InsuranceNewsNet Magazine - May 2015

WHEN

BAD THINGS

HAPPEN TO

GOOD ESTATES PAGE 26

0–100: The Future of Retirement Planning PAGE 12

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MAY 2015 » VOLUME 8, NUMBER 5

44 Design an IRA Legacy Plan With Life Insurance

By Russell E. Towers An inherited IRA transaction can help your clients provide a leveraged tax-free fund in the form of life insurance for their heirs.

ANNUITY

50 A dvisors Still Not Warming Up to Annuities in DC Plans

26 INFRONT

FEATURE

26 When Bad Things Happen to Good Estates

10 Insurers See Opportunity in ‘Wearable Tech’

By Linda Koco One carrier already is out of the gate with a program that uses wearable tech in conjunction with life insurance.

12

By Steven A. Morelli They may have had fame and fortune during their lifetimes, but they left a financial mess behind after their deaths. Here is our annual rundown of those who made the estate planning “hall of shame” and how you can keep your clients from making the same mistakes they did.

By Linda Koco A study shows that although annuities are valued for their ability to generate income streams in retirement, a surprisingly small percentage of advisors are promoting their use in defined contribution plans.

54 T he Search for Defined Benefit Alternatives Turns to FIAs

By Linda Koco The underfunding problems in traditional defined benefit pension plans are leading many to take a look at fixed index annuities.

58 HEALTH

58 H ow to Keep Millennials Happy in the Workplace

INTERVIEW

12 The Future of Retirement Planning

An interview with Joseph F. Coughlin Americans are getting older and living longer. Retirement will last longer than ever. What are the implications of this increased longevity on the insurance and financial services industry?

Joseph F. Coughlin, director of the Massachusetts Institute of Technology’s AgeLab, has made the study of aging his life’s work. In this interview with InsuranceNewsNet Publisher Paul Feldman, Coughlin describes how the agent of the future will guide clients into a new type of retirement.

2

InsuranceNewsNet Magazine » May 2015

40 LIFE

40 IUL: Accumulation vs. Protection

By Cyril Tuohy A look at the debate on whether the death benefit associated with index universal life is more important to clients than the policy’s cash accumulation feature.

By Tye Elliott Companies that are wise to the new job-hopping norm take millennials’ employment patterns into consideration when developing and communicating about their benefits plans.

FINANCIAL

62 Hot Estate Planning Techniques Made Hotter by Obama’s Budget

By Victor Ngai This is a great time to sit down with affluent clients to review their estate plans and help avert a tax surprise.

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69 N AIFA: A Shift to Retirement Planning Makes the Difference for Advisor

66

By James E. Fox and Ayo Mseka An advisor describes how his entrepreneurial spirit, combined with a view toward the future, has led him to success.

BUSINESS

66 Career-Damaging Listening Habits and What You Can Do About Them

By Edward D. Hess Active listening requires you to be in a “receiving mode” and not in a “sell mode.”

INSIGHTS

68 MDRT: How to Turn Social Security Into a Retirement Income Powerhouse

By Curtis V. Cloke The right claiming strategy can turn Social Security benefits into a powerful source of retirement income.

70 THE AMERICAN COLLEGE: A Life of Service Underwrites Our Success

By Ted Digges The industry needs future leaders who understand how to achieve success for themselves and our society.

72 LIMRA: Advisors and Wholesalers: A Winning Team

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15 INN 05.15 May 2015 » InsuranceNewsNet Magazine 5

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May 2015 » InsuranceNewsNet Magazine

7

WELCOME LETTER FROM THE EDITOR

Agents: Public Enemy No. 1?

I

f you are under the suitability standard, you are hazardous to your client’s financial health.

Or so it would seem under the New York City comptroller’s proposed state legislation, released along with a critical report in late March. The “report” rehashed what the U.S. Labor Department already has publicized about the suitability standard in its campaign to expand the fiduciary standard.

Comptroller Scott Stringer said he was taking the unusual step of proposing state legislation because New York City can’t just stand around waiting for Washington to figure it out. Hey, the city has places to go, people to see, you know.

So not another minute should go by with consumers not being told orally and in writing that they would be suckers to give their money to brokers who are just out for themselves. I can only assume that is the desired response to hearing and seeing the warning that “non-fiduciaries” would be required to review.

Here it is: I am not a fiduciary. Therefore, I am not required to act in your best interests, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks and expected returns for you.

It may as well have the phrase “SURGEON GENERAL’S WARNING” before it. Stringer said in a press release, “This new law will ensure that New Yorkers know whether the investment advice they receive is in their best interest.”

The only thing the law would ensure is that brokers and some insurance agents would scare off their prospects with this warning. Each side of the fiduciary versus suitability debate has merit, but this measure assumes the worst of those falling under the suitability standard.

Does this legislation or the fiduciary standard itself automatically make the world safe for investors? Of course not.

For example, the Securities and Exchange Commission in November accused Robare, an advisory firm in Houston, of recommending mutual funds and not informing 8

InsuranceNewsNet Magazine » May 2015

clients that it received compensation for those funds.

That firm was under the fiduciary standard, so that compensation was a conflict of interest. The standard did not ensure that these clients were not subject to “conflicted” advice. These advisors were accused, but how many others are out there?

Fiduciaries might claim that this would have been perfectly fine under a suitability standard. Then why would states be going after insurance companies for undisclosed fees to salespeople?

Or fiduciaries can argue that the Houston case might be an example of a bad apple. But then they have no trouble painting everyone under the suitability standard with the same brush.

No one wants consumers to be treated poorly, except for cheats. And they can be found in every profession.

After all, it is not as if the brokerage industry is not regulated. It is — by the Financial Industry Regulatory Authority (FINRA). What is at the root of this criticism? Is it “conflicted” advice? That is typically code for commissions. If those payments are removed, advisors will still have to get paid.

Will lower-middle-class families manage to pay those fees?

Very few families are investing. A Pew Research poll released last year showed that 53 percent of Americans own no stock. Perhaps those in the academies of fiduciaries have not noticed that vast swaths of the American population are living paycheck to paycheck.

Those folks might have insurance, and some

might have bought an annuity to protect their retirement. But odds are good they do not have a fat investment account.

Is an unsophisticated investor best served by an advisor whose advice is “Here is an array of options and the fees they charge – it is up to you to figure out which one is right for you.” Sure, families with more money to pay get the higher-quality guidance. But everybody else is basically on their own, getting what they pay for.

Is the public well-served by advisors who advertise that they hate annuities? Ken Fisher might argue that his ads are helping people get out of expensive annuities and into better investments under his umbrella. Well, dial the clock back to 2009 and ask how many Fisher retirees were happy as compared to annuity owners.

Of course, that would apply only to people who had $500,000 to invest. So maybe they could afford the loss. The only advice that Fisher advisors have for people with less than a half-million dollars to invest is “Have a nice day.”

At this point, it is apparent that with the Labor Department and the Securities and Exchange Commission pushing to expand the fiduciary standard, brokers will be pulled under the tent.

Obviously, the insurance industry and the state-based regulatory system would be the next target. You don’t have to look far to see where the commission system was outlawed. It happened in the United Kingdom and is being considered in the rest of Europe.

The momentum in the United States is against the suitability standard and the traditional model of the agent. As we switch models, this is the moment to understand what we are losing.

We, as a nation, will not be able to guarantee that no one ever gets cheated by a crooked advisor. We will only be certain that we will have shut down a thriving sector of the financial community that served low- and middle-income Americans.

That is worth having a clear-headed conversation.

Steven A. Morelli Editor-In-Chief

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May 2015 » InsuranceNewsNet Magazine

9

INFRONT TIMELY ISSUES THAT MATTER TO YOU

‘Wearable Tech’ as Insurance Opportunity

As devices such as the Apple Watch, left, and Samsung Simband improve health monitoring, the data will help refine insurance underwriting.

Devices such as Apple Watch and Fitbit are become a part of more Americans’ lifestyles. Insurance carriers are taking notice.

By Linda Koco

T

he recent debut of the Apple Watch may be more than a heads-up for gadget-hungry technophiles who like the idea of wearable technology. Insurance carriers and rainmakers may be paying attention, too.

That’s because the watch is not only a mobile device with communications, payment and other smart capabilities, but it is also a device containing digital health and fitness monitors and apps that users can use to track personal health-related activities and data.

Wearable fitness trackers already exist, but if the Apple product takes off, that might give a bounce to such tracking, and this could be of interest to insurance professionals.

For instance, could the industry find ways to use health data registered on such devices at point of sale, during underwriting or perhaps at time of claim?

One insurance executive who has been looking into wearable device use by insurers is Athene USA’s Gregory A. Bailey. In a speech at LIMRA’s distribution conference in February, the senior vice president and chief marketing officer for the annuity company said he sees “tremendous potential” for insurers in this area.

Wearable tech is one of four opportunities he urged the industry to consider. Others include mobile technology, social technology and big data. The Apple smartwatch had not yet hit the market when Bailey gave his presentation, but the points he raised about wearable tech appear to be applicable.

The “Wearable” Opportunity

Wearable technology may be five, 10 or 15 years away from being used in insurance, Bailey told the audience of insurance company executives. But, he added, “We’re in the long-term business, and we need to look at what the next 10 to 15 years looks like.”

10

InsuranceNewsNet Magazine » May 2015

Despite Bailey’s prediction that wearable technology might not be used in insurance for several years, one carrier already is out of the gate with a program that uses wearable tech in conjunction with life insurance.

John Hancock announced it is offering two life insurance products that it says are the first such products in the U.S. linked with a healthy living program and wearable device. The products are Protection UL, a universal life insurance product, and John Hancock Term, a term life insurance product.

The company says the new products offer potential for savings on annual premiums, as well as discounts and rewards from leading retailers to encourage policyholders to take small steps to improve their health.

New policyholders will receive a free Fitbit device to help track their progress. Vitality, a global firm that is its partner in developing and offering the product, will keep track of the policyholder’s exercise and other activities. John Hancock says policyholders will receive personalized health goals. The policyholders then can use the device to log their activities using online and automated tools integrated with personal health technology.

Vitality is a global wellness company that has established similar programs with businesses and health insurance companies in the U.S. The company is based in South Africa, where insurers offer a similar policy.

Similar products also are offered in Europe, Singapore and Australia.

Under the new program, applicants provide detailed data on such medical information as their cholesterol levels, blood pressure and medical history. New policyholders are required to take an online “Vitality Health Review” to determine their

Vitality Age, which John Hancock and Vitality said is “an indicator of overall health that may be higher or lower than their actual age, which can improve over time as they work toward living a healthier life.”

Concerning health tracking devices, Bailey told the LIMRA attendees that in addition to tracking caloric intake, exercise and other fitness markers, the devices can be used to help catch signs of disease in advance of routine visits to the doctor. In addition, he said, the devices can enable people to understand what’s going on with their bodies in ways they couldn’t previously.

“I think this holds tremendous potential for our industry,” he predicted. It could “change the foundational structure of how we build products, how we price products, and even how we go to market,” and also how consumers expect to interact with the industry and with their doctors.

“Truly, I believe it will be revolutionary for the industry.”

He pointed to a wearable breast cancer detection device, called an “iTBra,” from Cyrcadia Health. It can be worn inside any normal bra for a few hours. The sensors pick up heat patterns and transmit data to the physician via a smart phone.

Similar companies will be developing other innovations using wearable technology, he noted. “We have to consider: What are the implications for the insurance industry when human health changes in the future?”

Today, insurers write to get an attending physician’s statement, he noted. The response may be “a stack of paperwork sent to us, or an image sent us.”

Then he asked, “How will we react when a client says to us, ‘I want them to track my

‘WEARABLE TECH’ AS INSURANCE OPPORTUNITY INFRONT health data in real time’?”

At one point, Bailey asked the audience to indicate whether they had ever worn, or are now wearing, some type of activity tracking device. About 40 percent to 50 percent raised their hands.

More Immediate Opportunities

The other opportunities he discussed may have more immediate impact than wearable technology, and they may overlap. A few highlights follow:

Mobile technology: “I believe the single biggest mobile opportunity our industry has is to leverage mobile technology for the point of sale,” he said, adding it can enrich the experience that the advisor or agent has with the customer.

The sales process is full of complexity and paperwork, he pointed out, alluding to all the consumer brochures, prospectuses (if variable policies), applications, disclosures, health-related information and similar points of discussion.

But a mobile operating platform can solve for everything, he said. That includes gathering client information and recommendations on through quotes, illustrations,

application, e-signature and subsequent underwriting follow-up notifications. “Maybe tablets were invented for our industry.”

Social technology: Bailey asked the obvious question: “Why is social technology a big deal when the vast majority of insurance companies already have social media programs?”

He said it has become “crystal clear” that the power of social media occurs where it intersects with mobile technology. It’s the two technologies combined that “will create opportunities to shape the future of customer acquisition and grow our firms,” he said. The challenge will be how to bridge the intersection.

Average Americans scroll their smartphones about 150 times a day, and check their Facebook accounts about 14 times a day, he said. That matters because, to shape the future of how consumers engage with insurance, “we have to be where our customers’ eyeballs are at. We’ve got to be in front of them, and their eyeballs are on social media, on their smartphones.”

Big data: Big data is here, he said, and insurers can use it to change the customer experience. He pointed to a development involving MyFitnessPal, a health tracking

company that was recently acquired by the apparel company Under Armour.

As a result of the acquisition, Under Armour gained access to MyFitnessPal’s 80 million registered users, Bailey said. The buyer also gained access to caloric, exercise and related data.

“What if an insurance company had bought MyFitnessPal?” Bailey asked quizzically. He pondered this a bit and then asked: “What if that insurance company designed different kinds of insurance products for the community in exchange for (the users) sharing a bit of data with the insurer?”

Might the premiums go up and down depending on how the data looks, he asked.

Bailey conceded that the opportunities he outlined present “significant” compliance and regulatory concerns and other challenges and hurdles. But they also have “tremendous potential” to help shape the future of how consumers acquire insurance products and services, he maintained.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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May 2015 » InsuranceNewsNet Magazine

11

12

InsuranceNewsNet Magazine Âť May 2015

M

An interview with Joseph F. Coughlin

by Publisher Paul Feldman

INTERVIEW

any things in this industry are difficult to predict: When will interest rates rise? What will regulators do?

Will robo-advisors steal my business?

But the biggest opportunity for the insurance industry, and in America as a whole, is longevity.

Americans are getting older and staying older. Retirement has become as long as a typical lifespan was just 100 years ago. It will be the key opportunity and disruptor for the insurance industry. Joseph F. Coughlin knows this well because he researches aging for a living.

Joe is the director of the Massachusetts Institute of Technology’s AgeLab. He also likes reaching out to industries such as insurance to sound the alarm and to shape change. A Behavioral Sciences Fellow of the Gerontological Society of America, Joe works with leading companies, such as Merrill Lynch, Putnam Investments and TIAA-CREF, to convert research into business innovation. He has served on the White House Advisory Committee on Aging, testified in front of Congress and consulted with international groups.

His message to us was loud and clear: Either shift to a longevity model or watch technology take your business.

He sees agents and advisors morphing into guides to help clients navigate their way through four stages of retirement.

In this interview with Publisher Paul Feldman, Joe shows not only how longevity is the biggest disruptor for insurance today, but also how this can be the best era yet for our industry.

May 2015 Âť InsuranceNewsNet Magazine

13

INTERVIEW 0-100: THE FUTURE OF RETIREMENT PLANNING FELDMAN: What is the future of retirement?

COUGHLIN: We are at an unprecedented junction in history. We have never seen so many people living as long as they are today.

We have a longevity paradox. Now that we have achieved what humankind has tried to achieve since it has walked — living longer — we really don’t have a good idea of what to do with all that additional time.

The average lifespan was 46 or 47 in 1900. Today, the fastest-growing part of the population is over age 85. So the future of retirement is that it will not be your father’s or mother’s retirement. It’s going to be longer. You will be working longer, whether it’s due to money or due to simply needing to remain engaged and have a sense of meaning.

But I think one of the things that we’re seeing about the future of retirement is that there probably will be many different phases of what we now call one thing — retirement. We will see new products and services that we’ve never had before to serve an aging society.

FELDMAN: A recent cover of Time magazine had a picture of a baby on it with the text “This baby could live to be 142 years old.” Do you think that’s a reality?

COUGHLIN: The science is still out. There are people who are way out there on the edge, saying, “Aging is a disease; we just need to cure it.” Six hundred years old could become the new goal post.

My lab and I are willing to take 100 years old as the new normal and then back into that. There is good research out there that suggests that 50 percent of babies born today will live to age 100.

Think about all the things that change.

It’s not just retirement, but we need to reframe everything around longevity. What are the things that planners and financial services providers and everyone else need to do in order to rethink how we will live for 100 years? Do we really think, for instance, the education that we get from ages 0 to 24 is really going to last us for the rest of our lives? I would suggest probably not. A half-life of knowledge and the speed of technology make you pretty 14

InsuranceNewsNet Magazine » May 2015

The future of retirement is that it will not be your father’s or mother’s retirement.

It’s going to be longer.

dated by the time you’re 35 unless you’re aggressive at staying up-to-date on what’s next and what’s new.

Is my wife going to want to listen to another 29 years of my jokes? The highest divorce rate is among those age 50 and older.

How many careers will you have is a better question than how many jobs will you have or how long will you work.

Retirement also will lead you to live in more places and move more times after age 55 than you did between 18 and 35.

The idea is that you may live in one home to start — the one in which you may have had children and, increasingly, did not have children. Then you move to a home where you choose to downsize, and another one where you move to be closer to the grandchildren. Finally, sadly, you maybe will move to your next home alone because you’ve lost your partner or you need special services.

So the future of retirement will be exceedingly more dynamic than we thought.

But it’s not going to start at age 55 or 62 or 65.

I really do believe that over the next

three to five years, the industry will be at the crossroads of inventing an entire new business model around longevity planning.

Retirement, as we once knew it, is gone. Most of the baby boomers approaching retirement do not see themselves going into that good night and waiting for children to visit or moving to beaches and fairways. Rather, they see themselves transitioning, maybe working and doing something else such as volunteering. Maybe only working part time. Maybe they will do a little bit of travel here and there, but they will experience a much more active — and I might add — a much more complex old age than we’ve seen.

Some of the most critical decisions we will have to make — managing our health, our wealth and where we live — will have to be made just when our resources and our cognitive ability will be declining. So we will need a lot of help and not just a new model of advice, but also new products. The products that we have now were built for my father and my grandfather; they are not built for me today.

May 2015 Âť InsuranceNewsNet Magazine

15

INTERVIEW 0-100: THE FUTURE OF RETIREMENT PLANNING FELDMAN: What products do you see this industry creating to fit that?

