EVOLVE
DIE!
GGIERO TECH MOGUL SEAN RU NCE DELIVERS THE INSURA GNOSIS– O R P ID B R O M ’S T N E G A E AND PROPOSES A CUR
P. 55
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The Cure for Death in the Insurance Industry Q: What should insurance professionals know about consumer behavior online? A: According to LIMRA, 70 percent of insurance purchases are initiated online. As far as actually reaching consumers online, look what marketers in other industries are doing. eMarketer reported that advertisers worldwide spent more than $23 billion in social media marketing in 2015. That was a 33 percent increase from 2014. Insurance companies are falling behind when it comes to reaching the digital and social consumer. In a study that ranked the top 50 Fortune 500 companies for social media effectiveness, the No. 1 company is Target, the discount retailer, with over 23 million Facebook likes. When we contrast that with one of the largest insurance carriers in the world, we find that they have a mere 30 thousand Facebook likes! Now, I understand that insurance companies can’t offer coupons or incentivize consumers to follow them on social media, so they feel disadvantaged, but the reality is that they have one of the biggest advantages of all with their agent network. They simply need the key for unlocking it. Q: Are social media users even the age demographic that insurance professionals are trying to reach?
of-mind when one of these 800 people is thinking about life insurance? A. You can’t really be left to your own devices. It’s just not realistic for an agent to invest the time needed every day to make sure the content’s there week-to-week, month-to-month, all year long. If your online marketing isn’t automated, it will eventually fail. That’s where LifeDrip comes in. LifeDrip is the only turn-key, fully-automated, digital and social media marketing platform exclusively for insurance. It creates and customizes all content based on what you sell, and this includes your monthly e-newsletter and social media posts. Then, it monitors your marketing efforts, which is our DripReports™, and triggering SplashTriggers™ when it’s time to engage a client. Q: What’s the setup process like? A: If your IMO or BGA is working with LifeDrip, obviously you can go through them. But it’s very easy for an agent to just sign up directly. Simply register an account and complete a profile. There’s a step-by-step walkthrough. In about seven minutes, you’re going to have your profile completed, which includes states you’re licensed in and any logos, whether you’re an independent agent or working with an agency or a carrier. It will generate your agent website, with search engine optimization. Then, with one simple login, you can add
under 100 agents on the platform. And over the first quarter, without adding any other lead sources, without adding any other carrier or carrier products, that IMO showed a 12 percent growth. Thirty-nine percent of the agents who participated with our first IMO reported at least one new policy written in the first 90 days due directly to the results of their LifeDrip™ solution! This short term increase is fantastic, but doesn’t even begin to explain the benefits long term when it comes to client retention, second sales opportunities, referrals and even more leads generated through SplashTriggers™. Q: How does this compare to what IMOs and BGAs offer for agents? A: It doesn’t. While marketing organizations offer good programs, they just don’t have the resources to build something like this from the ground up. You’ll see pieces of it. Agent sites, for example. But when I go through the list of fundamental requirements that they need, without fail, something’s always missing. Q: What do carriers need to know about LifeDrip? A: It’s less expensive than all the marketing that they’re currently doing. For a fraction of the cost, they can leverage social media at millions of touch points with individual messaging that they control. Plus, they can have precise stats on which of those messages was received, how
PAGE 22
PLUS The Bigger, Badder, Better Way to Reach the Top PAGE 14
Five-Point Checklist to Satisfied Annuity Buyers PAGE 48
The Different Breed of Affluent Millennial Clients PAGE 60
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live healthy • earn rewards • save money • JHRedefiningLife.com *Premium savings are in comparison to the same John Hancock policy without the Vitality program. Annual premium savings will vary based upon policy type, the terms of the policy, and the level of participation in the John Hancock Vitality program. For Financial Professional Use Only. Not for use with the public. Insurance policies and/or associated riders and features may not be available in all states. The HealthyFood benefit is available to your clients on qualifying purchases during their first Program Year regardless of their Vitality Status. In subsequent program years, the benefit will only be available to them if they achieved Gold or Platinum Status. Rewards may vary based on the type of insurance policy purchased for the insured (Vitality Program Member). Rewards and discounts are subject to change and are not guaranteed to remain the same for the life of the policy. Insurance products are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA 02117 (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY 10595. Vitality is the provider of the John Hancock Vitality Program in connection with policies issued by John Hancock. MLINY032316228
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The Small Insurance Company with a
It
BIG FUTURE
was late 1940s when a group of men from the Utah Funeral Director Association returned from a meeting with a big idea — final expense insurance. What soon followed was the formation of the Sentinel Mutual Insurance Company. This small company, one of the early pioneers in final expense, has proven staying power by continually providing quality insurance plans, excellent customer service and consistent agent support.
are complementary to final expense, including a Medicare supplement product that works in conjunction with Medicare Part A and B, as well as a hospital indemnity product that was designed specifically to fill the gaps in a Medicare Advantage policy. Additionally, Sentinel now has annuity products that are designed to fit the needs of the increasingly active senior lifestyle. This product offering combination has cemented a place for Sentinel in the senior market as a strong and stable competitor.
While Sentinel started as a solution to meet the specific need of final expense insurance, in 2006, the company was faced with a new challenge; whether to grow the final expense block or to consider selling the company. This led to a revised final expense product (now titled New Vantage®) as well as other products in the senior space that
So what is the real advantage of a Sentinel policy? It all comes down to a commitment to providing excellent customer service. While the company has grown to include over 100 employees, Sentinel still maintains the quality personal interaction with its policyholders and agents that has been provided throughout the company’s history.
A Proud History Sentinel Mutual Insurance Company Founded (by a Group of Utah Funeral Directors)
1962
Acquisition of Uinta National Insurance Company of Utah and United Reserve Life Company of Montana
1965
Acquisition of National Mutual Insurance Company of Utah
1954
Sentinel Insurance Company advances as a capital stock insurer
2007
Growth milestone: $131.9 million (insurance inforce)
1957
Brand name evolves: Sentinel Security Life Insurance Company
2009
Medicare Supplement added to product offerings
2010
1960
Sentinel Surpasses Goal: $2 Million Assets
Final expense product relaunched as New Vantage® Life
2011
Personal Choice The Board of Directors in 2008 Annuity expands Sentinel product line and growth to $154 million in assets
2012
Sentinel broadens portfolio with Hospital Advantage product and exceeds $300 million in assets
2013
Innovative Summit BonusSM Index Annuity product launched
2014
Sentinel grows to $470 million in assets and raises $15 million of additional capital and surplus
2015
Sentinel grows to $500 million in assets and raises $10 million of additional capital and surplus
1948
CHOICE Makes
All the Difference Sentinel offers two extremely competitive annuities developed to meet the retirement needs of Americans. From optional riders to diverse indexing options, Sentinel annuities allow choice to be your competitive advantage in the marketplace.
Personal Choice Annuity (MYGA)1 » Currently has one of the highest interest rates available » Minimum contribution limit is only $2,500 » Riders are optional, not built-in, allowing flexibility for your client » Issue ages 0-90
MYGA – 5 year option
Current Interest
Sentinel Personal Choice Annuity
3.10
Liberty Bankers
2.90
Western United Life
2.90
American Equity
2.85
Fidelity & Guaranty
2.30
rate information as of 03/24/16, Annuity Rate Watch
Summit BonusSM Index Annuity (FIA)2 » Initial Premium Bonus up to 7% » Income Rider that pays for the life of owner or annuitant » Single and joint payout on income available » 4 indexing options based on the S&P 500, as well as a fixed account
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Offer your clients the benefits of Sentinel products – including superior choice. Download Sentinel’s annuity product kit today at
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FINAL EXPENSE | ANNUITIES | MEDICARE SUPPLEMENT | HOSPITAL INDEMNITY 1 Single Premium deferred annuities are guaranteed for 5 years. Should you choose to continue the annuity after the five-year guaranteed period, the minimum rate guarantee is 1.00% for contracts issued in 2016. Credited rates effective 01/15/2016 and are subject to change without notice. Quoted rates do not reflect optional liquidity riders. If you choose to add any of the available liquidity riders the interest rate will be reduced accordingly. Early withdrawals may be subject to Surrender Charges and Market Value Adjustments. The IRS may impose penalties for early withdrawals from qualified plans. Contracts issued by Sentinel Security Life Insurance Company. Not FDIC insured. Rates vary by state. 2 S&P Dow Jones indices does not guarantee the adequacy, accuracy, timeliness and/or the completeness of the S&P 500® or any data related thereto or any communication, including but not limited to, oral or written communication (including electronic communications) with respect thereto. S&P Dow Jones indices shall not be subject to any damages or liability for any errors, omissions, or delays therein. S&P Dow Jones indices makes no express or implied warranties, and expressly disclaims all warranties, of merchantability or fitness for a particular purpose or use or as to results to be obtained by Sentinel Security Life Insurance Company, owners of the Summit Bonus IndexSM, or any other person or entity from the use of the S&P 500® or with respect to any data related thereto. Without limiting any of the foregoing, in no event whatsoever shall S&P Dow Jones indices be liable for any indirect, special, incidental, punitive, or consequential damages including but not limited to, loss of profits, trading losses, lost time or goodwill, even if they have been advised of the possibility of such damages, whether in contract, tort, strict liability, or otherwise. There are no third party beneficiaries of any agreements or arrangements between S&P Dow Jones indices and Sentinel Security Life Insurance Company, other than the licensors of S&P Dow Jones indices.
IN THIS ISSUE MAY 2016 » VOLUME 9, NUMBER 5
How Dynasties Lose Their
FORTUNE PAGE 22
View and share the articles from this month’s issue
» read it
online
www.insurancenewsnetmagazine.com
FEATURES
22 How Dynasties Lose Their Fortune By Steven A. Morelli It’s not enough to help your clients amass enough money to hand down to the next generation. Wealthy clients need to prepare their children to handle that hefty inheritance. Here is how family governance can keep the family in the fortune.
36 Privacy, Affluenza, Social Media Fuel Growth of Family Offices By Juliette Fairley Family offices are not just for the mega-wealthy anymore.
INFRONT
12 F inal Fiduciary Rule: What It Means
By John Hilton The final version of the Department of Labor’s fiduciary rule contained a few surprises. We break it down to show the positive and negative aspects of the new rule.
HEALTH/BENEFITS LIFE
40 Pay No Attention to the Man Behind the Microphone By Robert M. Barnes Just because someone has a nationally broadcast radio show doesn’t mean he has the right answers on life insurance.
INTERVIEW
14 B igger, Badder, Better
An interview with Jeffrey Hayzlett Achieving success is much more than just thinking big. That’s the word from Jeffrey Hayzlett, who bought and sold 250 companies on his way to reaching the top of the corporate ladder. In this interview with InsuranceNewsNet Publisher Paul Feldman, Hayzlett describes the tough questions you must ask yourself before you can become the biggest and best version of yourself.
6
InsuranceNewsNet Magazine » May 2016
54 L TCi Carriers Look to Wellness Programs as an Investment By Loretta Jacobs and Scott Przybylski Long-term care policyholders who take advantage of wellness initiatives may find lower premium rate increases as a result.
ANNUITY
46 P osition Deferred Annuities for Specific Investment Plan Goals By Rich Lane A fixed deferred annuity offers flexibility for investors whatever their financial goals or current life stage.
48 F ive-Point Checklist Ensures Satisfied Annuity Buyers By Ray Kathawa Discussing these crucial topics can take the confusion out of the annuity buying process.
60 Understanding the Different Breed of Affluent Clients in Millennials By Brian O’Connell The next generation of high-net-worth investors offers a financial “sweet spot” for wealth managers.
Help your clients enjoy the future with the right protection today At Voya Financial ®, we look at life insurance differently. With unique and innovative solutions throughout the life of the policy, Voya Life Companies help your clients see the importance of using life insurance for accumulating and protecting their financial future. Our dedicated teams help qualified clients get underwritten faster so you can focus on helping more people safeguard their dreams.
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ALSO IN THIS ISSUE
MAY 2016 » VOLUME 9, NUMBER 5
F 65 NAIFA: Marketing on a Shoestring EN
By Toni Harris Some ideas for growing your business W without busting your budget.
WWW.ULTIMATEMARKETINGMAGICIAN.COM/INNCALL
BUSINESS
62 Try to Avoid Using the ‘R’ Word
By Shane Westhoelter Prospects frequently are put off by the word “retirement” and its negative implications. Here is how you can encourage clients to achieve more in the post-employment phase of their lives.
INSIGHTS
64 MDRT: Estate Planning — From A to Z in 60 Days By Albert Gibbons Eighty percent of estate planning can be done in 20 percent of the time it normally takes.
66 THE AMERICAN COLLEGE: Military Personnel Will Need Help Navigating New Retirement Plan By Ted Digges The traditional military pension plan is being phased out. But this change means a new group of prospects for retirement planning professionals.
68 L IMRA: Why Your Clients Should Have a Written Retirement Plan By Matthew Drinkwater Clients who have formal written plans are more likely to consider asset consolidation and explore their options for generating guaranteed income.
EVERY ISSUE 10 Editor’s Letter 20 NewsWires
38 LifeWires 44 AnnuityWires
52 Health/Benefits Wires 58 AnnuityNews Wires
INSURANCENEWSNET.COM, INC.
3500 Market Street, Suite 202, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli MANAGING EDITOR Susan Rupe SENIOR EDITOR John Hilton SENIOR WRITER Cyril Tuohy VP FINANCES AND OPERATIONS David Kefford PRODUCTION EDITOR Natasha Clague VP MARKETING Katie Frazier CREATIVE STRATEGIST Christina I. Keith AD COPYWRITER John Muscarello CREATIVE DIRECTOR Jacob Haas GRAPHIC DESIGNER Bernard Uhden GRAPHIC DESIGNER Shawn McMillion
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Copyright 2016 InsuranceNewsNet.com. All rights reserved. Reproduction or use without permission of editorial or graphic content in any manner is strictly prohibited. How to Reach Us: You may e-mail editor@insurancenewsnet.com, send your letter to 3500 Market Street, Suite 202, Camp Hill, PA 17011, fax 866-381-8630 or call 866-707-6786. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 866-707-6786, Ext. 115, or reprints@insurancenewsnet.com. Editorial Inquiries: You may e-mail editor@insurancenewsnet.com or call 866-707-6786, ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to www.innmediakit.com or call 866-707-6786, Ext. 115, for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 3500 Market Street, Suite 202, Camp Hill, PA 17011. Please allow four weeks for completion of changes.
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WELCOME LETTER FROM THE EDITOR
Fighting and Adapting
T
he world does not look like it did back when you started selling. In fact, you might have started in the days when your boss threw a phone book at you along with this suggestion: “Start prospecting!”
Selling might be better or worse since then, depending on your perspective. That’s the operative word: perspective. Change is inevitable. Look at all facets of your life — nothing is the same as it was even a year ago. But sometimes you have the benefit of knowing what the driver of change will be. In the case of insurance and financial advising, the change agent will be the U.S. Department of Labor, and perhaps the Securities and Exchange Commission later this year. The DOL released its “Conflict of Interest” rule on sales involving 401(k) and IRA money in early April and it was full of surprises — some relieving, others not so much. But here is the main question that we can answer now: Can you still do business as you did? Yes, depending on your perspective. You won’t be doing business the same way, but you can get paid the same way you always did, with some restrictions. That was one of the welcome surprises: Commissions and other compensation will be allowed, even though they are called “prohibited transactions.” The rule does present a few complications, though. Two of the best-selling annuities, variable and fixed indexed, will fall under the best interest contract (BIC) exemption. In this case, sellers will need to agree to operate under the fiduciary standard. If you can advise clients on their retirement goals and sell products based on their need rather than on how much commission you would get, you are already most of the way toward complying with the standard. If you sell only one or two products to everybody, regardless of their need, you will probably need to rethink your model. Also, some of the extra compensation may phase out, particularly incentives. One of the requirements in the rule is to disclose compensation, including eligibility for trips based on sales production. If you would be uncomfortable disclosing any kind of compensation to your prospect or client, chances are that 10
InsuranceNewsNet Magazine » May 2016
they will be phased out. The good news is that the disclosure and the best interest contract can be presented at the end of the sales process rather than at the beginning or middle. That was one of the concessions the DOL made in the final rule and was criticized as watering down the regulation. It is often said, however, that a regulation can be considered successful if no one is happy with it. One of the largest concerns focuses on the phrase “reasonable compensation.” That is the subjective measure for prohibited transactions — they are allowed as long as they are “reasonable.” But who decides that? Apparently the key enforcement would be a lawsuit. So years after a sale, clients could come back with a claim that they were not aware of other options that a reasonable person could have selected. That is one of the more troubling aspects of the rule. Even if you are not sued, analysts say the standard of “reasonable” compensation will be set by court precedent, which will likely take years to play out. You can find out more about the rule’s other positive and negative aspects in this month’s InFront column from Senior Editor John Hilton and in the DOL Rule Center on our website, insurancenewsnet.com. John and others also focus on the likely legal challenge. Some of the rule was blunted, supposedly to curtail lawsuits. But then the DOL added an aspect that all but guaranteed litigation. The proposed rule had fixed indexed annuities under not the BIC exemption, but instead the prohibited transaction exemption (PTE) rule 84-24, which featured different requirements. So, several months of examination and many thousands of comments didn’t take this into account. From what we heard, DOL staffers said they didn’t realize that FIAs were identical to VAs and so could be treated the same. Obviously the whole SEC 151A fight settled that question. A federal court and Congress, through the Harkin Amendment, agreed that FIAs should not be regulated as a security, as VAs are. Between the lack of comment on the final rule and what some are calling the overreach of the DOL, opponents are most likely to sue.
In that case, they would ask for an injunction to hold back the rule, which just might be successful because they may be able to show a judge how the regulation could be damaging. But here is the thing: If you are pinning your hopes to that prospect, you might be losing precious time to make positive changes to your practice. We believe the DOL is wrong to call commissions and other compensation “conflicts of interest,” but perhaps the spirit of the intent is a healthy one. We have all heard of many cases in which aggressive salespeople have hustled clients into products they should not have bought. That does not serve anybody well, particularly the ethical agents and advisors who genuinely care about their clients. We know that most agents and advisors fall into that latter category. People go into this business because they want to serve people and help families. True, some are hustlers, but you get them in any kind of sales. In this month’s interview with Publisher Paul Feldman, author Jeffrey Hayzlett has an answer for advisors who are worried about the changes coming from the DOL: “People say, ‘I like it the way it used to be.’ Well, I don’t look like I used to when I was 20. My attitude is, I look better today. So if you have a different philosophy about that, it’s going to make doing those changes a lot faster.” Change is constant. You can decide to be a victim of change or the driver of it. It is always up to you. Steven A. Morelli Editor-In-Chief
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INFRONT TIMELY ISSUES THAT MATTER TO YOU
Final Fiduciary Rule: What It Means he final version of the DepartT ment of Labor’s fiduciary rule contained a few surprises. Here we explore the positive and negative aspects of the new rule. By John Hilton
T
he final Department of Labor (DOL) “Conflict of Interest” rule pulled a few punches, but got in a surprise jab at fixed indexed annuities. On the positive side, the DOL rescinded some of the requirements and amended one of the most troubling items, which was the timing of the paperwork for the client. It also allowed all compensation in the exemption. On the negative, the department placed fixed indexed annuities in the same category as variable annuities, which imposes more requirements on sellers. Because of that surprise move, opponents are more likely to sue, despite the other compromises. The DOL wrote the fiduciary rules to govern advice regarding qualified retirement employer-sponsored plans and individual retirement accounts. DOL officials and public interest groups say the rules are necessary to protect retirement investors from high commissions and irresponsible advice. The insurance and financial services industries say the rules are unnecessary and will mimic the impact in England, where similar rules have limited small savers’ access to professional financial advice. This is what we know on a few key fiduciary-related issues as we go to press:
Can You Receive Commissions?
