InsuranceNewsNet Magazine - June 2016 by InsuranceNewsNet

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Life Annuities Health /Benefits Financial

MAGAZINE

June 2016

ANNUITIES -

IN THE POST INSURANCE FIDUCI ARY

PAGE

WORLD PLUS Will DOL Slam Annuity Door As Consumers Rush In? PAGE 12 Pain or Gainâ&#x20AC;&#x201D;What Motivates People to Buy? PAGE 18

Annuity Awareness Section PAGE Seven thought leaders share their expertise

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Ameritas leaders are industry leaders

Robelynn H. Abadie, RFC, CAP, LUTCF

Abadie Financial Services Baton Rouge, LA

Kim G. Allen, LUTCF

Stephen D. Andersen, RHU

Peter C. Browne, LUTCF

Stephen L. Bruneau, CLU, CFP

United Wealth Advisors Group Watertown, NY

Midlands Financial Benefits Lincoln, NE

PRB Wealth Management New York, NY

Boston 128 Companies Weston, MA

Josh A. Jalinski

John C. Kenan

Patrick J. Kenney, CPA

Dominick A. Luongo

Brett A. Moldenhauer

Jalinski Advisory Group Toms River, NJ

Southeast Financial Services Greensboro, NC

Wilcox Financial Toledo, OH

Luongo & Associates Hauppauge, NY

Moldenhauer & Associates Orchard Park, NY

Joseph S. Pantozzi, CLU, ChFC

Ronald G. Pray, CLU, ChFC

Arnold J. Price

Stuart J. Raffel, CLU, CPC, RFC

Mark P. Rosenbaum

Alpha Omega Wealth Las Vegas, NV

Cenco Altmann Affiliates Gilroy, CA

Price/Raffel LA Los Angeles, CA

Rosenbaum Financial Portland, OR

Ameritas® and the bison design are registered service marks of Ameritas Life Insurance Corp. Fulfilling life® is a registered service mark of affiliate Ameritas Holding Company. © 2016 Ameritas Mutual Holding Company 2

InsuranceNewsNet Magazine » June 2016

2016 MDRT Top of the Table Ameritas salutes our valued field associates who have attained the highest levels of MDRT membership.