COUGHLIN: If you look at the numbers of people who buy long-term care insurance, life insurance and the like, don’t you find it a curiosity that more people can see themselves dead than they can see themselves disabled? We have to start thinking more creatively about products that people can envision actually using and needing.

I’ve got this crazy notion of what I call purposeful products — whether it’s annuities or income flow that goes into a single-purpose solution. Imagine a product that is linked to a trusted provider of

to need a little help in funding to make sure that the house can change to meet my needs as I change physically.

These are new products that empower agents, distributors and advisors to conduct a new conversation about old age. Then when we connect the things that people obviously can see they need, advisors and agents can be more valued because they will be having meaningful discussions. They will be connected to a solution.

One of the questions that I like to ask advisors in particular and ask their clients is a very simple one. Sounds silly, but if you’re going to be living into 70s, 80s and

ther away. So the notion that family or a neighbor will be there to lend a hand may not necessarily be true. This is where financial planning can connect the money to a purposeful product that will not just help me live longer, but will help me live better.

things such as transportation, home modification, home maintenance. Through all of those things that Generation X and the baby boomers are doing for their parents as caregivers today, we can now see that, gee, we’re going to need a little help getting around. We are going to need a little help maintaining the home. We are going

90s, who’s going to change the light bulbs?

At age 85, do you want to be climbing up that ladder to change the light bulb? Even if you can, do you want your partner yelling at you that you’re going to kill yourself on that ladder?

We have far fewer children and the children that we do have are living far-

and wonder how much of their lunch is going to be taken. And then you have the higher-end wealth manager.

We need to look at where innovation is coming from. It’s not just the technology, but looking at the consumer and seeing how she is experiencing services everywhere else in her life.

16

InsuranceNewsNet Magazine » May 2015

FELDMAN: How do you see advisors adapting to this changing environment?

COUGHLIN: I think that we’re already seeing a cross between great stress and great opportunity in the advisory community.

You have those who fear the robo-advisor

SOUND LIKE A STAR TO SELL LIKE ONE INTERVIEW

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INTERVIEW 0-100: THE FUTURE OF RETIREMENT PLANNING Financial clients, particularly women who are responsible not just for living longer but for providing care and making the majority of decisions in the home, are looking for solutions and conversations that will make them feel comfortable and confident that they can manage not just their retirement, but the retirement of their family.

So I would see the financial advisor of the future starting to fragment into the following: those who are able to have deep, rich conversations and truly engage with a client not just about money, not just about a spreadsheet of the client’s objectives.

It’s silly to ask somebody what their retirement objectives are when they’re 50. They actually are as far away from retirement at age 50 as asking a 15-year-old what they want to be when they grow up. Yet we still continue to use these spreadsheets to ask clients what their objectives are 20-30 years from now.

Most people are so busy trying to figure out what they will do in the next 30 minutes that they’re not sure what they will do in the next 25 to 30 years.

Advisors will need to create a new story, a dialogue, about questions that most of us know we should address, but haven’t thought about yet. Where are you going to live? How are you going to get around? How long do you think you’re going to work, and do you want to do something else to continue your social and emotional well-being?

How are you going to provide care to each other given the fact that our parents are living a lot longer than we ever expected?

How will you be a caregiver well into your 60s and perhaps even your 70s?

And then connect how much it’s going to cost to do those things with trusted service providers that you recommend.

This is going to take courage and a lot of

work, having vetted people you can trust.

How many people do you know who you would trust to knock on your 85-year-old mother’s door?

The advisor of the future will make the majority of their profit by having a comprehensive vision of what old age is going

a car, but once their lives start getting complicated around mortgages and caregiving and retirement planning, they will want to have a conversation.

But here’s the difference — they’re going to want it all. They will want some things online in their hand, mobile. But they also will want to have that meaningful conversation overall. So for those advisors who think that it’s either automated or conversational, they’re wrong. The true valueadded advisor who’s going to make the profit and provide value to the client will be able to do it from soup to nuts.

Most people are so busy trying to figure out what they will do in the next 30 minutes that they’re not sure what they will do in the next 25 to 30 years.

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FELDMAN: Where do you see the biggest opportunities as an advisor?

to be. That advisor will be the one who makes the most money, and their practice will more likely look like a boutique shop.

For those who fear the robo-advisor, I would suggest that they need to invest and embrace their inner robo. If we look down through the generations — Gen X and Gen Y behind them — they are used to technology.

And it’s not that they’re going to do everything online. Gen Y is doing everything online right now because they have only transactional relationships with finance. They’re busy making payments on their school loans, maybe they’re buying

COUGHLIN: The biggest opportunity right now is with middle-aged women. If you understand a 45-to-55-year-old woman’s behavior, her needs in retirement and what she’s doing right now, you will effectively engage three generations of households.

Today’s middle-aged woman is taking care of at least her parents and maybe her husband’s or partner’s parents as well.

She may have more parents to care for than she

has children.

You’re not only influencing her portfolios, you also will be informing her about how she has to think about her caregiving needs in the future.

Something else is going on as well.

The middle-aged mother out there today, unlike mothers of previous generations, is more of a friend than a mother to her Gen Y kids. Gen Y women are much more likely to go shopping with mom and ask mom for advice on everything from health to wealth.

So if I were an advisor, I would invest in everything automated, because

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that woman works, provides care, is responsible for influencing two to three households, so she needs to do research online as well as see you in person. She’s looking for solutions. I would also start to understand the conversations she wants to have.

For instance, we’ve done research on men and women in retirement planning.

One of the things that keeps coming back to us is that the No. 1 thing that women in particular are looking for is not effectiveness. She expects an advisor to have the expertise and the effectiveness to develop, and deliver that income.

Do not provide her only with information or with income; provide her with solutions. Because she’s traveling fast and doing more tasks than most men have done in a lifetime.

FELDMAN: How can this industry communicate better with women?

COUGHLIN: I know that on average, advisors are in their 50s. And they fit my profile — white and bald.

Product producers have done very well. But for decades it’s all been about the product and the income. I’m not saying you don’t need that. But you need to say how that product and that money and your relationship as an advisor will affect how a client lives tomorrow.

That means we have to take some of those old, bald dogs and teach them how to step away from their spreadsheets and their PowerPoints. Those advisors who do well are those who are able to have a conversation with someone in the elevator and have the ticket on the way out because all of a sudden someone looks at this advisor and says, “Wow, they really get me.”

If you have somebody who just came in and said, “I’m sorry I’m late, I had to take my mother to the doctor,” pick up on that.

That’s a discussion point. This is an opportunity to say, “Gee, you’re 50 years old, you’ve been doing this with your mom.

Maybe we need to start thinking about how you want to put some funding aside and some product placement in terms of ensuring that your daughter does not have the same responsibilities that you have now.”

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INTERVIEW 0-100: THE FUTURE OF RETIREMENT PLANNING

The advisor of the future will make the majority of their profit by having a comprehensive vision of what old age is going to be.

where you are living and how you’re getting around.

And then the fourth one is the one that we don’t like to talk about but we know it’s there. It is where there are real end-of-life decisions to be made, but this is also a chance to start thinking about legacy.

These are the four different retirements that I see that the industry can have rich conversations about. The conversations should chunk out the 20, 30, 40 years that we now call retirement in a way that people can actually understand and act on.

Connect products and conversations in such a way to fully engage people in retirement planning.

FELDMAN: Is there something pertinent to insurance that cuts across the generations?

er than promising a palm tree or a golf course, clients — women in particular — are more likely to know that old age will be a lot more day-to-day tasks than vacation.

FELDMAN: Is there anything else our industry could be doing better on retirement?

COUGHLIN: We need to create a new language around product and the years after full-time work. The beginning of innovation is to create a whole new vision and new sets of words.

The years after full-time work in the classic sense probably will include four actual retirements within retirement.

And the first will be that transition where 20

InsuranceNewsNet Magazine » May 2015

maybe you’re still working at your job, but maybe just fewer hours because you’re providing care to someone. Maybe you’re volunteering full time and going like gangbusters.

The next phase is more likely to be the kind we like to sell as retirement now.

You’ve got more time, maybe you’re volunteering. You’re not necessarily working any longer. But things are starting to get a little bit more complicated now. You’re having to manage health conditions and the like.

The third retirement is where the complexity really characterizes where you are in life. You’re managing multiple chronic conditions, your spouse may not be doing well. You’ve got a real crisis on whether you can stay where you are, in terms of

COUGHLIN: There are three values for the insurance industry and financial services in general. One is “easy.” Easy is great for those of us who have a lot of clutter that we don’t want to sort through as we get older.

For younger people, easy is just what they expect. Because of IT and online experiences, if it’s not easy and it’s not engaging, they’re not going to play — they’re out of here. So the easy strategy is to be engaging both online and in conversations.

The second is authenticity. That goes partly to the conversations I was urging before, which is make sure that you have a conversation with your millennial clients about their next stage of life, not their retirement. It’s too far off. It’s crazy — you have no idea what the world is going to be like in 40 years. So that’s a stupid discussion to have.

But talking to them about “Gee, is it really likely that I may have to go back to school in some form, even if it’s online, at age 40 to stay competent and competitive in my chosen field?” Yes, that’s very likely to be the case.

And I guess the third one is well-being, which is a big piece of our research. How does the planning that I do with clients improve their overall emotional, physical and social sense that they’re doing OK? And those three things cut across generations regardless of age and gender.

RIA

TRANSITION

GUIDE

Expert Advisors Share their Tips for Transitioning to a New RIA Platform

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RIA TRANSITION GUIDE

4 Key Steps for Transitioning to a New RIA Platform Whether you already have a relationship with an RIA firm in place or are looking to link up with one for the first time, here are four key steps you need to be aware of in order to find a platform that’s right for you.

1

Choose the RIA – Examine your desired RIA relationship in the context of the needs of your clients. Select the best competing RIA providers you can find and do a head-to-head comparison of all services offered. Select the RIA that can equip you with all the riskmanagement investment solutions your clients might need and the allinclusive infrastructure you need to start, build, and grow your business.

2

Share the News – Contact your clients. Explain you have taken steps to expand the level of investment selection and service you provide. Explain your due diligence process. How will the client benefit?

How do the new portfolios and strategies map to their present portfolios?

3

Complete Paperwork – The new RIA provider will require signatures and documentation

2

from clients. A good RIA will make these forms available to the advisor through on-demand printing. Prefill wherever possible. Make the client’s role in the transition as easy as signing in the highlighted places and returning the forms to you. Upon receipt attach statements and other documentation from your side. Deliver the assembled package of client data to the new provider.

4

Complete the Transfer – When your new RIA provider explains your client data has been uploaded, confirm for yourself and take the final steps. If applicable, notify your previous RIA provider your relationship is concluded and begin accessing client portfolios on your new system. •

Get more transition tips and strategies in the Advisors Guide to a Successful RIA Transition, at www.SuccessfulRIA.com

May 2015

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RIA TRANSITION GUIDE

Expert Advisors Share their Transition Story The independent registered investment advisor (RIA) segment of the industry continues to experience a skyrocketing growth pattern.

It’s no surprise that more and more advisors are now considering either the transition to an RIA platform or moving from their current RIA to one that suits more of their needs.

But what do they need to know to make that transition successfully?

We’ve interviewed 3 Brookstone advisors who share their stories and tips for a smooth, successful transition.

Linda Gardner

Jim Retter

Nora Hartquist

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RIA TRANSITION GUIDE before making my decision.”

Several significant client benefits convinced Linda this was the right move.

“Brookstone offered a wider range of tactical and strategic investment strategies.

Brookstone has more resources and staff to support our clients and our own office personnel. Their fees were lower too — That’s another real benefit for our clients.”

The transition began with Linda meeting face to face with each client in her office which maximized efficiency.

Linda explained her reasons for changing RIA firms and walked clients through the paperwork they needed Co-Founder to complete. “Brookstone did everything Blue Heron Capital in Englewood, CO. they possibly could to make the transition successful. They were unbeLinda consistently puts her client lievably helpful in making the change.” interests first. Although she first worked After less than two years, did her with another RIA firm, over time she was decision to move to Brookstone live concerned about the limited number up to her expectations? “I think it was of investment choices available there a great idea.” Her clients agree. Since for her clients. She met Dean Zayed, beginning the transition in July of 2013, CEO of Brookstone at several advisor Linda’s total assets under manageconferences and heard ment have tripled. “The “Brookstone did him speak. Linda thought: increase came from everything they “Here is a dynamic clients adding additional company led by a assets along with new possibly could to progressive visionary.” make the transition clients whose investment She started considering dollars went to successful.” changing RIA firms.

Brookstone.” Brookstone Linda is a detail-oriented advisor. “In is continually expanding the selection evaluating whether to make a change of investment strategies and I had many conversations with Dean offerings we can make available to our during the day, after hours and on clients. They offer a number of services weekends discussing their investment including portfolio design, as well as philosophy, processes and portfolio assistance in practice management offerings. I also had several conversations and marketing. Their compliance with Brookstone’s compliance staff department is great to work with too.”

Linda Gardner

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RIA TRANSITION GUIDE Jim’s excitement, especially when they learned how they would benefit.

Reporting would now be monthly. Fees would decline. Jim also utilized these meetings to update their risk profiles.

These were used to align the client’s investments with the new portfolios available at Brookstone.

Jim felt the transition process would be daunting. “It actually flowed very smoothly. The paperwork was simple and concise. Each of our people had a direct line of communication with the key people at Brookstone.”

In Jim’s case, Brookstone sent two President employees to visit his practice and assist The Advisory Group LLC, O’Fallon, IL in the transition. “This was huge for us. We could discuss each account.” Brookstone Jim decided to change RIA firms and generated spreadsheets showing how transition to Brookstone towards the client assets would transition from the old end of January, 2015. to the new managers.”

Jim takes his fiduciary Did expectations “With Brookstone responsibilities very live up to reality? “We we have a seriously. He concluded couldn’t be happier. partnership that his prior RIA firm had Our clients are now puts the client’s several weaknesses such well informed. With interests first.” as quarterly instead of Brookstone we have a monthly reporting. These partnership that puts weaknesses led to client complaints and the client’s interests first.”

Jim decided he needed to make a move.

Jim’s transition to Brookstone has Jim learned about Brookstone moved several million in assets to by hearing their CEO, Dean Zayed his new RIA provider. His clients are speak at industry conferences. He was planning to bring additional funds into impressed by their approach to goalstheir accounts once the initial transfer based performance vs. the common is completed. • benchmark reporting format used The Best Strategies for a throughout the industry.

Seamless RIA Transition Jim used the transition as the opporFind out more at tunity to hold face-to-face meetings www.SuccessfulRIA.com with each of his 75 clients. They shared

Jim Retter

May 2015

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RIA TRANSITION GUIDE already transitioned to the Brookstone platfor m. Nora w a s i mpre ss e d with Brookstone’s high degree of organization plus their emphasis on the advisor and the managed money platform. They’re all about the advisors.

Clients reacted well to Nora’s decision to transtion to another platform. They weren’t happy with the previous provier’s limitations either.

The transition was simple and smooth for Nora’s clients. Because they were already utilizing the TD Ameritrade platform, reporting statements were similar. Clients only needed to sign a Advisor Investment Representative and Owner few forms and their part was done.

Hartquist & Noblet LLC in Stafford, VA Brookstone supported Nora’s transition 100%. Amy, their dedicated Several years ago, Nora decided specialist was always available when she wanted to provide independent Nora or her team had questions. money management as a service for Account transfer paperwork was her clients. She affiliated with submitted in batches and within another RIA platform days those accounts had and gradually realized transitioned.

“All the good although they provided How happy is Nora advisors go with money management, two years on? Nora’s Brookstone.” their overall objective Assets Under Managewas to encourage ment (AUM) has grown advisors to transition money into more than fivefold since she joined annuities.

Brookstone. Nora feels Brookstone Nora performed due diligence. is improving constantly, adding new She was about to sign with another strategies to their managed offerings RIA firm when the person advising along with new educational courses her remarked; “All the good advisors for advisors. • go with Brookstone.” She decided to 3 Ways to Maximize learn more. your Growth and Brookstone holds its annual advisor Profitability with a New RIA Firm meeting in July. Nora was invited Find out more at to attend. She was able to hear directly from advisors who had www.SuccessfulRIA.com

Nora Hartquist

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RIA TRANSITION GUIDE

The Right and Wrong Way to Message the Move to Your Clients Maybe you’ve noticed by now, but a lot of clients aren’t very fond of change. They prefer life to be as stress free as possible. Here are some “Do’s” and “Don’ts” for the client conversation:

Do:

Don’t:

Stress your commitment to providing them the best service possible with a broad range of investment selections.

Be vague about why you are changing providers or minimize the change.

Explain that their financial goals come first. Your due diligence is done from this perspective.

Leave completing the paperwork to them.

Prepare how to explain your client data gathering process ahead of time. Practice.

Print the paperwork at your office. Prefill as much as possible. Tag the signature areas. Think how a professionallyprepared tax return looks prior to signing.

Expect they will provide their own envelopes and stamps.

Duck their questions about why you are changing providers.

Keep in touch with them during the transition process. They will be alert for changes.

Announce the completion on the day the new system is live.

Block out time to help review their first new statements, either in person or by phone.

Available at www.SuccessfulRIA.com May 2015

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IT’S YOUR MOVE. Make it...

STRATEGIC SEAMLESS SIMPLE

MAKE YOUR FINAL MOVE TO BROOKSTONE With a dedicated transition team and a comprehensive onboarding process, Brookstone provides allinclusive operational support to make your transition strategic, seamless, simple.

To learn more about transitioning to the Brookstone RIA platform, visit:

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4/7/15 4:18 PM

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May 2015 Âť InsuranceNewsNet Magazine

23

NEWSWIRES

New York Life Hits Record Highs

QUOTABLE

The low interest rate environment has been raining on the parades of many insurers in recent years. But not New York Life. The carrier’s earnings hit $2 billion for the first time in its history, marking the fifth consecutive year in which the company’s earnings reached record highs.

In releasing its 2014 earnings, New York Life reported a 14.7 percent increase in operating earnings for the year despite the low interest rate environment that has dampened profits on the entire financial services industry.

New York Life also said that individual life insurance in force rose to a record $871 billion. This was $31 billion more than the amount in force in 2013.

Among other highlights, New York Life announced it hired 3,680 full-time agents last year. The amount of new hires was significant in light of the overall decline in head count among life insurance agents over the past decade or more. New York Life has been bucking that trend, having grown its active agent force by 24 percent since 2007. Slightly more than half of New York Life’s new agent hires in 2014 (52 percent) were individuals who represent the cultural markets.