Many forms of compensation, including commissions — trips, trailing fees, revenue sharing and other incentives — fall into the category of “conflicted compensation.” But they are allowed through exemptions. Advisors will need to comply with one of the prohibited transaction exemptions to receive that compensation on sales made after the enforcement 12
InsuranceNewsNet Magazine » May 2016
Labor Secretary Thomas Perez announces the final rule on April 6. The final version removes some contested parts from the proposal but increases requirements for fixed indexed annuities. dates, said Jamie Hopkins, co-director of the New York Life Center for Retirement Income at The American College. For example, the new rules permit the commission-based sale of variable and fixed indexed annuities only if the agent complies with the best interest contract (BIC) exemption. The BIC will not be fully enforced until Jan. 1, 2018, but will ultimately require five things of the financial institution overseeing the advisor-client relationship: 1 » The advisor agrees to act as a fiduciary with respect to investment advice to the client. 2 » Adherence to “Impartial Conduct Standards,” which requires advising in the client’s best interest, charging only “reasonable compensation,” and making no misleading statements about investment transactions, compensation and conflicts of interest.
3 » To have policies and procedures in place to prevent violations of the Impartial Conduct Standards. 4 » To avoid offering incentives for advisors to act contrary to the customer’s best interests. 5 » To disclose the fees, compensation and conflicts of interest associated with all recommendations. But while the DOL claims commissions are allowed, the time required to comply and the liability associated with the prohibited transactions might be too much, Hopkins said. “There’s a general feeling that some of that stuff might have to go away,” he added. “From a liability standpoint, you might see people move away from those indirect compensation or revenuesharing or bonus models.” As for existing clients, the DOL included a “grandfathering” provision.
FINAL FIDUCIARY RULE: WHAT IT MEANS INFRONT
Simply put, commission and other payments, such as 12(b)-1 fees, agreed to before the enforcement dates will be allowed to continue.
Can the Rule Still Be Stopped?
Even before the final rule was published, a few groups, such as the U.S. Chamber of Commerce, talked openly of filing lawsuits to stop it. “I think we have to at least consider the need to go to court,” David
message seeking comment. The DOL stance on FIAs is a more narrow reading of a 2008 Securities and Exchange Commission (SEC) effort to regulate all indexed annuities as securities. After a long fight, Rule 151A was thrown out by a U.S. Court of Appeals, leaving indexed annuities under state regulation as an insurance product. The District of Columbia Circuit Court of Appeals ruled that the SEC failed to analyze the rule’s impact on
Timeline on IMPLEMENTATION The original fiduciary rule included an eight-month implementation period, one that the financial services industry cited as an impossible bar. The final rule stretched that timeline to about 20 months. Here are the two dates you need to be aware of: » April 10, 2017. The change in fiduciary definition will become effective on April 10, 2017. Advice on qualified business sold from that point forward will be subject to the new fiduciary standard. Advisors will be required to provide best-interest advice, to ensure that their compensation on qualified sales is “reasonable,” and to provide certain point of sale disclosures to customers. Financial institutions will need to have and disclose conflict-of-interest policies and procedures. » April 10, 2017, to Jan. 1, 2018. The DOL will defer the requirement to execute a BIC to continue to receive commissions until Jan. 1, 2018. In effect, advisors will continue to be able to receive prohibited compensation (assuming it meets the ”reasonable” bar and does not conflict with their advice) on new sales during that period provided disclosures are met.
Hirschmann told reporters in March. He is president of the business group’s Center for Capital Markets Competitiveness. According to Washington, D.C., attorney James F. Jorden, opponents have a good case, particularly because of how the final rule treats fixed indexed annuities (FIAs). The final rule moved FIAs into the BIC, where they are treated the same as variable annuities. “They don’t cite any basis for saying that or any study that demonstrates the necessity,” said Jorden, a shareholder of Carlton Fields Jorden Burt. “Frankly, the DOL’s analysis is flawed, and it’s just not supportable.” The issue is whether FIAs should be regulated as an insurance product or a security. The DOL’s only explanation is that FIAs are a “complicated” product, but that does not mean they should be regulated as a security, Jorden said. A DOL spokesman did not return a
the indexed annuity market that the commission sought to regulate. One could argue the DOL is guilty of the same misstep, Jorden said. “They believe one is more complicated than another, and that is not a sound basis,” he said.
How Does the Rule Affect FeeBased Advisors?
In the fee-based world, advisors who have followed a fiduciary standard for years may be feeling confident they can handle the new rules. But they will find it more difficult to do business, experts say. “I think RIAs who are truly fee-only are better positioned, but even those folks will have to accommodate new standards of care,” said Craig Lemoine, associate professor of Financial Planning with The American College in Bryn Mawr, Pa. “The landscape changes for fee- and commission-based advisors; commission-based advice will see a higher
burden,” he said. “All advisors will need to develop a deeper understanding of the source of retirement funds, if suggesting a rollover from a profit-sharing plan is actually in the best interest of the client.” Many RIAs employ a hybrid model: They receive income from fees and from commissions, and the commission-based revenue stream is likely to be the most affected by the new rule, industry experts said. Advisors looking to continue selling commission variable and fixed indexed annuities into retirement accounts will need to comply with the BIC. They will have to present the contract to their clients, and since it stipulates a high level of transparency with regard to fees and commissions, advisors will have to make a much stronger case to investors for why the product they are recommending is worth buying. “When it comes to rolling over a 401(k) to an IRA, that may affect people across the board because if we can’t justify that our fee is better than what they are receiving, that will affect money coming into our firm,” said Brent D. Dickerson, proprietor of an RIA in Lubbock, Texas. IRA and tax expert Ed Slott, founder of Ed Slott and Co. in Rockville Centre, N.Y., said the fiduciary responsibility imposed on retirement-related transactions means that advisors had better know the new rules. If not, RIAs risk going out of business because they are competing with big companies offering fee-based managed accounts, Internet investment algorithms, and mutual complexes that can charge smaller and smaller commissions. RIAs who decide to retain their commission-based revenue model had better be good at providing a service and justifying their rates. “You can still do commission-based products, but you will have to earn it,” Slott said. InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john. hilton@innfeedback.com.
May 2016 » InsuranceNewsNet Magazine
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Don’t you want to be the biggest, baddest, best version of yourself? Jeffrey Hayzlett says you can, as long as you think it first.
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InsuranceNewsNet Magazine Âť May 2016
BIGGER, BADDER, BETTER INTERVIEW
J
effrey Hayzlett has long said that his successes came from the maxim “Think big and act bigger,” hence the name of his newest book. He boasts that his drive comes from his origins as a cowboy from South Dakota, but he cut his teeth by buying and selling 250 companies and climbing the corporate ladder to become the chief marketing officer of Kodak. He has spoken about his efforts to steer Kodak into the digital photography world long before the iceberg showed up. Along the way, he learned that corporations and people are bound up by the stories they tell themselves and the excuses they rely on, such as “It’s always been done this way” or “That just isn’t possible.” Jeffrey’s message can be boiled down to: It’s always possible, but it will cost time and money. The real questions are, how much will it cost and is it worth it to you? If you are stuck in an ordinary life, what’s the magic to opening up the possibilities? The magic comes from hard work and asking the right questions. Jeffrey explores what they are in this interview with Publisher Paul Feldman. FELDMAN: What inspired you to write the book Think Big, Act Bigger? HAYZLETT: I’ve bought and sold over 250 companies in my career, $25 billion in transactions, and been a Fortune 100 officer. Anything I’ve done, small or big, I’ve always found people who tell me you “can’t do” things or “We’ve tried that before,” or they give me this list of excuses, and I just think, “BS to it,” because if you want to do it, you can do it. It might take money, time or expertise, but there’s no one putting a gun to your head and saying you can’t. And that’s the only thing that I think would stop you, especially when it comes to business. I just always said, “Look, I’m tired of people telling me we can’t do things. How ’bout we do them?” We put these self-imposed limitations in our way, and it’s really as simple as just going around them, over them, through them, or eliminating or ignoring them all together and doing what you want to do. FELDMAN: While there are many gurus
and experts that claim to have “the secret of success,” your approach is much simpler and direct?
When you’re very clear about what you do, how you do it and the outcome you want, then it makes things a lot simpler.
HAYZLETT: The first thing you need to ask is, “What are my conditions of satisfaction?” So, what it is you want to drive? We get so busy into the doing that we forget to think about the what. What is it that I want? Where do I want to be? How do I want to live the way I want to live? Your conditions of satisfaction become a filter for everything that you do. For me personally, it’s about building wealth for me and my family because I want my family to have a better life than I’ve had, and that means my kids and my grandkids. So I would like to leave that legacy. Two, I like to do things that are interesting, meaning I learn from things I like. I could do a daily television show today if I wanted to or become the CEO of a company, because I’ve been offered that in the past couple of weeks. I could be a CMO again. I could do a lot of different things, but those things don’t interest me anymore. I do what I want to do because I want to be inspired and I want to do things that challenge. The third thing that I like to do for my condition of satisfaction is have fun. If I can’t come in every day having fun at what I do, what’s the use of doing it? I go to bed every night hoping I’m going to hurry up and sleep fast so I can get going and doing what I want to do the next day. Deciding what leads to those conditions sometimes means not working with people because you don’t like them or you don’t like what they stand for or you can’t serve them because they don’t meet your levels of conditions of satisfaction, meaning profitability. I own a public relations and social media company called TallGrass. And our slogan for the company is: If you want to run with the big dogs, you need to learn to piss in the tall grass. If you’re offended by it, I don’t want you as a client. Why? Because we only want aggressive clients. We want high-growth clients, and high-growth clients aren’t offended by that. If your sensibilities are offended by it, then I don’t want to work with you because I’m the kind of guy you hire when you really want super growth and super visibility. So to do that, we’re gonna be extremely aggressive. I’m not your timid little bookkeeper in the back. I’m the front guy, the lineman on the football team who pushes holes through.
FELDMAN: You talk about “squirrels of distraction” in your book. How do you get rid of these squirrels or manage them at least? HAYZLETT: To get rid of squirrels in your backyard, stop feeding them. That’s all it takes. Sometimes we’re our own worst enemy. Sometimes we sabotage ourselves by setting ourselves up with ways in which we do business, which encourage more squirrels to show up. The key is to recognize those patterns and understand that you’re probably the reason for it. I do this all the time. I meet anyone who wants to meet. Anyone who writes to me, I write back. Anyone who calls me, I call back. Anyone who follows me on social media, I usually try to follow them back. If I am going to be more efficient with my time, then I’ve got to eliminate some of that. First, figure out what’s causing you to have all those squirrels show up, and then stop feeding them. FELDMAN: Do people invite distraction? HAYZLETT: By not being really clear about those conditions of satisfaction and whether those things are distracting you from where you need to get. In my first book, The Mirror Test, I said that it’s really important for leaders to look in the mirror and ask ourselves some key questions. One of those questions is “What activities are popping up on my day that are eliminating me from getting my big goals?” Ask yourself that at the end of every day and say, “Well, here’s where I wasted two hours,” or “Here’s where I let this distract me. I had a meeting with someone who asked for coffee, and I just had coffee without really knowing what they wanted to know.” Well, how about putting something in place to ask better questions before you meet with the person, to see whether it’s worthy of your setting that much time aside? The only real thing anyone has is time. You have to treat time like inventory, and for me, I get paid by speeches. I get paid by television episodes. I get paid to meet with CEOs and C-suite leaders in order to help them grow their companies. And if I waste my time on things that aren’t as productive as the time I spend with those people who May 2016 » InsuranceNewsNet Magazine
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INTERVIEW BIGGER, BADDER, BETTER want to pay me massive amounts of money, shame on me. My time is my inventory, so if I wasted that time I don’t get it back, and so you should really look at every hour, every minute of your day as a valuable resource, as important as gold. FELDMAN: I really like the concept of the mirror test. What are some other questions one should ask? HAYZLETT: When you look in the mirror, the person responsible for your success is staring back at you. It’s not your banker, CPA, board of directors — it’s you, and you determine that. That was a tough lesson for me to learn. I ask some key questions like “What is it that I want my business to be? What kind of leader do I want to be? How do I want people to see me? How do I want to show up?” I also ask some pretty tough questions, such as “What do I want the brand to be?” I’m not talking about the look and feel. Those are brand attributes that are part of it, but I’m talking about “What is the promise that I want to deliver to customers?” The customers own the brand — they always do — but you own the promise that you deliver. So if you’re going to say our company is this, what’s the brand promise? Ask yourself those kinds of questions, and be able to repeat it. What’s your 118 pitch? The average attention span of adults is eight seconds. You’ve got eight seconds to hook me and get me to lean in and hear the rest of the story. Then you have 110 seconds. That’s the average elevator ride in New York City from the time you press the button and wait for the doors to open to the time you step on and then get off. That totals 118 seconds. FELDMAN: You have an interesting concept for time management, called the inverted pyramid, that I found very useful. Can you explain it? HAYZLETT: It’s just something real simple that I draw out every day. We all know a pyramid has a large base and gets smaller at the top. We typically put our biggest goals at the very top. Our one, two, three key goals — those things that are most important are at the top of the pyramid. Then the next level and then the next level — good, better, best. Well, why not do that with the things that you want to get accomplished? Take all the things on your priority list 16
InsuranceNewsNet Magazine » May 2016
for your company and your personal life. You have your top things at the very top, the next most important thing and then the least important. Now flip that over and spend most of your time on the most important things. If you do it like that, you’ll get more focused on where you want to go and what you want to get accomplished. I try to do that, but I’m still not good at it. Where I should be improving right now is building what’s called the C-suite network. I have people who want to give me money, and I’ve been too busy to take their money. Well, doggone it, I need to spend more time on that. So have to look at that and say, “Quit having coffee with this guy. Kill that squirrel and let’s get up here and go take somebody’s money.” FELDMAN: How do you keep yourself focused? HAYZLETT: Staying focused is probably one of the biggest things for a leader to do. When I talk to billionaires and people who are just
I’m not being a hard-ass. What I’m trying to do is say, “Let’s be crystal clear about what we want to get done. If you’re not crystal clear, then why are you asking me to participate? I don’t have the time, and nor should you waste the rest of your people’s time.” Then I ask how much time it will take to get it done. So we have a time frame. If we can finish up earlier, that’s more inventory that we get. You develop a cadence of how you operate. FELDMAN: Can you explain cadence? How it works and what you can do with that? HAYZLETT: If you watch “CSI,” you get a sense of how it moves, as opposed to “Downton Abbey.” “CSI” is fast-moving, fast-paced, high-energy. When you watch “Downton Abbey,” it’s a little bit more relaxed with the era in which the show is set. When you walk into your office, what’s the cadence that you see? Is it fast? Is it slow? Is it like a lake? A river? A creek?
“Quit having coffee with this guy. Kill that squirrel and let’s get up here and go take somebody’s money.” extremely successful, they’re laser-focused. And the more laser-focused they are, usually the more successful they are. I try to stay very focused on the key things by having them in front of me at all times. I write them down every day in a little Moleskine notebook. I draw three big lines vertically from top to bottom, and I write those things — good, better, best. I repeat them every day, so they carry over from day to day. Some carry over from week to week or month to month. If I don’t write it down, I usually won’t commit to it. I’m ADD, and I should probably be on every kind of medication there is, but I’m not. I write it down. FELDMAN: I think that many business owners would say that they’re ADD. What are some strategies that keep you in the moment? HAYZLETT: I start every meeting saying, “What’s the purpose?” Then if someone says, “Um … um,” I say, “When you figure it out, we’ll have the meeting again,” and I just get up and leave.
That’s as important as mood. It’s as important as culture. Because it helps set all those things. If you see people moving along fast, the cadence is fast. The answers are fast. You get back to people faster. You speak faster. All the things that are along those lines. I joke in my office, when people say, “It’s cold in here.” I say, “Hey, work harder. You’ll get hotter.” The more you think about that, the better. Even the way you decorate the office helps set the cadence. Does it look like a lodge or a little bit more edgy and metro? All of those things fit into your cadence. That is the way in which you’re going to operate. FELDMAN: How can you change the cadence of your office? HAYZLETT: Lead. Direction comes from leaders. You can have leaders at the top, and you can have leaders inside the organization. Find those leaders who can help influence those people who influence everyone else.