Angelo E. Cilia, CLU, ChFC

Timothy R. Croak, CLU, ChFC

Mark E. Friese, CMFC

Keith M. Gillies, CLU, CFP, ChFC

Jarrod F. Hirschfeld

CF Advisors Group Bethesda, MD

Creative Financial Partners Perrysburg, OH

Mooney - IL Libertyville, IL

United Wealth Advisors Group La Place, LA

Wilcox Financial Toledo, OH

LeaAnn M. Moore

William C. Moore, CFP

Kevin P. Nicholson

Mitchell W. Ostrove, CLU, ChFC

Midlands Financial Benefits Lincoln, NE

W.C. Moore Financial Services Centreville, VA

Walsh & Nicholson Financial Group Wayne, PA

The Ostrove Group White Plains, NY

Brian P. Walsh, CLU, ChFC, RFC

David B. Wentz, J.D., LUTCF

R. David Wentz, J.D, CLU, ChFC

Michael R. Wilcox

Walsh & Nicholson Financial Group Wayne, PA

Tax Favored Benefits Overland Park, KS

Wilcox Financial Toledo, OH

Richard C. Moldenhauer, CLU, ChFC, RFC, CEP

Moldenhauer & Associates Orchard Park, NY

DST 1364 5-16

June 2016 Âť InsuranceNewsNet Magazine

2016 MDRT Court of the Table

Heather L. Alexander, LTCP

Michael S. Arteca

C. Robert Brown, CLU, LUTCF

John Elias Calles, J.D., CLU, ChFC

PRB Wealth Management New York, NY

Independent Financial Solutions Westbury, NY

UCL Financial Group Memphis, TN

Miami Agency Coral Gables, FL

David J. Fazzini, LUTCF

David R. Guttery, RFC, RFS, CAM

Frank G. Heitker, CLU, FLMI

Frank S. Hennessey, LUTCF, ChFC

Premier Planning Group Phoenixville, PA

Nowlin and Associates Trussville, AL

Premier Planning Group Cincinnati, OH

Premier Planning Group Phoenixville, PA

Merle D. Miller, RFC

Tony J. Ojeda

Christopher M. Pirtle, LUTCF

Michael C. Polin

Midwest Financial Solutions Iowa City, IA

Midlands Financial Benefits Lincoln, NE

Peake Financial Silver Spring, MD

Premier Planning Group Phoenixville, PA

This information is provided by Ameritas®, which is a marketing name for subsidiaries of Ameritas Mutual Holding Company, including, but not limited to: Ameritas Life Insurance Corp., 5900 O Street, Lincoln, Nebraska 68510; Ameritas Life Insurance Corp. of New York, (licensed in New York) 1350 Broadway, Suite 2201, New York, New York 10018; and Ameritas Investment Corp, member FINRA/SIPC. Each company is solely responsible for its own financial condition and contractual obligations. For more information about Ameritas®, visit ameritas.com. Any agency referenced is not an affiliate of Ameritas or of any of its affiliates. DST 1364 5-16

InsuranceNewsNet Magazine » June 2016

Juan Elias Calles, CLU, ChFC

Mark A. Cecil, CFP

James R. Christensen Jr.

Dale F. Clarke

Miami Agency Coral Gables, FL

United Wealth Advisors Group Bethesda, MD

inSource Benefits Group Omaha, NE

Allegis Insurance Agency Farmington, UT

Tobin C. Hoffmann, CFP

Ivar N. Jones, LUTCF

S. Patrick Kelley, ChFC

Frank C. Kinter, CLU, ChFC

Hoffmann Agency New Braunfels, TX

IJ Financial San Francisco, CA

David White & Associates San Ramon, CA

WPA/Pittsburgh Financial Center Indiana, PA

Daniel J. Scholz, CLU, ChFC

Michael T. Washer

Peter J. Winovich III

Ameritas Financial Center Omaha, NE

ICS Financial Gainesville, FL

Wilcox Financial Toledo, OH

IN THIS ISSUE JUNE 2016 » VOLUME 9, NUMBER 6

View and share the articles from this month’s issue

» read it

online

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FEATURE

NC E I NSUR A RY FIDUC I A

INFRONT

12 W ill DOL Slam Annuity Door Just As Consumers Rush In? By John Hilton The Department of Labor’s fiduciary rule dominated the agenda during LIMRA’s 2016 Retirement Industry Conference last month in Boston.

Great minds from seven different companies offer their own ideas on how financial professionals can help Americans in new and lucrative ways.

56 What Clients Don’t Know About Whole Life Dividends By Brad Cummins Dividend-paying whole life insurance can provide your clients with some substantial benefits, especially if they plan to keep the policy for the long term.

58 Longevity Could Be Written All Over Your Client’s Face 18 Pain vs. Gain: What Best Motivates Buyers to Buy? An interview with Dan Seidman Many salespeople believe in selling buyers something to relieve their pain. But not all buyers are motivated by pain. Dan Seidman, author of The Ultimate Guide To Sales Training, discusses how to tell the difference between pain-motivated and gainmotivated buyers, and how to tailor your presentation to each. 6

InsuranceNewsNet Magazine » June 2016

By Steven A. Morelli In this Annuity Awareness Month, awareness is pivoting toward the Department of Labor’s fiduciary rule, which will affect at least 65 percent of the funding for fixed indexed annuities.

41 Annuity Thought Leadership Series – Special Section

LIFE

INTERVIEW

30 Annuities in the Post-DOL World

By Susan Rupe New developments in longevity research could lead to significant changes in the way life insurance is underwritten.

ANNUITY

64 W ill Floating Rates Become the New Indexed Annuities? By Cyril Tuohy How a new variety of annuity combines the appeal of indexed products with the simplicity of a traditional annuity.