New York Life said operating earnings grew to a record $2.02 billion in 2014, and surplus and asset valuation reserves also hit a record, reaching $21.9 billion for the year.

PIMCO SUES AIG OVER CREDIT DEFAULT SWAPS

PIMCO asset management company has filed a lawsuit seeking unspecified damages from American International Group (AIG) relating to what PIMCO termed AIG’s “colossal” bet on credit default swaps.

The suit is a bitter reminder of the problems caused by the financial meltdown in 2008.

In the complaint, PIMCO alleges that it filed the suit because of what it called “AIG’s failure to disclose, and misrepresentations to investors concerning, the company’s massive accumulated exposure to the U.S. housing and subprime mortgage markets.”

“AIG’s colossal bets on unregulated credit default swaps and residential mortgage-backed securities for which the company claimed its exposure was ‘remote, even in severe recessionary DID YOU

KNOW

?

24

6%

market scenarios’ lay at the heart of the financial crisis and carried AIG, once the world’s largest insurance company, to the brink of insolvency,” the complaint said.

The suit relates to the decision of AIG’s financial products unit to insure against losses on mortgage bonds purchased by institutional investors. The decision forced AIG to seek a federal bailout in September 2008.

GOVT. PAYMENTS FOR MEDICARE ADVANTAGE PLANS TO RISE IN 2016

Expected growth in health spending will result in the U.S. government increasing payments to health insurers operating Medicare Advantage by 1.25 percent in 2016.

The announcement by the U.S. Department of Health and Human Services comes after the feds proposed a 0.95 percent cut in payments to insurers earlier this year. More than

of all class action lawsuits filed in 2014 dealt with insurance.

Source: 2015 Carlton Fields Jorden Burt Class Action Report

InsuranceNewsNet Magazine » May 2015

In America, when we had disability and defined benefit plans, you actually had an equality of retirement.

Now the rich can retire and workers have to work until they die.

— Teresa Ghilarducci, a labor economist at the New School for Social Research

16 million people are enrolled in these plans, in which health care benefits are managed by private insurers.

The increase comes after many years of cuts to Medicare Advantage payments because of an overall decline in health care spending and changes under the Affordable Care Act that seek to align payments more closely with the government-run Medicare fee-for-service program.

IUL ILLUSTRATION RULES COULD BE PHASED IN STARTING IN SEPT.

New rules governing the illustrations used in selling indexed universal life insurance (IUL) could be adopted and phased in within the next few months. The National Association of Insurance Commissioners has moved a step closer to adopting new rules governing the illustrations to be used in selling UL policies. According to the agreement by the National Association of Insurance Commissioners’ Life Actuarial (A) Task Force, the new rules, once adopted, could be phased in starting Sept. 15.

Under the proposed phase-in, provisions dealing with currently payable scale methodology, as well as the so-called guardrail that limits the expected yield that can be offered to investors in IUL, will go into effect Sept. 1.

Provisions detailing information on policy loans and establishing additional standards will go into effect for all new business and in-force life insurance illustrations on policies sold on or after March 1, 2016.

[NEWSWIRES] SEC CHAIR TO PUSH FOR UNIFORM FIDUCIARY STANDARD

Securities and Exchange Commission Chairman Mary Jo White is the latest to jump into the fray surrounding the uniform fiduciary duty. White Mary Jo White said she believes the SEC should implement a uniform fiduciary duty for broker/dealers and investment advisors “where the standard is to act in the best interest of the investor.”

White’s comments at a Securities Industry and Financial Markets Association investment conference will reawaken a sleeping tiger that has lain dormant for several years, and will face opposition from Congress and, indeed, within the SEC itself.

One complexity she noted in her comments is that the SEC currently does not have enough resources to ensure compliance and that some third-party compliance program — not to replace, but to supplement and complement the Office of Compliance Inspections and Examinations (OCIE) — may be required.

White said she has studied the issue “intensely” for several months, and that implementation of a uniform fiduciary duty under Section 913 of the Dodd-Frank Act — rooted in the Investment Advisers Act — has become a “huge” personal priority and is “the right thing to do.”

401(k)s NOT EXACTLY REPLACING DB PLANS

The 401(k) account has replaced the defined benefit pension as the retirement income source for milof employees have lions of retirement savers. less than $10K in But many workers haven’t their 401(k)s accumulated much in those accounts. The median amount in a 401(k) is a paltry $18,433, according to a recent report by the Employee Benefit Research Institute. Almost 40 percent of employees have less than $10,000 in their 401(k)s.

At that rate, millions of workers nearing retirement are on track to leave the workforce with savings that do not even approach what they will need for health care, let alone daily living. Retirement is now Americans’ top financial worry, according

40%

Genworth Eyeing Sale of Life and Annuity Unit Everything may be coming up roses at New York Life, but the picture isn’t quite as rosy at Genworth. The company is hoping to find a suitor for its life and annuity unit as a means of shoring up its troubled long-term care insurance (LTCi) unit.

Genworth is the largest carrier in the individual LTCi market, with a 17 percent market share and 2.1 million policyholders. The company is second to CNA in the group LTCi market.

Bloomberg reports that Genworth’s board and management had hired Goldman Sachs Group to sell Genworth Life and Annuity Insurance Co. (GLAIC).

According to LIMRA, GLAIC is the 16th-largest seller of fixed annuities in the U.S. market, with sales of $1.8 billion in 2014. The company will consider selling GLAIC in parts if it cannot find a buyer for the entire unit, Bloomberg reported.

A restructuring to raise capital in Genworth’s LTCi unit has been expected since November. At that time, Genworth announced that its losses on LTCi policies written before 1996 had risen substantially, and that it estimated it would have to write down reserves from $500 million to $1 billion to cover them. to a recent Gallup poll.

Despite the meager amounts of funds in 401(k) plans, the plans have provided a means for millions of retirement savers to build a nest egg. More than three-quarters of employers use such defined contribution plans as the main retirement income plan option for their workers, according to Aon, and the vast majority of them offer matching contribution programs, which further enhance employees’ ability to accumulate wealth.

By 1985, there were 30,000 401(k) plans in existence, and 10 years later that figure topped 200,000. As of 2013, there were 638,000 plans in place with 89 million participants, according to the Investment Company Institute.

WYOMING ‘BEST’ FOR RETIREMENT, ARKANSAS THE ‘WORST’

Do your clients dream of retiring on a sandy beach in a sunny climate? They may have to rethink that notion.

Wyoming was named the best state for retirees, according to new

research from Bankrate.com. The worst state for retirees is Arkansas.

Bankrate’s researchers looked at a number of factors in ranking the best states for retirement. Those factors included weather, cost of living, crime rate, health care quality, tax burden and senior well-being (how satisfied residents 65 and older are with their surroundings).

Wyoming came out on top for its low cost of living, low crime rate and low tax burden. Other states that round out the top 10 best states to retire are Colorado, Utah, Idaho, Virginia, Iowa, Montana, South Dakota, Arizona and Nebraska.

The bottom-ranked state, Arkansas, does have a low cost of living and plenty of outdoor recreation going for it. But the state received below-average marks for weather, crime, health care, taxes and well-being. Other states that ranked at the bottom include New York, Alaska, West Virginia, Louisiana, New Jersey, Hawaii, Kentucky, Missouri and Oregon.

Wyoming Gov. Matt Mead

DID YOU

KNOW

?

President Barack Obama, in rating the Affordable Care Act on a scale of 1 to 10, gave it an 8.

Source: USA Today

May 2015 » InsuranceNewsNet Magazine

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InsuranceNewsNet Magazine Âť May 2015

W

WHEN BAD THINGS HAPPEN TO GOOD ESTATES FEATURE

e are a culture of action. Fast and Furious sells tickets. Accidents invite rubbernecking. Fires attract crowds.

We cheer the heroes who run in to save the victims. We cluck a satisfying “tsk, tsk” afterward.

Such is the spectacle of celebrity disasters. The tales might change from year to year, but the morals thread them together into an accessible estate-planning guide for clients.

In fact, estate planning is one of the key areas in which agents and advisors can be the real heroes to families. Sure, the glory goes to the people who run in to put out the fire, but what about the people whose work prevents the disaster in the first place?

Those are the unsung guardians who ensure safety and prosperity.

The celebrities we’ll look at this year could have benefited from a hero in their lives — basically, someone to save them from themselves. Whether it was from hubris or sheer indifference, these folks built the foundation for their crumbled legacy.

Simply put, these stories feature people who did something very well that earned them notoriety, and they needed people who were equally talented in their own areas to assist them. Here is something to consider: These are estate-planning failures, but who did the failing?

In Chris Kyle’s case, he was an expert marksman, so good that he is credited with more kills than any other military sniper, and was the hero of the hit movie, American Sniper. But he was way off target in estate planning.

In fact, he never even took aim.

Kyle’s life often was endangered as a wartime Navy SEAL. He was shot twice and suffered other injuries, physically and mentally. But nobody advised him to think of his wife by doing some estate planning while he was busy serving and recuperating from his service.

He was just getting to a stable place in his post-war life when a fellow veteran shot him to death at a firing range. In a sense, he died in the Iraq War because the shooter was suffering from a post-traumatic stress disorder (PTSD).

Kyle died while doing what he had dedicated his life to, helping vets cope with PTSD. In fact, he had said he wanted profits from his book, American Sniper: The Autobiography of the Most Lethal

Sniper in U.S. Military History, and movie to benefit vets and their families. Friends said he called the profits “blood money.”

But he did not have a will or any other es-

erased this uncertainty and doubt, and there wouldn’t be this question hanging over his widow’s head.”

Even though a will is the cornerstone of all estate planning, it is still not universally applied. Mayoras and his wife, Danielle, a fellow attorney, have a website, trialandheirs.com, where they discuss many celebrities who died without a will. But, he said, a will is not just for people of considerable means.

“It’s really surprising that (Kyle) didn’t have a will, especially after the book started to have some success,” Mayoras said. “But all soldiers should have at least a basic will in place.”

Elizabeth Dipp Metzger, principal of Crown Wealth Strategies in El Paso, specializes in estate planning. And she has a message for anybody who has not had a will drawn up.

“There are a lot of people, even military families, with basic amounts that they think don’t require a will,” Metzger said. “But there are always so many details in terms of

Chris Kyle AGE: 38 DIED: Feb. 2, 2013; Erath County, TX CAUSE: Shot by veteran suffering from post-traumatic stress disorder ESTATE MISTAKE: Kyle had no will.

Kyle apparently wanted royalties from his book, American Sniper, and movie to help vets suffering from PTSD, but did not legally express that wish.

Photo credit: Brandon Thibodeaux | D Magazine

tate planning officially established, so his wishes died with him.

A lawyer whom Kyle had worked with had accused his widow, Taya, of not honoring Kyle’s intentions. That has led to a lawsuit and ill will with others who claim she is failing to live up to Kyle’s word.

Andrew Mayoras, an estate-planning attorney and co-author of Trial & Errors: Famous Fortune Fights!, said Kyle’s lack of planning put his widow in the crossfire of potshots.

“If he did want them to receive something from it or all of it, he should’ve put it in a will,” Mayoras said. “A will would have

children and education and family maintenance that if you don’t write it out, somebody’s got a will for it. It’s called probate.”

Metzger said it’s not just clients with moderate assets who don’t have wills. She has seen some who have enough assets to qualify for the federal estate tax but don’t have a will.

“It’s amazing,” she said. “You’re talking about people with a $100 million estate, or people with a $23 million company, and they don’t have a basic will.”

In fact, it has reached the point that she is surprised when a client has a will.

Sometimes people are too busy to think May 2015 » InsuranceNewsNet Magazine

27

INTERVIEW WHEN BAD THINGS HAPPEN TO GOOD ESTATES about it, but it gets down to the basic human resistance to contemplating one’s mortality.

“Family patriarchs and business owners are never going to die and they never want to retire and they never want to start talking about it,” Metzger said. “They’re all good until the day that they’re on their death bed, making their wills and trusts.

That’s when problems happen. If you’ve got your head together, there is no reason not to do it.”

Metzger said it is part of her practice to ask clients about their planning. She illustrates that the probate process would be far more intrusive and expensive than the $500 to $1,000 to get the proper documents in place.

“I think it’s not just because they don’t want to,” she said. “It’s that they don’t have guidance.”

Cathy Pareto, president of Cathy Pareto and Associates in Coral Gables, Fla., also said she sees it as her duty to introduce estate planning to clients. She believes in it so much that she has written on the subject for Investopedia, so the general public can learn estate-planning basics.

“Planning before you die or before you become incapacitated is essential for anybody,” Pareto said. “The worst time to think about the need to have a plan is after you’re dead, and your family is fighting for your stuff. Or you leave behind a family that depends on you, like in the case of Chris Kyle. So that inspired me.”

But even good estate planning doesn’t prevent families from fighting over stuff, as in the case of Robin Williams. The comedian was known for his zany antics but those hijinks did not carry over to his estate planning. He had what many called a sound plan. But there was just enough slack in that plan for a fractured family to crack it open.

“I think that case boils down to vague language in his documents,” Pareto said.

“It had to do with personal items, memorabilia, effects of the house. His wife had one interpretation of what that might mean, and the kids from his previous marriages had another one.”

What Williams’ third wife called “knickknacks” that fall under the provision of her receiving the house that they shared and its contents, his three children regarded as collections that were important not only to him personally but to his art.

28

InsuranceNewsNet Magazine » May 2015

For example, in that house is the pair of rainbow-colored suspenders that Williams made famous in his first TV show, Mork and Mindy. So are his collections of watches, theater masks and comic books.

The arguments are still wending through court 10 months after Williams committed suicide.

The lesson is that any ambiguity can lead to problems. This is especially true in blended families.

“The more specific you are, the better, particularly when you have had multiple marriages,” Pareto said. “When other people interpret your wishes, that creates conflict.”

Transparency is always the best policy, the experts said. It could even mean sug-

The client did well in the sports management world and was surrounded by advisors who didn’t appear to be doing him much good. She alerted him in front of his tax advisor and estate planner that his plan was outdated.

“We needed to get, at the very least, a trust in place to account for the fact that it was a blended family, and there might be some serious fighting going on if he should pass,” Pareto said. “It never got done and he had a heart attack.”

That led to two years of legal wrangling that put the families through anguish and drained their resources.

“It was very messy, tragic and expensive,” she said. “And all of that could have been avoided by a few simple documents.

Robin Williams AGE: 63 DIED: Aug. 11, 2014; Paradise Cay, Calif.

CAUSE: Suicide by hanging ESTATE MISTAKE: Although comedian and actor Williams did extensive estate planning, he was not clear on who should receive some of his valuables.

A schism broke out between his latest wife and earlier children, a common dynamic in blended families.

Photo: Jay Paul/ Getty Images

gesting that the client sits the family down and explains who gets what, so there is no question. Or at least, if conflict arises, it can be solved right there. Clients might be reluctant to do that and uncomfortable with that situation, but it spares family members some pain during one of the worst times in their lives.

Williams’ case illustrated how just a little wiggle room can shake up an estate.

Pareto has seen far worse when instructions are much looser.

“We had one client in his early 40s with one child from his first marriage and one from his second marriage,” Pareto said. “He was friendly with his ex-wife and continued to help support her, although it wasn’t part of his settlement. So he had, really, two families that were relying on him.”

A living trust would have done the job. At his death, it would have become irrevocable.”

How does an agent or an advisor open the door for the discussion? In some cases, it helps to paint the picture of what happens in the absence of planning.

“Rarely does somebody actually come in and say, ‘I need help with this,’” Pareto said. “I have to sort of force the conversation by saying, ‘We’re helping with your investments; we’re looking at holistic planning, and, by the way, one of the facets of holistic planning is you need to look at estate and transfer issues. Or it’s just protecting yourself in the event of an unforeseen medical issue, where you are out of commission, cannot pay your own bills and cannot even speak.’”

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May 2015 » InsuranceNewsNet Magazine

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FEATURE WHEN BAD THINGS HAPPEN TO GOOD ESTATES

Mickey Rooney AGE: 93 DIED: April 6, 2014; Studio City, Calif.

CAUSE: Natural causes ESTATE MISTAKE: After a life of dizzying heights and plunges, Hollywood star Rooney was left with $18,000, which his family is battling over. He failed to plan for final expenses and he cut out most of his family, ensuring a fight.

It forces clients to envision the possibilities. “Rare are the times when someone will come and say, ‘Hey, will you please help me set up a qualified terminal interest trust, or irrevocable life insurance trust?’ No, we have to explain that to them and why they need them.”

Metzger of Crown Wealth Strategies had another angle on what could be motivating the Williams fight: community property. In some states, no matter what the will says, a spouse can claim assets as community property.

“I had a client who refused to claim it, and now, of course, all the kids own all the assets,” Metzger said. “She didn’t have a lot of assets. So now, she’s subject to her kids. I don’t think they’re abusing her or anything else, but I really would have expected that she would’ve claimed her rights to her assets.”

Abuse might not have been a factor in that case, but it is the thread that weaves the next three celebrities together. The abuse can be as simple as undue influence or as pernicious as the outright financial abuse that Mickey Rooney claimed before he died a pauper at age 93 in 2014.

People who knew Rooney only as a shrunken elf of a man might not realize that he was once on top of the world. He started as a child star before movies had sound and rose to be the highest-paid actor in the 1930s. Although he was a mere 5-foot-2 and had a funny mug, he was married to some of Hollywood’s most beautiful and glamorous stars, such as Ava Gardner.

After a stint in World War II where he entertained troops in combat zones, he came back home to the world as an adult.

But a really short guy couldn’t quite make it in adult roles, even if he was a gifted ac30

InsuranceNewsNet Magazine » May 2015

Photo: AP/Chris Pizzello

tor, singer and dancer.

Although he did rally periodically over the next several decades, his prospects and fortune dwindled. By 1962, he filed for bankruptcy and had already been divorced four times.

But he launched another phase of his career and appeared in 70 more movies, building up his bank account. Then, according to his own testimony to a Senate panel on elder abuse in 2011, his stepson and wife drained his money and dignity.

“Over the course of time, my daily life became unbearable,” he said at the hearing. “I felt trapped, scared, used and frus-

a bit of blended family drama thrown in.

The legendary radio announcer’s distinctive cadence was familiar to many a traveler listening to his sob-story song dedications in his Top 40 countdown shows.

His own story toward the end of his life veered into the bizarre as his wife moved him around the country as his health failed from Parkinson’s disease.

Kasem’s second wife, Jean, checked the 82-year-old out of his California nursing home because children from his first marriage visited him without her permission.

Packed up with medical equipment and a health aide, they hit the road in two SUVs and disappeared for a few weeks. After his wife told a court that he was out of the country, Kasem was finally located in Washington state, where he was suffering from bed sores and high blood pressure in addition to being unable to speak and having difficulty swallowing because of his Parkinson’s. His eldest daughter, Kerri, reclaimed him and promptly took him off artificial food and water in accordance with an earlier directive he had signed.