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Life insurance is issued by The Prudential Insurance Company of America, Pruco Life Insurance Company (except in NY and/or NJ) and Pruco Life Insurance Company of New Jersey (in NY and/or NJ). All are Prudential Financial companies located in Newark, NJ. Guarantees are based on the claims-paying ability of the issuing company. The BenefitAccess Rider is an optional rider for chronic or terminal Illness that accelerates the life insurance death benefit. It is not Long-Term Care (LTC) insurance. Benefits received under the rider will reduce and may deplete the death benefit. Electing the BenefitAccess Rider results in an additional charge and underwriting requirements. Some benefit payments may be subject to a fee. Other terms and conditions apply. Clients should consult their tax and legal advisors. For New York contracts. Please also note the rider is not subject to the minimum requirements of New York Law, does not qualify for the New York State Long-Term Partnership Program and is not a Medicare supplement policy. In addition, receiving accelerated death benefits may affect clients’ eligibility for public assistance programs and such benefits may be taxable. © 2015 Prudential Financial, Inc. and its related entities. FOR THE EDUCATION OF PRODUCERS/BROKERS ONLY. NOT FOR USE WITH THE PUBLIC. 0275755-00002-00 May 2016 » InsuranceNewsNet Magazine
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INTERVIEW BIGGER, BADDER, BETTER A third will get it right away. A third will eventually get it. A third never will, on anything we do. It’s always that. FELDMAN: After being through 250 mergers and acquisitions, what’s the most important lesson you walked away with? HAYZLETT: Do them faster. Everybody talks about how their situation is unique: “We need to do it this way. Our customers are going to want to hear our name here for this long, or that they don’t care.” As long as you’re delivering the brand promise — you can call it Smuckers, you can call it whatever you want. So the lesson I learned is that you can move a lot faster. There’s always a way to do something. It might not be the best way, but there’s always a way to do it. So, like for instance when I was chief marketing officer of Kodak, we took over a company and they told me it was going to be three or four months before we got switched over to email systems. I went back to the IT department and said, “Look, I understand that, but can you forward them to a new address, so that every email that goes can go to the new Kodak email address?” And they said, “Yeah, we can do that overnight.” “Great. Do that for every employee in the company overnight.” FELDMAN: Do companies try to focus on doing it right rather than faster? HAYZLETT: Yeah. A little raise, fire, aim is not such a bad thing. Let me just ask, what happens if you make a mistake in business? By and large, no one’s going to die. The most we might get is a paper cut. FELDMAN: Our industry is facing some huge changes right now. We’ve got regulators coming in with game-changing rules. Certainly as a Kodak CMO and throughout your business career, you’ve seen significant changes. What are some lessons that you would bring to insurance and financial advisors? HAYZLETT: Three simple things: Change, adapt or die. That’s it. Don’t fight it; step into it. The faster you step into it, the better. It’s going to change. It’s inevitable. People say, “I like it the way it used to be.” Well, I don’t look like I used to when I was 20. My attitude is, I look better today. So if you have a different philosophy about that, 18
InsuranceNewsNet Magazine » May 2016
Turn Over the PYRAMID MOST
United Deal CBS Radio Guests TV/Radio Sponsors Ad Network Implemented CBS Sponsors Book Club/Best-Seller Authors C-Suite Sponsors Boston Conference Attendees
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Social Media Product Service Offering CBS Launch CBS Content Kuhoots/oneQube Sales Speaking Sales PR Sales oneQube/TV/Radio Rollout • C-Suite/JWN • Audience C-Suite With Jeffrey Hayzlett Episodes
SOME
TV/Radio Content
Jeffrey Hayzlett turned his to-do lists upside down so that he spends most of his time at the top. This was his list from January 2015.
it’s going to make doing those things a lot faster. Now, that doesn’t mean you just roll over. It just means that the tension you have as a result of that change — something better is going to come out of it or something different. When there’s always something different, especially in the insurance industry, you tend to make money from it. So why would you not want things that are different all the time? In the end it’s always going to change, so why not adapt with it? The faster you get with it — that’s the real cutting edge. Those are the real leaders. You hear a lot of times, “Hey, let’s go out and fail fast.” How about “win fast?” Someone once said to Thomas Edison, “You failed 10,000 times to make the light bulb.” He said, “No, I didn’t. I found 10,000 ways to improve on it.” FELDMAN: What are some tips you’d give agents and advisors to think big and act bigger? HAYZLETT: When you look at success, how
would you define it? What are the attributes that you would put with it, and then why wouldn’t you design a plan to make sure you would deliver on that? You should drink the Kool-Aid in saying there’s nothing that’s going to get in my way to deliver that. Whether the success is that you build enough revenue to spend more time with your family or buy a new house or build a respected practice, figure out what success is, drive it and do not stop. Do not get distracted until you get that done. FELDMAN: You say that people don’t want to do the hard work to be successful. HAYZLETT: It’s called hard work because it’s fricking hard. A lot of people are used to taking a pill to get well. But if you’d eaten better and you’d done certain things in your life a little bit better, you probably would have stayed a little healthier. If it were easy, everybody would do it. This isn’t for the mild or meek. It’s for the most hardy, and that’s why there are only so many people who have risen to the top ranks — to the very top — because there are only so many people who can get to the top; they’ve set their mind to just go get it done. They do the things you’ve got to do. It means choices. It means sacrifices. It means risking. It means seizing opportunities. But most of the time it means hard work with a lot of sweat. And not everybody’s cut out for success. Most people don’t add enough zeros to their lives. When I was in South Dakota, I used to think that being the biggest printer in Sioux Falls was cool. Then I realized that I can be the biggest printer in the county. I could be one of the biggest printers in the state. Then I realized the stuff that I was doing, I could go and do that in Iowa. I could do that in Chicago. My gosh, I could do that in Tokyo. So I started adding zeros to the things I could do and realized there was no difference between the business on Main Street and on Wall Street. It’s just the numbers of zeros. Same people. Same concept. Same products. What was the difference? The difference was in the scale. So why not just add the scale? And that means sometimes not accepting that you can’t do things. Give yourself permission not to accept the obstacle, to work around the obstacle. Give yourself permission to succeed.
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Health care practitioner must state informal care is appropriate in the plan of care. Nationwide YourLife CareMatters may not be available in every state. Please contact Nationwide to determine product availability in your state. Guarantees and protections are subject to the claims-paying ability of the issuing insurance company. When choosing a product, make sure that life insurance and long-term care insurance needs are met. CareMatters is not intended to be a primary source of life insurance protection, so make sure life insurance needs have been covered by appropriate products. Because personal situations may change (i.e., marriage, birth of a child or job promotion), so can life insurance and long-term care insurance needs. Care should be taken to ensure these strategies and products are suitable. Associated costs, as well as personal and financial objectives, time horizons and risk tolerance should all be weighed before purchasing CareMatters. Life insurance, and long-term care coverage linked to life insurance, has fees and charges associated with it that include costs of insurance, which varies based on characteristics of the insured such as gender, tobacco use, health and age, and additional charges for riders that customize a policy to fit individual needs. Life Insurance is issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company, Columbus, Ohio. Let’s Face It Together is a service mark of Nationwide Life Insurance Company. Nationwide, the Nationwide N and Eagle, Nationwide is on your side and YourLife CareMatters are service marks of Nationwide Mutual Insurance Company. © 2016 Nationwide. May 2016 » InsuranceNewsNet Magazine NFV-0890AO.2 19 (6/15) 1
NEWSWIRES
QUOTABLE
Obama Wants Tougher Oversight of Wall Street
It’s only a matter of months before everyone has been sued.
It’s not enough that the Obama administration succeeded in getting a tough fiduciary rule in place for financial advisors. President Obama is pushing for still tougher oversight of Wall Street to head off another financial crisis. The administration has signaled it intends to keep tightening rules on the financial industry. The president met recently with a group that included Fed Chairwoman Janet Yellen and Securities and Exchange Commission Chairwoman Mary Jo White to discuss implementing stronger protections for consumers and scrutinizing financial industry practices that predated the 2008 crisis. Among those practices are what he called the “shadow banking system” and executive compensation structures that create incentive for risk. Obama defended the actions taken by the government in the wake of the crisis, including enacting the Dodd-Frank financial reform law and establishing the Consumer Financial Protection Bureau.
METLIFE NO LONGER ‘TOO BIG TO FAIL’
A federal court ruled that MetLife is not a systemically important financial institution. A fed- NOT too big to fail eral judge tossed out the designation by federal regulators that MetLife’s failure would pose a threat to the nation’s financial system. MetLife, the largest U.S. insurance company by assets, took the government to court more than a year ago to appeal its labeling by the Financial Stability Oversight Council as “systemically important” and requiring stricter supervision. That meant regulators deemed MetLife to be so big and entwined with the financial system that it could threaten the economy if it collapsed. In fighting the oversight agency’s action, MetLife said that tougher requirements on life insurance companies would force the companies to raise the prices of their products reduce the amount of risk DID YOU
KNOW
?
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they take on in selling their products, or stop offering some products altogether. MetLife is not the only nonbank financial institution that is seeking to remove the “too big to fail” label. General Electric wants to have the SIFI designation removed from GE Capital, saying that its financing operations are a shadow of what they were when the Federal Reserve placed it under strict oversight in the aftermath of the global economic crisis almost a decade ago.
SEN. WARREN CALLS FOR SEC PROBE OF DOL OPPONENTS
Sen. Elizabeth Warren, D-Mass., has been known for going after Wa l l S t r e e t during her time in the Senate. Now she is going after critics of the Department of Labor’s fiduciary rule. Warren called on the Securities and Exchange Commission to investigate several
Federal investigators found significant cybersecurity weaknesses in the health insurance websites of California, Kentucky and Vermont. Source: Associated Press
InsuranceNewsNet Magazine » May 2016
— Stephen J. Jorden of Carlton Fields, on class action lawsuits expected to be filed against four life insurance carriers for cost-of-insurance increases
critics of the rule, claiming they misled investors through duplicitous statements. In a letter to SEC Chairwoman Mary Jo White, Warren noted that the companies — Lincoln National, Jackson National, Prudential and Transamerica — claim the proposed rule is “unworkable” and will have a dire impact on their businesses. Representatives for the companies released statements defending their comments on the rule.
ACA MISSED 2015 ENROLLMENT TARGET
Last year’s final enrollment numbers under the Affordable Care Act fell just short of the administration’s target. The numbers are important because the insurance markets created by the law face challenges building Enrollment target and maintaining missed by 3% enrollment. The marketplaces offer subsidized private insurance to people who don’t have access to job-based coverage. The report from the Health and Human Services Department said about 8.8 million consumers were still signed up and paying premiums at the end of last year. HHS Secretary Sylvia M. Burwell had set a goal of having 9.1 million customers by then. So the administration didn’t miss its target by much — about 3 percent. However, the 2015 coverage year had started with 11.7 million people signed up. Measured from that initial starting point, the attrition rate is a lot higher, about 25 percent.
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The growing field of family governance is helping reverse the decadent dissolution of family fortunes.
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InsuranceNewsNet Magazine Âť May 2016
by Steven A. Morelli
F
FEATURE
amily wealth strategist Tom Rogerson is not a fan of Donald Trump the presidential candidate, but he admires Trump the dynasty builder. It is not Trump’s billions that impress Rogerson but rather how Trump is preparing his children to inherit his empire without becoming adult brats. Rogerson has an inkling of this because of a documentary, Born Rich, which was produced by Jamie Johnson, an heir to the Johnson & Johnson fortune. In the 2003 movie, most of Johnson’s fellow scions are not handling their wealth very well, with a key exception. “One of the strongest, most proud and best prepared was Ivanka Trump,” Rogerson said. “He was doing a phenomenal job of preparing his daughter for what to think about success and wealth.” This might be another Tale of the Two Trumps that former candidate Ben Carson had revealed about the Republican front-runner. Although The Donald displays a gold-plated Trump to the public, the documentary showed he was far more plain-spoken with his children. “In the world, he was a bloated windbag, but at home, he was transparent,” Rogerson said as he relayed a story from Ivanka about her father during a low moment in his life. “She said that she and Trump walked by a bum on the street in New York, and Trump stopped her. He leaned over to her and said, ‘I just want you to know that guy has more money than I do right now.’ He was very transparent about where they were. Because of him, she has this pride and strength.” Rogerson could have used that transparency in his own life. He became something of a wealth whisperer after his own father lost his family’s fortune. Rather than going back to his family compound after college, Rogerson had to go out in the world and build a career that eventually led him to become a family wealth strategist at Wilmington Trust. He is now a proponent of family governance, a growing field that is helping change the perspective of estate planning. Rogerson used to practice traditional estate planning at the venerable accounting firm Coopers & Lybrand. “I helped build the financial planning practice for Coopers in the Boston market,” Rogerson May 2016 » InsuranceNewsNet Magazine
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FEATURE HOW DYNASTIES LOSE THEIR FORTUNE
Photo credit: Keiko Hiromi/Polaris
said. “And I was out there thinking I was doing great good for these families by helping them with sophisticated trust structures and generation skipping and provisions to protect their wealth from divorces. And all the things that so many advisors still are recommending to their clients.”
else. By the end of the 19th century, Fifth was also higher. Then, as now, 3.5 perAvenue bristled with the family’s for- cent is an approximate rate of sustainable tresslike mansions, elbowing aside grand spending, Rogerson said. families such as the Astors and setting “Unsustainable,” though, seems to be the tone for the Pulitzers and other as- too tame a word to describe some of the cending families of the age. spending by scions. George Huntington The vast wealth seemed inexhaustible. Hartford II is a prime example. But there’s always the principle that exHartford was named after his grandfapenses rise to meet in- ther, founder of The Great Atlantic & Pacome. And then some. cific Tea Co., which became the world’s “One of the prob- largest retailer, A&P supermarkets. lems is parents don’t When Hartford was 6, he inherited an teach the idea of sus- annual income of $1.5 million, a staggertainable spend rates,” ing sum in 1917. Rogerson said. “We But he managed to exceed that amount didn’t use to call it in short order with women, real estate, that. Here in Boston, drugs and schemes. His social life ran the the Brahmins called it gamut of 20th-century fame, cavorting ‘Don’t spend the prin- with such luminaries as Charlie Chaplin cipal.’ Nowadays, it’s in his youth and Andy Warhol in his midhardly talked about.” dle age. Republican presidential candidate Donald Trump So sudden money Hartford financed movies and an artwith his daughter Ivanka Trump at Verizon Arena. leads to sudden spend- ist colony, and built an art museum, but ing. And that leads to perhaps his most ambitious expense was But as Rogerson read the latest re- expensive lifestyle maintenance. Paradise Island. search on why families were failing with“Let’s say a kid inherits $10 million,” That’s what he called a 685-acre parcel in a few generations, he realized he was Rogerson said. “The first thing he does in the Bahamas formerly known as Hog going about it all wrong. is buy about $3 million worth of stuff — Island that he bought and tried to devel“It had very little to do with the quality houses, toys, cars, boats — things like op into a new Monte Carlo. After sinkof the plan,” he said. “It had almost ev- that. They assume that $7 million will ing at least $30 million into the venture, erything to do with the preparedness of cover the cost of their lifestyle going he eventually sold it for $1 million. Now the next generation. We’ve prepared the forward. But $7 million at a sustainable home to the Atlantis resort, the island is money for the family, but we didn’t pre- spend rate doesn’t actually cover the cost estimated to be worth $2 billion. pare the family for the money.” of that lifestyle.” His fourth wife introduced him to coLow interest rates are not to blame, ei- caine and other drugs, leading him to Dynasties Gone Wild ther. Although it’s true that even safe in- reduce his Manhattan duplex to a hovel. Anderson Cooper is a successful news vestments decades ago could yield more His fortune drained to a trickle in his latanchor on CNN, but few might realize the single-digit rates of return, inflation er years as he languished in the Bahamas that he is descended from American royalty — he is a sixth-generation Vanderbilt. He has little but lineage to show for it. Anderson Cooper didn’t That is partly due to the fortune’s erosion over time but also because of the hard inherit any of the fortune lessons drawn from generations of failleft by his great-greature. His mother, Gloria Vanderbilt, wantgreat-grandfather, but he ed him to earn his own way in the world. still ended up amassing Cornelius “Commodore” Vanderthe same amount The bilt built a steamboat fleet and then a Commodore left — about railroad empire that made him America’s $100 million. first tycoon by the time he died in 1877. He left $100 million, which was more than the U.S. Treasury held. Within 30 years, just after the Gilded Age that he helped start, many of his descendants ran out of money. Cornelius “Commodore” Vanderbilt Anderson Cooper How did it go so wrong? Once the Vanderbilts ascended to society’s stratosphere, they battled to outdo everybody 24
InsuranceNewsNet Magazine » May 2016
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FEATURE HOW DYNASTIES LOSE THEIR FORTUNE
THE ASTORS The Astor family made its fortune in real estate, so it is fitting that the last vestige of the family fortune is a piece of property. The mansion, Rokeby, remains on an impressive 420-acre tract on the Hudson River, but the family no longer has the money to maintain it. It is now a dissolute refuge for some of the more down-on-their-luck descendants. not far from his former island. At his side was Juliet, his lost-soul beauty of a daughter who appeared in the documentary Born Rich. In the movie, she described her father as barely present in her life as a child. She indulged in modeling and painting abstract art, a genre her father detested. Apparently her aimless life found some purpose after the movie when her father fell ill and needed her help. She lived with him until he died at 97 in 2008. One of his other children had committed suicide, and another died of a drug overdose.
Last Vestiges of Grandeur Overlooking the Hudson River is the last shred of the Astor family empire. It is a decaying 43-room mansion called Rokeby on a 420-acre tract. William Backhouse Astor Sr., who made his vast fortune in Manhattan real estate, bought the house in 1836, and the family has been adding on to the home ever since. But now that the money is gone, so is the maintenance. 26
InsuranceNewsNet Magazine » May 2016
Astor’s descendants have pledged not to sell it despite the leaking roof and vast disrepair. Although the family has reached begrudging agreement on the house, the spirit of consensus is coming generations too late to save the family fortune or at least to save a financial structure that would have maintained the property. That is a similar situation that Rogerson faced with his own family. After the fortune ran out, the family was saddled with a large property to maintain. “We had a family compound here in Massachusetts, where I expected to exist for the rest of my life, and my kids would be able to enjoy it,” said Rogerson, who lives on a sliver of what used to be a vast estate. “We live on a piece of the property that’s been in the family for 13 or 14 generations. And I’ve always loved the fact that my kids are playing on the same rocks that my great-great-greatgreat grandparents played on when they were kids.” The total property had been divided into 50 lots, many of which sold for fire
sale prices. Now he and his family live in the neighborhood that grew up around them. “My generation has entirely disappeared,” Rogerson said of his extended family. “Of all the different houses and lots, only three of them are still owned by the family.” But it didn’t have to be that way. Before financial pressure forced the family to sell the property as quickly as possible, he had an idea that would have required a dramatic rethinking about the whole property. “I had a vision that would have preserved that continuity,” he said. “I said, ‘Why don’t we sell this together? We can develop it together and maybe then take some of the proceeds and establish something in a less valuable piece of the property where we can maintain this sense of family and togetherness.’ And they looked at me like I was some kind of horrific dirtbag because I was recommending selling the family land.” Instead, the land was sold at bargain prices, and the family was scattered. Why can’t many families work together on estate issues? Usually it’s because the family members never worked together before and don’t trust each other when the stakes are high. That is what family governance is all about.
Keeping the Family in the Family The key to family governance is to have all the members participating long before the wealth generator dies. That is how trust develops. “You need to have trust in the beginning, and that trust comes through meaningful experiences, team-building exercises, working together on smaller projects,” Rogerson said of the process. “I don’t have to love you. I don’t have to like you. But I need to trust you.” Some families have developed sophisticated structures. Take the Bloch family, for example. Richard Bloch was the co-founder of H&R Block. His descendants created a family governance system that includes spouse onboarding. It can be more effective than a prenuptial agreement, which essentially excludes spouses from the family.