66 H igh Anxiety: How DIAs Answer Your Clients’ Deepest Fears By David Simbro Advisors are turning to planning strategies that are equal parts offense and defense — and deferred income annuities are playing a key role.

HEALTH/BENEFITS

72 B roker Role Grows With the Adoption Of Private Exchanges By Rebecca Motola-Barnes and Beth Raskin With the growing complexity of the benefits marketplace and a shifting regulatory environment, employers are increasing their reliance on knowledgeable advisors.

76 The Wrong Executor Can Destroy Even the Best Estate Plan By Victor Ngai The list of the executor’s duties is very long, and the job is often thankless. Help your clients choose wisely as they select someone to fill this crucial role.

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Get the facts on the

FINAL DOL rule REad our report

The Better, The Bad and the Ugly how does the Final fiduciary rule affect you?

Visit aapnow.org to learn more.

ALSO IN THIS ISSUE

JUNE 2016 » VOLUME 9, NUMBER 6

81 NAIFA: How to Connect With Clients By Lisa Horowitz Five strategies to build client relationships while you build your practice.

82 T HE AMERICAN COLLEGE: Life Insurance Considerations for Special Needs Families

BUSINESS

78 Why Good People Underperform

By Doug Duncan Here are the root causes of why employees don’t get the job done, and what you can do about it.

INSIGHTS

80 MDRT: Estate Planning — From A to Z in 60 Days By Ryan J. Pinney While prospecting is something advisors need to do, the real prospecting needs to be done among our current clients.

By Adam Beck Life insurance serves a crucial role in the future economic security of a person living with special needs.

84 L IMRA: Automated Underwriting Cuts Fraud, Errors and Omissions By Mary M. Art As companies continue to progress with automated underwriting, they can expect to increase business and better meet customer expectations.

EVERY ISSUE 10 Editor’s Letter 26 NewsWires

54 LifeWires 62 AnnuityWires

70 Health/Benefits Wires 74 AdvisorNews Wires

INSURANCENEWSNET.COM, INC.

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WELCOME LETTER FROM THE EDITOR

Survival of the Goodest

his year will not be boring.

And these are not mere distractions facing us — the presidential election, the Department of Labor rule and who did Negan kill in “The Walking Dead”? I won’t touch the first item and I will reveal that I have my money on Abraham for the last one, but let’s take a good look at the one in the middle. The damn DOL. We have been so consumed by the details of what the department did in its Conflict of Interest rule that it might be difficult to see if we have any real answers. So, we’ll distill some of the information here. We have an extensive article in this magazine on what we know at the moment, but the most important element is a clearer future. The marketing organizations are key to a successful independent agent channel. But it always comes down to the agents themselves. Agents depend on marketing organizations (IMOs, I know there are FMOs and BGAs, but for our purposes — IMOs) for support in their operation and, most importantly, for access to products. IMOs need agents to sell and sustain the whole business. After all, a majority of fixed indexed annuities are sold by independent agents.

Sales Drive Product Development

Good agents are gold. IMOs entice them with higher commissions and sales incentives. IMOs turn to insurers to supply these products. That chain has led to booming sales but also to the unfortunate outcome of products that are primarily built to sell rather than serve. Yes, FIAs do answer the consumer’s essential need for income security plus the opportunity for gain with an appreciating index. But here is where it gets tricky — how much of that is purely a marketing message? The answer might be “none of it.” Many agents care about their clients and believe FIAs ensure a reliable lifetime income. This is, in fact, a public service when agents get Americans to secure their retirement in an uncertain future. Too many people are out there without a clue about how they are going to make it when their working days are done. But if agents are putting a vast percentage 10

InsuranceNewsNet Magazine » June 2016

of their prospects into the same FIA regardless of their situation, or even their age, then that is part of the problem. The other part is agents who troll prospects and clients for annuities to turn over for the sake of commissions. These two scenarios are mostly from the bad ol’ days when the industry winked at questionable sales practices. Quite a bit of cleaning up has happened in the past decade, but those images persist. IMOs and agents are left with the heavy lift of showing their value to consumers and the financial industry as a whole. Some of this is atoning for the sins of others, but the essence of this work is serving an American public in desperate need of direction and security.