Kasem was put on “end-of-life” measures until he died on June 15, 2014.

But that wasn’t the end for Kasem.

Kerri won a court order for an autopsy to

Casey Kasem AGE: 82 DIED: June 15, 2014; Gig Harbor, Wash.

CAUSE: Complications from Parkinson’s and abduction ESTATE MISTAKE: Legendary radio DJ Kasem’s estate – and body – were hijacked by his second wife, cutting out the children from his first marriage.

Photo: Gary Friedman / Los Angeles Times

trated. But above all, I felt helpless.”

When he died, his estate was worth $18,000, despite his still appearing in movies. There was even a question as to where he would be buried because of the lack of money and his estranged wife’s conflicting demands. But he is now safely in the ground with fellow stars Charlie Chaplin, Jayne Mansfield and Rudolph Valentino at Hollywood Forever Cemetery.

Casey Kasem was another instance of alleged abuse but his situation also had

investigate abuse allegations against Jean, but the widow absconded with Kasem’s body. He was moved first to Montreal and then to Norway, where he was buried, a long way from Glendale, Calif., where he had preferred to be interred.

Kerri went on to resume her own radio career and became an elder abuse activist.

The family apparently is still fighting over his $80 million estate.

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May 2015 » InsuranceNewsNet Magazine

31

FEATURE WHEN BAD THINGS HAPPEN TO GOOD ESTATES

Ernie Banks AGE: 83 DIED: Jan. 23, 2015; Chicago CAUSE: Heart attack and dementia ESTATE MISTAKE: Mr. Sunshine of the Chicago Cubs changed his will months before he died while in poor health and showing signs of dementia.

His family is challenging Banks’ caretaker as sole heir of his $16,000 estate.

in life insurance. Kasem’s widow was named beneficiary but his children claim that she should not receive it because she caused Kasem’s death with her antics.

That apparently is still unresolved as well.

In Ernie Banks’ case, his family was surprised to learn that his caretaker inherited his meager estate after the Chicago Cubs legend died at 83. Apparently the eternally gregarious Mr. Sunshine wanted to cut his family out of his $16,000 estate, according to an eventual ruling.

a contributing cause for his death, said Mayoras of Trial & Heirs.

This is one of the reasons why any change to estate planning late in life raises suspicion, he said. Not only that, but the family has legitimate questions as to where Banks’ money went.

“When Ernie played ball, it’s not like they were making the type of money that they make now by any stretch, but you would think just with the notoriety and everything he’s accomplished, that just

Tom Clancy AGE: 66 DIED: Oct. 6, 2013; Baltimore CAUSE: Undisclosed, but believed to be heart failure ESTATE MISTAKE: Military thriller novelist set up a trust to avoid imposing estate taxes on his wife, but in an intriguing plot twist, failed to fund the trust.

Photo: Getty Images

The estate initially went to Banks’ wife, but then caretaker Regina Rice produced a will and other documents that Banks signed in October 2014, three months before he died of a heart attack. Relatives vowed to continue contesting the will even though a judge ruled it valid after hearing two paralegals testify that Banks knowingly cut out his family, including his children and estranged wife.

One of the reasons why they might have a case is that dementia was listed as 32

InsuranceNewsNet Magazine » May 2015

from appearance fees alone, he has been able to amass more than $16,000,” Mayoras said. “It’s certainly a huge question, especially because his children were not estranged, unlike in the Mickey Rooney case. So, why would the caregiver, three months before he died, be named as his sole beneficiary?”

The case is a reminder for families to check in on elderly relatives and their caregivers to guard against any potential abuse.

“That’s why we encourage people to stay actively involved in their elderly parents’ affairs, especially when there’s a diagnosis of dementia,” Mayoras said.

“Sometimes, you can head these off if you’re on guard for suspicious behavior and help the person monitor his financial and legal documents.”

If a client approaches an advisor to make unusual changes to estate-planning documents, Mayoras recommends three steps: » “Make sure that there is an experienced estate planning or elder law attorney involved in the transaction to help ensure that the person is legally competent to make these changes.” » “Meet with the person alone and ascertain whether this is the person’s true wishes or whether they’re being influenced improperly by somebody else.

When there’s a real question about mental capacity, get a full mental evaluation so there is no doubt whether the person is competent.” » “Videotape the execution of the dockets making the changes to help lay it to rest, because maybe Ernie Banks really did want to make these decisions. Maybe he was competent and did this out of his own free will. And if that’s the case, I would’ve liked to see the lawyer or any financial advisors involved take extra steps to document that, just knowing that this looks suspicious, and to help avoid or minimize a family fight down the road.”

Mayoras suggested an approach to take if a client or family bristles at the thought of videotaping.

“We advise addressing that by saying, ‘I’m not suggesting videotaping because I think there’s something funny going on, but it’s because you don’t want to be stuck in a family fight. Let’s take the extra mile for their benefit so that if a challenge does happen, they can show that this is what you truly wanted.’”

Tom Clancy was an author known for complex thrillers, such as The Hunt for Red October and Patriot Games, so it’s fitting that his estate would be complicated.

And it also may be appropriate that one loose thread can pull apart a major part of the scheme.

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Walk in Washington, D.C. on June 18 June 2015 marks the second annual National Annuity Awareness Month. In conjunction with this event, NAFA will hold its fifth annual Annuity Leadership Forum and Hill Walk in our nation’s capital, and we want to see you there! In addition to showing your support for annuity awareness and our industry as a whole, this gathering will provide you with the opportunity to: • Connect with fixed annuity leaders and decision makers from across the country • Have your voice heard by elected officials from your state • Discuss with lawmakers the potential impacts of key issues pertaining to annuities, including the fiduciary standard, tax reform, QLACs and more • Strengthen NAFA’s credibility and position our organization as a trusted resource for fixed annuity facts

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www.nafameetings.com May 2015 » InsuranceNewsNet Magazine

33

FEATURE WHEN BAD THINGS HAPPEN TO GOOD ESTATES

Jim Morrison AGE: 27 DIED: July 3, 1971; Paris CAUSE: Suspected drug overdose ESTATE MISTAKE: Rock god Morrison left estate to erratic girlfriend, setting up a challenge from family, which kept her from inheriting the estate before she died three years later.

Clancy’s $83 million estate includes, among other assets, a $65 million ownership stake in the Baltimore Orioles and a 535-acre estate overlooking the Chesapeake Bay, which is also home to a rare, fully functional World War II Sherman tank.

The assets were split into trusts benefiting his current wife and child as well as his children from a previous marriage. So, the blended family dynamic is in place.

Add to that the executor’s contention that the trusts should bear the $16 million estate tax bill equally and you have the ingredients for a court fight.

Clancy’s widow, Alexandra, said her husband did not intend for her to pay estate tax and established the trust to ensure that.

This fight illustrates a common problem with trusts, Mayoras said. “He did specify in one of the trusts that he didn’t want his wife to have to bear any estate taxes, which would be typical because transfers between spouses are typically not subject to the estate tax, rather when the second spouse dies, that’s when the estate taxes would apply,” he said. “The problem here is that he did not fund his trust during his lifetime. He did not transfer his assets into his trust, so the trustees decided that they were going to determine how to allocate the assets, and it was done in a way that would result in the estate taxes being paid off the top before the trusts were funded, meaning ultimately, that his widow would have to pay a share of the estate taxes.”

It appears that this is counter to Clancy’s wishes based on the language in the trust, but because he did not put money in the trust while he was alive, he left ev34

InsuranceNewsNet Magazine » May 2015

erything to the discretion of the trustees.

“Setting up trusts is only half the battle,” Mayoras said. “For trusts to really work effectively, they need to be funded during one’s lifetime. When a person transfers assets into the trust in the proper way, then it dictates what assets pass to which person and in what manner. It’s again especially important in second marriage situations where there are divergent interests, of course, between the surviving spouse and the adult children from a prior marriage.”

Even though Clancy died in October 2013, the estate is apparently still in probate, with an administrator appointed to oversee its affairs.

Pareto added that life insurance is always a stand-by solution.

“If you know that you’re going to be paying estate taxes, one of the easiest ways to fix that issue is to get permanent life insurance inside of an irrevocable life insurance trust (ILIT),” Pareto said. “You keep it out of the estate – mind you I’m a big fan of term insurance, too. But there are many circumstances where it makes better sense to have a permanent policy that you know is going to be around to pay the taxes.”

She helped set up such a strategy with a client to avoid estate tax problems.

“We did a second-to-die policy inside of an ILIT, so that we knew that the children would not have to liquidate the family business to be able to cover the taxes,” Pareto said. “We assess that every couple of years. So, as this particular client’s estate continues to grow, we’ve had to add on what kind of coverage they have inside of their ILIT. And we’re even looking at

advance planning techniques to see if there are ways to move part of the shares of the growing family business out of the estate in such a way that the girls can have access to it in their own trust. But life insurance is a key part of that.”

Jim Morrison, unlike his contemporary, Jimi Hendrix, did have a will when he died in 1971 and joined the Forever 27 club. But the rock god ensured a court fight when he cut his family out of his will.

His unequal royalty rights with his Doors bandmates also guaranteed contention.

Morrison left his estate to the girlfriend he was living with in Paris, Pamela Courson. However, living the rock ‘n’ roll life, Morrison left behind some issues, literally, in the form of paternity claims. That was one of many factors that would tie up the estate in probate for years.

The case outlasted Courson, who died three years later, also of a heroin overdose and also joining the Forever 27 club.

During that time, she got a small allowance granted by the court, but not enough to sustain her lifestyle, reportedly leading her to prostitution. She died on a couch in a Los Angeles apartment that she shared with two male friends.

Courson did not have a will, so her parents inherited Morrison’s estate, which prompted his parents to action. The Morrisons contended in court that Jim had actually married another girlfriend, Patricia Kennealy, in a pagan ritual that apparently involved a little bit of fire-walking and blood-drinking.

The parents eventually settled out of court, Mayoras said, adding that the Coursons ended up with the valuable royalty rights. Morrison did not have a huge amount of money when he died, but his royalties produce millions of dollars a year, all going to a couple of people who didn’t like him very much.

Mayoras said establishing a trust would have helped, but even that would have to be carefully constructed.

“A lot of estate-planning attorneys will just do a basic trust or will from a kit or it’s a fill-in-the-blank form,” Mayoras said.

“But good estate-planning attorneys will really tailor the documents to the individual’s specifications, and try to address all the ‘what if ’s.’ What if the person you want to inherit doesn’t receive the money?

When do you want them to receive it?

How do you want them to receive it?

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FEATURE WHEN BAD THINGS HAPPEN TO GOOD ESTATES

Ravi Kumra AGE: 66 DIED: Nov. 12, 2012; Monte Sereno, Calif.

CAUSE: Asphyxiation during robbery by compatriots of one of his prostitute/girlfriends ESTATE MISTAKE: Silicon Valley venture capitalist had provided for offspring of another prostitute/girlfriend, who nevertheless stepped forward to claim part of the estate.

What happens if they pass away after you, but before they receive the money? Then where do you want the money to go?

Who do you want to manage your assets after you’ve passed away? These are all very important decisions that should be thought through and taken care of after thoughtful and deliberate consideration.”

Ravi Kumra might not have been a star, but he lived a little bit of a wild life, especially for a Silicon Valley venture capitalist. He had owned a California winery for a while and he funded tech ventures, which made him a wealthy man.

He also had a long-standing prostitute habit. One of those “girlfriends” had compatriots who decided to invade Kumra’s Monte Sereno mansion to rob him. They tied up and gagged him and his ex-wife, who lived elsewhere in the mansion, while they looted the place.

Kumra suffocated during the robbery, which his ex-wife thwarted by freeing herself and calling the police.

It made for not only an unusual criminal case, but also an intriguing estate battle. That’s because another one of his “girlfriends” showed up with two girls she said were Kumra’s daughters.

Apparently, he had supported this second family, but Kumra’s two adult daughters were having none of that. They called the girlfriend a gold-digger who was at best the recipient of a sperm donor and fought it out in court.

The proceeding pulled back the veil on Kumra’s life, exposing the sordid details of his addictions to alcohol, drugs and day trading, along with his second life with various prostitutes. The younger girls were awarded $1,800 a month each in allowance.

Although Kumra’s story probably illustrates a life gone awry more than an es36

InsuranceNewsNet Magazine » May 2015

tate-planning failure, he could have spared his family from the embarrassment.

Metzger of Crown Wealth Strategies said accounting for illegitimate children is not unusual.

“Your best solution is to get your attorney involved and the mother of the child gets counsel as well,” Metzger said. “Have the parties come together and make some arrangements and agreement on exactly the value of that support and what that

him in 1935, with the remainder to go to his children after his passing. That was when his children learned that the trust had gone from more than $300 million to zero, apparently drained by supporting the newspaper.

The children have accused the trustees of mismanagement and although Scaife died nearly a year ago, the case is just getting to court. In the meantime, the children will have to get by on income streams from other trusts totaling $1 million a month for each child.

The Scaife example illustrates the value of transparency during a person’s lifetime, saving the family from anguish later. Its epilogue also shed a hopeful light on the fractured state of politics today.

Even though Hillary Clinton had accused Scaife of financing a “vast right-wing conspiracy,” Bill Clinton eulogized Scaife. The former president revealed that they had formed a “counterintuitive friendship.”

Scaife’s newspaper reported that Clinton said, “He fought as hard as he could for what he believed, but he never thought he

Richard Mellon Scaife AGE: 82 DIED: July 4, 2014; Pittsburgh CAUSE: Cancer ESTATE MISTAKE: Billionaire Mellon heir drained $700 million from a trust fund left by his mother in order to prop up his newspaper, The Tribune-Review of Pittsburgh. His children challenged the trustees because they were supposed to get the remainder of the trust.

support will be. And you don’t exactly have to tell your spouse, but if you die, at least you’ve created some kind of certainty for your spouse, rather than just, ‘Oh well, they get half of the estate.’”

She recalled a client approaching her for assistance with such a situation.

Richard Mellon Scaife will be a familiar name to those following politics in the 1990s. He was an heir to the Mellon fortune who spent hundreds of millions of dollars to counteract “the liberal slant to American society” and oppose the Clinton administration.

He also bankrolled the conservative newspaper, The Tribune-Review of Pittsburgh, with an income stream from a trust that his mother had established for

had to be blind or deaf (to other views).”

That might be a legacy worth more than money these days.

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@insurancenewsnet.com.

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May 2015 » InsuranceNewsNet Magazine

37

LIFEWIRES

LIMRA: Individual Life Sees Strong 4Q Growth

36

%

IUL Premium 4Q 2014

Index universal life (IUL) was the driving force behind the boost in individual life insurance premium in the fourth quarter 2014.

LIMRA’s Individual Life Insurance Survey showed that life insurance new annualized premium grew 11 percent in the fourth quarter 2014, resulting in a 2 percent increase for the year.

IUL premium grew 36 percent in the fourth quarter and 23 percent in 2014. LIMRA reported that IUL now represents the majority of all universal life (UL) premium at 52 percent and represents 20 percent of all individual life premium.

“IUL continued to drive growth in the fourth quarter 2014,” noted Ashley Durham, senior research analyst, LIMRA Insurance Research. “Market conditions and increased carrier and product options have led to a decade of positive growth for IUL.” Policy count for every product line improved in the fourth quarter, resulting in an increase of 2 percent overall for the quarter. However, this rise in count was not enough to lift total policy count for the year. Policy count fell 2 percent for 2014, which was part of a policy count decline in six out of the past 10 years.

9 IN 10 YOUNG ADVISORS SATISFIED WITH THEIR CAREERS

Much has been written about the graying of the advisor field force and the difficulties in attracting younger people into the profession. A bright spot in all this is a study that finds 91 percent of young advisors say they are satisfied with their careers.

The study is part of LIMRA’s “Young Advisor Snapshot,” a report on young advisors’ experiences, ranging from recruitment to the support they need for future success.

Although income potential ranked as the top reason young advisors chose their careers, six in 10 of them said that making a difference in people’s lives was another reason driving their career choice. The study also revealed that today’s young advisors value both independence and collaboration.

“Young advisors expressed these high satisfaction levels because they feel the career has met their expectations in areas such as income potential, flexibility in work schedule and the opportunity to make a difference in people’s lives,” said Mary Art, LIMRA research director.

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38

SURVEY EXPLORES FINANCIAL HEALTH OF SURVIVING SPOUSES

New York Life surveyed widows and widowers on their financial situations and found that — not surprisingly — many of them experienced significant financial difficulties after losing their spouses. Nearly 70 percent of widows and about half of widowers reported they faced financial challenges.

Most reported having trouble adjusting to reduced income and cutting discretionary expenses, said Chris Blunt, co-president of New York Life’s Insurance and Agency Group.

Despite reporting financial difficulties, relatively few widowed people said they had to resort to measures such as getting a new job (7 percent), selling their home (6 percent) or getting rid of possessions they could no longer afford (12 percent).

Blunt said that factors such as the increasing number of two-income households and women becoming more involved in household finances helps to lessen the financial hit that occurs when a family breadwinner dies.

However, for some widowed people, the

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InsuranceNewsNet Magazine » May 2015

QUOTABLE In the past five years, there have been more indexed universal life products brought into the market than any other permanent life insurance products brought into the market in the last 20 years.

— Nick Perry, co-owner of the Independent Life Insurance Agent Association in Atlanta

long-term financial effects of losing a spouse can be devastating, he added. Widows, for example, were more likely to have to sell their homes and also were more likely to have trouble adjusting to changes in household income after their husbands died.

METLIFE EXPERIMENTS WITH FASTER APPLICATION PROCEDURES

MetLife has introduced its “Enhanced Rate Plus” (ERP) program that shortens application and underwriting procedures for its Whole Life Select 10 life insurance product. This is a move designed to appeal to applicants as well as advisors looking to sell more policies.

ERP offers a boost in rating class by one and sometimes even two steps. It also delivers a faster underwriting process via a telephone application and interview, which means more sales for advisors as applications are closed sooner, MetLife officials said.

Gene Lunman, executive vice president of Retail Life and Disability at MetLife, said that by cross-checking databases and running underwriting engines used to evaluate an applicant’s risk, “a high number” of Whole Life Select 10 applicants are expected to qualify without a paramedical exam. The exams require drawing blood. Many applicants find the process inconvenient.

Lunman also said the changes are aimed at increasing the overall market for whole life as opposed to adding features to a whole life product in the hopes of taking market share from another carrier.

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Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods.

Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

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For financial professional use only. Not for use with the public. This material may May it2015 InsuranceNewsNet Magazine not be reproduced in any form where would» be accessible to the general public.

39

LIFE

IUL: Accumulation vs. Protection dvice on an indexed universal A life strategy touches off a debate on positioning the product with prospects.

By Cyril Tuohy

O

ne of the strategies discussed in the Insider’s Guide to Indexed Universal Life in the March edition of InsuranceNewsNet Magazine sparked some heated discussion from readers.

The difference in opinion formed over discussing the death benefit with clients. Josh Mellberg, president of J.D. Mellberg Financial in Tucson, advised that in certain instances or for certain clients, IUL is sold for accumulation rather than the death benefit and to bring it up only muddies the process.

The article acknowledged that might be a radical approach and, in fact, some readers responded that it was unacceptable to omit the death benefit from the discussion.

The schism comes in part because IUL is a relatively new product type that is often sold differently than the typical life insurance policy.

40

InsuranceNewsNet Magazine » May 2015

In 2014, according to Sheryl J. Moore, president and CEO of Moore Market Intelligence, 75 percent of index life sales were into products priced primarily for cash accumulation purposes: education funding, supplemental retirement, premium financing, and other sales scenarios.

If someone’s out “there trying to make

cash value or growth the lead factor, that’s irresponsible. To ignore the death benefit is irresponsible because it is the primary feature of life insurance.

”

— Gilbert Armour, financial planner with SagePoint Financial, San Diego, Calif.

That number dipped slightly from 80 percent in 2012.

By contrast, last year only 13 percent of IUL sales were oriented toward the death benefit, but that was up from less than 1 percent in 2012. So, death

benefit-oriented IUL products are on the upswing. The question is why.

“Carriers are developing death benefit-oriented IUL products because they can’t keep up with what they call the ‘arms race’ that is taking place with illustrated rates on cash accumulation products,” Moore said.

It is a race exemplified by rosy illustration scenarios, some of which skirt fantasy; and it is a race that has raised questions among state and federal regulators. New rules regarding IUL illustration scenarios could come as early as September, according to a recent agreement by the National Association of Insurance Commissioners Life Actuaries Task Force.

In many ways, the pricing models designed to favor accumulation features or the death benefit represent the battle between whether an IUL should be structured as an asset accumulation vehicle used in supplemental planning, or as a protection vehicle focused on the death benefit to provide support to families who suffered the loss of a primary breadwinner.

In every case, though, advisors said

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800-258-4525, ext. 8120 May 2015 » InsuranceNewsNet Magazine

41

LIFE IUL: ACCUMULATION VERSUS PROTECTION the death benefit should factor prominently in any sale of an IUL, for why buy life insurance if not for the death benefit?

“You’re selling a product to somebody, tell them what it is,” said agent Michael A. Masiello, principal of Masiello Retirement Solutions in Rochester, New York, in an interview with InsuranceNewsNet. “I think it’s irresponsible to put a client in an insurance product and not have them infinitely aware that it is an insurance product.”

Advisors have an obligation — ethical at the very least if not legal — to make sure clients are aware of the death benefit when selling a life insurance contract no matter how advantageous or valuable the other features within the IUL are.

Gabe Myers, CEO of the IUL marketing agency Peak Pro Financial in Greenwood Village, Colo., said that the death benefit is a big part of the sale. In the case of people who die before withdrawing the income, the death benefit will return more to heirs than the initial premium.

other investment products in the marketplace that cost less than IULs or other forms of permanent life insurance.

True enough.

But Mellberg of J.D. Mellberg Financial says that while there’s value in the death benefit, the death benefit comes at a cost and that cost needs to be weighed against the other features available in an IUL. “The idea is that the death benefit is a great benefit but what we want to promote is to avoid structuring IULs with more death benefit then what meets the client’s protection and estate liquidity needs, because doing so results in the lowest cost of insurance and the greatest growth of cash value,” Mellberg said.

Mellberg said he tries to focus on the cash value accumulation and keeping the cost of insurance low.

“If we focus only on the death benefit, then many people won’t even give us an opportunity to show them the value of the product,” he said. “The death benefit is definitely valuable but it’s also about focusing on efficiently managing the

If we focus only on the death benefit, then many “people won’t even give us an opportunity to show them the value of the product. The death benefit is definitely valuable but it’s also about focusing on efficiently managing the cost of insurance and the resulting benefit of much higher potential for cash value growth.

”

— Josh Mellberg, president of J.D. Mellberg Financial, Tucson

“People who go around the death benefit get into trouble,” he said.

“If someone’s out there trying to make cash value or growth the lead factor, that’s irresponsible,” said Gilbert Armour, a San Diego-based financial planner with SagePoint Financial. “But if approached as, ‘Here’s an individual situation where it makes sense and what we can do to make it more attractive,’ it can be a worthwhile avenue to pursue.”

Armour said the purpose of insurance is because somebody has dependents who would be affected by a caregiver dying too soon. To ignore the death benefit is “irresponsible because it is the primary feature of life insurance.”

Besides, he thinks there are plenty of 42

InsuranceNewsNet Magazine » May 2015

cost of insurance and the resulting benefit of much higher potential for cash value growth.”

Whatever the strategy of the advisor, IUL sales have been on a hot streak lately.

Indexed life sales for the fourth quarter 2014 were $498 million, an increase of 24 percent compared to the year-ago period, according to Wink’s Sales & Market Report. Fourth quarter indexed life sales were up nearly 34 percent compared with the previous quarter, Wink reported.

Separately, LIMRA’s Individual Life Insurance Sales Summary Report shows that IUL premium market share has grown to 52 percent of universal life pre-

mium, an increase from only 15 percent of universal life sales in 2009.

Locked in a ferocious battle for clients and capital against banks and mutual funds, and struggling with low interest rates to boot, insurance carriers are doing all they can to spruce up their products by piling on features and riders.

Moore said that many distributors are focused on IUL sales where cash comes out of the policy because index life offers advantageous loan features.

“People are saying I need some cash and I don’t know if I can go to the bank, but you’re telling me my index life has an option for me to access the cash; tell me more about it,” she said. “It’s a unique feature of index life that consumers don’t know about.”

But the question that Masiello wonders about is whether life insurance carriers and distributors have sometimes gotten too “sexy and complicated” for their own good. “People think they’ve bought a Mercedes when they bought a bicycle,” he said.

Moore said some agents won’t even sell cash accumulation at all, preferring only to sell term life or no-lapse guarantee universal life.

For financial planner Brian Kuhn, a planner with PSG in Fulton, Md., IULs fulfill both ends of the needs spectrum.

Kuhn, who serves the middle market, said one of his clients is executing a nolapse IUL. The contract states that there’s no guarantee of an existence of cash value; only the death benefit is guaranteed so long as premiums are paid on time.

Another client, though, is in the midst of applying for a policy that is comparatively small, and in which the money the client put into the policy is more than is necessary so that the cash value can potentially grow based on indexing, he said.

“They are both insurance products and both clients are made aware that it is insurance, but the goals are on the opposite ends of the spectrum,” Kuhn said.

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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43

LIFE

Design an IRA Legacy Plan With Life Insurance hanneling after-tax individual reC tirement account distributions into guaranteed no-lapse life insurance can create a significant legacy for your client’s heirs.

By Russell E. Towers

W

ith the recovery of the equities markets, it is common for many individuals to have more than $1 million in their individual retirement accounts (IRAs). Many of these IRA owners have multiple sources of income as they approach their retirement years. These sources could include continued income earned through the owner’s job, Social Security retirement benefits, K-1 “pass-through” income from ownership of S-corp or LLC entities, and rental income from real estate, as well as other interest, dividends or capital gains from nonqualified financial assets.

These IRA owners understand that they must begin taking required minimum distributions (RMDs) from their IRAs when they reach 70½. The question that typically arises in their financial planning is what to do with the after-tax amounts from their RMDs. For IRA owners with multiple sources of income, these after-tax RMDs usually are allocated as some form of inheritance to their heirs.

Should these after-tax amounts simply be reinvested in their nonguaranteed financial asset portfolio, or is there a more tax-efficient way to reallocate these funds in order to provide a larger inheritance to their family?

A concept that can provide a larger after-tax inheritance is commonly known as the “inherited IRA legacy plan.” In this plan, after-tax RMDs are allocated to an annual premium for a no-lapse universal life (UL) or no-lapse survivorship universal life (SUL) insurance product.

The actuarial leveraging and income-taxfree death benefit can provide a larger inheritance than by simply reinvesting 44

InsuranceNewsNet Magazine » May 2015

the after-tax RMDs in an asset portfolio with taxable yields. This is especially true in the continuing low-interest-rate environment for fixed financial assets.

A Basic Blueprint for the “Inherited IRA” Using Life Insurance

An “inherited IRA” transaction can help your clients provide a leveraged tax-free fund in the form of life insurance for their heirs.

The first step is to create an income stream from the IRA by taking distributions. An IRA owner doesn’t need to wait until age 70½, to take distributions. Some IRA owners may wish to wait until 70½ while others may find it beneficial to start distributions before that. Starting before 70½ may work when coupled with a life insurance program because of the usual higher premium “cost of waiting.” Also, the onset of certain medical conditions as we get older may result in less favorable underwriting for life insurance. That may be another good reason to consider taking IRA distributions prior to 70½.

Although the income stream from the IRA is taxable, the after-tax dollars can be used to pay the premium on life insurance that is either owned by the client personally or owned by an irrevocable life insurance trust (ILIT). The

decision on whether the insurance is owned personally or by the ILIT will depend on factors such as the value of the IRA and the size of the gross estate in relation to the $5.43 million (single) and $10.86 million (married) federal estate tax exemption in 2015. Also, the simple size of the death benefit may dictate ownership by an ILIT, whether or not the IRA owner has an estate large enough for them to worry about federal estate taxes. However, many IRA owners may be exposed to state death taxes because of the lower state death tax exemptions in many states that still levy them.

Next, the IRA owner must choose a beneficiary for the life insurance. Shall it be the owner’s children outright or an ILIT established for their benefit? Or shall it be an ILIT established for the benefit of the IRA owner’s grandchildren?

After naming a beneficiary for the life insurance, the IRA owner must name a beneficiary for the IRA. Shall it be the IRA owner’s children outright or a trust for their benefit so the inherited IRA can be paid over the children’s life expectancies? Or shall it be a trust for the benefit of the grandchildren so the inherited IRA can be paid over the grandchildren’s longer life expectancies?

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Follow us on For producer useMagazine only May 2015 » InsuranceNewsNet

45

LIFE CREATE AN IRA LEGACY PLAN WITH LIFE INSURANCE

Case Study

Inherited IRA Using After-tax IRA Distributions for Life Insurance Versus Using After-Tax Distributions for Alternative Fixed Financial Asset

Facts of Case Study:

Client and wife are ages 71 and 70, respectively, and have a current gross estate of $5 million. The client owns an IRA worth $1 million and must start taking RMDs. The clients have other sources of retirement income including Social Security and income from rental properties, as well as interest, dividends and capital gains from their nonqualified asset portfolio. They ask you to make a study of what to do with the after-tax RMDs they must begin to take from the IRA. Their combined federal and state income tax bracket is estimated at 35 percent. They believe that an after-tax return on their nonqualified asset portfolio is 5 percent going forward.

Scenario 1: Place after-tax RMDs in an asset allocation portfolio at 5 percent after-tax rate of return (ROR).

The factor from the IRS Uniform Distribution Table for a 71-year-old is 26.5.

This means the RMD on the $1 million IRA will be $37,736. In a 35 percent tax bracket, the after-tax amount is $24,528.

This after-tax amount of $24,528 will be reallocated each year into the nonqualified asset portfolio with an assumed after-tax ROR of 5 percent.

The joint life expectancy of a 71-yearold man and a 70-year-old woman, according to the IRS Joint Life Expectancy Table, is about 20 years.

An annual deposit of $24,528 into a nonguaranteed financial asset for 20 years at 5 percent after-tax ROR would provide a fund value of $852,000. This is the hypothetical nonguaranteed amount that would be inherited by the heirs of the client and his wife.

Scenario 2: Place after-tax RMDs in a nolapse SUL policy for a 71-year-old man and a 70-year-old woman (both standard nonsmoking).

The factor from the Uniform Distribution Table for a 71-year-old is 26.5.

This means the RMD on the $1 million IRA will be $37,736. In a 35 percent tax bracket, the after-tax amount is $24,528.

46

InsuranceNewsNet Magazine » May 2015

In this scenario, this after-tax amount of $24,528 will be reallocated each year into a premium for a no-lapse SUL insurance policy issued by a competitive carrier.

For an annual premium of $24,528, the clients can purchase a guaranteed SUL death benefit of $1,172,000 right from the beginning. This benefit is the tax-free amount the heirs would receive at the death of the survivor of the client and wife. The internal rate of return (IRR) at year 20 joint life expectancy is 7.72 percent. In a 35 percent tax bracket, the pretax equivalent IRR is 11.88 percent.

However, if both the 71-year-old man and the 70-year-old woman would be healthy enough to receive a preferred nonsmoking rate, the $24,528 annual premium would purchase a guaranteed SUL death benefit of $1,352,000. The IRR at year 20 joint life expectancy is 8.90 percent. In a 35 percent tax bracket, the pretax equivalent IRR is 13.69 percent.

no-lapse benefit versus a nonguaranteed accumulation value of the alternative fixed financial asset. The nonguaranteed “cross-over” point, where the nonguaranteed financial asset hypothetically exceeds the guaranteed standard underwriting SUL death benefit, does not occur until

The benefits of channeling after-tax IRA distributions into guaranteed no-lapse life insurance are significant.

The Benefits of an Inherited IRA Plan With Life Insurance

The benefits of channeling after-tax IRA distributions into guaranteed no-lapse life insurance are significant. When compared with the taxable yields of alternative fixed financial assets (money market funds, certificates of deposit, bond funds or U.S. government securities), in the continuing low-interest-rate environment, the net results are truly outstanding.

The IRA-SUL insurance plan I have described can increase the amount of net inheritance available upon the insureds’ deaths. When compared with alternative fixed financial assets, the net inheritance to the heirs of this IRA-SUL insurance plan is hypothetically improved by about $320,000 at joint life expectancy (20 years) with standard medical underwriting. With preferred medical underwriting, the net inheritance to the heirs of the IRA-SUL insurance plan hypothetically improves by about $500,000 at joint life expectancy (20 years) when compared with alternative fixed financial assets.

Then there is the matter of guarantees.

The SUL insurance provides a guaranteed

year 25, when the younger insured, if still alive, is age 95. The nonguaranteed crossover point, where the nonguaranteed financial asset hypothetically exceeds the guaranteed preferred underwriting SUL death benefit, does not occur until year 27, when the younger insured, if still alive, is age 97.

The IRA-SUL plan also can be structured in a way that addresses state death taxes. The SUL insurance could be owned by an ILIT so that the death benefit is estate tax-free for state death tax purposes.

The $5 million taxable estate in our case study would generate upwards of about $391,000 of state death taxes in a state that still uses the tax table from Internal Revenue Code Section 2011. Part of the SUL death benefit could be used to offset these state death taxes, with the rest of the death benefit managed by the trustee for the benefit of trust beneficiaries.

At the client’s death, the remaining IRA value is paid outright to the children or to a separate trust for the benefit of the children or grandchildren as an inherited IRA. The RMDs using the Single Life Table can be “stretched” over the remaining life expectancies of the children or grandchildren, depending on the dispositive provisions of the trust document. Using this inherited IRA stretch method, the income taxes to the heirs are spread out and paid annually over many years into the future rather than paid in a lump sum and taxed all in one tax year.

Russell E. Towers, JD, CLU, ChFC, is vice presidentbusiness and estate planning with Brokers Service Marketing Group. Russ may be contacted at russ.towers@ innfeedback.com.

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Included Included Included3 Not Available Included 0.15% 0.08% Not Available Not Available

Penalty Free RMD Death Benefit Withdrawals Waiver

Included Included Included4 Included4 Included 0.15% 0.16% Included4 Included4

Included Included Included Included Included Included 0.35% Included Included

Nursing Home Waiver5

Terminal Illness Waiver5

Included Included Included Not Available Included 0.15% 0.15%

Included Included Not Available Not Available Included 0.15% 0.15%

Included Not Available

1. All data per AnnuityRateWatch.com as of April 15th, 2014 based on Yeild to Surrender. State availability and features may vary.

Not Available Not Available

2

Penalty Free Withdrawal of Interest in Year 1

Current Yield to Surrender (Effective Rate)

Included4 Not Available

2.30% 2.25%

Included Included Included Included Not Available Not Available 0.08%

2.85% 2.80% 2.70% 2.70% 2.45% 2.50% 3.00%

2. Secure rated companies include ratings of B+ or better, as defined by A.M. Best 1. All data per AnnuityRateWatch.com as of April 15th, 2014 based on Yield to Surrender. State availability and features may vary.

3. Elected through optional rider which modifies the death benefit to equal the surrender value or the accumulation value applied to a payment option of at least 5 years 2. Secure rated companies include ratings of B+ or better, as defined by A.M. Best.

4. Benefit not contractually guaranteed 3. Elected through optional rider which modifies the death benefit to equal the surrender value or the accumulation value applied to a payment option of at least 5 years.

5. For event. guaranteed.

4.eligible Benefitqualifying not contractually

▲

LIFE

▼

6. RMD withdrawal costevent. is not included because RMDs are penalty free when 10% free withdrawal waiver is elected.

5. For eligible waiver qualifying

6. RMD withdrawal waiver cost is not included because RMDs are penalty free when 10% free withdrawal waiver is elected.

Value

6 Year – 2.70%

Liquidity Rate Less Features Liqudity Cost Total Cost

0.00% 0.00% 0.00% 0.00% 0.00% 0.15% 0.66%6 0.00% 0.00%

Liquidity Features Included

7 Year – 2.85%

2.85% 2.80% 2.70% 2.70% 2.45% 2.35% 2.34%

6/6 6/6 5/6 3/6 5/6 1/6 0/6

8 Year – 2.90%

2.30% 2.25%

4/6 2/6

9 Year – 2.95%

10 Year – 3.00%

Policy Theforms…

Oxford Lifeetc Income Protector ® 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.

Not available in all states. more information, please ForFor producer use only etc.refer to policy form ICC12- IP200, and state-specific variations where applicable.

IP559P1

IP560P1

— FOR PRODUCER USE ONLY — Not intended for soliciting or advertising to the public.

See the strength of Oxford Life's rates next to 6 major carriers. Request our Product Comparison Chart at

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May 2015 » to InsuranceNewsNet Magazine

47

Brought to you by:

ANNUITYWIRES

NEW PRODUCTS SPRING FORTH

Annuity Carriers Joust For Position in 2014 Jackson National took first place for 2014 on combined sales of variable and fixed annuities, with production of more than $24.5 billion.