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FEATURE HOW DYNASTIES LOSE THEIR FORTUNE
THE VANDERBILTS Cornelius “Commodore” Vanderbilt was America’s richest man by the time he died in 1877. But his family drained much of that wealth in two generations in a competition to be most golden in the Gilded Age. That process incorporates spouses into some of the family’s actual decisionmaking on committees. They, like many of the other family members, may start small and work their way up. “I worked with a very wealthy family in London that had a series of committees, some of which focused on very lowconsequence decisions like what entertainment or venue should they have for the next family meeting,” Rogerson said. “But some are very advanced, like how should we decide to sell a family enterprise and divide the proceeds from the sale? How should we discipline a family member for bad behavior within the family or outside the family?” Rogerson said it was a quote from one of his clients that put the whole concept into perspective: “Wealth without responsibility and authority is a formula for resentment and failed self-worth.”
Control Issues Commodore Vanderbilt helped establish the model of the hard-charging chief ex28
InsuranceNewsNet Magazine » May 2016
ecutive, but he also set the pattern of the domineering patriarch. Vanderbilt was not shy about his opinion that he didn’t think his sons would ever measure up to him. He set them up with big money and small expectations — which people tend to live up to. It’s no secret that the kind of driven people who can put together massive empires can also develop massive egos to match. Basically, they can be real jerks to their kids. Joseph Pulitzer was an example of the dynamic, but the result of his estate planning would have surprised him. Pulitzer built a newspaper empire that started in St. Louis and flourished in New York City. He set up his estate so that when he died in 1911, he punished his least favorite son, Joseph Pulitzer II, by leaving him the St. Louis Post-Dispatch. He gave the crown jewel, the New York World, then the largest newspaper in the country, to his two favored sons, Ralph and Herbert.
Within 20 years, the New York brothers would sell the World for a fraction of its value during the Great Depression. The brothers and their heirs would squander the rest of the fortune and the family’s name. The name Roxanne Pulitzer may ring a bell — or toot a horn. The wife of the drugging and debauching Ralph Jr. told all with a book after their scandalous divorce. Then she appeared nude in Playboy, posing with a trumpet. Apparently you would have to read the book to find out why. In the meantime, Joe Pulitzer II turned the Post-Dispatch into one of the country’s best newspapers in its day and had the last laugh by winning 12 Pulitzer Prizes, which his father established. Often, patriarchs and matriarchs might want to exert control from the grave, but the only thing they can be certain of is creating chaotic dysfunction. “The structures they put in place to protect the assets often create the very problems that they’re trying to protect the money from in the first place,” Rogerson said. “So, well-intentioned planners, insurance agents and clients are getting together and collaborating together and creating plans that don’t empower the children.” Who can help Type A business leaders see the chain of misery they are building? It could be insurance agents and estate planners who lead the way.
Getting the Buy-In Rogerson is called in to help by insurance agents such as Jamie Bush, who is principal of Bush & Co., a financial services firm in Boston. Bush calls in Wilmington Trust as an institutional co-trustee that will help ensure long-term stability for a family using a multimillion-dollar trust. “Money can be a huge blessing in the right hands at the right time, or it can be really toxic in the wrong hands at the wrong time,” Bush said. “And because the people who set up these trusts to hold their assets, including life insurance proceeds, don’t know what’s going to befall the beneficiaries, children, grandchildren, second spouses, third spouses, etc., it’s helpful to have a co-trustee along with the independent trustees, who have a
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FEATURE HOW DYNASTIES LOSE THEIR FORTUNE they have not been able to address themselves.” And once they have that conversation, the solution is not only a matter of creating the right instruments for heirs. Setting up the relationships is key to ensuring a smooth wealth transition for generations to come. For example, not naming one sibling as the trustee in a family with several siblings would be beneficial. But sometimes these issues can be beyond the ability or comfort of an insurance agent or advisor. After all, some of this is verging into counseling. So Bush calls in a wealth psychologist.
Enter The Wealth Psychologist
THE HARTFORDS Huntington Hartford inherited a $1.5 million annual income stream when he was 6, and he did his best to enjoy it with a playboy lifestyle and a penchant for failed enterprises. By the time he died at 97, he was bankrupt and living quietly in a small corner of the Bahamas. personal knowledge of the beneficiaries.” Then Rogerson adds another element by also providing education in family communication and even some counseling. In fact, it was Rogerson who helped Bush see the value in reshaping his practice to be more holistic rather than product-focused. But how does Bush even get to the understanding that a client might need that level of help? First of all, Bush can relate to these clients because he grew up among the wealthy in Greenwich, Conn., and is the nephew of one U.S. president and the cousin of another. In his community, he saw plenty of the quirks that can accompany wealth. As an insurance agent, he is also accustomed to asking questions to determine need. But it’s more than the usual “What keeps you up at night?” “The questions are ‘So what are your children’s or grandchildren’s needs? Are all of your children created equal? If you left $10 million to each of your children, would they all handle it the same way?’” Bush said. “It doesn’t take that much to 30
InsuranceNewsNet Magazine » May 2016
get people to step back and say, ‘OK, I don’t know that giving $10 million to each of my children is a good idea. How do I explore that further?’” If insurance agents or advisors are uncertain about approaching clients with these kinds of probing questions, Bush said they shouldn’t be, because the clients are probably already thinking about it. “Very often, we’re talking about business succession plans, so the entrepreneur has already been scratching his or her head for a long time about how they’re going to pass this business on to the family and even if that’s a good idea,” Bush said about the thought process. “If I have a daughter who’s 40, has an MBA and is our CFO, and a son who’s 43, has the grandchildren but is an idiot, then I have a quandary.” Clients are willing to unspool these problems with little prompting, Bush said. “People are usually very happy to have that discussion once it’s been established that this is a safe place to have this conversation, that it goes no further, and that we may have solutions to questions
Sometimes Bush will call Karen Weisgerber, who is not only a wealth psychologist with Cambium Consulting working with agents but was also a researcher at Boston College’s Center of Wealth and Philanthropy. One of the subjects she helped research was what concerned wealthy people the most. The researchers expected that it was their philanthropy. But actually it was the money’s impact on their children. They then looked into what people were doing about it, and it turned out that it was not much. “That doesn’t tend to go very well,” Weisgerber said. “There’s evidence that if there’s no conversation or preparation or expectation shaped about what the wealth is and how it could potentially be used, the chances of the wealth becoming a successful element in their lives are really compromised.” Sometimes children are not even aware of how much wealth there is. This in itself can create resentment and a lack of control, because, for example, they might have wanted to devote their lives to a less lucrative, but more fulfilling, career had they known. Information is step one. Then come communication and real involvement. When the wealth is such that it becomes the stuff of dynasties, structures such as foundations are in place. But involvement doesn’t mean the children get to manage the foundation that their parents established. “There needs to still be kind of a
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FEATURE HOW DYNASTIES LOSE THEIR FORTUNE takes a bit of finesse to overcome potential resistance. Start by exploring the client’s vision. “That vision is often education, being committed to something, working hard,” she said. “Because the entrepreneurs really can’t stand when their kids aren’t working hard.” But the expectation that their kids will measure up to them can be disappointing for the parents and destructive to the children. “I try to help clients understand that entrepreneurial genius is often a generation-skipping gene.”
Going Where the Money Is
THE PULITZERS Joseph Pulitzer built a newspaper empire from nothing, but it fell apart within 20 years of his death because two of his sons mismanaged the nation’s largest newspaper, the New York World. One of his grandsons became a Palm Beach playboy whose ex-wife, Roxanne Pulitzer, told all the sordid details in a book, promoted by a nude pictorial in Playboy. preparation and clinical buy-in from the next generation,” Weisgerber said. “They don’t necessarily just want a seat at the foundation table. Increasingly, it’s just not appealing for the younger generations to just put on the mantle of the parents and write checks for them. They’re actually interested in bringing their voice to it.” Life insurance agents and financial advisors can be instrumental in helping the first generation and descendants develop this new approach, but it means advisors need to reframe their thinking themselves. “It’s not about ‘preserving wealth,’ although financial advisors like to talk about that. There’s a natural attrition of wealth, and it is not always going to be preserved,” she said. “In some ways, we’re looking at a contemporary culture where people are far less interested in preserving wealth and far more interested in the impact of their wealth. The millennials tend to be less interested in amassing wealth and more interested in the quality of their time and experience.” 32
InsuranceNewsNet Magazine » May 2016
Weisgerber’s practice, Cambium, crystallizes this new way of approaching family wealth. It mixes finance, law, developmental and motivational psychology, personality and family dynamics training, business and governance education, decision-making research, philosophy, and theology. She also works with advisors who are becoming more interested in being able to handle these softer issues. “One of the advisors said, ‘I don’t want to be the deer in the headlights when they ask me that question. I want to be the one who can answer it well but who then can put it front of them and say, ‘If you want your kids to be successful and high-functioning, chances are there needs to be some education and preparation, and how can we think about that?”’” Part of the approach is understanding and managing the hard-charging entrepreneur. In fact, quite often the wealth generator hasn’t thought about these issues, and it is the spouse who brings them in. So, broaching these subjects
Although agents and advisors want to learn these methods to handle the questions, Weisgerber said some also have another motivation: accessing and keeping high-net-worth clients. Many, if not most, wealthy people have estate-planning structures in place, so the market is saturated. Therefore, advisors are increasingly interested in this other way of breaking into this market. “They’re very worried about this with getting new clients but also with their current clients,” she said. “Advisors have to deal with the next generation because when the wealth transitions, very often children or even spouses don’t stay with the same advisor.” Advisors are rewarded with contented clients and potential clients by doing this work. And heirs are rewarded with a healthy transfer of wealth that aligns with their values along with their parents’. But Jamie Bush said from what he has seen, the first-generation client might be reaping the best benefit of all by establishing a healthy legacy. “The reward of having supportive family members after the parents are gone, and having grandchildren grow up with healthy relationships with their cousins in this complex world — that’s worth more than millions.” 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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Merle Gilley has been passionate about index universal life ever since he sold his sign-making business and needed a way to grow and protect his money. His rigorous, extensive research led him to not only purchase an IUL, but also to go on and sell more than 1500 policies to others looking to care for their families’ futures. In 2015, Merle released his book, My Family Financial Miracle, which boils down his 15 years of expertise on what he calls the “greatest wealth accumulation mechanism ever.” In this Q&A, he discusses the many surprises that came with the release of his book and its companion marketing system, including its profound effect on other agents.
Q. How has this book revolutionized your sales process? A. The response from readers has
been amazing. I wrote this book to condense the timeframe it takes to explain the index UL and make a sale. Typically, the amount of time to take an IUL prospect to a proactive client is 3—4 meetings, which could take up to eight hours total. Or, if I do a seminar, there are fewer meetings, but there’s the expense and effort of the seminar itself. If I generate a prospect from a onehour public seminar, it typically takes a minimum of two more hourlong meetings to get a life application completed. The book, however, has replaced the seminar and the first meeting, which presents all the features and advantages of the index UL. Once a prospect reads the book, my first meeting is simply gathering data, because they show up educated. No more deer-inheadlights look. They’re comfortable and crystal clear on what’s going on. I have time during that first meeting to analyze the data I gather using my proprietary consultation software. I demonstrate where the financial shortfalls are and tell them that, at the next meeting, I will have a proposal to fix them. They leave with the printed report and feeling encouraged. Next, I build the IUL contract and use my software to create a presentation comparing their present path with a future position where the financial shortfalls I identified are eliminated. When I present this 34
InsuranceNewsNet Magazine » May 2016
at the second meeting, nine times out of 10, it turns into an IUL application.
•••••••••••••••••••••••••••••••••••••••••••••••••••••• Q. How can other agents prospect with My Family Financial Miracle?
A. Several ways. You can target a demographic within your region and do a direct mail piece inviting them to request a free book by calling an 800 number. Each agent is assigned their own 800 number, and I have a call center set up to take those calls and forward these requests to the agent. The book can be a free offer on a radio ad or radio show in your local area. We have agents who have created a video of themselves offering the book on their YouTube channel. Prospects who read the book want to see the educational videos I mention throughout. Each book the agent distributes has its own unique promo code, so when their prospects go online to watch the videos, they enter their email address and the agent’s promo code. This opts them into a full auto-response system that corresponds with them on the agent’s behalf. It’s a very efficient and effective way to stay in front of a prospect until they become a lifelong client.
•••••••••••••••••••••••••••••••••••••••••••••••••••••• Q. How can an agent be proactive after they distribute the book?
A. Once a prospect has read the book, it doesn’t take them long to call and ask when we can get together. If they don’t do this within a week, I call them.
If they say they haven’t had a chance to read the book, I say something like, “I know you’re really busy, but I’ve learned that those who read this book get both excited and frustrated at the same time. They get excited about learning something that will really help them, and they get frustrated because they haven’t been informed about these concepts before. Here’s what I’ll do until you have a chance to read it. I’m going to send you a link to a video that will give you a little taste of the information inside this book, is that OK?” Then, I have their email address and can get them into my auto-response system. The drip information will encourage them to read the book. This is a great way to prospect without you personally having to chase or be seen as bugging your prospects. Between the emails, videos and book, either they’ll proactively seek you out, or you will be top-of-mind when they are ready to do something in the future.
•••••••••••••••••••••••••••••••••••••••••••••••••••••• Q. What it take to develop the digital marketing system? A. This marketing system ended up tak-
ing two years and $1 million to make. It started with the book, then came the website, the educational videos, the email auto-responder and all the marketing materials available for agents to promote themselves and their mission. The designing process was extremely painful, because I’m not naturally a detailed or patient person. I had to make myself sit down with our
SPONSORED
marketing team and build this one step at a time. Every tiny detail had to be talked about and charted out. I will not take the credit for building it — I had the greatest marketing team anyone could ask for helping me. One thing it had to be was simple for me and our agents to use, which we’ve accomplished. It’s absolutely a “done for you” system. I’m currently rolling out some finishing touches on the system, which I suspect will be getting a lot of agents excited. Next will be national marketing campaigns with social media, radio and direct mail.
•••••••••••••••••••••••••••••••••••••••••••••••••••••• Q. What kind of cases is this system generating? A. After I released my book last May, I received an email from a very excited agent out of California who closed a $500,000 case with a client he had been working with for several years. In January, an agent in Colorado closed an IUL with a premium of a $1 million dollars. It was the agent’s biggest case ever, and it was all because his client read my book. It isn’t unusual to have $50,000–$100,000 cases written by our top producers, but now it’s becoming commonplace with our average producer group. I can only attribute this to how easy the My Family Financial Miracle book is to read and understand by the clients.
•••••••••••••••••••••••••••••••••••••••••••••••••••••• Q. What are your current needs as far as agent partners? A. I am looking for agents who run their
practice like a business and who take their business seriously. This marketing system works extremely well, but it doesn’t meet with the client and write the business for you. What we do is hard work, but what is so beneficial about this industry is it pays so incredibly well for those who are willing to do what it takes to be successful. I’ve created a system that takes away a lot of the heavy lifting and helps to manage the lead generation and marketing process that agents can tend to dislike or not be so great at. I am looking for some teammates who can help me grow our company, and for that, I am going to do my part by providing the best products, the best training, the best tools and the best marketing available in our industry today.
•••••••••••••••••••••••••••••••••••••••••••••••••••••• Q. What has surprised you the most as you’ve seen your big idea come to fruition?
A. How well the book has converted prospects to clients, and not just clients who purchase small IULs, but who are allocating large sums of money to the IUL product as their alternative retirement accounts. I’ve seen agents, many who have struggled closing small IUL cases over the years, close some very large cases this year already. That’s what has been the biggest surprise to me — the sizes of the cases the marketing system has been able to help agents close. I am anxious to see how the rest of the year pans out. We are really just getting started.
THE BOOK IS PROOF Merle Gilley’s My Family Financial Miracle is a book about how to grow and safeguard money in a nontraditional accumulation product. Most people who are working and building a family have tried the traditional ways to grow and protect their money, and those ways have fallen short. Now they’re skeptical and unwilling to consider anything without seeing proof. My Family Financial Miracle is the proof. It’s an instruction manual about an amazing financial product that most people have never heard of or understand, and it validates Index UL as the solution to a majority of peoples’ financial needs. Get your free copy at www.MiracleRepresentative.com
My Family Financial Miracle: A “Done For You” Sales Tool
Be part of the “Miracle” and close your own huge IUL cases! Start today at www.MiracleRepresentative.com
May 2016 » InsuranceNewsNet Magazine
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FEATURE
Privacy, Affluenza, Social Media Fuel Growth of Family Offices amily offices are not just for the F mega-wealthy anymore. By Juliette Fairley
M
yra Salzer is a financial advisor whose clients are often an extension of the family that maintains a family office. These clients come to her for help in managing their personal finances because the wealth advisors on staff at the family office overlook them. “They are not feeling heard, and they are not getting the services they need from the family office staff whose objective is to manage wealth for the entity of the family and not its individual family members,” Salzer said. Part of Salzer’s job is to contact the financial advisor on staff at the family office for clarity on the amount and nature of distributions her clients are receiving from their trusts or family operating business. Those beneficiaries might not be legally entitled to review trust documents, depending on the state in which they reside. “It’s helpful to know how their family’s assets are allocated so that we can make sure the assets they do have control over are balanced,” Salzer said. The number of family offices in the U.S. has increased by 33 percent to more than 4,000 in the past five years. This is due to wealthy individuals seeking to organize financially after the 2008 financial collapse, according to World Finance. But there can be a downside to family offices where staff members, some of whom act as financial advisors, are engrossed with wealth enhancement goals. “Individual family members can get lost 36
InsuranceNewsNet Magazine » May 2016
in the growth process of the family office because everyone is working for the wealth creator, even if the wealth creator died 100 years ago,” said Salzer, whose firm The Wealth Conservancy is based in Colorado.
Family Offices Not Just for the Ultra-Wealthy
Families with more than $150 million in private wealth are ideal candidates for establishing a single-family office structure, according to the 2015 Global Family Office Report. However, the number of offices overseeing smaller asset amounts
first-generation wealth and not as many extended family issues. “The more financial skill the family has internally, the easier it normally is to set up a family office with a smaller asset size, and hedge fund managers know how to manage money,” Latner said. Regardless of the amount of assets ultrahigh-net-worth individuals have to manage, one reason they establish a family office is for privacy because outsourcing services can make it harder to control confidentiality. “A family office can help keep the family’s financial information from leaking out to the public as much as possible,” said Todd Kesterson, director of the family office and business services department at the accounting firm Kaufman Rossin in Miami. “It’s a way to improve confidentiality by conducting as much business as possible internally.”