Enter the ‘Reformers’

Sure, many people in the Cult of Fiduciary seem to present themselves as the Knights Templar protecting the Ark of the Best Interest Covenant. They are also looking past the sins in their own church. Where was the Securities and Exchange Commission when Bernard Madoff harvested billions of dollars like a scythe through wheat? Madoff was a particularly egregious case, but the finance industry is rife with “advisors” who scammed millions and billions of dollars from consumers. Where are the comparable cases of that kind of behavior in the insurance world? Rare is the rogue insurance agent who gets very far with that level of criminality. So, where does all this put independent agents? In a new reality that goes beyond what the DOL has done. Even if the DOL’s effort is defeated or at least restricted, the drive to better client care will continue. The SEC has said it will come out with its own fiduciary rule. Maybe it will be able to overcome its own dysfunction to actually do that. Even if the SEC does not, something else will emerge. This next year will be a reckoning for the annuity industry. Many agents are saying they have no direction but out. That might be. But others are seeing this as their opportunity to show that they can be the answer to America’s retirement crisis.

The Open Road

IMOs that are devoted to building processes that ensure transparency and efficiency are

going to show the way. Transparency will be essential to demonstrating an adherence to the impartial conduct standard. In other words, you will have to show your work. These IMOs and agents will be rewarded with an open road of reliable business. Many in the financial industry are saying they will not be able to manage the paltry sums of average Americans’ retirement savings. The Obama administration is saying that robots will ably handle the fragile future of this nation’s majority. Is that our standard of care now? If you’re rich, you get an advisor — if you’re not, here’s the website you can give all your money to. Insurance agents have always been the ones in the community, on the town council and at the kitchen table, talking to and caring for real people. Regulators don’t know that. Analysts don’t see those relationships in the numbers. Advisors with billions under management move dollars without ever congratulating a client celebrating a grandson or consoling a widow enduring the worst days of her life.

The Real Question

Here’s the central question: Do insurance agents have a future under the DOL rule? Without a doubt. But they will not be paid the same. Some incentives will disappear and some commissions will not be as lucrative. Processes will become more important. Probably the most significant change will be the relationship between agents and IMOs. Agents can’t judge marketers solely on who will get them the best commission, but instead on who can ensure a structure that shows accountability. Accountability has always been the foundation of insurance companies and their agents. Now they need to be able to show the work and the structure itself. Our culture thrives on apocalyptic visions of zombies and illegal aliens, and we have precious few images of the goodness that guides our best people. Consider this your cue. Steven A. Morelli Editor-In-Chief

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INFRONT TIMELY ISSUES THAT MATTER TO YOU

Will DOL Slam Annuity Door Just as Consumers Rush In? he Department of Labor’s T fiduciary rule dominated the agenda during LIMRA’s 2016 Retirement Industry Conference last month in Boston.

By John Hilton

t LIMRA’s recent Retirement Industry Conference, speculation abounded on how the fiduciary rule would restrict access to the very products that can help Americans best prepare for retirement: annuities. Frustration mounted as session after session included survey and study data predicting the negative impact on annuity sales. From manufacturers to distributors to agents on the ground, all face a difficult adjustment period. And it will get ugly before it gets better, said Joseph Montminy, assistant vice president of the LIMRA Secure Retirement Institute. This year, variable annuity sales are expected to decline 15 to 20 percent, he said, but that will be offset by a similar increase in the sale of fixed annuities. But next year will be another story. The majority of the fiduciary rule goes into effect in April 2017, with some aspects delayed until Jan. 1, 2018. That will hurt the market for VAs and FAs, Montminy said. Total annuity sales will decline 15 to 20 percent next year, with VAs plummeting 25 to 30 percent, and FAs slipping 5 to 10 percent. The LIMRA data comes from its 2016 Advisor Survey. “We see the decline as very significant,” Montminy said. The stakes are high, speakers noted. The median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households, according to the National Institute on Retirement Security. The fiduciary rule covers financial products sold within Employee Retire12