AIG took second place with combined sales of more than $18.9 billion, and Lincoln Financial Group took third place on combined results of more than $15.5 billion. That’s according to data from LIMRA Secure Retirement Institute.

The stay-at-the-top power of Jackson, AIG and Lincoln is head-turning in light of the fact that 13 other carriers saw their top 20 positions change in 2014. In addition, three companies from the 2013 list are not on the 2014 list, so three others took their places.

The year did produce a couple of big changes in rank, and Allianz Life is an example of that. In 2014, it jumped five positions over the previous year to reach fourth place on combined sales of more than $14.9 billion. Much of this was due to the strength of its index annuity sales, which soared throughout the year.

The other big change was at MetLife. It dropped by five positions to 10th place in 2014.

This came as no surprise to annuity professionals, or to the company. That’s because the carrier had signaled, well in advance, that it would be scaling back while it derisks.

In the variable annuity market, Jackson National came in first on variable sales of nearly $23.1 billion, and Lincoln Financial came in second on sales of nearly $13.1 billion. AIG moved up to third place, from fourth last year, on 2014 sales of more than $12.7 billion.

In the fixed annuity market, the top three players all shifted position: Allianz moved up one to take first place on sales of nearly $12.8 billion. New York Life dropped one to take second place on sales of more than $7.5 billion, and AIG moved up one to take third, on sales of more than $6.2 billion.

GENERATIONS CONFESS THEIR RETIREMENT FEARS

A common stereotype about baby boomers and retirement might need some tweaking.

This is the commonly held view that the “me” generation puts a very high priority on being able to retire whenever they want.

Some are said to make it their highest financial priority. It is said that a lot of retirement planning for this generation spins around that goal.

But a new Harris Poll sponsored by the Million Dollar Round Table (MDRT) found that it is Generation X, not the boomers, who are most concerned DID YOU

KNOW

?

48

By 2025

about not being able to retire when they want. The December survey sampled the views of more than 2,000 adults.

Nearly half (48 percent) of the Gen Xers ranked this as a top financial concern right now. That’s only three points shy of the 51 percent of Gen Xers who named not having enough money in emergency savings funds as a top concern.

As for the baby boomers, the poll found that only 19 percent of them ranked not being able to retire when desired as their greatest financial fear. Even Generation Y (ages 18-34) has retirement on the mind.

Thirty-two percent of this group told the researchers that being unable to retire when desired is among their top financial concerns.

64 MILLION

Source: Social Security Administration

InsuranceNewsNet Magazine » May 2015

Americans will be retired.

Source: LIMRA Secure Retirement Institute

Here’s the latest look at new annuity products that have sprung forth.

Pacific Life has launched Pacific Secure Income, the company’s first qualified longevity annuity contract (QLAC).

This is a new solution for individual retirement account (IRA) owners who are looking to save on taxes earlier in retirement and would like to increase their guaranteed lifetime income payments at a later time.

U.S. Treasury regulations enable an investor to allocate a portion of his or her IRA to a deferred income annuity (DIA) that meets specific QLAC criteria.

Income from the annuity need not start until age 85. Meanwhile, the DIA amount will not be included when calculating the investor’s required minimum distributions (RMDs) — the amount that must be withdrawn from IRAs each year beginning at age 70½. As a result, RMDs are lower, providing a new tax-management opportunity for the investor.

Voya has expanded its fixed index annuity offerings with the Voya Wealth Builder Plus Annuity. The product allows investors to grow assets linked to the performance of certain indexes, specifically the S&P 500® Index. Gains are locked in annually through four index annuity interest crediting strategies to help individuals diversify and maximize tax-deferred accumulation.

Symetra introduced two new fixed index annuity (FIA) products — Symetra Edge Plus and Symetra Edge Premier.

Available in both FIAs is the JPMorgan ETF Efficiente 5 Index, providing interest crediting opportunities based on the performance of a multi-asset class index that seeks to generate returns by utilizing a diverse array of exchange-traded funds (ETFs) and a cash index. In addition, the index provides a new indexed account option that may appeal to those seeking interest crediting opportunities based on the performance of markets outside of the United States.

Symetra Edge Plus offers five- and seven-year surrender periods, while Symetra Edge Premier offers a 10-year surrender schedule.

May 2015 Âť InsuranceNewsNet Magazine

49

ANNUITY

Although defined contribution advisors are not so hot on annuities, the search for options in defined benefit plans is turning toward annuities. Page 54

Advisors Still Not Warming Up to Annuities in Retirement Plans D espite the greater focus on annuities by government and retirement professionals, annuities maintain a relatively low profile in defined contribution plans.

By Linda Koco

A

nnuities did get some votes in a new survey of consultants and advisors about favored retirement income products in defined contribution (DC) retirement savings plans.

However, annuities did not outshine two retirement options that plan consultants favor more.

The relatively low profile for annuities comes despite the greater focus that government and retirement professionals have put on annuities during the past year. That focus zeroes in on the value of annuities in creating guaranteed retirement income streams.

Apparently, not all plan consultants have locked onto that value. According to 2015 Defined Contribution Consulting Support and Trends Survey from Pacific Investment Management Co. (PIMCO), less than two-thirds of the 58 DC plan consultants and advisors surveyed “support client interest or actively promote” use of insurance-related products for retirement income purposes.

By comparison, 85 percent said they support or promote at-retirement target date investment options, and 82 percent said they support or promote diversified fixed income investments.

The survey group represented more than 8,500 defined contribution (DC) plan sponsor clients having $3.2 trillion in DC plan assets, according to PIMCO.

The Annuity Findings

The researchers had asked the consultants to indicate their views on four different types of annuities that are commonly associated with DC retirement income solutions.

50

InsuranceNewsNet Magazine » May 2015

A majority (62 percent) did say they support or promote asset allocation with a lifetime income guarantee. However, just 54 percent said they support or promote use of in-plan deferred income annuities (DIAs); 52 percent, out of plan annuities; and 41 percent, in-plan immediate annuities.

The researchers also asked what concerns the consultants and advisors have about in-plan insurance products.

According to PIMCO, nearly all (96 percent) said they are concerned or very concerned about “operational complexity” associated with the products.

That is up from 93 percent in PIMCO’s survey last year.

The same percentage (96 percent) said they are concerned or very concerned about portability. This too is up from 93 percent last year.

Other concerns they named were cost (89 percent) and insufficient government support (88 percent) — both also up from last year, by 86 percent and 84 percent respectively.

The increase in concerns about in-plan products seems to be relatively modest. The uptick could be partially the result of the 2015 poll sampling more firms (58) than in last year’s survey (49 firms). Also, some of the new firms may have held views that tilted the results.

However, since the preponderance of concerns was close, the responses can be taken as senti-

ments that carriers may want to address when speaking with plan consultants and advisors about in-plan annuity options.

The fourth concern — about insufficient government support — is a bit surprising in light of all the fanfare surrounding qualifying longevity annuity contracts (QLACs). In July 2014, the Department of the Treasury released rules permitting use of these specialized DIA products.

There are more than 300 indexed annuities on the market.

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The S&P 500 Index is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by Great American Life. Standard & Poor’s ®, S&P ®, S&P 500 ®, SPDR ® and STANDARD & POOR’S DEPOSITORY RECEIPTS® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Great American Life Insurance Company. Great American Life’s American Custom 10 SM is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index.

A.M. Best rating affirmed March. 20, 2015. S&P rating affirmed Dec. 19, 2014. In the S&P 500 point-to-point with participation rate indexed strategy, the participation rate limits the indexed interest rate to a percentage of the change in the S&P 500 index, but the indexed interest rate is not capped at a maximum percentage. Optional riders are available for an annual charge. Products issued by Great American Life Insurance Company ®, a member of Great American Insurance Group (Cincinnati, Ohio) under contract form numbers P1104314NW and P1104414NW, and rider form numbers R6046814NW, R6046914NW, R6047014NW and R6049614NW. Form numbers and features may vary by state. Not available in all states. For producer use only. Not for use in sales solicitation. 3643-SP-3

May 2015 » InsuranceNewsNet Magazine

51

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Transamerica Financial Life Insurance Company (TFLIC) business is not eligible. Sales of annuities and variable products are not eligible.

Under current tax laws and regulations, gross income includes amounts received as prizes and awards. Accordingly, the value of your award/trip will be treated as additional compensation for purposes of any applicable tax reporting. Life insurance products issued by Transamerica Life Insurance Company, Cedar Rapids, IA. The information provided is intended for producer use only.

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DP 165 0315

The rules allow DC plan participants and individual retirement account (IRA) holders to move some of their qualified assets into a QLAC. Doing so delays the income that participants take from those assets for several years, reduces the account value upon which the participants must compute required minimum distributions (RMDs) starting at age 70½ , and may result in a modest tax reduction.

Retirement professionals have roundly supported the rules and thanked the Treasury Department, sometimes vociferously, for issuing them.

It may be that the QLAC buzz has not yet impacted plan consultants and advisors. The first QLACs did not hit the market until first quarter 2015, and it will take several months or even a year for carriers to complete rollouts to their target markets. Also, some carriers are first offering QLACs for IRA use, preferring to delay QLACs for DC plans to a later time.

As a result, any attitude of gratitude that may come from QLACs among plan consultants and advisors may take a while to grow.

Strong Focus on Retirement Income

While annuities did not get the highest marks from plan consultants and advisors, PIMCO’s researchers found that the large majority of advisors do put a lot of importance on retirement income for plan participants. For example: » Nearly all told the researchers that, in target-date strategies, it is important or very important to evaluate glide path structures, fees, diversification of underlying investments and “the probability of

meeting retirement income objectives,” among other attributes. » 35 percent ranked maximizing asset returns while minimizing volatility relative to the retirement liability as the most important objective when evaluating target-date glide paths. » 31 percent ranked maximizing income replacement during retirement as the top goal for target-date glide paths. » None said that maximizing expected retirement savings balances was the most important objective.

“Consultants increasingly want target-date funds structured so they can meet an investor’s income objectives when they retire,” Stacy Schaus, executive vice president and DC practice leader, said in releasing the survey results. “They clearly prefer strategies that will minimize the risk of a plan participant falling short when she retires.”

Those words — “income objectives” and “minimize the risk of a participant falling short” — sound similar to comments that annuity professionals make about using annuities for retirement planning, whether inside a qualified plan or outside (in the individual retail market).

Could it be that consultants and advisors will warm up to annuities if the annuity “concerns” spotted by PIMCO begin to abate?

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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53

ANNUITY

The Search for Defined Benefit Alternatives Turns to FIAs A s employers who still have defined benefit plans search for other retirement solutions, fixed index annuities may become an attractive choice.

By Linda Koco

T

he increasing interest in alternative retirement plans is opening doors for greater use of fixed index annuities (FIAs).

That’s according to Jim Poolman, the executive director of the Indexed Annuity Leadership Council (IALC), who pointed to the use of FIAs in teachers’ defined contribution plans, such as 403(b)s, as an example. Two of IALC’s member companies are active in this market, he said in an interview.

Formed in 2011, the IALC is a trade group that focuses on providing education about FIAs to the general public, policymakers, the media and others. It comprises five FIA carriers.

The underfunding problems in traditional defined benefit (DB) pension plans is fueling the search for alternative forms of saving for retirement, said Poolman, who is a former North Dakota Commissioner of Insurance.

Looking for Options

T he u nder f u nd i ng problem s a re long-standing, especially following the last recession, and have reached the point where many employers who still have DB plans are looking for options.

The 100 largest corporate defined benefit pension plans increased funding by $80 billion during February, as measured by the Milliman 100 Pension Funding Index (PFI). However, Milliman reported, after a $90 billion decrease in funded status in January, the February increase leaves these pensions’ funded status in approximately the same spot as where they began the year.

Underfunding issues are a particular problem in state government pension 54

InsuranceNewsNet Magazine » May 2015

plans, where taxpayers and/or employAs he pictures it, a business can proees may be asked to pay more to catch up mote the importance of retirement savtheir DB plans, Poolman said. “Taxpayers ings whether it’s inside a qualified plan or are not always happy about that.” somewhere else, such as in a retail FIA. So the search for alternatives is on. The business would focus on education, Poolman noted that one of the often- he said. cited alternatives is defined contribution “The employer won’t say, ‘here’s an (DC) plans like 401(k)s. They have been FIA for you,’ ” Poolman said. “Rather, the DB alternative of choice for employ- the employer will say, ‘Think about ers leaving the DB market for many years. your financial future.’ ” Assets in these plans have increased to $5.9 trillion at year-end 2013 from $7 More Markets for FIAs trillion in 1995, according to the 2014 In- Three other areas for growing FIA sales vestment Company Fact Book. are rollovers, the millennial market and Other options that employers are con- the women’s market, Poolman said. sidering are to offer employees who are Rollovers. When they leave an emin the DB plan a lump sum buyout, and ployer, some people will not want to to purchase an annuity to take over the keep their money in the former embenefit funding. ployer’s DC retirement plan, he said, Those options have legs. Roughly half and those in the pre-retirement years (47 percent) of nearly 250 employers rep- of 55 to 65 will likely be looking for opresenting 6 million employees told Aon tions to turn that money into a lifetime Hewitt recently that they are planning to “The underfunding problems initiate a lump-sum window in 2015 for in traditional defined benefit terminated vested par(DB) pension plans is fueling ticipants. In addition, the search for alternative forms more than one-fifth of saving for retirement.”

(21 percent) said they are very or moderately — Jim Poolman, executive director of the Indexed Annuity Leadership Council (IALC) likely to explore purchasing annuities for some participants.

Poolman sees FIAs fitting into this income stream. “The FIA can provide world of change for businesses that want that, and the guarantee will be attracalternatives. tive to them,” he predicted.

One possibility is for a business to Millennials. If they are working at focus on offering retirement education companies that are changing their existprograms that inform employees of the ing plans or are no longer offering a remany ways they can save for retirement. tirement plan altogether, millennials will This education would include, but not be look for other places to save. They will limited to, discussion about FIAs with search for risk-averse growth potential, guaranteed lifetime withdrawal benefit Poolman said.

(GLWB) riders, he said.

Assuming that millennials have been An employer could offer to contrib- exposed to education about the role of ute to the employees’ FIAs with GLWB, FIAs in financial and retirement planPoolman said, adding “this doesn’t have ning, “I think the FIA will be attractive to be in a qualified plan.” to them,” he said. This is because of the

product’s upside potential and downside protection, along with its ability to provide a guaranteed lifetime income stream in retirement.

The industry will need to take responsibility for providing this exposure, Poolman contended. Some suggestions include providing educational materials and resources about FIAs on websites and in electronic media geared toward millennials. He pointed to Twitter, postings at the IALC website and content hosted elsewhere, too.

Women. Poolman believes women will become a bigger part of the FIA market, especially as spousal retirement benefits dwindle. “Many women are employed today, and they are recognizing that their existing plans are not designed to cover their desired level of retirement income,” he added. So they will be looking for alternatives to boost that level, he said.

The Spur of State Pension Plans

In state government, “states are really struggling with their pension plans,” Poolman said. As a result, they are looking into offering other options for employees to consider. These are options that will enable employees to take “closer control” of their finances within the plans.

One example he cited is his home state of North Dakota. It is slowly opening up to discussion about allowing certain classes of employees to opt out of the state’s defined benefit plan for a 401(k) plan and a supplemental 457 plan, he said.

Some states already have enacted laws along those lines. In 2012, for instance, the National Conference of State Legislatures said seven states had enacted “sweeping structural pension reforms” that year. One of them, Virginia, established a hybrid plan that requires each member to make contributions to both the DB and the DC components.

Poolman believes such changes help spur people to think about alternatives, which might include FIAs, perhaps as supplements to other retirement resources.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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May 2015 » InsuranceNewsNet Magazine

55

HEALTHWIRES

Medicare Advantage a Hit With Seniors SENIORS SATISFIED WITH

They like it! They really like it!

OVERALL PLAN COSTS A recent poll conducted for Morning Consult showed that, although seniors love traditional Medicare, those who use Medicare Advantage love it even more.

The poll found that 85 percent of seniors on traditional MEDICARE ADVANTAGE Medicare said they were satisfied with their plan, compared with 88 percent of seniors on Medicare Advantage. Even more telling, 80 percent of seniors on Medicare Advantage said they were satisfied with the overall cost of TRADITIONAL MEDICARE their plans, compared with 68 percent of traditional Medicare customers.

All this love could be why the Medicare Advantage program has grown more popular in recent years. Almost a third of all seniors in the Medicare program — about 16 million seniors — are enrolled in Medicare Advantage plans. Enrollment has increased more than 40 percent from 2010 to 2015, according to the federal government. The Kaiser Family Foundation found that the number of plans offered throughout the country has hung around 2,000 since 2011. While 378 plans left the market for 2015, 309 new plans entered.

80% 68%

RISING HEALTH INSURANCE COSTS SQUEEZE WORKERS

Workers continue to be squeezed by rising health insurance costs, according to a Commonwealth Fund report.

Nationwide, the average contribution an employee made to an insurance premium in 2013 and the average deductible together represented 9.6 percent of the median income of American households with members under age 65. That is up from 8.4 percent in 2010 and nearly double the 5.3 percent that households were paying for employer-provided health coverage in 2003.

Insurance offered by employers is the primary source of health coverage in America, providing benefits to about 150 million people.

The Commonwealth report indicates that health care insurance cost growth has slowed in recent years.

The overall price of an employer-provided family health plan, which includes the share paid by employers and the share paid by employees, increased 6 percent annually on average between 2003 and 2010, DID YOU

KNOW

?

56

according to the report. By contrast, annual growth between 2010 and 2013 averaged 4.9 percent.

The employees’ share of premiums also grew more slowly after 2010, increasing on average by 5.9 percent annually compared with 7.2 percent a year between 2003 and 2010.

KAISER TO CONDUCT GROUNDBREAKING STUDY ON AUTISM CAUSES About the only thing growing faster than the number of children diagnosed with autism is the number of theories on what causes the disorder. Now, Kaiser Permanente is attempting to put an end to the myths surrounding the cause of autism by conducting what is believed to be the largest genetic research project into the causes of autism. The study will gather biological and other health information from 5,000 Northern California families who have a child with the developmental disorder.

No one knows for sure what causes autism, but scientists have long suspected that it results from a combination of genetics and environmental factors. It is hoped that a study of this size will reveal the root

OptumRX, UnitedHealth Group’s pharmacy care services business, will acquire Catamaran Corp., a company that pharmacies use to check on a consumer’s eligibility for prescriptions, for about $12.8 billion. Source: Associated Press

InsuranceNewsNet Magazine » May 2015

causes of autism, eventually leading to improved diagnoses and new treatments.

