DI) practice, we recently interviewed NAIFA’s immediate past president John Nichols. The insights he shared with us should be top of mind as you seek to expand your DI practice. NAIFA: You have achieved great success in the DI industry, have served as NAIFA president and have received lots of industry awards. What are some of the keys to your success? John Nichols: The five keys to my success are: 1. Albert E.N. Gray’s book, Common Denominator of Success – which describes the formation and implementation of habits with a strong purpose (the “why”). 2. Having a mindset of daily victories, gratefulness and service to others. 3. LinkedIn co-founder Reid Hoffman said it best: Successful people invest in themselves, their network and their industry. By doing this, you give yourself the best chance for success. 4. Successful people have a mission that never ends. They are always striving forward – miles to go before we sleep. 5. Successful people surround themselves with the people, resources, and programs they need to learn, grow and be held accountable. NAIFA: What made you decide to focus your practice on DI insurance? Nichols: A mentor and an accident led to my focus on the disability insurance market. The mentor encouraged me to specialize and become the best in the world in one area. That one area just happens to be DI insurance. So I studied, read the books, learned from other specialists, practiced and branded myself as a DI specialist. My disabling accident accentuated my passion

and purpose, and it literally accelerated my activity. The results followed. NAIFA: Briefly describe your first few years in the DI business. What lessons did you learn, and how have they shaped you as a businessperson and leader today? Nichols: I learned that this is a numbers game. The more cases I worked on, the better and deeper my knowledge became. The more practice I had, the better I could share or teach, and position the story of income protection to my clients and prospects. I also was willing to do joint work with other professionals, which led to bigger and better cases. In addition, I recognized the need for continuous learning. The industry and marketplace are always changing, so it is important to learn and adapt continuously. It is also important to learn from those outside the industry and to apply relevant strategies to your business. NAIFA: Every business has its highs and lows. How do you stay motivated when things are not going your way? Nichols: I remind myself of my purpose daily, and surround myself with people and programs that support my mission and purpose. Participating in industry associations is one way to do this. I also serve in the disabled community as a reminder of the value our products provide. NAIFA: What is the best piece of business advice you have received? Nichols: Serve others with all your heart, your resources and your mind. Also, make sure you have positive beliefs daily. NAIFA: Who are some of the best prospects for DI insurance? Nichols: Some of the best targets are millennials, and those in the technology field and in startup communities. The traditional markets – such as medicine,

dentistry and law, as well as other service professions – are still viable. However, I would not overlook the middle market if you are working in that market. Review your book of business and determine the best markets and prospects to leverage. NAIFA: What is the most important thing you want readers to take away from this interview? Nichols: The key to a successful practice is the relationship between the client and the advisor. So, work on being the best at building relationships. One concept I use is called positioning. How can I position myself within the company, the market, the industry, the community and the neighborhood so that people in these areas either ask me what I do for a living or what my firm’s brand is? The product sales will follow – you can always bring in a product expert. Help your client upgrade their life and their benefits so that they can have a better life – one that will lead them to their dreams and goals. Ayo Mseka is editor-in-chief of NAIFA’s Advisor Today. Ayo may be contacted at ayo.mseka@ innfeedback.com. John Nichols, MSM, CLU, is NAIFA’s immediate past president and president of Disability Resource Group in Chicago. John may be contacted at john. nichols@innfeedback.com.

March 2015 » InsuranceNewsNet Magazine

THE AMERICAN COLLEGE INSIGHTS

With over 87 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

Industry Must Get Serious About Preventing Elder Financial Abuse O ne in every five older Americans has been victimized financially. The financial services industry must take the lead on curbing this type of abuse. By Julie Anne Ragatz