InsuranceNewsNet Magazine » June 2016

ment Income Security Act (ERISA)-qualified retirement plans. These plans include individual retirement accounts (IRAs), which were not previously covered by ERISA. Non-ERISA plans would be covered by the restrictive Best Interest Contract (BIC). According to LIMRA research, variable and indexed annuities account for 84 percent of IRA annuity sales.

time, the products that we see tomorrow will be different from the products we see today.” Another 70 percent of respondents said they have no plans to stop producing specific annuities. How quickly products can go from the idea stage to the agent’s brochure is a matter of concern. At one LIMRA session, participants debated the lengthy product development process. Product Design Changes Manufacturers planning to spin away Several presenters shared fresh data to from VAs will have to break some product project how the various players in the an- design trends, according to a joint survey nuity chain see products evolving under a by LIMRA and Reinsurance Group of fiduciary standard. America. Respondents said their companies initiated an average of 4.2 new product development efforts in a one-year time frame. 2016 Of those, variable annuities accountFlat Total ed for 43 percent of 15–20% new products, while Variable indexed annuities 15–20% Fixed came in at 28 percent. Single premium income annu2017 ities (12 percent), 15–20% fixed annuities (11 Total percent) and con25–30% Variable tingent deferred annuities (6 percent) 5–10% Fixed trailed. About 30 annuity Source: LIMRA Secure Retirement Institute, May 2016 companies respondThe changes are expected to start with ed to the survey, said Donna Megregian, annuity designs, said Todd Giesing, assis- vice president and actuary at RGA. tant research director with the LIMRA The median time from idea origination Secure Retirement Institute. to product launch came in at 47 weeks Seventy percent of manufacturers say for VAs, 40 weeks for indexed annuities variable annuity designs will change, the and 37 weeks for fixed annuities. LIMRA survey revealed. “The annuity (producers) in general “Manufacturers are going to have to said they were targeting the middle marfind solutions because the demand is not ket, and that kind of surprised us,” Megoing to go away,” Giesing said. “Over gregian said.

FORECAST

June 2016 Âť InsuranceNewsNet Magazine

INFRONT WILL DOL SLAM ANNUITY DOOR JUST AS CONSUMERS RUSH IN?

Opportunity for Annuities with Guaranteed Lifetime Income in Retirement (in billions)

Not Retired

Age 45–54

55–59

60–64

65–69

$272

$165

$116

$22

$11

$53

$57

Retired

70–80

Total

$575 $57

$178

Sources: Retirement Income Reference Book, LIMRA Secure Retirement Institute, 2015. The analysis is based on 2013 Survey of Consumer Finances, Federal Reserve Board, 2014, and LIMRA Retirement Study—Consumer Phase, 2014.

Distribution Shakeup?

Industry observers are waiting to see how the big players approach distribution. Will exemptions and commissions remain a favored route? Will fee-based products inch their way into the marketplace? Are some channels disappearing, to be replaced by others? Forty percent of respondents expect manufacturers to sell more direct-to-consumer annuities. Fee-based products are another option that manufacturers and advisors will have to consider. Raymond James has told manufacturers to “be prepared” to give them product designs for both feeand commission-based annuities, said Scott Stolz, senior vice president at the company.

Injunction Request Deadline This Month Opponents had until early June to file for an injunction to put an immediate stop to the Department of Labor fiduciary rule. People fighting the DOL rule say the injunction would delay it long enough to punt the issue into the next administration. Injunctions are difficult to win, however, and opponents must show irreparable economic harm. The DOL published its rule April 6,