Vulnerability a Concern
is on the rise, according to Irwin Latner. As a partner in the corporate and securities practice group at the law firm Pepper Hamilton, which specializes in family offices, Latner has helped found family offices for retired hedge fund managers. These are clients who have $50 million of
With the proliferation of social media and the Internet, personal vulnerability issues are of increasing concern to the wealthy. “They are worried about the younger generations, since social media is now integrated into almost every aspect of their lives,” said Jason Ott. He is national director of field operations for Aon Private Risk Management, which specializes in protecting the wealth of accomplished individuals and families. “The concern is growing due to how easy it can be to expose personal interests, hobbies, travel plans and personal data that could leave wealthy families exposed to liability issues, identity theft, or even extortion and kidnapping,” he said.
PROFILES OF SUCCESS: 2016 AGENT STUDY FEATURE
Privacy is also of utmost importance when family dysfunction — such as addiction, sibling rivalry or affluenza — rears its ugly head. Affluenza refers to the impact of financial privilege on the ability to understand the consequences of one’s actions. This term was made famous when it was used by attorneys on behalf of Ethan Couch, a wealthy Texas teen charged in connec- Ethan Couch is led a juvenile court tion with a death. to for a hearing on Couch was given Feb. 19, 2016, in probation after be- Fort Worth, Texas. ing charged with four counts of manslaughter while driving under the influence in June 2013. Although Couch’s father, Fred, founded a metal roofing company that had estimated annual sales of $9.59 million, he and Couch’s mother have collectively accumulated more than 20 criminal and traffic offenses dating back some 25 years. “Family offices are not a substitute for family values or good parenting,” Latner said. Family governance initiatives include having a mission statement, written policies, board representations and a formal structure for decision-making. Although these initiatives are helpful in establishing order, they are no solution for societal ills. “No matter how hard you try to plan, nobody can come up with bylaws that anticipate the future,” Salzer said. “You cannot protect family members who have not been born yet. It’s impossible. You have to accept uncertainty and the fact that all families are flawed, regardless of wealth.”
Photo credit: LM Otero / AP
Not a Cure for Bad Behavior
Juliette Fairley is a business and finance journalist who has written four personal finance books for John Wiley & Sons and has written for major news organizations, such as The New York Times and The Wall Street Journal. She is a member of the American Society of Journalists and the New York Financial Writers Association and a graduate of Columbia University's Graduate School of Journalism. Juliette can be reached at juliette.fairley@innfeedback.com.
May 2016 » InsuranceNewsNet Magazine
37
LIFEWIRES
Clearer Skies Ahead for Life Insurance “Tell your friends!” is one of the world’s oldest advertising phrases. In the case of life insurance sales, more consumers say they are willing to recommend the product to others. And that willingness is creating a more favorable climate for life insurance sales. That’s the word from the 2016 Insurance Barometer Study. The most recent study of the industry finds 66 percent of con- Own Life Insurance sumers say they are at least somewhat likely to recommend ownership of life insurance to others, an increase of 11 percentage points over last year. Nearly nine in 10 consumers (86 Likely to Purchase percent) agree that most people need life insurance. in Next Year Broken out by demographics, 77 percent of millennials were likely to recommend owning life insurance, as were threequarters of those who own any type of life insurance. Three out of five Americans (60 percent) report owning some Millennials Who sort of life insurance (individual and/or group), and more than Recommend Life Insurance a third of Americans (34 percent) said they are at least somewhat likely to purchase life insurance in the next year. These intentions are more positive than they have been over the past few years, thanks to more favorable attitudes of Generation X and millennials. Even as people are finding many of their day-to-day activities can be done online, a majority of people (51 percent) still prefer to purchase life insurance in person.
60% 34% 77%
MORE LIFE INSURERS USING AUTOMATED UNDERWRITING
Fresh off a disappointing fourth-quarter earnings report, Lincoln Financial Group CEO Dennis Glass said the company is not ready to follow a path similar to that of MetLife. But he also didn’t rule it out. Speaking on a conference call with analysts, Glass did not directly respond when asked whether Lincoln Financial might follow a route similar to that of MetLife. “I’m just going to answer that by saying we believe in the businesses that we are in,” he said. “We’re making progress overall, with some things to do better.” Lincoln Financial reported fourthquarter 2015 net income of $283 million, DID YOU
KNOW
?
38
Source: John Hancock
InsuranceNewsNet Magazine » May 2016
a 19 percent drop compared to the yearago period. The company said it no longer benefited from funds flowing in from previously reinsured life insurance contracts. But Glass pointed out that Lincoln Financial has a very diverse product line and strong distribution network. The company sells twice as much life and annuity coverage as MetLife, he told analysts.
COST OF INSURING THE WORLD’S POPULATION: $190 TRILLION
$190 TRILLION
It sounds almost like a question that you’d ask your friends if you all were sitting John Hancock has expanded its Vitality program with the addition of the Healthy Food program, which rewards participating policyholders for making healthy food choices.
QUOTABLE
New York Life’s agent force, 12,000 strong and growing, is the core reason why year after year we boast the largest market share in the U.S. — Mark Madgett, senior vice president and head of New York Life’s field force
around a campfire late at night or feeling philosophical over another round of beers. Just how much would it cost to insure the lives of everyone on earth? The consulting firm Willis Towers Watson attempted to answer this question and came up with this figure - $190 trillion, or roughly 2.5 times the world gross domestic product. They arrived at this answer by doing an analysis of the cost of providing each of the world’s 7.3 billion people with a $100,000 whole life insurance policy. The calculation was performed using Microsoft Azure Batch cloud service and took less than 24 hours to complete.
LIFE INSURANCE AGENT RECRUITING INCREASES IN 2015
Life insurers recruited more agents last year than they did the previous year. According to LIMRA’s 2015 U.S. Career Agent Recruiting study, the 29 surveyed companies contracted more than 29,200 new agents in 2015, an increase of 2 percent compared with 2014. Just over half of the companies reported a recruiting increase from the prior year. Seventy-one percent of agents contracted in 2015 were inexperienced (no prior insurance sales experience), three percentage points lower than in 2014. Women accounted for 33 percent of new hires in 2015, down from 34 percent in 2014. The top 10 companies represent 78 percent of the total recruits in 2015, and the top five companies represent 64 percent of the total recruits in 2015.
Let’s
together.
With your help, Securian Financial Group and its affiliates, Minnesota Life and Securian Life, protect clients nationwide with over $1 trillion of life insurance in force.1 Learn why so many clients and financial professionals trust us to help protect their families. Call our Life Sales Support Team today: 1-888-413-7860, option 1
hij abc INSURANCE | INVESTMENTS | RETIREMENT 1
As of December 31, 2015. Securian Financial Group, Inc. is the parent corporation of Minnesota Life Insurance Company and Securian Life Insurance Company. Certain financial highlights are presented at the parent level only.
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. 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2015 Securian Financial Group, Inc. All rights reserved. F82624-A 4-2016 DOFU 4-2016 41553
For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public. May 2016 » InsuranceNewsNet Magazine
39
LIFE
Pay No Attention to the Man Behind the Microphone hy your clients shouldn’t W put too much stock in great and powerful talk show pundits’ advice on life insurance. By Robert M. Barnes
I
was driving home around 7 p.m. one evening when The Dave Ramsey Show came on the talk radio station I was listening to. I didn’t change the station as I certainly know of Dave Ramsey. I had a recent encounter with a friend who said she and her husband had attended his course at their church. She shared a few of the prescribed financial strategies and recommendations taught in his course. I immediately disagreed with one of them, and we both disagreed 40
InsuranceNewsNet Magazine » May 2016
with another one. So, of course, when the show started I continued to listen to it for the rest of my drive. An elderly gentleman called in to the show. The man started out by thanking Dave for his “advice,” commenting that he recently canceled his life insurance. Now he was calling to ask whether he should have long-term care insurance. He mentioned he had a pension paying $5,000 a month and his wife will receive 75 percent of his monthly benefit when he dies. One of Dave’s first comments was along the lines of “Well, I am not sure I would get rid of your life insurance, because you have to take care of your wife.” Dave then emphasized to the caller how important it is to protect his wife. I actually was
cheering in agreement with Dave. Then I remembered two things: 1) the caller mentioned he already canceled his life insurance and 2) according to my friend who attended his course, Dave doesn’t believe in permanent life insurance. This is the heart of the problem with pundits and those who follow them blindly. In this case, the damage was already done; the caller canceled his life insurance. Perhaps he can obtain another policy, but what if he can’t? He likely can’t get a better deal. If this retired gentleman had term insurance and needed to carry coverage to protect his wife after he dies, what will happen when the coverage runs out or becomes prohibitively expensive? I liked the fact that Dave did suggest the
Do You Realize
You’re a Hero? The life insurance products you sell your clients have a profound impact on their lives every day.
Y
our efforts and dedication help families and businesses survive, even if a primary wage earner or business owner dies prematurely. You assist people in leaving a legacy to their loved ones and the charities that are important to them. Through whole life insurance, you also provide clients living benefits, including guarantees, liquidity and access to their money throughout life so they can weather storms, take advantage of opportunities, and live with dignity, even if they become chronically or terminally ill. At Mutual Trust Life Insurance Company, we understand the significance of the work you do, and we’re committed to making a difference, too. Since 1904, we’ve been designing and servicing quality life insurance products that can give your clients what they want and need in an uncertain world— strong guarantees, financial flexibility and liquidity. In fact, as a result of our experience and expertise in creating and marketing whole life insurance, we’re known throughout the industry as “The Whole Life Company.”™
“The Whole Life Company”™ To learn how Mutual Trust and its products and sales concepts can help you satisfy your clients’ needs and become the superhero you long to be, contact Luke Cosme, Senior Vice President, Chief Sales and Marketing Officer, at 800-3237320, ext. 5300 or cosmel@mutualtrust.com. Or visit online: www.mutualtrust.com/opportunity
Follow us on For producer use only. 41 May 2016 » InsuranceNewsNet Magazine
LIFE PAY NO ATTENTION TO THE MAN BEHIND THE MICROPHONE caller purchase three years’ worth of LTCi coverage. My concern is that the only facts we knew were his income and that he had $30,000 in savings. No other financial information was disclosed or questioned, nor did Dave ask whether the caller was in good health. I mention this because, in my experience, this caller is not likely to be someone who will buy long-term care insurance once he knows the cost. Nothing was mentioned about his health or his ability to qualify for coverage. The other point to consider is that this caller doesn’t have much to protect. If he couldn’t or won’t purchase LTCi, he could wipe out their savings and they could find themselves in a Medicaid spend-down spiral. I found myself wanting to ask Dave one question: Wouldn’t it be nice if the caller had a life insurance policy that was not going to expire or become prohibitively expensive so that when he dies it
did not mention anything about investing in an annuity or what would happen if the money runs out. Instead, Dave made the statement: “Some goober in the financial planning field tries to talk them back into debt” when asked about reverse mortgages. So Dave thinks any financial advisor other than he is a “goober”? I immediately had a flashback to Goober Pyle from The Andy Griffith Show. Dave is certainly no goober, as he has created a substantial net worth peddling his “Dave-knows-best, one-size-fits-all” advice. By now, you’re getting the idea I may not have a lot in common with Dave’s perspective on financial planning. It started when my friend mentioned Dave’s advice
Some people actually use their credit cards wisely and receive benefits from using them instead of paying high interest. could help offset the pension and Social Security loss the wife will experience? When the gentleman called in about LTCi, I was thinking he likely could use and afford a small policy. However, if he needed care beyond the average length of time, he and his wife still could be financially wiped out. I thought for sure if he or his wife needed care, they will likely end up taking out a reverse mortgage (assuming he owns a home, which was not disclosed on the call). As soon as I had this thought, I had to go online to look up Dave’s directive on reverse mortgages. Let’s just say Dave doesn’t like them, but at least he agrees they are an option if someone has no other resources. He actually prefers that people take out a regular mortgage and invest the money. He didn’t say how to invest the money and 42
InsuranceNewsNet Magazine » May 2016
to cut up all credit cards. I had just purchased airline tickets and reserved a rental car for my trip via credit card points. Now I understand if someone doesn’t use credit responsibly, perhaps they shouldn’t have free access to it. But this is the problem with one-size-fits-all financial advice: The world isn’t equal, and we shouldn’t be dispensing untailored advice. Debt can be good, Dave! How did you purchase your first house or first new car? Some people actually use their credit cards wisely and receive benefits from using them instead of paying high interest. And yes, Dave, some people should own permanent life insurance because things don’t always work out like we are told they will. Yes, people may be able to selfinsure but what if they can’t? What if the plan doesn’t go as planned? What if the
market didn’t return what you projected it would? The bottom line is, insurance is a safety net so you don’t fall all the way to the ground and wind up in ruins. The higher one climbs, financially speaking, the more they have to protect and the farther they have to fall when life events strike. On this particular night, Dave thought it was important for the retired caller to have life insurance, but due to his prior preaching the coverage was already canceled. Yes, I am a life insurance expert and have been proudly selling life insurance for many years. There may not be another financial tool that is nearly as controversial as life insurance. Dave is not the only one out there dispensing one-size-fits-all advice. It happens all the time. The beauty of life insurance is in the eye of the beholder. As with other things we might do with our money, perhaps there is a better way or a better return. But projections are not guarantees, and hope is not a strategy. Death is not something that might happen; it will happen. The value of life insurance can truly be determined only at that point in time. When I started in the business, I quickly understood the value of “owning” life insurance. I also learned how important it is to have an appropriate amount. In many situations, it can make sense to own some permanent life insurance. It can help people across the financial spectrum. Low net worth can replenish the bucket of assets if the market or extended care depletes it. It can offset Social Security or be a permission slip to annuitize and not disinherit. It can help equalize an estate or inject capital as needed. It can help pass on a family business or pay estate taxes. With many insurance companies offering longterm care or accelerated benefit riders, it can help pay for care if needed. At the end of the day, it is a leverage and liquidity tool. Help your clients choose wisely and think long term. I don’t believe everything Dave is telling people. What do you believe? Robert M. Barnes, CLU, ChFC, CWPP, is president of Integrated Insurance Consulting, Orland Park, Ill. Rob may be contacted at robert. barnes@innfeedback.com.
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855-277-2090, ext. 8120 *Kansas City Life’s Century II Variable Product Series is distributed by Sunset Financial Services Inc., Member FINRA/SIPC, a wholly owned subsidiary of Kansas City Life Insurance Company. May 2016 » InsuranceNewsNet Magazine
43
ANNUITYWIRES
QUOTABLE
Death Talk Scares Buyers Off Few people like to talk about their inevitable mortality, and that’s one more reason why consumers shy away from buying annuities. “Mortality salience” is the term two Boston College marketing professors use to describe the unspoken fear that scares off potential annuity buyers. “When you think about an annuity, you have to think about how long you have left to live, how many years you need to finance,” said Gergana Nenkov, associate professor of marketing with the Carroll School of Management at Boston College and co-author of a study on the subject. “You have to think about dying — that’s part of the annuity process, and when people do that, it turns them away.” The researchers surmised that the more people think about death, the less they want to prepare for it. In another words, by not thinking about annuities and pushing them off to the side, one avoids having to think about death. “When people considered an IRA, very few thought about dying or how long they have left to live,” Nenkov said. “But when the people considered an annuity, a big proportion of them had those kinds of thoughts related to death.”
FLOATING RATE ANNUITIES TAKE FLIGHT
Here’s a dilemma that many annuity investors haven’t had to face in many years: As rates rise, the price of their fixed annuity investments falls. Who wants to buy old annuities if new annuities coming into the market are paying more interest? Good question, and one that Security Benefit Life set out to answer. The company’s solution is the floating rate annuity, a fixed annuity that credits an extra fraction of a percentage based on the London Interbank Offered Rate, or LIBOR, on top of the guaranteed period base rate. For investors wedded to fixed income products, that’s an improvement over many fixed annuities offering 2 percent, and it’s a whole lot better than a bank certificate of deposit or a money market instrument.
DID YOU
KNOW
?
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SURVEY: RETIREMENT CONFIDENCE REMAINS STEADY
The number of American workers who say they are confident of having enough money for retirement remains in the minority. But the percentage of those who are confident of a comfortable retirement continues to remain steady. That’s according to the 2016 Retirement Confidence Survey released by the Employee Benefit Research Institute and co-sponsored by Principal Financial Group. Among the workers polled, 21 percent said they 63% 21% are very confiworkers say they’re are confident of dent of having ofsaving for retirement having enough funds enough retirement funds — up significantly from 2013’s record low of 13 percent. While confidence remains steady, the number of workers currently saving for retirement is actually on the rise. Sixty-three percent of workers report they’re saving, which is the highest level since it hit 65 percent in 2009.
Allianz wasthe thefixed No. 1index seller annuity of fixed annuities was Life named leader for in 2015, with sales quarters, of more than $8.77 billion. 25 consecutive based on sales. Source: LIMRA SecureSales Retirement Institute Wink’s Indexed & Market Report, 3Q 2015
InsuranceNewsNet Magazine » May 2016
Indexed annuities will grow There are 11 companies offering exponentially due to the Department QLAC (qualifying longevity annuity of Labor rule becauseWhile variable contract) products. this is annuities are the naughty stepchild in athesmall new of the DIA eyesand of the DOLpart regulators.
market, we expect to see an uptick — Sheryl J. Moore, president and in sales in 2016. CEO of Moore Market Intelligence and Wink Inc., on the impact of the Todd Giesing, Department of LIMRA Labor’sSecure fiduciary rule
Retirement Institute
SOME NEWCOMERS CRASH THE FIA PARTY
To get a sense of just how robust sales of fixed indexed annuities (FIAs) have become, it’s worth taking a closer look at the league tables: Most life and annuity carriers in the market posted higher FIA sales last year than they did in 2014. 2015 FIA SALES & PERCENTAGE INCREASE Integrity Life Nationwide Forethought Life Sentinel Security Life AIG
$610M $2.4B $1.5B $100M $3.3B
+1080% +460% +225% +109% +162%
Some increases were truly eye-popping. Integrity Life, a member of Western & Southern Financial Group, posted 2015 FIA sales of $610 million, an increase of 1,080 percent over the previous year, according to Wink’s Sales & Market Report. Nationwide “came out of nowhere” to finish the 2015 FIA league tables in the No. 6 position with $2.4 billion in sales. The company saw its FIA sales rise by 460 percent last year over 2014, Wink reports. Other 2015 notables include Forethought Life. The company sold $1.5 billion worth of FIAs last year, for an increase of 225 percent over 2014. Sentinel Security Life, which sold $100 million worth of FIAs in 2015, saw its sales rise 109 percent over 2014. AIG, helped by its unique ability to sell through multiple channels, turned in big FIA numbers too. It sold $3.3 billion worth of FIAs last year, an increase of 162 percent compared with 2014, Wink’s data reveals.