n my role as director of the Cary M. Maguire Center for Ethics in Financial Services, I have the opportunity to talk with practitioners all over the country. When I ask them, “What keeps you up at night?” the most common response is how to deal with the ethical issues posed by the diminished capacity of certain older clients. A recent survey confirms my anecdotal evidence. According to the survey, only half of advisors believe they are prepared to handle clients who are suffering from a cognitive decline. Even if advisors do feel prepared, they often find themselves torn between their obligations to protect client confidentiality and to act in the best interest of their clients. Financial services professionals experience this conflict more acutely than other professionals such as attorneys or physicians. This is because frequent interactions provide opportunities to notice more readily when something is amiss – for example, when a previously conservative client is requesting large disbursements, or when a client known to you for her meticulous record keeping is past due on her bills or cannot give an account of her expenditures. These dilemmas often cause significant amounts of emotional distress. The most successful advisors are those who are motivated by a desire to serve their clients. Yet, these “action-oriented” helpers find themselves in a position where their hands are tied. If there is no second person on the account, there is little the advisor can do beside persuade or stall. It seems that regulators are listening to the concerns of the advisor community and other advocates on this issue. Representatives of the Security and Exchange Commission’s Office of the Investor Advo66

cate cited preventing the financial abuse of elders as one of the six priorities of 2015. The North American Securities Administrators Association (NASAA) formed a Committee on Senior Issues and Diminished Capacity to explore the problems of elder abuse. Finally, the Department of Justice, working in collaboration with the Department of Health and Human Services, announced the release of the Elder Justice Roadmap, a comprehensive plan to combat different aspects of elder abuse, including financial abuse. Increased regulatory attention is a welcome development, not only because it assists conflicted advisors, but also because of the devastation that this form of abuse can impose on elderly victims and their families. According to one survey, one in every five Americans age 65 or older has been abused financially. People 60 years and older made up 26 percent of all fraud complaints tracked by the Federal Trade Commission in 2012, the highest of any age group. In 2008, the level was just 10 percent, the lowest of any adult age group. A 2011 study by the MetLife Mature Market Institute and the National Committee for the Prevention of Elder Abuse revealed

InsuranceNewsNet Magazine » March 2015

that the financial losses suffered by victims of elder financial abuse were estimated to be at least $2.9 billion, a 12 percent increase from 2008. These are startling numbers, and many experts believe that the problem is getting worse. Many elderly victims who suffered financial losses during the recent economic downturn may be more willing “to roll the dice” or more ready to believe in the false promises made by the scammers. Older adults present a ripe target for perpetrators. This is not only because of their wealth, but also because, as research shows, older adults may be less able to pick up on visual cues that someone is untrustworthy. Fraudsters do not need to be face-to-face with seniors in order to harm them. The Internet offers a whole new medium to launch fraudulent schemes. Financial fraud can take many forms, but perhaps the most pernicious schemes are those that leverage an elderly person’s desire for companionship, romance and engagement with the world around them. In many schemes, the elderly person is not only robbed of assets, but also of dignity and self-respect. As with other areas of professional ethics, proper preparation can save the day and a great deal of angst. The professional virtue of diligence, found in almost every code of ethics that governs the behavior of those in financial services professions, demands that professionals act prudently and preemptively to avoid ethical dilemmas, particularly those that harm our clients. The financial services industry and the organizations that support it have a tremendous opportunity to take the lead on this important issue. It is up to us to take on the challenge. Julie Anne Ragatz is director of the Cary M. Maguire Center for Ethics in Financial Services and assistant professor of ethics at The American College. She may be contacted at julie.ragatz@innfeedback.com.

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March 2015 » InsuranceNewsNet Magazine

More than 850 financial services companies in more than 70 countries turn to LIMRA first to help them build their businesses and improve their performance.

LIMRA INSIGHTS

Americans Aren’t Saving Enough Despite Good Intentions A minimum savings rate of 10 percent annually will be required of most Americans who anticipate working at least 40 years. By Paul S. Henry

very year, LIMRA asks American consumers to list their top financial concerns. Having enough money for a comfortable retirement consistently ranks as the No. 1 concern. Yet, half of American workers are not contributing to a retirement plan or an individual retirement account. Among Generatio n Y (those aged 18-34), 56 percent are not saving for retirement. Why? We know people have good intentions and they want to do the right thing. But low financial literacy levels and the effects of longevity hurt even the best of their intentions to save. Most Americans don’t know how much of their paycheck to save for retirement, so they rely on guesswork and cues from their employer. Matching formulas and default rates largely have determined how much people save, yet the question remains: What’s the right path to follow? The history of defined contribution plans so far has taught us what doesn’t work. For participants in a typical 401(k) or 403(b) plan, the current average savings rate is around 6 percent annually, which our research shows is inadequate. The problem is exacerbated by a lack of consensus around what savings approach to choose – a set amount based on replacing preretirement income, a percentage of each paycheck or some other method. These confusing and conflicting messages too often have resulted in workers making bad savings decisions or, even worse, slipping into inertia and not saving at all. We established the LIMRA LOMA Secure Retirement Institute to promote retirement readiness through research, education and innovation. We want people to be empowered with product and service 68