InsuranceNewsNet Magazine » June 2016

Pricing will have to become more specific, simplified and straightforward, he added. In the short term, annuity sales are likely to “drop dramatically,” Stolz said, but will bounce back. One-quarter of advisors said they expect to sell fewer annuities, according to the LIMRA survey. Many speakers characterized the fiduciary rule as a short-term disruption in an otherwise booming market with immense future potential. “We’re facing a lot of change in this industry and a huge impact on the annuity market,” Giesing said. Still, LIMRA reminded industry officials that 10,000 Americans are retiring every day, and the retirement income market is expected to balloon to $25 starting a 60-day clock to file an injunction. A stay isn’t the only legal route that opponents have at their disposal. Analysts believe a general challenge would focus on whether DOL followed the proper procedures in promulgating its rule. The department made substantial changes to the rule before its final version without putting them out for public comment. A second possibility would challenge the DOL’s authority to change arbitration rules. Instead of traditional

trillion by 2025. Americans at or near retirement require an estimated $750 billion in guaranteed lifetime income, Montminy said. That represents a significant opportunity for advisors to work through the new rules and connect retirees with annuities. “One thing we cannot lose sight of is that the role of the annuity has not changed through this process,” Montminy 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.

arbitration only, the DOL rule would give investors greater power to seek damages through the courts. As of press deadline, analysts remained bullish on multiple legal challenges. Meanwhile, opponents in the House of Representatives passed a resolution to block the rule using the Congressional Review Act. It mirrors a resolution of disapproval introduced by Senate Republicans. The Obama administration vowed to veto any bill seeking to overturn the fiduciary rule.

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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

FREE!

Offer your clients the benefits of Sentinel products – including superior choice. Download Sentinel’s annuity product kit today at

www.SentinelAnnuities.com

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.

An Interview with

Dan Seidman

by Paul Feldman, Publisher

InsuranceNewsNet Magazine Âť June 2016

PAIN VS. GAIN INTERVIEW

ind the pain, make the sale–right? Dan Seidman says finding the pain is only the first step toward the proper approach to handling buyers. Dan has been training salespeople for decades and writing definitive guides, such as The Ultimate Guide to Sales Training and The Secret Language of Influence. He has seen many salespeople fumble through the selling process by being set in their ways. One of those ways is by always using pain to present their offerings. But what about buyers who respond to gain? You’ve met people who are positive and benefits-oriented. So the question is, how do you know which buyer prefers which approach? How do you tailor your presentation to fit either one mindset or the other? Those are key questions that top sales pros can answer. But it doesn’t stop there. Once you’re getting answers, what do you do with them? In this discussion with Publisher Paul Feldman, Dan exposes the psychology behind pain and gain, then shows how to use that psychology effectively. FELDMAN: In the 1960s and ’70s, the trend was benefit-based selling. Then in the ’80s and ’90s, the idea arose that you had to find the pain to get people to buy. What works today? Is it pain, or is it gain? SEIDMAN: I began training salespeople in the mid-to-late '80s during the transition period when people were doing both. People were doing one or the other, but pain was really hot, because some selling systems started to emphasize that. It was a different way to have a conversation with buyers. Now, we actually have psychological research that shows that people are motivated by one or the other. We know that in the United States, 40 percent of the population are motivated by pain, by solving problems and avoiding the occurrence of bad things. And 40 percent are motivated by gain — good things, goals, a vision for the future, that sort of thing. The other 20 percent were in the middle and could go either way. FELDMAN: How do you know which route to take?

SEIDMAN: We have to figure out whom we’re sitting across from. Then we have to be verbally agile enough to change our conversation so that we’re speaking perfectly for the prospect in front of us. I like to say when you get pain and gain right, you’re speaking the buyer’s dialect. And that’s a huge jump in communication skills, as well as a big rapport builder. So let me start with a story. Picture this — you’re 12 years old and you fly into the house after school, and you say, “Mom, Dad! Guess what? I figured out today that when I grow up, I’m going to be a doctor.”