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For financial professional use only — not for use with the public. ©2016 United Advisors, LLC. All rights reserved. May 2016 » InsuranceNewsNet Magazine
45
ANNUITY
Position Deferred Annuities for Specific Investment Plan Goals H ow you can tailor the purchase of a fixed deferred annuity to help meet your client’s specific investment needs. By Rich Lane
W
hen helping clients plan for their post-retirement years, a number of questions may come to mind. Your clients may have questions about where to invest their hard-earned dollars and the extent to which their money will be protected. You may have questions for them about how they’ll want to fund their retirement years and what other financial resources they may be relying on for their overall living expenses. One way to help clients make the most of their investments while still supporting their various financial goals is by positioning the purchase of a fixed deferred annuity. A fixed deferred annuity offers flexibility for investors whatever their financial goals or current life stage. Consider how you can use the concept of a flexible investment as the basis of your sale, and how you can tailor the purchase of a fixed deferred annuity to help meet your client’s specific investment needs.
Target Clients for Fixed Deferred Annuities
As you position an annuity, keep in mind the types of clients for whom fixed deferred annuities are a good fit. » Buyers who are interested in a hands-off approach to protecting and building their money before it is transferred to designated beneficiaries. » Conservative investors who value guarantees and don’t want to lose their principal investment. » Middle-of-the-road clients who want to use a fixed annuity for their safe dollars in their asset allocation. This can lower their 46
InsuranceNewsNet Magazine » May 2016
overall volatility in their portfolio. Regardless of how clients intend to use the money, a fixed deferred annuity can ensure a client’s principal investment is protected and available when they need it. In addition, the fact that a client’s funds are truly safe with an annuity can allow them to take risks in other aspects of their portfolio.
Flexible Annuity Options
To gain an understanding of how a fixed deferred annuity can be part of your client’s overall financial plan, ask the following questions to help determine how the purchase can work best for them.
compounding to begin immediately upon purchase — as a client can reap the benefits of gaining on the principal amount, interest on the interest, and interest on money that would be lost to taxes. In this regard, this question can help position an annuity as a low-risk investment that is guaranteed to grow. However, a client who doesn’t have a sizable nest egg still can benefit from a flexiblepremium deferred annuity. A flexiblepremium deferred annuity is a powerful tool, as it can systematically deposit a premium and accumulate assets for later use. A client who is dedicated to making ongoing contributions can achieve the goal of accumulating funds for retirement or wealth transfer. While creating a nest egg takes time, the facts that a fixed deferred annuity has flexible deposit options and allows for ongoing contributions are worthy of a conversation with your client.
» Are you looking for a safe place for your investment? Strong guarantees are among the key aspects of a fixed deferred annuity. A fixed deferred annuity provides a full guarantee that the principal investment » What kind of income are you hoping will stay in place and will only grow. It also to draw in the future? Income options can provide minimum guarantees that can offer clients peace of mind in knowing Regardless of how clients intend to that they will never earn less use the money, a fixed deferred than the stated minimum. This benefit is increasingly annuity can ensure a client’s principal important given the recent investment is protected and available volatility of the stock market. when they need it. Nothing will be taken away from your client’s principal as long as the contract is continued, and from a fixed deferred annuity are numerthe investment grows tax-deferred. ous and can be tailored to a client’s speIn addition, some fixed annuities can cific situation. Buyers can opt for lifetime provide a guaranteed return of premi- income or income for a certain period of um — even during the surrender charge time, and can build in survivor income period. After the surrender charge period, access so their spouse or beneficiaries are the clients are guaranteed to receive their taken care of after the buyer passes away. principal, minus any previous withdrawal Not only that, a deferred annuity can at termination. be turned from an accumulation vehicle to an income stream if and when your » Do you have a nest egg to protect? A clients determine they need income to client who has an established nest egg can supplement their Social Security benefit benefit from a single-premium deferred or another source of retirement income, annuity. That’s because it allows for triple such as a 401(k) or pension. This means
POSITION DEFERRED ANNUITIES FOR SPECIFIC INVESTMENT PLAN GOALS ANNUITY your clients can “flip the switch” at a later date and start receiving income from their funds for whatever their specified duration may be. These options provide yet
options allow access after two years. Many fixed deferred annuity options would allow your client the interest earned on the withdrawal or an annual withdrawal of up to 10 percent of the accumulated value, or IRS-required minimum distributions, or Internal Revenue Code 72(t) and (q) distributions. A 72(t) or (q) distribution is a great way to allow someone to access a steady stream of income prior to the onset of Social Security payments or a pension. In addition, after five years, or when a client turns 59 ½, they can avoid a potential 10 percent early distribution penalty from the IRS. These types of withdrawals from fixed deferred annuities don’t conflict with either terminal condition or nursing home waivers, which generally only appeal to older purchasers.
receive an income from it. A fixed deferred annuity is a great option for clients to transfer assets to their beneficiaries, as the proceeds are not taxed until a distribution is made. If you have helped a client preselect a payment stream, you also are helping the client’s heirs, whether they know it or not, from making poor financial decisions that sometimes can come with inheriting larger sums of money. Given the nature of recurring payments, there is no large tax burden for the heirs to shoulder as they could face with a single large lumpsum distribution.
A client who doesn’t have a sizable nest egg still can benefit from a flexible-premium deferred annuity. another example of the flexibility afforded to a fixed annuity buyer, depending on their situation. » Will you need early access to funds? Most investments or insurance products give clients flexible withdrawal options to access a portion of the investment without incurring a surrender charge. The key is that a fixed deferred annuity has builtin provisions that allow a client access to money after a certain time period — most
Whether your client is conservative or financially aggressive, young or in a post-retirement phase of life, a fixed deferred annuity will be a sustainable aspect of their overall financial portfolio, making sure they meet their financial goals. direcRich Lane is the director tor individual of individual annuiof annuity sales ty sales and for marketing and marketing Standard for Standard Insurance Insurance Company. Rich Company. Rich may may be contacted at be rich. contacted at rich.lane@ lane@innfeedback.com. innfeedback.com.
» Do you plan to bequeath money to a beneficiary? This question is a good setup for a client who has a substantial amount of money but doesn’t plan to
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47
ANNUITY
Five-Point Checklist Ensures Satisfied Annuity Buyers H ere is how to keep the language straight in an annuity sale — and make sure clients know what they’re buying. By Ray Kathawa
E
ven though Americans say their primary financial fear is retiring without enough money, a poll by the National Foundation for Credit Counseling found that nearly 30 percent of households save nothing for retirement. That is unfortunate, because tools are available for people to position themselves well financially before and during retirement. Our job as advisors is to bridge that knowledge gap so clients understand their options, make educated choices and realize their goals. This is especially true with annuities, which aren’t the easiest investments for clients to understand. To help clients make an educated decision, here are five crucial topics to discuss before they sign on the dotted line.
Know the Carrier
When clients buy an annuity, they’re 48
InsuranceNewsNet Magazine » May 2016
really buying the carrier. The product is simply a vessel. So they need to understand the company selling the annuity. Start with financials, because an insurance contract is only as good as the firm behind it. Go through the statements and show why it’s a solid carrier, why it can fulfill its obligations, and why it’s ultimately a sound company to entrust with your money. Understand the carrier’s assets, liabilities and solvency ratio to strengthen the quantitative side of the story. The carrier’s ratings and industry longevity are the qualitative complement to the numbers. So go over the A.M. Best, Standard & Poor’s, Moody’s and Fitch reports, and discuss the firm’s history. Impressive ratings and demonstrated financial stability validate your proposed solution and provide invaluable third-party credibility that helps reinforce the decision to buy an annuity from a particular carrier. Make sure clients understand the role the National Organization of Life & Health Insurance Guaranty Associations (NOLHGA) plays in protecting policyholders. It’s an additional piece of
assurance for clients to know there’s an organization protecting them against carrier insolvency.
Understand Liquidity Provisions
One of the main reasons clients purchase annuities is to harness the guaranteed income streams they can create, but clients need to understand that their money is not in a lockbox that can never be opened. In my experience, the biggest objection to buying an annuity is the lack of liquidity. That’s why clients must know the liquidity provisions before they agree to buy an annuity. At minimum, a list of discussion topics should include: » What amount they can get out of the annuity without a penalty. » When they can access that amount without a penalty. » Fees or penalties for excess withdrawals beyond the penalty-free amount.
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ANNUITY FIVE-POINT CHECKLIST ENSURES SATISFIED ANNUITY BUYERS » The opportunity cost of withdrawing. » What happens in an emergency such as a terminal illness or when chronic care is needed.
» If the annuity is indexed, what index does it use? » W hat is the indexing strategy, and how does it work?
» How long they’re obligated to keep their funds in the annuity with penalties.
» A re volatility control indexes being used?
Beyond that, clients also should understand the potential for market value adjustments. Something I see too often with advisors is that many of them gloss over market value adjustments too quickly. Changing marketing conditions can substantially affect annuities, and usually the popular fixed and indexed ones are first in line for adjustments. If rates rise as expected, policyholders likely will feel the sting of these adjustments via higher penalties. Clients must realize this before buying, especially those who like to time the market or seek greener investment pastures. I have helped advisors show clients how money gets put into an annuity, how the money works while it’s in the annuity, and how and when the funds can be withdrawn. Since liquidity is the biggest objection to an annuity sale, you won’t be surprised to hear there’s heavy emphasis on that last part!
» How do the volatility control indexes work?
Making Money With Annuities
As with any vehicle, clients want to know how they make money with an annuity, and it’s your job to make sure they understand. Clients are most likely to be interested in the interest, so cover how and when they’ll earn it, along with how much and little they can possibly earn. Advisors should act as if they’re explaining it to someone they love dearly, like a grandmother or spouse. Of course they’d want this person to know everything about how the annuity earns money. So here are some “must know” questions within that context for clients. » Can I lose principal due to market loses? » Does the annuity have a guaranteed interest rate? » How long is that interest rate guaranteed? 50
» Can earned interest be lost, or does it lock in at any point? Also spend time with clients to explain modifiers and the fact that rates can change. Your clients need to know the caps, fees, participation rates and spreads, including how high or low carriers can adjust them. You also should explain the carrier’s adjustment history.
Explain Living Benefit Riders
If your client is purchasing an indexed annuity with a living benefit rider, make sure they understand that rider. The most common misconception I see about such a rider is a misunderstanding of living benefit value versus cash accumulation value. While the cash accumulation value is in an account and grows based on the indexing strategy, clients fail to understand that the living benefit value is a ledger value. It gives them the impression that their cash is earning the “rollup” rate of 6 percent or 7 percent; they don’t realize the living benefit value isn’t their cash, but rather a value used to drive the future income stream. It’s why you hear stories of soon-tobe-former clients screaming how they were told they’d get the better of the market or 7 percent, and they want their money back. Because every product varies, it’s vital to fully explain the details before the sale. Be sure to cover income rider activation terms and how withdrawals outside of activating the lifetime income stream affect the living benefit value. You’ll help your clients make educated investment decisions, and you’ll lessen the likelihood of an angry encounter!
What Are the Tax Implications?
Any annuity purchase should be discussed within the bigger picture of tax and estate planning. You have to help clients understand how an annuity will affect their taxes, and even work with their accountants if possible. Because annuities can be confusing for clients, it helps to draw parallels with known entities, especially with taxes. Clients most commonly want to know the tax implications if they take income from the annuity, which comes down to the funding source. Many clients understand tax-deferred retirement accounts. “Oh, yeah, my 401(k) at work,” they’ll say. So leverage that knowledge and connect the known concept of a 401(k) with a qualified annuity, explaining the tax similarities. That said, nonqualified annuities differ taxwise from most investments, so drawing parallels may not always be an option. Still, explaining nonqualified withdrawal taxation is crucial and I’ve seen several methods work. Regardless of the technique, be sure to cover the last in, first out (LIFO) concept so clients aren’t surprised by a big tax liability after positive returns.
Communication and Comfort
At the end of the day, your success comes down to clients feeling comfortable with the solutions you propose. That’s especially true with annuities, so make sure to communicate the points above clearly. A recent poll identified lack of communication as the overwhelming reason advisors are fired. To be the advisor who’s continually hired, spend time with clients so they’re comfortable with and knowledgeable about the annuity purchase before the sale. Ray Kathawa is vice president of practice development with M&O Marketing, Southfield, Mich. Ray may be contacted at ray.kathawa@ innfeedback.com.
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51
HEALTH/BENEFITSWIRES
QUOTABLE
ACA to Cost $1.34T Over Next Decade The Affordable Care Act keeps running up a bigger tab. The Congressional Budget Office said the health care law will cost $1.34 trillion over the coming decade, $136 billion more than the CBO predicted a year ago. What’s driving that 11 percent hike? Higher-than-expected enrollment in the expanded Medicaid program established under the law, according to the CBO. All told, 22 million more people will have health care coverage this year than if the law had never been enacted, the CBO said. The measure’s coverage provisions are expected to cost $110 billion this year. The number of uninsured people this year is anticipated at 27 million. About 90 percent of the U.S. population will have coverage, a percentage that is expected to remain stable into the future. The study also projected a slight decline in employment-based coverage, although it will remain by far the most common kind among working-age people and their families. Employers now cover some 155 million people, about 57 percent of those under 65. That’s expected to decline to 152 million people in 2019. Ten years from now, employers will be covering about 54 percent of those under 65.
NAHU TO PROPOSE NATIONAL LTCI PROGRAM
An aging population plus increasing costs of care equals an opportunity for one industry group. The National Association of Health Underwriters (NAHU) wants to expand the market for long-term care insurance while helping save tax dollars as an aging population faces a greater need for care in the future. NAHU is in the planning stage of presenting Congress with a proposal that would provide private-sector solutions that would enable more Americans to buy long-term care insurance, NAHU’s Vice President of Congressional Affairs John Greene told InsuranceNewsNet. These solutions would include allowing LTCi to be offered as a group benefit that employees would pay for by using pretax dollars, permitting employees who are enrolled in 401(k) and 403(b) accounts to use those funds to pay for LTCi, and tightening the eligibility requirements to have Medicaid pay for long-term care. DID YOU
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52
By allowing workers to purchase LTCi with their 401(k) or 403(b) funds, employees would be protecting and preserving their retirement nest egg with pretax dollars, he added.
NEWEST ENROLLEES ARE SICKER, MORE EXPENSIVE
The Blue Cross Blue Shield Association took a look at the newest folks to sign up for health insurance — and they didn’t like what they saw. Health insurers gained a sicker, more expensive patient population after the Affordable Care Act expanded coverage in 2014, according to an early look at medical claims from the association, which represents the most common brand of insurance. Newer customers had higher rates
The average age of a long-term care insurance buyer in 2015 was between 56 and 57.
InsuranceNewsNet Magazine » May 2016
The days of selling health insurance across the kitchen table are gone. —John Greene, NAHU’s Vice President of Congressional Affairs
of diabetes, depression and high blood pressure, among other conditions, the association said. These new enrollees also visited the emergency room much more frequently than people who had private, individual coverage before the law expanded. Health insurers expected their initial wave of patients from the ACA expansion to generate higher-than-normal claims because some of the uninsured had not used the health care system for years and were waiting for coverage to help pay for needed care.
NEW HEALTH PLAN AIMS AT BEING SIMPLE
Not all is doom and gloom on the health insurance scene. A retired UnitedHealthcare CEO is one of three company execs who are preparing to launch a health insurance plan they say will make life simpler for consumers and be a more effective partner for hospitals and clinics. Bright Health, in 2017, aims to start selling policies directly to consumers who don’t get coverage at work, mostly through state health care exchanges and independent brokers. It plans to offer Medicare Advantage plans for those 65 and older starting in 2018. Bright Health will create exclusive partnerships with a leading health care system in each market. Such narrow alignments with providers can give consumers fewer choices but, in theory, helps providers better monitor their patients’ health by being able to see if they’ve filled prescriptions or wound up in the emergency room after a visit to the family doctor.
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If policyholders take advantage of wellness initiatives, it may result in lower premium rate increases.
LTCi Carriers Look to Wellness Programs as an Investment Research shows that wellness initiatives begun before a policyholder makes a long-term care claim can be good for the client’s health and the company’s bottom line. By Loretta Jacobs and Scott Przybylski
F
or more than 30 years, employers and health insurers have touted the benefits of wellness initiatives in controlling health-care claims costs. While the success of these programs is not always easy to track, most agree that these efforts to improve employee and policyholder health have had some benefit. As the baby boomer generation ages, long-term care (LTC) insurers are beginning to investigate whether promoting and sponsoring policyholder wellness initiatives is a good investment. A recent Bankers Life study showed evidence that pre-claim wellness initiatives — such as disease screenings — can, in fact, be a good investment. 54
InsuranceNewsNet Magazine » May 2016
LTC Providers Feeling Impact of Aging Policyholders
Long-term care insurance (LTCi) is a relatively new product line, having gained sales traction only in the mid1990s. LTC insurers are only now starting to see claims emerge under the policies they wrote in the 1990s and early 2000s. The emerging claims experience has been somewhat less favorable than expected. As a result, most LTC insurers are investing in claims management protocols and fraud detection analytics in an effort to reduce the severity of ongoing LTC claims. Some LTC insurers also are beginning to explore implementing pre-claim policyholder wellness initiatives as a means to reduce the rates of future LTC insurance claims. Almost three in four individuals aged 65 years and older have multiple chronic conditions. Adults with multiple chronic conditions account for more than two-thirds of health care
spending, according to an article published in the Journal of the American Medical Association. Health screenings often can detect chronic medical conditions before quality of life is impacted. When early detection is combined with follow-up treatment protocols, the results are better patient outcomes and a lower risk of serious complications. When LTC policyholders are healthy, everyone benefits. The policyholders obviously benefit by staying healthy so they may live independently, while insurers benefit from better claims experience and improved profitability in the LTC line of business. If a significant portion of policyholders take advantage of and benefit from wellness initiatives, it also may result in lower risk of premium rate increases in the LTC business — a beneficial outcome for insurers and policyholders alike.