solutions that encourage smart choices and enhance their ability for a secure retirement. We believe Americans would benefit from a consistent “rule of thumb” regarding a minimum rate at which income should be set aside for retirement. Why a “savings rate” rather than some other formula? A savings rate is an easy message to communicate, understand and act upon. That’s why we’ve teamed up with the Financial Services Roundtable, as well as several leading employers and industry associations, to support the “Save 10” campaign. There is a growing consensus that a minimum savings rate of 10 percent annually will be required of most Americans who anticipate working at least 40 years. Our research shows that currently, four out of five American workers are saving less than 10 percent of their income. At that rate, it’s not surprising that 62 percent of current pre-retirees (those aged 55-70 who are still working) have less than $100,000 in financial assets. Through this campaign, employers will be encouraged to enroll their workers in retirement savings programs automatically and gradually escalate the savings rate so that it equals or exceeds 10 percent. Making these adjustments early in a person’s career can make a huge difference in their standard of living in retirement.

InsuranceNewsNet Magazine » March 2015

The “Save 10” campaign is an opportunity for the financial services community to deliver a clear and consistent message that is easily understood by workers and employers. So many decisions around retirement can be complex and confusing. The rate at which to save shouldn’t be one of them. “Save 10” is a simple and effective message to help remove the guesswork around retirement savings. Advisors should look at “Save 10” as an important first step. Once they adopt it as a financial habit, workers can increase their retirement assets more effectively, making an advisor’s role more essential. Currently, only 37 percent of pre-retirees work with an advisor. Among those who do, eight in 10 say they feel more prepared for retirement. We’re not claiming that “Save 10” is a panacea for chronic under-saving. It is, however, an important effort to set Americans on a better path to a secure retirement. You can learn more about this program at www.Save10.org. Paul S. Henry is the managing director for retirement clients and products for the LIMRA LOMA Secure Retirement Institute. Paul may be contacted at paul.henry@innfeedback.com.

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STRATEGIC DIVERSIFICAT

FULL SPECTRUM

We believe that diversification across multiple riskcontrolled strategies helps manage wealth performance and for both protection. While each of our model strategies has its own methodolog y and diversificatio all incorporate some n, form of risk managemen against large-scale t to guard losses. conservative, moderate, Our strategies encompass and growth-orie performance goals nted to offer a full spectrum options to meet each investor’s tolerance of investment for risk.

BROO

RISK-MANAGED

E. We focus on managin g investment risk to preserve and grow wealth in any market.

OUR COMPREHE

NSIVE PLATFORM

PROVEN INVESTMEN T MANAGERS BCM has partnered with additional independen investment firms t that each strategy to our platform. bring an exceptional As sub-advisors, offer a diverse range they of investment strategies are managed by that firms with proven excellence in managing money. PARTNERING WITH MORNINGSTAR BCM has partnered with Morningstar to harness multiple strategies from their Managed Portfolios Series, allowing us to offer investors a broad range of investment options — whether conservative or growth-oriented. , moderate BCM STRATEGIES We also provide customized BCM wealth management solutions to help advisors develop and implement an intelligent long-term investment strategy geared toward unique client goals, resources and tolerance for risk.

OUR WRAP FEE

PROGRAM

ION

OF OPTIONS

BCM’s Wrap Fee Program “wraps” both the advisory services fee and the transaction fees into a single fee charged to the client. This means a client’s the same regardless costs are of the number of transactions in an account (as opposed to a non-wrap program client pays these where a fees for extremely cost effective each transaction). This could be if your clients plan frequent trading to experience or rebalancing.

LEAD BY EXAMPLE.

DOES YOUR FMO

PRACTICE WHAT

THEY PREACH? Karlan Tucker has built his company on Value. Integrity. Trust. Investments go both ways.

INVEST IN US. Contact us for more information at 877.354.0184 or visit www.BuiltOnValue.com