For unknown reasons, the number of children diagnosed with the disorder has been rising for years in the U.S., with the latest government figures estimating it occurs in 1 in 68 children. That’s about 120 percent higher than 2002 estimates.

THE DOCTOR WILL SEE YOU NOW — ONLINE Some of us remember the days when the family physician made house calls.

Thanks to telemedicine, those days are coming back.

More patients than ever are seeing their doctors through computer screens and smartphones. It’s a trend that shows no signs of subsiding as hospitals and insurance companies continue to roll out the latest technological advances. Patients can see a doctor without the inconvenience of traveling to an office and sitting in a waiting room. Doctors are able to see more patients in an efficient, cost-effective way.

Anthem BlueCross BlueShield recently launched LiveHealth Online, a patient-doctor interface, in an attempt to curb costs while enhancing access to care. The platform visually connects customers to doctors around the country from their computer, tablet or phone.

A doctor is on call 24/7, and LiveHealth Online costs no more than a regular copay for an office visit. Patients who aren’t Anthem members can also use the platform for $49 a visit.

Telemedicine is one of the fastestgrowing sectors in the health care industry.

The American Medical Association expects the telemedicine market to grow from $1 billion next year to $6 billion by 2020.

Lawmakers also have embraced telehealth. About 20 states have laws requiring insurance companies to reimburse for services rendered via telemedicine if the same service could be delivered in person.

The AMA provided a general endorsement for telehealth services last year while underscoring the continued importance of a patient-doctor relationship.

Mercy Health in St. Louis currently uses telehealth platforms for stroke-related consultations by neurologists and intensive care monitoring, among other functions.

The center is expected to be completed this summer.

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BROKER SERVICES

HEALTH

How to Keep Millennials Happy in the Workplace M illennials have a reputation for being job-hoppers. Here’s one way in which your employer clients can help keep millennials happy over a longer term.

By Tye Elliott

M

illennials are all about independence: While their parents generally were trusting of institutions such as marriage and religion and — yes — their workplaces, the youngest generation of employees believes in individuality and personal choice.

According to a recent study by the Pew Research Center, in addition to being less religious, less patriotic and less inclined to marry young than their parents and grandparents, millennials also are less trusting. In fact, just 19 percent of millennials told the Pew researchers that they believe most people can be trusted. That percentage is far below the 31 percent of Generation X and the 40 percent of baby boomers who said they generally trust most people.

All of this independent thinking, of course, is reflected in millennials’ workplace attitudes and actions. It’s something wise employers should keep in mind and it may explain why millennials change jobs much more frequently than other generations: According to the Bureau of Labor Statistics, the average length of time in which an American worker remains in one job is 4.6 years. For a millennial, the wanderlust comes sooner. Millennials switch jobs an average of every 3.2 years.

At that rate, they’ll hold 14 jobs over the course of a 45-year career.

How to stem the wanderlust? Companies can’t afford to duck the question: According to a PricewaterhouseCoopers report, millennials already make up 25 percent of the U.S. workforce and by 2020 will account for 50 percent of the global workforce. The report emphasized that employers of millennials should keep these things in mind: 58

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Employers who offer pensions have learned that millennials are unlikely to stick around long enough to become vested. » Many millennials believe they’ve had to compromise to find jobs. In fact, 38 percent who are currently working said they’re actively looking for different roles, and 43 percent said they’re open to offers.

Just 18 percent expect to stay with their current employers for the long term. » Millennials are committed to their personal learning, and the benefit they want most from employers is the opportunity to develop their skills.

to stick around long enough to become vested. According to the 2014 Aflac WorkForces Report, more than half (60 percent) are at least somewhat likely to search for new jobs in the next 12 months. What’s driving some of the movement? Perhaps it is a search for better benefits. According to millennials, a comprehensive benefits package is important because it: » Safeguards health and financial wellbeing (66 percent).

» They’re looking for good work/life balance and strong diversity policies but believe employers have failed to deliver on those expectations.

» Provides peace of mind (62 percent).

» 41 percent prefer to communicate electronically at work instead of face to face or by telephone.

Benefits May Convince Millennials to Stay

» Millennials expect to rise rapidly through the ranks, with 52 percent saying the opportunity for career progression is what most attracts them to an employer. Competitive salaries come in second, at 44 percent.

Benefits and Today’s Millennial Workers

Companies that are wise to the new job-hopping norm take millennials’ employment patterns into consideration when developing and communicating about their benefits plans. The number of companies offering pensions is declining, but even employers who do so have learned that millennials are unlikely

» Demonstrates that employers care about them (43 percent).

Millennial workers are unafraid to be labeled “job-hoppers.” The difficulty of finding work in the current economy, combined with the need to take a “just for now” job while waiting to land the perfect position, has decreased the stigma that once accompanied frequent employment changes.

No company wants to invest time and money training an employee only to lose that worker to another employer, especially not to a competitor. Workplace benefits may be one key to convincing them to remain in place. Companies that want to increase their attraction among millennials would be wise to consider adding voluntary insurance options to their benefits package.

The good news for companies trying to

HOW TO KEEP MILLENNIALS HAPPY IN THE WORKPLACE HEALTH limit costs is that voluntary insurance is employee-paid. In other words, employers can make voluntary coverage available to workers with no direct effect on their organizations’ bottom lines.

Why voluntary? Because voluntary products help ensure that workers who are sick or hurt have funds needed to help pay health-related costs their primary insurance might not cover. That’s good news considering that 62 percent of millennials have $1,000 or less on hand to pay out-of-pocket medical expenses, and 71 percent would not be able to adjust to the financial costs associated with a serious injury or illness, according to the 2014 Aflac WorkForces Report. Here are some other reasons to offer voluntary options.

Helping Millennials See the Value of Voluntary Benefits

With so many millennials lacking a sufficient financial safety net, brokers and employers need to help them understand that supplemental insurance policies can help protect them from unexpected

medical debt. All adults — whether they live on their own or at home or hold down jobs — are susceptible to illness and injury. Those with lower incomes are especially vulnerable to the financial blow that accompanies even a short hospital stay.

In fact, a recent report by the Consumer Financial Protection Bureau revealed that nearly 20 percent of U.S. consumers have unpaid medical debts that, on average, total $1,766. Additionally, more than half of all debt on credit reports stems from medical expenses.

The findings echo those of the Aflac study, which revealed that health care costs have a long-lasting effect on workers’ creditworthiness. Participating employees said medical costs are affecting their credit scores, keeping them from paying other bills and preventing them from saving for other major expenses like a new car, their first home or a vacation.

Voluntary insurance can help provide employees with added protection during their time of need so they can focus on

their jobs and not on money concerns.

Another way brokers and employers can help millennials understand the importance of voluntary insurance is to emphasize products appropriate to their life events. For example, as millennial workers marry, buy their first homes and begin to start families, the focus should be on voluntary accident and disability insurance.

And although life insurance probably isn’t the first product on a young adult’s mind, it is an excellent example of a financially friendly product to help millennials protect their loved ones as they begin to accrue debt.

The bottom line? By offering a variety of voluntary insurance options, employers may encourage the youngest generation of workers to stick around for a while.

Tye Elliott, a 20-year insurance industry veteran, is Aflac’s vice president of core broker sales.

Tye may be contacted at tye. elliott@innfeedback.com.

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May 2015 » InsuranceNewsNet Magazine

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FINANCIALWIRES

Investor Sentiment Hits Highest Point in 5 Years There’s no time like the present to invest. That’s the word from the John Hancock Investor Sentiment Survey, which showed that investors are optimistic about their prospects for 2015. So optimistic, in fact, that investor sentiment reached its highest level in the five years since the survey began.

China remains the country that investors believe will have the fastestgrowing economy, although fewer investors think so than in 2013, the last time this question was asked in the survey. A greater share of investors (22 percent) chose the U.S. as the country they expect will have the fastest growth, compared with 8 percent who thought so in 2013.

Investors are positive on investing in stocks, with 62 percent saying now is a good or very good time to invest in stocks, and they hold similar views on stock mutual funds (59 percent) and balanced mutual funds (61 percent). Compared with last year, a significantly larger share is optimistic about investing in exchange-traded funds (ETFs), with 41 percent positive about them versus 35 percent in first quarter 2014.

Retirement investing is a strong priority, investors indicate. Eighty percent believe now is a good time to contribute to their 401(k) plans and individual retirement accounts. Forty-five percent are positive on investing in target risk funds and target date funds.

NEARLY HALF OF AMERICANS SAVING VIRTUALLY NOTHING

Forget scrounging through the sofa cushions in the hope of finding loose change. Many Americans don’t have any change to spare.

About half of Americans are saving no more than 5 percent of their incomes, according to a new Bankrate. com report. Roughly one in five (18 percent) are saving nothing at all; 28 percent are saving something, but not more than 5 percent.

Middle-class Americans are the best savers. More than one-third of households with annual incomes between $50,000 and $74,999 are saving more than 10 percent of their incomes, outpacing even the highest-income households.

Overall, fewer than one in four Americans (24 percent) are saving more than 10 percent of their incomes. That figure includes 14 percent (one in seven DID YOU

KNOW

?

60

Americans) who are saving more than 15 percent.

FEWER THAN 1 IN 5 CONTRIBUTE TO TRADITIONAL IRAs

Americans aren’t just failing to save money — they’re failing to save for retirement. A new LIMRA Secure Retirement Institute study finds that only 17 percent of American workers currently contribute to a traditional individual retirement account (IRA) — and only 28 percent contribute to any kind of IRA (traditional, Roth or SEP/SIMPLE).

The most cited reason that people gave for not contributing to an IRA was that they believed they could not afford it (42 percent). However, nearly a quarter said the reason they are not contributing to an IRA is that they are saving in another retirement savings vehicle, such as a defined contribution (DC) plan. One in seven workers said they are uncertain how to invest their assets or haven’t gotten around to it. Additionally, one-third

Wyoming was named the PUBLIC best OFFERING was 20 percent THE AVERAGE RETURN ON AN INITIAL thisstate year. The increase in the first day (or “pop”) is 13 percent. foraverage retirement; Arkansas, the worst.

Source: Renaissance Capital Source: Bankrate

InsuranceNewsNet Magazine » May 2015

Source: Fidelity Investments

of workers believe they don’t understand enough about IRAs to contribute to one.

The study revealed that more than a third of Generation X workers are contributing to an IRA (34 percent) while only one-quarter of millennials and baby boomers currently are. According to the study, 40 percent of workers would be more likely to contribute to an IRA if a payroll deduction option were available through their employer — and nearly half of millennials said payroll deduction would spur them to contribute.

NEW HAMPSHIRE MOST FINANCIALLY LITERATE STATE; MISSISSIPPI, LEAST

The personal-finance website WalletHub set out to find the states whose residents are the most financially healthy. They found that New Hampshire ranked first in financial literacy and Mississippi was dead last.

In figuring out the rankings, WalletHub looked at a number of factors, including the number of people who have a “rainy day” fund, high school dropout rates, percentage of the population with a bank account, states whose populations have the most sustainable spending habits and the rates of nonbank borrowing.

Among the findings: New Hampshire had the lowest high school dropout rate; Alaska had the highest.

Arizona had the most people with a rainy day fund; New Mexico had the fewest.

Alaska had the least amount of “unbanked” residents; Mississippi had the most.

Maryland’s population had the most sustainable spending habits; Nevada’s population had the least.

South Carolina’s residents were the most likely to borrow money from a nonbank source (such as a payday lender); New Jersey’s residents were the least.

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FINANCIAL

Hot Estate Planning Techniques Made Hotter by Obama’s Budget I f your clients might need a GRAT or dynasty trust, now could be the time to set them up.

By Victor Ngai

T

he Obama administration’s proposed budget contains many provisions that would affect high income and high-net-worth individuals — estate planning, in particular.

People see these numbers and say, “I want to get into the market.” But they’ve forgotten about the market declines in 2008 and early 2009. Do they really understand stocks?

You may be thinking that we enjoy a $5.43 million federal estate, generation-skipping transfer (GST) and lifetime gift tax exemption per person, at a 40 percent rate. This means that less than 1 percent of the population would even have to worry about federal transfer taxes, so why even discuss this topic? That brings us to our first budget proposal of note.

The budget renews a proposal made over the past several years — the permanent reinstatement of the transfer tax exemptions and laws that existed in 2009. At that time, the federal estate and GST tax exclusion amount was only $3.5 million without an inflation adjustment. The lifetime gift exemption was only $1 million. The tax rate was 45 percent. Clearly, if this proposal is realized, a significantly greater portion of the U.S. population would be subject to greater federal transfer taxes.

Previous proposed budgets called for 62

InsuranceNewsNet Magazine » May 2015

an effective return to these rates in 2018.

But this year, the proposed effective date is 2016. As planners, we are taught to “plan for the worst and hope for the best.” So traditional estate planning is still alive and well even for those who may be under the current federal exemption amounts.

Estate plans must be drafted as flexibly as possible to react to changing tax environments. That means taking advantage of special powers of appointment, trust protectors to add flexibility, portability of the deceased spousal unused exclusion amount (DSUEA), and trust decanting powers to “modify” or “amend” irrevocable trusts.

Life insurance inside of irrevocable life

insurance trusts (ILITs) remains attractive. ILITs can also be useful for possible state estate tax planning where state exemption amounts are significantly lower than the federal exemption, as well as for families who simply want to ensure a legacy without worrying about asset depletion.

Also renewed from prior years is the proposal to require grantor retained an-

nuity trusts (GRATs) to have a minimum term of 10 years. GRATs offer an effective way to make substantial gifts of assets on a discounted basis. To be effective, however, the grantor must outlive the term of the trust. Further leverage can be had when valuation discounts are applied to the asset contributed. When designed correctly using a short term of only two or three years, a GRAT can transfer the growth of a highly appreciating asset with little or no gift tax consequences (such as a “Walton” or “Zero’d Out” GRAT). The minimum 10-year term proposal would eliminate the short-term GRAT as a hedge against the mortality risk of the grantor, as well as introduce greater market variability in investment performance.

A new wrinkle in this year’s proposal is to require a minimum remainder value equal to the greater of 25 percent of the value of the contributed GRAT assets or $500,000, but not more than the value of the assets contributed. Also, the ability of the grantor to do a tax-free exchange of assets to plan for tax basis would be eliminated. This would end the use of the Zero’d Out GRAT and limit GRATs to ultra-wealthy individuals and families.

Tax basis planning also would be made significantly more difficult. So those who can take advantage of the current GRAT variations need to consider implementing them now before the proposal gains steam and becomes law.

Another renewed proposal was to limit the duration of irrevocable trusts that leverage the GST exemption to 90 years.

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FINANCIAL HOT ESTATE PLANNING TECHNIQUES MADE HOTTER BY OBAMA’S BUDGET That proposal is aimed squarely at dynasty trusts created in states that have abolished the “rule against perpetuities” allowing trusts to exist for several hundred years or longer. As we know, a dynasty trust funded with life insurance is a common technique used by wealthy families to create family legacies. Increasingly, families with more modest wealth have created dynasty trusts, not so much to preserve wealth, but to create a pool of money to give future generations a head start or helping hand in life — a “family bank” if you will.

So again, families interested in the dynasty trust concept may need to act fast before the strategy is no longer available.

Still another renewal is the proposal to coordinate the income and estate tax rules for grantor trusts. Grantor trusts allow contributions to an irrevocable trust to be deemed completed gifts for gift and estate tax purposes, but still deem the grantor as the owner of the trust assets for income tax purposes. The income tax burden on the income generated by trust assets rests on the grantor. This lack of coordination between tax regimes allows for the transfer of significant wealth by the grantor with no income tax consequences.

One popular technique is the note sale to an Intentionally Defective Grantor Trust, which is particularly popular in today’s low interest rate environment. The administration’s proposal would cause the assets in the grantor trust to be included in the grantor’s estate for estate tax purposes, or subject to gift taxes if the

trust ceases to be a grantor trust during the grantor’s lifetime. Similar to the other renewed budget proposals, the time to act may be now, before the proposals find the light of day and become law.

Finally, this year’s Greenbook introduces a new concept that would attack the long-standing practice of allowing an appreciated asset a “step-up” in basis equal to the fair market value on the date of death, thus avoiding capital gains taxes if that asset is subsequently sold soon after death.

This proposal is aimed at addressing a perceived “basic unfairness in the tax system” that allows wealthy people to hold assets until death, while the middle class is re-

quired to liquidate assets, pay capital gains taxes and spend the net proceeds down for retirement.

The Greenbook proposes to raise capital gains and qualified dividend rates, and provide an exclusion of capital gains at death of up to $100,000, indexed for inflation after 2016 with certain other exceptions. These exceptions include the usual exclusion of gain exemption on the sale of a principal residence, and a deferral of gain on the transfer of a family-owned business until sold or when it ceases to be a family owned business. Fortunately, few commentators believe this proposal has legs and, over the past two years, practitioners have already increased focus on income tax planning due to the introduction of higher income tax brackets and the net investment income tax.

As you can see, notwithstanding recent tax law changes, this is still a great time to be sitting down with affluent clients to review their estate plans and to determine if any of the wealth transfer strategies discussed may apply. Careful consideration should be given to take advantage of strategies that have repeatedly been on the administration’s “hit” list.

Victor Ngai, JD, CLU, ChFC, is assistant vice president of Guardian Life. Victor may be contacted at victor.ngai@innfeedback.com.

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InsuranceNewsNet Magazine » May 2015

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65

BUSINESS

Career-Damaging Listening Habits and What You Can Do About Them M any of us are terrible listeners who have picked up bad habits in the workplace. Here are some suggestions on how to fix those bad habits.

By Edward D. Hess

S

ure, you heard what your client just said, but were you actively listening? Today, when our attention is constantly in demand, it can be difficult to focus fully on clients. Yet in order to serve clients properly, focusing fully is what you absolutely must do. A great way for advisors to stay in the moment with clients and prospects is to focus on active listening. In fact, I think active listening is an essential skill for everyone in today’s workforce.

You can’t meet your clients’ needs if you don’t understand their needs. Truly understanding client needs requires actively listening and asking lots of questions. Plain and simple. In order to dig into clients’ wants and needs to find where you can serve them best, you must focus on what they need instead of what you can sell to them. Only after truly understanding their needs do you move on to offering solutions. Active listening requires you to be in a “receiving mode” and not in a “sell mode.” Unfortunately, many of us are terrible listeners who have picked up bad habits in order to stay afloat in today’s fast-paced business environment. Here is a rundown of our worst listening habits and suggestions on what can be done to fix them.