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The Cure for Death in the Insurance Industry Q: What should insurance professionals know about consumer behavior online? A: According to LIMRA, 70 percent of insurance purchases are initiated online. As far as actually reaching consumers online, look what marketers in other industries are doing. eMarketer reported that advertisers worldwide spent more than $23 billion in social media marketing in 2015. That was a 33 percent increase from 2014. Insurance companies are falling behind when it comes to reaching the digital and social consumer. In a study that ranked the top 50 Fortune 500 companies for social media effectiveness, the No. 1 company is Target, the discount retailer, with over 23 million Facebook likes. When we contrast that with one of the largest insurance carriers in the world, we find that they have a mere 30 thousand Facebook likes! Now, I understand that insurance companies can’t offer coupons or incentivize consumers to follow them on social media, so they feel disadvantaged, but the reality is that they have one of the biggest advantages of all with their agent network. They simply need the key for unlocking it. Q: Are social media users even the age demographic that insurance professionals are trying to reach? A: Absolutely. 70 percent of baby boomers have an active Facebook account, which means they’ve checked it within the last month. And 81 percent of Generation X have an active Facebook account. Most agents are dropping the ball. The average person has 300plus friends on Facebook and 500 legitimate email contacts. Out of those 800 people whom know you, how many are going to be thinking about life insurance at least once a year? I’d bet all of them. Q: How does an agent make sure he’s top-
of-mind when one of these 800 people is thinking about life insurance? A. You can’t really be left to your own devices. It’s just not realistic for an agent to invest the time needed every day to make sure the content’s there week-to-week, month-to-month, all year long. If your online marketing isn’t automated, it will eventually fail. That’s where LifeDrip comes in. LifeDrip is the only turn-key, fully-automated, digital and social media marketing platform exclusively for insurance. It creates and customizes all content based on what you sell, and this includes your monthly e-newsletter and social media posts. Then, it monitors your marketing efforts, which is our DripReports™, and triggering SplashTriggers™ when it’s time to engage a client. Q: What’s the setup process like? A: If your IMO or BGA is working with LifeDrip, obviously you can go through them. But it’s very easy for an agent to just sign up directly. Simply register an account and complete a profile. There’s a step-by-step walkthrough. In about seven minutes, you’re going to have your profile completed, which includes states you’re licensed in and any logos, whether you’re an independent agent or working with an agency or a carrier. It will generate your agent website, with search engine optimization. Then, with one simple login, you can add your email and social media accounts. It takes maybe two minutes to do that. After that, if you add a contact to your phone or your desktop, they automatically sync with LifeDrip. Lastly, use the Recommendation Engine to populate your marketing with recommendations. Overall setup takes about 10 minutes, and you’ll be live and ready. Q: What results are LifeDrip users seeing? A: The first IMO we launched with put just
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under 100 agents on the platform. And over the first quarter, without adding any other lead sources, without adding any other carrier or carrier products, that IMO showed a 12 percent growth. Thirty-nine percent of the agents who participated with our first IMO reported at least one new policy written in the first 90 days due directly to the results of their LifeDrip™ solution! This short term increase is fantastic, but doesn’t even begin to explain the benefits long term when it comes to client retention, second sales opportunities, referrals and even more leads generated through SplashTriggers™. Q: How does this compare to what IMOs and BGAs offer for agents? A: It doesn’t. While marketing organizations offer good programs, they just don’t have the resources to build something like this from the ground up. You’ll see pieces of it. Agent sites, for example. But when I go through the list of fundamental requirements that they need, without fail, something’s always missing. Q: What do carriers need to know about LifeDrip? A: It’s less expensive than all the marketing that they’re currently doing. For a fraction of the cost, they can leverage social media at millions of touch points with individual messaging that they control. Plus, they can have precise stats on which of those messages was received, how long it was read and what the feedback is. Q: What do you really mean when you say “evolve or die”? A: This industry is already shrinking. There are fewer licensed agents. The average age is up to 58 years old. It’s only a matter of time before the people who adopt the new tactics – and I don’t care if you’re 30 or 60 – will overtake and dominate the business. Automated social media and online marketing is the next step in our evolution, and whoever adapts will take the business. If you don’t, it’s curtains.
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HEALTH/BENEFITS LTCI CARRIERS LOOK TO WELLNESS PROGRAMS AS AN INVESTMENT
The Case for Policyholder Wellness Initiatives
The study found that the screened population had about half of the incidence of claims of the non-screened. However, that favorable claims incidence rate was offset partially by the severity of the claims. Although the screened group was much less likely to file claims, the claims that did occur lasted longer, on average, than the claims for the non-screened population. The
circulatory disease and stroke claims that the vascular screenings are deThe main challenge with wellness inisigned to detect. This finding implies tiatives is proving that they are finanthat the screenings did offer protective cially viable — that is, proving that invalue to the customers. vesting today in trying to keep people Overall claim costs (incidence healthy actually will pay off later in the times severity) were ultimately the form of lower claims. The Bankers Life most important measurement in the study provides some empirical evidence study. These overall claim costs for that pre-claim wellness initiatives can, the screened group were two-thirds as in fact, be financially viable. high as those for the non-screened 96 The study looked at the ingroup. cidence and the severity of the The incidence, severity and overclaims experiences of two groups all claim cost differentials were reThe main challenge with over the period from 2011 to 2013. markably similar across a variety of wellness initiatives is proving The study compared a group of demographic characteristics thought policyholders who received one to impact claims (age, gender, length that they are financially or more vascular disease screenof time insured, marital status, unings provided by a leading mobile derwriting risk class, residence state), viable — that is, proving that screening company, with a group so that the screened group always apinvesting today in trying to of those who either declined to be pears to be healthier than the similar screened or were never offered the non-screened group. keep people healthy actually option to be screened. We believe this is an encouraging The choice to be screened was sign for the potential of wellness prowill pay off later in the form completely voluntary, and the time grams to become an effective means and cost (other than a modest disof improving overall LTC claims of lower claims. count from the retail screening trends. The next step is exploring the price) spent on the screening was 4:08:15.16 02 development of predictive models to borne by the policyholder. Thereidentify which policyholders are pofore, we believe the screened population claim lengths for the screened group tentially at risk for incurring a claim in was a reasonable proxy for customers were 18 percent greater than those of the next several years so that targeted who would participate in wellness ini- the non-screened group. This was at- wellness protocols can be offered to tiatives if offered. The screening itself tributed to both the mix of claims by them. These efforts are currently in the was one component of an overall well- diagnosis and the presumably underly- formative stage, but we are optimistic ness/claims prevention program. ing health differences in the claimants. that these wellness programs can make Bankers Life has offered its LTC cusThe screened group had a higher a positive difference in policyholders’ tomers discounted vascular disease percentage of dementia claims, which lives by keeping them healthy while imscreenings since the early 2000s, and are typically longer on average in du- proving the profitability and viability of more than 3 percent of its LTC poli- ration, than the non-screened group. the LTC business. cyholders have been screened. More The screened group also had a lower than 80 percent of those screened were percentage of fall/injury and cancer Loretta Jacobs is vice presiinitially screened before 2011. While claims, which are typically shorter than dent of long-term care operations at Bankers Life. Loretta the screened population is a relatively average, than the non-screened group. may be contacted at loretta. small percentage of the total popula- Moreover, claims with comparable di- jacobs@innfeedback.com. tion, it is statistically credible, with al- agnoses were longer for the screened most 16,000 identifiable policyholders population than for the non-screened and more than 45,000 total policyhold- population. Scott Przybylski is the longers exposed during the 2011-2013 time As expected, the screened group term care operations analyst period. incurred a smaller percentage of for Bankers Life. Scott may be contacted at scott.przybylski@ innfeedback.com.
As the baby boomer generation ages, insurers are studying whether promoting and sponsoring policyholder wellness initiatives is a good investment. 56
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NEWSWIRES
QUOTABLE
30% of Americans Have No Plan to Pay Off Their Debt
We always talk about investors getting older. The flip side is advisors are aging as well, and that’s problematic for investors.
Debt — that four-letter word that is a burden, a necessity and a reality for most of us. But although 70 percent of Americans are carrying some kind of debt, 30 percent of those who have debt are in need of another four-letter word — PLAN. A recent Fifth Third Bank survey showed that three out of 10 Americans who are in debt don’t have any plan to pay it off. One in four survey respondents said they believe they are in “financial hardship” from their debt. While credit card payments are the top identified debt across all age groups, the second-highest debt for each generation reveals interesting insights into their priorities. Thirty-nine percent of millennials have student loan debt. Thirty-seven percent of Generation X respondents are paying off car loans. Thirty-four percent of baby boomers are still in debt for their mortgage.
AMERICANS UNCERTAIN ABOUT INTEREST RATES
We’re closing in on the halfway point of a new year, and Americans aren’t looking at it with much optimism. A COUNTRY Financial survey showed that Americans believe there is a 36 percent chance that the U.S. economy will fall into a recession this year. Uncertainty over rates and the rocky financial markets at the beginning of the year are fueling pessimism over the nation’s economic state, the survey responses indicated. Americans at large are unsure how potential interest rate hikes in 2016 will affect the U.S. economy — and very few have a positive outlook. Fewer than 20 percent believe raising interest rates in 2016 will help the U.S. economy, while even fewer (11 percent) believe it will benefit them personally. In contrast, many Americans have a negative outlook on interest rate increases, but an even larger group say they don’t know what to expect: Nearly one in four (23 percent) said they don’t know how slowly raising interest rates will impact their personal financial situation. DID YOU
KNOW
?
58
ONLY 36%
YOUNG ADULTS FINALLY BUILDING THEIR SAVINGS
When you think of the millennials, what comes to mind? Underemployment? Burned by student loans? Unable to dig themselves out of a financial hole? Surprise! New data finds that young adults are outpacing older generations in their savings goals — a situation that has mixed implications for America’s future financial security. A new survey by Bankrate.com found that adults under 30 are really stepping up their savings game. More than six in 10 said they were saving at least 5 percent of their income, up 20 percentage points from last
year. Nearly three in 10 said they were saving more than 10 percent of their income, bringing them nearly on par with the number of people across all age brackets saving more than 10 percent of their income.
THE AVERAGE RETURN ON AN INITIAL PUBLIC OFFERING was 20 percent this year. The average increase in the first day (or “pop”) is 13 percent.
of millennials know how much money is saved in their retirement account.
Source: Renaissance Capital
InsuranceNewsNet Magazine » May 2016
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— Andrew Stoltmann, a Chicagobased securities lawyer
But the bad news in this is that many older adults — who have less time to go before retirement — aren’t saving as much as they should: Only half of respondents 30 and older said they are managing to save at least 5 percent of their income, and nearly a quarter of those between the ages of 30 and 49 aren’t saving a penny.
DEMENTIA RAVAGES CAREGIVERS’ FINANCES Dementia destroys much more than its victims’ lives. It also ruins their caregivers’ finances. Relatives and friends who provide care for those with dementia report they have CAREGIVERS dipped into their retirement GOES HUNGRY savings, cut back on spending and sold assets to pay for expenses tied to the dis< $50K HOUSEHOLD ease, according to a survey INCOME by the Alzheimer’s Association. About one in five caregivers goes hungry because they don’t have enough money. “This was a big shocker for us,” said Keith Fargo, Alzheimer’s Association director of scientific programs and outreach. Fargo said he didn’t expect so many families to be struggling. He said the survey shows that people are not prepared for the high costs of home care or nursing home care. Nationwide, there are 5.4 million people with Alzheimer’s, the most common cause of dementia. The majority are older than 75. Roughly two out of five of the more than 15 million unpaid caregivers in the U.S. have a household income below $50,000, the Alzheimer’s Association said. Often the caregiving role falls on a daughter or a spouse. On average, they spent more than $5,000 per year, mostly on food, travel and medical supplies, such as diapers. The highest expenses were incurred by spouses or partners.
1 in 5
2 in 5
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Understanding the Different Breed of Affluent Clients in Millennials E ven high-net-worth millennials are more like their Silent Generation grandparents than their boomer parents. By Brian O’Connell
W
ith affluent boomers heading into retirement and the gradual, but undeniable, decline of the once vaunted middle class, financial advisors have fewer opportunities to add assets under management. One hot spot for advisors, though, is the next generation of high-net-worth and ultra-high-net-worth investors. These younger, more technologically driven prospects are the sons and daughters — even grandchildren in some instances — of highly affluent investors in their 60s, 70s and 80s. According to U.S. Trust Insights on Wealth and Worth, children of affluent boomers can expect to receive “trillions” in inheritance wealth. The nation60
InsuranceNewsNet Magazine » May 2016
wide study of 642 adults with at least $3 million in investable assets — including 37 percent with $3 million to $5 million, 31 percent with $5 million to $10 million, and 32 percent with more than $10 million — shows they have weathered the storm from the Great Recession and are ready to hand off assets to their children in the next decade. Like most affluent investors, that next generation of HNW and UHNW investors offers a financial “sweet spot” for wealth managers. »B y and large, investors with $100,000 to $1 million in assets are “affluent investors.” » T he upper end of HNWI caps out at approximately $5 million. »M ore than $50 million in wealth classifies a client as an “UHNW investor.”
A Different Breed Of Cat
Just know going in that the next generation of wealth is picky, especially those millennials who grew up fast in the heart of the Great Recession. “As an academic at a financial services college and a millennial myself, we bring a different perspective to financial advisors” says Adam Beck, director at the MassMutual Center for Special Needs. “In my view, student debt, urbanization and shifting views of family impact are influencing millennial financial decisions. For my parents’ generation, owning a home, having a steady job, owning a nice car and being able to provide for a family were key goals. Today, our career, savings and investing decisions are severely limited by high college and grad school debt, usually at very high interest rates.” Those experiences — especially watching their parents lose jobs and health insurance and struggle financially during the Great Recession — have and will con-
DIFFERENT BREED OF AFFLUENT CLIENTS IN MILLENNIALS tinue to shape younger clients’ views of finances and of financial advisors. “Having witnessed two major asset bubbles — first in technology stocks and then later in the value of real estate — as well as a major financial crisis and the worst economic environment since the Great Depression, millennials have come to view the markets as something far different than what their parents might have envisioned,” says Chris Georgandellis, a financial planner with Exchange Capital Management in Ann Arbor, Mich. Georgandellis says a high level of distrust for the established wealth management community is shared among those millennials. “The rise of the Internet and its ability to connect information and people has blown open what was once an opaque industry,” he adds. “Whereas in the past, unscrupulous managers and advisors might have flown under the radar, today a simple Google search can instantaneously reveal warning signs.” Further, millennials no longer share the view of their parents’ generation that the stock market is an engine for wealth creation. “Having witnessed two major market implosions, millennials are wary of the traditional “all-stock, set-it-and-forget-it” approach to investing, he adds.
Key Steps To Take
So what steps, specifically, should advisors take to win over a unique, skeptical, but ultimately asset-rich next generation of wealth? Here are a few clues about what younger investors will expect if you want to win their business: High net worth Gen X and Gen Y investors are embracing technology — A recent study from Millionaire Corner also says that young, affluent investors are “managing their finances on the go.” Sixty percent of high-net-worth investors ages 44 and younger — members of Generations X and Y — own a tablet or e-reader, compared to 47 percent of high net worth investors as a whole. In addition, about 70 percent of younger high net worth investors use their tablets to access personal account information, and more than 60 percent of younger high net worth investors use tablets to research investments, conduct trades and create
financial plans. Wealth managers will need to embrace technology and social media too, if they expect to harness the next generation of wealth. High-net-worth Gen X and Gen Y investors are looking at wealth strategies in revolutionary new ways — Financial advisors have a huge opportunity in proactively helping young, affluent investors
tle against younger investors who want more control over their investments. “Much like any other age cohort, younger investment clients are not a homogenous group when it comes to finances,” says Ryder Taff, a 28-year-old portfolio manager with New Perspectives, an investment advisory firm. “Some profess to have learned everything from
“Much like any other age cohort, younger investment clients are not a homogenous group when it comes to finances.”
YOLO
— Ryder Taff, portfolio manager at New Perspectives
manage their wealth with a wide variety of investments, including the new options that are coming, such as crowd-funding, impact investing and other value propositions that appeal to them. High-net-worth Gen X and Gen Y investors are going global — Wealth managers will need to know what the new, young wealthy look like and where they live. In that regard, that new face of high net worth and ultra-high net worth is more international than in past decades. That means looking to overseas bourses such as Bombay and Beijing, as much as it does Boston or Boca Raton. High-net-worth Gen X and Gen Y investors like to “go it alone” — Statistics show that young, affluent investors prefer to craft their own investment strategies. In fact, only 30 percent of such investors say they want to work with a financial advisor on a regular basis, and 65 percent want to be actively involved in the day-to-day management of their investments. That suggests taking a collaborative approach in your marketing pitch to younger clients, thus going with the flow instead of fighting an uphill bat-
their parents, some have no clue what they are doing, and some are very interested and active in keeping their finances in good shape. For the most part, though, millennials seem to have learned from their parents’ mistakes.” While Taff sees plenty of middle-aged or retired people who have not fully learned the lessons of their financial mistakes, younger investors seem to understand them and have a strong desire to avoid mistakes they have seen others make. “They are not tied down by a lifetime of bad advice as older generations are,” he says. That’s good advice for financial advisors looking to crack the code on the next generation of wealth. Use it — and all the tips above — to lay the foundation for your own next generation of wealth. Brian O’Connell is a former Wall Street bond trader and author of best-selling books, such as The 401k Millionaire. He’s a regular contributor to major media business platforms. He resides in Doylestown, Pa. Brian may be reached at brian.oconnell@ innfeedback.com.
May 2016 » InsuranceNewsNet Magazine
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BUSINESS
Try to Avoid Using the ‘R’ Word T he word “retirement” has so many negative connotations that it’s time to put forth a more positive vision for the time when clients are no longer in the workforce. By Shane Westhoelter
W
hen I started in the business, all I heard was, “We need to help people plan for retirement!” That sounded great, so I spent many years talking to people about saving, investing and striving to become financially successful when they reach “retirement.” However, I realized this was a negative approach. Retirement by definition refers to the action or fact of leaving one’s job and ceasing to work. It also means to 62
InsuranceNewsNet Magazine » May 2016
stop, to withdraw or to go into seclusion. It implies being a “has-been,” “no longer needed” or “no longer of value.” That is not what I wanted to encourage my clients to achieve. So I stopped talking about retirement. Instead, I started talking about “living a quality of life of dignity without financial stress.” I started talking with my clients about making a bucket list of things they want to do, places they want to go, differences they want to make, philanthropy and the legacy they want to leave behind. I explained we all leave a legacy, either
by default or by design, so let’s leave one by design. Many will go through the phases of life — the single phase, the career phase, the accumulation phase, the retirement phase and the distribution phase — without ever taking time to design, direct, plan or enjoy the current phase they are in. We often go through life without a clear focus on our values, goals, vision or mission or thinking about the legacy of life we want to leave. So I decided to help my clients change the focus from “retirement” to “taking the ‘if’ out of life and learning to live.”
It implies being a “has-been,” “no longer needed” or “no longer of value.” That is not what I wanted to encourage my clients to achieve.
TRY TO AVOID USING THE ‘R’ WORD BUSINESS
Creating a ‘Life Mission Statement’
When designing a financial plan, I suggest that each person consider what I call the “personal life pyramid.” I believe that as we establish our core values in life, we can set effective goals for our life. If we set effective goals for our life, we can create an effective vision for our life. If we create an effective vision for our life, we can accomplish our life mission. If we accomplish our life mission, we will leave a legacy by design. Help your clients create a personal mission statement, a purpose in life and a reason to live. Help them have a vision in life, create bucket lists and then set a step-by-step action plan to achieve the bucket list goals. Ask the question “Is it more important to you to accumulate wealth, or is it more important to have the financial means to live the life you desire to live with dignity without financial stress?” If living a life with dignity without financial stress is important, then focus on “quality life planning” and stop talking about “retirement planning.” Sometimes I would encourage clients to write their eulogy. I would tell them to write the eulogy the way they want it to read, not the way it would read today. What do they want people to say about them, remember about them or have impressed upon their hearts from them? What life legacy do they want to impart to those left behind? Once I understood what was really important to them, I could help them set financial goals and action plans, and then design a financial plan to enable them to enjoy life. I focused on quality life planning, so that we did not focus only on accumulation, preservation and distribution until they died.