Thinking about your response before the speaker is finished. It happens to the best of us. We’re sitting with a colleague or a client. They start to speak. But instead of grounding ourselves in what they’re saying, we start to think about what we’re going to say next. Of course, it’s especially easy to fall into this trap when you’re trying to make a sale.

Before your next client meeting, put 66

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Don’t let your mind wander to think about something you think is more important.

Be in the moment. Be present. yourself in a listening frame of mind with calmed emotions and a quiet ego. Take two minutes to get into the right frame of mind by taking some deep breaths and saying to yourself: Listening is not about me. Slow down. Don’t rush to conclusions.

Seek to understand.

Finishing the speaker’s sentence out loud or in your head. We humans prefer simply to confirm what we already think.

And trying to complete someone’s sentences is one way of doing that. We think, “Well, I’ve had several clients with similar circumstances. I know exactly what he’s going to say.” And then we zone out. But when you do so, you may miss important details. Only after understanding and reflecting does a good listener thoughtfully respond.

Interrupting the speaker. When I was in school, I would wave my hand ferociously while my teacher was talking. I’d wave so vigorously that eventually she’d stop

talking just to call on me. I learned to interrupt my teachers in order to be the first to give the right answer. It was my way of showing others how smart I was.

Of course, we interrupt one another for a lot of reasons. But many of those reasons can be boiled down to our need to show how smart we are. Either we’re interrupting to correct the speaker or we’re interrupting to get to a key point before the speaker can. I had to work hard to change my behavior. By listening, inquiring and reflecting before responding, I showed people that I respected them by listening.

That made my meetings more productive and my relationships stronger.

Letting your mind wander to think about something you think is more important. Multitasking has become a way of life for many advisors. But numerous studies show just how ineffective and unproductive multitasking makes us. So remember that the next time you’re trying to think through one problem while

XXXXXX BUSINESS you’re in a conversation about another problem. Be in the moment. Be present.

Interpreting the speaker’s message in a way that makes you feel comfortable or smart. When you’re with clients or prospects, your goal should be to show them you care enough about them to focus on trying to understand their view or situation. Don’t try to use those opportunities to make yourself look smart or interesting. Give your full attention to the other party. Listen to learn, not to confirm.

Offering advice before being asked. Maybe you think that a client is sharing a story with you precisely because they want your advice. Well, that might be the case, but chances are that what they want, first and foremost, is for you to listen thoroughly to what they have to say. Never, ever offer advice before being asked.

Sharing your own experience before fully exploring the speaker’s experience. Your experiences are your experiences. They do not match up to everyone’s reality.

This is another situation where well-timed questions will serve you much better than talking over someone or trying to interject your way into the conversation. An effective rule to follow for breaking this habit is to inquire before advocating and to inquire much more than you advocate.

Defending yourself when receiving feedback. Rather than getting the kind of specific, constructive feedback that can help us improve our skills, most of us will receive guarded or politically correct feedback that is fairly useless in practice. Thoughtful and constructive feedback is a valuable thing, especially when you can foster your mindset to absorb and not deflect it. This will only become more valuable as our workplaces become dominated by technology.

Critiquing the speaker instead of their idea. Listening in a business context means focusing on the merit of the idea and the credibility of the data provided to support it. The person presenting the idea should never be on trial.

Learning to listen well takes practice — lots of practice.

Active listening is a necessity for emotionally engaging and connecting with clients. Active listening is a precondition for being able to create the best solutions to meet clients’ needs.

Grade your listening performance daily. Hold yourself accountable. If you are stuck on a bad behavior, seek out a good friend or colleague and ask them to help you uncover why you are having difficulty changing. When you strive to improve your listening skills, you’ll become a better advisor.

Edward D. Hess is a professor of business administration and Batten Executive-in-Residence at the University of Virginia’s Darden School of Business.

He is the author of 11 books, including Learn or Die: Using Science to Build a Leading-Edge Learning Organization. Ed may be contacted at ed.hess@ innfeedback.com.

May 2015 » InsuranceNewsNet Magazine

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MDRT INSIGHTS

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

How to Turn Social Security Into Retirement Income Powerhouse annuity such as a single premium immediate annuity or a deferred income annuity that returns $20,000, it’s possible that only $4,000 would be exposed to taxes, assuming an 80 percent exclusion ratio.

This means that the same 15 percent tax would be only $600! This strategy creates additional cash flow, and helps bridge the gap while delaying Social Security.

M any don’t know the best way to make their Social Security benefits work for them.

By Curtis V. Cloke

W

ith the decline of traditional pensions, Social Security has taken on increasing importance in retirement planning. Many clients, however, do not realize how they truly can maximize their benefits. Right now, over 66 percent of beneficiaries are either critically or totally dependent on Social Security to maintain their standard of living in retirement. As more people rely on Social Security as their primary source of retirement income, advisors are in a unique position to show their clients how to turn their benefits into a retirement income powerhouse.

The No. 1 risk in retirement is longevity risk, or the risk of outliving one’s money.

Social Security is a source of guaranteed lifetime income that can help reduce this risk. Social Security by itself may not be enough to cover essential expenses in retirement. But if your clients delay claiming benefits until age 70 and maximize Social Security income, they can lessen the amount of income they need to withdraw from their 401(k), individual retirement account or savings.

How to Maximize Social Security

Retirees receive other advantages by maximizing Social Security. For example, Social Security has a cost of living adjustment (COLA) feature that provides retirees with an annual adjustment of their benefits. Historically, this has averaged about 3 percent a year and it provides retirees with a natural hedge against inflation. While the annual COLA percentage is the same for everyone, individuals who have maximized their Social Security will receive a larger dollar increase than those with smaller monthly benefits.

Retirees can claim Social Security anytime between the ages of 62 and 70.

In 2015, if you retire at age 62, the max68

InsuranceNewsNet Magazine » May 2015

imum monthly benefit you could receive is $2,025. If you delay claiming Social Security to full retirement age (age 66 for most people), the maximum possible benefit would be $2,685. Furthermore, if you delay claiming to age 70, your maximum potential benefit would be $3,501. Everyone desires the maximum amount of Social Security possible. However, if retirees are delaying Social Security the eight years from age 62 to 70, what are they going to do for retirement income during this gap?

How to Create Additional Cash Flow

One strategy is to move some of their nonqualified money into a term-certain annuity. Beyond the high guaranteed payout rate that these products offer, there are also tax advantages that these annuities provide. Income from stocks, bonds or mutual funds would be taxed as LIFO (Last In/First Out). Everything that they gain from these investments would be subject to tax. However, income annuities have the tax-exclusion ratio. Typically, only 5-25 percent of the payouts are subject to tax, while 75-95 percent is considered a return of principal. We call this FIBO (First In/Blend Out) because the income is blended out as a combination of principal and income.

For purposes of comparing taxation, if a client invested in a stock mutual fund that returns on average $20,000 annually, that total amount will be subject to tax.

At 15 percent, the tax would be $3,000.

However, if the money is invested in an

Spousal Benefits

The spousal benefit is another tool advisors can use to make it easier to delay Social Security. For married couples, one spouse is entitled to up to 50 percent of the other spouse’s full retirement age benefit at their full retirement age. For example, if you had a married couple at the full retirement age of 66 who “filed and suspended” for a $3,000 monthly Social Security benefit, the other spouse could claim a $1,500 monthly spousal benefit while they are still delaying. Divorced couples can also take advantage of the spousal benefit if they meet certain criteria.

Today’s retirement landscape is a scary place for most retirees. Pensions have mostly disappeared as a source of guaranteed lifetime income, and the stock market is volatile. People are living longer than ever before and are unsure how to make their money last as long as their uncertain future. By using innovative annuity strategies and taking full advantage of the Social Security system, you can help today’s retirees create a retirement income powerhouse and live with greater financial security.

Curtis V. Cloke is an award-winning retirement expert and the CEO of Thrive Income Distribution System.

He is a renowned industry speaker and workshop educator and has over 28 years of experience in retirement planning. He is a 16-year MDRT member, a three-time Court of the Table and eight-time Top of the Table qualifying member. Curtis may be contacted at curtis.cloke@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.

A Shift to Retirement Planning Makes the Difference for Advisor A n advisor takes a leap of faith and finds his niche in the industry.

By James E. Fox and Ayo Mseka

W

ith 10,000 baby boomers retiring each day, James Fox is finding retirement planning in high demand.

Fox has been a NAIFA member since 1991 as well as a member of Million Dollar Round Table, where he has achieved Court of the Table and Top of the Table honors. He explains why he made the shift to retirement planning several years ago, and offers some hints for achieving success.

NAIFA: What attracted you to the financial services industry?

James Fox: I was working as a sales manager for a delivery company when a friend

remembered how much I enjoyed the oneon-one client meetings, and building relationships and friendships. So I took that leap of faith 23 years ago.

NAIFA: What areas did you focus on initially?

Fox: Life insurance was in my blood, although I did some recruiting and selling for an insurance company. But it was work through a local Blue Cross and Blue Shield agency that helped propel our company. I started helping people with Medicare supplements and discovered that this was the perfect fit for me. I always enjoyed working with seniors, and these people needed my help.

NAIFA: How was working for yourself different from working for a major corporation?

People need us now more than ever. Ten thousand baby boomers are retiring every day, and nobody talks about retirement planning. asked me if I had ever considered life insurance sales. When I said no, he took me on a couple of appointments and wrote the business, and I was hooked.

NAIFA: Three years after you became an agent, you achieved a high level of success at MetLife. What are some of the secrets behind your early success?

Fox: Hard work! I was always taught to do well early on, become a branch manager and have agents work for me. So I worked extremely hard to achieve these goals.

NAIFA: Why did you leave MetLife to branch out on your own?

Fox: After achieving my goal of becoming a branch manager, I realized that not everyone was as motivated as I was. Also, I

Fox: A leap of faith is a very unnerving thing. I’ve always had an entrepreneurial spirit, but the opportunity to have my own schedule and my own responsibilities and not have to report to anyone except my wife seemed too good to pass up. I believed I always had a home at MetLife if things didn’t work out, but I was not about to let that happen.

NAIFA: What were some of your growing pains, and how did you overcome them?

Fox: Marketing! Eventually you run out of family and friends. You must have a strategy to see new people. I had my Blue Cross program, but I started networking with accountants and attorneys through seminars that they spoke at. This opened the door to referrals and gave me credibility.

NAIFA: After 2008, you began focusing exclusively on guaranteed lifetime income annuities. Why the switch?

Fox: After the crash of 2008, I needed to change my focus to protection — not wealth accumulation, but wealth distribution. I canceled my securities license so I could focus on safety and guarantees, and be allowed to say so. I wanted to be able to address retirement planning as our company’s main focus.

NAIFA: What did that shift do to your practice?

Fox: Our company has doubled!

NAIFA: What keeps you motivated after all these years in the industry?

Fox: I really love what I do. People need us now more than ever. Ten thousand baby boomers are retiring every day, and nobody talks about retirement planning.

NAIFA: What do you want readers to take away from your story?

Fox: You have to find your niche and run with it, market it and take a chance.

According to Vince Lombardi, “Leaders aren’t born, they are made. And they are made just like anything else, through hard work. And that’s the price we’ll have to pay to achieve that goal, or any goal.”

James E. Fox is president of Fox Financial Group, Burr Ridge, Ill. He is writing his second book, Why I Love Annuities and You Should Too. Jim may be contacted at james.fox@ innfeedback.com.

Ayo Mseka is editor-in-chief of NAIFA’s Advisor Today magazine. Ayo may be contacted at ayo.mseka@innfeedback.com.

May 2015 » InsuranceNewsNet Magazine

69

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.

A Life of Service Underwrites Our Success T he foundation of our economy is based on the premise that the more people you serve, the more rewards you will reap.

Indeed, the financial services industry conducts its daily business only because of an “insurance policy” underwritten by our Department of Defense.

By Ted Digges

“W

hat is the secret to success?” That is a question students often ask me during the high school course on capitalism that I teach on occasion.

Although the axiom of “hard work and education” is easily understood, too much weight is often given to factors such as “the right connections,” “the right family” or “just plain luck.” While these factors may play a role, lasting success has a much more accessible and profound birth mother. No matter how you define success, most successful people have roots tracing back to one notion: service.

Service and success are more intertwined than many people realize. If you define success in emotional or intellectual terms, look to Albert Einstein, one of the greatest intellectuals of all time, who stated, “Only a life lived for others is a life worthwhile.”

Milton Friedman was perhaps the most influential thinker on free enterprise in the last century. He explained that by serving others in a market-based economy, we financially succeed as individuals and as a society. He stated, “The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another.” As Americans living in a free market capitalist society, each one of us drives our own success. We hold the key to unlocking its secret in our approach, our attitude and, of course, our actions.

Many people may find it astonishing and even counterintuitive that the founda70

InsuranceNewsNet Magazine » May 2015

tion of our very economy is based on the premise that the more people you serve, the more rewards you will reap. Those individuals with a “What’s in it for me?” attitude are playing a losing game, but they often do not even know it. The Beatles came close, but did not go far enough, when they sang “And in the end, the love you take is equal to the love you make.”

The reward for service is often more than worth the effort, on many levels. Moreover, a life lived with service as its cornerstone will reap countless benefits for both the individual and society.

In the financial services industry, service is the foundation of success for individuals and organizations alike. We enjoy the benefits of a strong free market economy in which service is valued and rewarded. It is very important to realize, however, that our vibrant and powerful economy, which creates our incentives to help and serve one another, is protected and underwritten by a strong national defense.

As the distinguished author and columnist Thomas Friedman said, “The hidden hand of the market will never work without the hidden fist. McDonald’s cannot flourish without McDonnell Douglas, the designer of the F-15, and the hidden fist that keeps the world safe for Silicon Valley’s technologies to flourish is called the U.S. Army, Air Force, Navy and Marine Corps.” Indeed the financial services industry, like so many other industries, conducts its daily business only because of an “insurance policy” underwritten by our Department of Defense.

Accordingly, those who spend a lifetime of service in both the armed forces and private sector are people worth celebrating. The first career protects the free-

doms and way of life we all enjoy. The next career in the financial services industry is marked by success achieved through service to others. Such individuals have affected lives in a positive and profound way on multiple levels. These people are worthy of further recognition if they also give back in a selfless manner to improve the local community or society at large.

Those three qualities — honorably serving in the U.S. armed forces, achieving success in the financial service industry and selflessly giving back to improve the lives of fellow citizens — qualify someone for The American College’s Soldier-Citizen Award. Established in 2014, the award aims to celebrate a lifetime of success and service. The award recipients’ accomplishments are our accomplishments, and we all benefit from their success. Their fruitful lives inspire others to look for opportunities to serve in their own communities.

Someday in the not-too-distant future, those high school students learning about capitalism will put the theory of their education into real-world practice. Those who look for ways to serve others will reap the biggest emotional, intellectual and financial rewards. They will have discovered that the secret to success — for the individual, the organization and society — is service. As we celebrate our proven leaders with the Soldier-Citizen Award, we need future leaders who understand how to achieve success for themselves and our society.

Ted Digges is executive director of The American College’s Penn Mutual Center for Veterans Affairs. Ted may be contacted at ted. digges@innfeedback.com.

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LIMRA INSIGHTS

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.

Advisors and Wholesalers: A Winning Team A LIMRA study found that both internal and external wholesalers bring unique value to the advisor relationship.

By Breana Macken

S

uccessful people often credit their achievements to the strong relationships they have with the people around them. In a recent LIMRA study, more than half of financial advisors said the success of their practice depends a great deal on the relationships they have with their wholesalers.

LIMRA surveyed 900 financial professionals and completed 17 one-on-one interviews to better understand the advisor-wholesaler relationship and the value both internal and external wholesalers bring to an advisor’s practice.

The study found that wholesalers who contribute the most to an advisor’s success often appear to the advisors to work as team members versus individually. Financial professionals expect a high level of service from the asset managers and insurance carriers with whom they place their business. External and internal wholesalers are usually the ones called upon to deliver that service.

The surveyed advisors spoke of their favorite wholesalers, they often referred to them as “teams” instead of as “the sales desk” and the “external.” One advisor said, “I think the internal and external wholesaler should work together as a team. This provides [financial professionals] with the most well-rounded, value-added service.”

The best wholesalers play an important role in supporting an advisor’s practice by providing knowledge of their products, helping navigate diverse client needs and providing solutions to meet those needs.

The most desired services and support are in areas that help financial professionals plan and fund their clients’ retirements. Specifically, 66 percent of advisors would like to see wholesalers provide assistance with income and expense plan72

InsuranceNewsNet Magazine » May 2015

Advisors Most Interested in These Value-Added Services From Wholesalers 66%

Income and expense planning for retirement Social Security planning strategies Asset management Estate planning Life insurance planning Health, LTC, Medicare planning

52% 45% 43% 40% 40%

Source: Holistic Value: Exploring Wholesaler Relationships With Today’s Financial Professionals, LIMRA, 2014

ning for retirement. Just over half said Social Security claiming strategies would be another valuable service wholesalers could provide.

Other advisors said the team dynamic increases their efficiency and ultimately provides what they want most: a seamless experience. To do that, manufacturers need to have a team of wholesalers who communicate effectively with one another. From the advisor’s perspective, both internal and external wholesalers are essential. Both need to work together to provide optimal service in all aspects of the business — from the external wholesaler visiting an advisor’s office to the internal wholesaler at the sales desk providing timely and valuable information.

There are a few different ways to structure a wholesaling model to facilitate a team dynamic. One approach is to structure a team of an internal paired with an external, where both manage the same territory with their roles clearly defined by the manufacturer. This model allows the manufacturer to find what functions are the most cost-effective for the internal or external to perform, but it won’t always be the best fit for each individual wholesaler team.

Alternatively, the members of the wholesaler team can be permitted to determine among themselves which functions suit each of them best. For example, an internal who excels at providing mar-

ket updates can do so and, in the process, gain exposure to something an external typically handles. One advisor noted, “Wholesaling teams that know their strengths and divide the work accordingly make the best teams.”

Another approach is a hybrid model, where one person “wears the hat” of both the internal and the external. The challenge with this model is maintaining an appropriate split between external and internal activities. This can be addressed by having a team of two hybrids, where one hybrid acts only as an internal, while the other visits advisors.

Finally, a team can include multiple sales desk employees who are partnered with an external. This model allows the external to expand their territory, with the support that internals provide. Functioning as a team should make transitions easier when one member leaves or receives a promotion.

Whichever model a company chooses, the objective remains the same: provide a seamless customer experience for the financial professional. The best wholesalers understand that when they make their advisor client successful, their own opportunities for success increase, too.

Breana Macken is a senior research analyst of distribution research for LIMRA. Breana may be contacted at breana. macken@innfeedback.com.

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