Take the ‘IF’ out of Life and Learn to Live
Life will throw us obstacles that we must overcome. We will face roadblocks, detours and financial setbacks. The key is learning how to adjust our plan, not our lives. I spend most of my day helping clients achieve their financial goals, dreams and financial plans to create a legacy. Some clients have created a plan, lived it and enjoyed it and are having fun. Others are in crisis mode. They have procrastinated and
allowed obstacles to knock them off track. Sometimes these obstacles came up unexpectedly and the client had no control over them. In any case, what I have observed is that even the best-made plans can be sidetracked and need adjustments. The difference between panic and peace, when plans need to be adjusted, is the understanding the client has of adjusting the plan versus adjusting their life. A financial plan is a great tool to help clients achieve financial goals. But what most planners fail to recognize is the purpose of the financial plan. The purpose of a financial plan is to help clients enjoy what is important to them. More important, it is to help them take the “if” out of life. What if they live? Will they have the means to enjoy life? What if they linger — become sick, hurt or disabled? Will they have the means to obtain the quality care they desire? What if they leave — by death or divorce? Will their assets transfer the way they desire? What is their legacy? Is it by
LEGACY MISSION VISION GOALS VALUES default or by design? As financial planners, we need to help clients prepare for the unexpected. We need to help them protect their assets against the unexpected. We should help them create bucket lists so they can enjoy life along the way. The goal is to help clients live a quality life without financial stress while they focus on living — not becoming retired has-beens. Helping clients focus less on retirement and more on living will help set you apart from other advisors in the marketplace. Shane Westhoelter, AEP, CLU, LUTCF, LTCP, is CEO/ President of Gateway Financial Advisors, San Ramon, Calif. Shane may be contacted at shane.westhoelter@ innfeedback.com.
May 2016 » InsuranceNewsNet Magazine
63
MDRT INSIGHTS
The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.
Estate Planning – From A to Z in 60 Days C lients don’t want to sit through an endless number of meetings to complete their estate plan. Here is how you can make effective use of everyone’s time and get the job done. By Albert Gibbons
E
ighty percent of estate planning can be done in 20 percent of the time it normally takes. The process in most cases should be completed successfully in as little as 60 days. The old saying goes “knowledge is power,” but power for you and power for your clients will depend on your ability to communicate and lead them through a process that encourages them to take action.
an Estate Planning A ssemble Team
The lead advisor often will be the one with the closest relationship to the client and will frequently make recommendations regarding who the other members of the estate planning team might be. Once agreed upon, the lead advisor should arrange a conference call to introduce the other advisors to each other and give an overview of the case. The planning process and general fact pattern of the case should be outlined for the advisors so there will be no surprises at the initial meeting.
the Initial Meeting O rchestrate This is where the rubber meets the
road in the estate planning process. Usually, the lead advisor brings the client to the table and the meeting lasts one or two hours. It’s the lead advisor’s responsibility to obtain the client’s agreement on how the planning process will be managed. The client needs to know the goals of the meeting, as well as how the advisors will share information and be compensated. The pivotal point of the meeting and the entire process are the answers to the following questions: » What would we be discussing today if the client died last night? » H ow would the assets be distributed? 64
InsuranceNewsNet Magazine » May 2016
» How much would the IRS get? » W hat assets would have to be liquidated to pay the obligations of the estate? The answers to these questions will help the advisors and client determine whether or not there are problems, and if so, the severity of those problems. More important, the client’s reaction to these answers will predict the speed and success of the rest of the planning process. The more the client is dissatisfied with their current situation, the more motivated they will be to move forward quickly.
the Plan S implify Avoid technical jargon, commu-
nicate clearly with clients and empower them to make informed decisions. More often than not, the reason plans are not implemented is because clients become overwhelmed and confused by the details and complexity of recommendations made by their advisors. As a result, clients either throw up their hands in frustration or become unable to make the necessary decisions to take action.
Expectations M anage Clients and advisors need to know
and accept the fact that the perfect plan is unattainable. The 100 percent plan would require knowledge of the unknown, such as the precise date when the client will die and the value of the stock market at that time, the financial circumstances and the marital status of their children, etc. Since perfect knowledge is impossible, we, as planners, need to focus on doing the best we can with the information we have at hand. Don’t let perfect get in the way of very good.
H This is where most adv isors ave Hard Deadlines
stumble. The advisor and client must set a target date to complete the plann i ng process a nd i mplement t he plan. Ask clients how long they want the estate planning process to take. It is unlikely a client will respond
by saying 12, 18 or 24 months. Clients do not want to spend their time at tend i ng nu merou s est ate pla nning meetings. They typically will respond by saying 30, 60 or 90 days.
Client’s Insurability D etermine Almost always, life insurance will
be considered an integral component of the plan. Although there will be many questions to address over the next 45 to 60 days, it’s important to obtain the best life insurance underwriting offers for the client during this time. In order to get underwriting done quickly and efficiently, the client should agree to take a physical exam promptly and give authorization for release of medical records. Once the advisors and clients know the cost and terms of the life insurance offers, estate planning alternatives can be discussed.
Agreed-Upon C omplement Recommendations
Today, clients have more options than ever before. It is crucial for them to make good decisions based on solid information. With that in mind, we need to follow a very structured and specific process that encourages reflection and promotes timely decision-making. If the planning process described above is followed, then the estate plan can and should be completed and implemented within 60 days. Each advisor is 100 percent responsible for their client and the proper implementation of the plan. No advisor should sleep at night until it is clear that all the I’s have been dotted and the T’s have been crossed. When flawless implementation has been achieved, then the client has been well-served. Albert Gibbons specializes in estate planning and life insurance planning for high-net-worth individuals, high-level corporate executives, and successful entrepreneurs. He is a Life and Top of the Table member of the Million Dollar Round Table. Albert may be contacted at albert.gibbons@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.
Marketing on a Shoestring T hese ideas may not cost a lot, but they can add a lot to your bottom line. By Toni Harris
T
he ability to be an effective marketer is an integral part of your success as an insurance agent or advisor. The cost to market your business can be very expensive, such as using TV or radio ads or billboards. Or it can be inexpensive, such as using fliers or business cards. But you most likely do not have a large budget for marketing. Even if you work with a large, well-known organization, it is
2. Speaking. You can speak to organizations that cater to your target market. As an insurance agent, for example, you can speak about business insurance to entrepreneurs or about life insurance to women’s groups. The key to making this exercise worthwhile is going to groups that are ready for your expertise. Identify organizations that already meet and have speakers who educate their members, and ask to be a speaker. This is a way to get in front of a captive audience that attends meetings regularly. Make sure you have a way to capture the attendees’ information and offer a free
The best part of email marketing is that you can get reports that tell you whether your email was opened and by whom. You can link your email to your website to generate more traffic, and link to videos and social media to get more traction. The cost for an email service provider ranges from free to $50 or more per
month, depending on the number of contacts. Email marketing is an easy and affordable way to “show up” and generate referrals.
still up to you, the individual agent, to market yourself to stay connected with your clients and prospects and obtain referrals. Here are four low-cost marketing strategies you can use to become known and stay in contact with your clients and prospects. 1. Networking. It’s not who you know but who knows you. Networking is still the best way to get known. The key is making real connections and building relationships. You cannot attend a networking event once or twice and expect to get known. You must attend consistently and be ready to give. Give your time, energy, resources and referrals. The best networkers get involved in the organizations they join so that the members get to know them, what they do and how they can refer them. Membership in these organizations ranges from free to hundreds of dollars a year. But the cost is inexpensive compared with other methods of marketing, and you certainly can get more bang for your buck.
strategy session in order to get appointments. This strategy has grown my speaking and marketing consulting business tremendously, and it can do the same for you. Speaking is really a free marketing strategy. 3. Email marketing. This strategy often is overlooked as one of the best ways to stay connected with the people you meet when networking and with those attending the events at which you are a speaker. When I refer to email marketing, I’m talking about sending a monthly educational newsletter. A survey by McKinsey states that email is 40 times more effective than Facebook and Twitter. Think about it. How many times a day do you check your email? Statistics say that most of us touch our phones more than 150 times a day. I’m guessing that for more than half of those times, we do so to check our email messages. Use a reputable email marketing system such as Constant Contact, iContact, MailChimp or one that your company provides to make sure you are meeting the guidelines of the CANSPAM Act.
4. Social media marketing. How many of you thought social media was a fad that would fade away? Frankly, I did too. But guess what? Social media is here to stay, and whether you like it or not, it is an integral part of marketing. If you are not social, you are not considered to be legitimately in business. The future is here, and social media is no longer optional. If you are not using social media to market yourself, you are missing out on a free marketing strategy. Social media is about building relationships to keep your current clients and gain new ones. But consider your company’s social media guidelines before you start posting. If you add networking, speaking, email marketing and social media marketing to your arsenal of marketing tools, you will not only grow your business, you will save money as well. Happy marketing! Toni Harris is a motivational speaker, marketing strategist and certified coach. Toni may be contacted at toni.harris@ innfeedback.com.
May 2016 » InsuranceNewsNet Magazine
65
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.
Military Personnel Will Need Help Navigating New Retirement Plan A major change in the military retirement system opens an opportunity to provide financial advice. By Ted Digges
F
or the first time ever, members of the military will be able to choose between the standard 20-year pension and a government contribution matching plan. This marks the biggest change for military compensation in decades. The change was signed into law in November, and it ushers in a new era of nearimmediate vesting, altering the longstanding 20-year cliff vesting. Historically, more than 80 percent of service members do not stay for a career of 20 years or more. Therefore, they transition to civilian life without a retirement benefit. While the details of the plan will be forthcoming over the coming months, the change will be effective on Jan. 1, 2018. Discussions about a retirement overhaul have been on again/off again for decades. Proceeding with caution is understandably prudent, however, considering the substantial risks surrounding the tinkering with what is often considered the premier tool used to attract and retain a talented all-volunteer force. A change from the defined benefit plan to a more modern defined contribution plan may seem overdue, since most of the private sector made the transition to 401(k)s decades ago. Those more familiar with the culture of the military, however, are not surprised. The military organization provides many of lifeâ&#x20AC;&#x2122;s basic needs, such as food, shelter, community, health care and, yes, even a retirement pension after a career. In exchange for these generous benefits, the military can ask its members for extreme sacrifices and a full dedication to a profession without distraction. Sacrifice can mean personal hardship, discomfort, family separation, and even the ultimate 66
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sacrifice of giving up oneâ&#x20AC;&#x2122;s life to protect fellow citizens and our way of life. By altering the rules of this long-standing social contract, the government is taking on risk, but the change also presents opportunity for the organization as well as its members.
Enrollment Starts in 2018
Recruits coming out of boot camp in 2018 will be enrolled automatically in the new benefit system as the traditional pension plan is phased out. The new plan will feature matching contributions from 1 percent to 5 percent of monthly basic pay. Those who are already in the pension system will be able to choose whether to stay the course under a grandfathered provision or enroll in the new plan. Defined contribution plans are popular with employers because they shift much of the long-term financial risk to the employee. Because of that, as most of the private sector already knows, these plans require a more educated and financially savvy employee. The Defense Department plans to roll out a forcewide education program in late 2016. The financial education aspect of the new military retirement plan will become the critical linchpin of successful implementation as well as long-term satisfaction.
Education Strategy Needed
The financial education strategy for military members should include several tiers of topics, based on where each member is in their career. At the service entry point, each member should establish a basic financial foundation that not only includes budgeting and savings concepts but also how to read a leave and earnings statement (LES) and the basic overview of military benefits. Building on this foundation, education topics should coincide with career milestones and time-in-service parameters. Special situations must be addressed, such as lump sum payouts, special pay implications, survivor benefit plan (SBP) and the
financial implications of transitioning to civilian life. Broader topics should build on areas such as property/casualty insurance, life insurance, health insurance, tax strategy, retirement strategy and eventually estate planning. An additional layer of education should include or at least encourage military members to seek advice from financial service professionals, especially those who understand the unique nature of the issues active duty military members face. In fact, there will be a growing demand in the next few years for financial advisors who either come from a military background or understand the culture and can speak the language. Financial literacy and access to good financial advice always have been critical to long-term financial success. Now, for a new generation of military men and women, they will be critical aspects of their changing retirement landscape. If done correctly, the change will allow those who serve for only a few years to transition with more financial reward to complement their service experience. It will also allow those who serve for a full career to take personal control over their financial future as never before. Just as important, the financial services profession needs to prepare for this incredible opportunity to serve those who have spent their first career serving us. Ted Digges is executive director of The American College Penn Mutual Center for Veterans Affairs. Ted may be contacted at ted.digges@innfeedback.com
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A FRESH PERSPECTIVE ON THE MODERN FINANCIAL ADVISING WORLD
ADVERTISER INDEX Advertiser
Website
Phone
Pg
American Equity
life.american-equity.com
888-647-1371
9
American National
img.anicoweb.com
888-501-4043
31
Assurity
www.125yearsofamazing.com
800-276-7619
37
Athene
www.atheneascent.com/knockout
21
Boston Mutual
www.bostonmutual.com
63
Brookstone Capital
www.brookstoneahead.com
IBC
College for Financial Planning www.cffpinfo.com/lutcf
1
Fortify
www.physiciandooropener.com
29
Illinois Mutual
www.illinoismutualagent.com
800-437-7355 ext 719
53
Imeriti Financial Network
www.supersizeiul.com
855-601-9442
2, 3
John Hancock
jhredefininglife.com
Kansas City Life
www.kclife.com
855-277-2090 ext 8120
43
Levinson
www.lightninglevelterm.com
800-375-2279
33
Market Domination
www.ultimatemarketingmagician.com/inncall
Minnesota Life
www.securian.com
IFC, 25
8 888-413-7860 opt 1
Mutual of Omaha
39 49
Mutual Trust
www.mutualtrust.com/opportunity
Nationwide
www.nationwidefinancial.com/uprooted
Ohlson Group
www.annuityproductionmachine.com
844-651-0741
67
Oxford Life
www.oxfordlife.com
888-203-6221
27
Paperback Expert
www.24hourpaperback.com
67
Peak Pro Financial
www.annuityexodus.com
51
Petersen International
www.piu.org
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57
Prudential
www.prudential.com/benefitaccess
844-606-7873
17
Sentinel Security Life
www.sentinelannuities.com
Transamerica Employee Benefits
www.transamericabenefits.com
866-872-6726
11
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4, 5
45 866.464.7355 opt 6
Wealth Index Network
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7 34, 35 FC, 55
May 2016 » InsuranceNewsNet Magazine
67
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.
Why Your Clients Should Have a Written Retirement Plan R esearch shows that clients who put their retirement plan in writing are more likely to be successful in managing their income, expenses and assets in retirement. By Matthew Drinkwater
T
here’s a reason why so many self-help books urge people to write down their goals — people are more likely to achieve their goals if they are in writing. Putting your aspirations for personal growth and your plan to reach those ambitions in ink can be much more effective than merely thinking about them. The same can be said for retirement planning. Recent research from the LIMRA Secure Retirement Institute suggests the benefits of having a formal, written retirement plan are so overwhelming it’s hard to justify not having one for your clients entering retirement. In “The Benefits of Retirement Planning,” we surveyed pre-retirees and retirees ages 55 to 75 with at least $100,000 in investable assets and followed up with in-depth interviews for a subset of participants. Most pre-retirees and retirees we surveyed had done at least some retirement planning, but very few (16 percent) had developed formal written plans for managing their income, expenses and assets in retirement. The primary goal of written plans is to ensure that individuals can continue their living standard into retirement. Plans can include details on projected expenditures, sources of income (including when to claim Social Security), investment return and inflation expectations. Tax minimization can be a major component. Plans also can go beyond these core elements and include strategies for paying for health care costs not covered by Medicare, longterm care coverage and managing debt — which will be an increasingly common need. Finally, plans can address legacy 68
InsuranceNewsNet Magazine » May 2016
goals — estate planning, charitable giving and so on. As more people approach retirement age without a formal written plan, they may face unexpected and significant financial challenges. By creating written plans for pre-retirees and retirees, financial professionals can make a real difference for their clients and strengthen their own business. According to our research:
Percentage of Clients Who Plan to Do This Activity Within the Next Two Years
» Clients with formal written plans are more likely to consider asset consolidation and explore their options for guaranteed income generation (see chart).
Our research demonstrates that to achieve maximum effectiveness, plans should include illustrations, simple organization and an action plan. Clients will find clear illustrations easier to grasp than lengthy textual explanations. Fewer sections, with the most important material upfront, are preferable. Chances are even your well-off clients will need to make some changes to optimize their prospects. The plan can be a means to make the case, in writing, why your solutions are the best and how to put everything into effect. As a plan is updated, it should specify what “course corrections” are needed to keep the client on target to achieve their retirement goals. Finally, plan creation and refinement should involve both spouses when possible — which will save time later and give you a better chance of maintaining the relationship after divorce or widowhood. In an industry that will receive even more regulatory scrutiny in the coming years, it will be critical for financial professionals to have evidence that they have met the needs of their clients. In-depth retirement planning will be a key differentiator.
» Plan development often leads to purchasing financial products that help manage risk. » Formal written plans boost client confidence and feelings of security, thus strengthening the bond between financial professionals and their clients. » Clients see their financial professionals as more accessible and as having a better understanding of their needs. The plans can serve as a touchstone during regular meetings to uncover any needs for tactical adjustments based on new developments. Finally, our research indicates that referrals will increase. In addition, clients with formal written plans will be more inclined to stay with their financial professional for the rest of their lives. For a financial professional who does not incorporate formal written plans into their regular practice, what’s needed to make them happen? Creating formal written plans can be time-consuming and complicated and require a well-thought-out process with excellent software or other technical support. Online fact finders completed in advance of face-to-face meetings could facilitate the process.
20%
18% 11%
15%
13%
9%
Roll money from DC plan to IRA
Consolidate retirement accounts
No formal written plan
Convert a portion of assets to guaranteed income
Has formal written plan
Matthew Drinkwater, Ph.D., FLMI, AFSI, PCS, assistant vice president, LIMRA Secure Retirement Institute, provides oversight and guidance for all major primary research projects conducted within the LIMRA Secure Retirement Institute. Matthew may be contacted at matthew.drinkwater@innfeedback.com.
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