doctor! Do you know how many years you have to go to school? Do you know how much money it costs to become a doctor? Do you know how much malpractice insurance costs? And you’ll be working with sick people all day long — do you really want to be a doctor?” Dad was always playing the devil’s advocate — disagreeing with and challenging your thinking. Do you see how these two types have distinct responses to a new idea? This is exactly how we experience the difference between pain and gain. Now my hope is that sales pros will begin to see this around them everywhere. Let’s recognize these differences in our prospects. Some are very positive, embracing. They love to see you. They’re happy to talk about the issue at hand. Some are not as easy to talk to. They seem to be resistant to everything. FELDMAN: What are some key differences between pain-based and gainbased people? SEIDMAN: Here’s the concept we want to understand. In psychology, these two different ways of approaching life, decision-making and motivation are what we call direction. People move toward an idea (those are gain-based people) or people move away from ideas (pain-based people). Gain-based people don’t get started without an actual goal. They have to see something really good happening in the future. They become focused and move toward that goal. They focus on priorities, and they know just what they want. Pain-based people know what they don’t want, so they’re almost the exact opposite. They’re about preventing or solving. They don’t need a goal to be motivated.

Great selling is invisible. It’s just a customized, casual conversation. And Mom is wonderful, positive, encouraging. “Honey, that’s great! Doctors are so well-respected. You’ll make good money and have a nice house. You’ll find a wonderful spouse. I am so happy you’re gonna be a doctor.” How, on the other hand, does Dad respond? Doom and gloom. “A doctor? A

Because you now know that buyers fall into one of two categories, you can adjust your presentation to fit that gain buyer or pain buyer. FELDMAN: How did you develop your approach toward these two types of buyers? June 2016 » InsuranceNewsNet Magazine

INTERVIEW PAIN VS. GAIN SEIDMAN: I have an undergraduate degree in psychology, so I realized that my psychology background was a perfect fit for understanding how people buy. Because, essentially, our job is to help people make a decision to change their behavior, change their thinking, change their minds! And this is exactly what a psychologist also does with the patient on the couch. I cut my teeth in selling in the ’80s and ’90s when I worked in the recruiting industry with a search firm. I ran a team of 15 reps, and I personally worked the desk for medical sales. I was calling on a Chicago-based medical sales manager, and I said, “Hey, I heard you have an open territory, John. How’s it going?” And he said, “Well, I’m very busy right now interviewing people for that position.” See, he’s trying to get me off the phone with the “very busy” comment. I said, “Good, I hope you find somebody. I just have one question for you — who’s covering your open territory?” And he said, “I am.” And I say, “Really? In addition to managing your other people and all your work? Wow, that’s probably not taking too much time from your day.”

And he laughed and said, “No, it’s not really affecting my days, I’m just working into the evening every night.” Now I’m forming some rapport with him, because I’m getting what’s going on with this guy. He’s a pain-based buyer, and

A buyer who moves Toward your ideas is sold with benefits or Gain. A buyer who moves Away is sold with problems or Pain. we’re starting to talk about the trouble related to him in this hiring process. So I said, “Since you’re doing the work of this missing person, is your family OK with the extra hours you’re putting in?” And there was a really long pause on the phone, and I’m wondering if he got distracted or something, but really, he was thinking. And he said, “Dan, you know what? I haven’t been home for dinner in two weeks, and my wife is a great cook.” He said those exact words.

THE CHANGE FORMULA

C=DxVxF>S In other words, people will Change (C) once they... 1) a re aware of their Dissatisfaction (D) or frustration with their current situation 2) a re given a Vision (V) for what the future could look and feel like 3) are offered the First Steps (F) to transition to that vision, and 4) realize that the Dissatisfaction, Vision and First Steps are greater motivators than their Status Quo (S), or their current situation 20

InsuranceNewsNet Magazine » June 2016

So I continued asking other pain-based questions: “Do your competitors know these accounts aren’t being visited? Is the missing person costing the company much money? Is it costing you money?” So the situation was being framed by the

trauma caused by this missing sales rep. Well, five minutes into the phone call, he asked me if I had any candidates for him to interview. This was really cool, because I hadn’t really talked about what I did at all. I really just had a clear understanding of his experience. I’ll shortcut to the end, which was a happy ending for both of us. I got a couple of candidates for him. He picked one and got his territory filled quickly. I made a $12,000 fee. One of his problems was that people knew the territory was open and they were really aggressively going after the doctors, clinics and the hospital in that territory. So we got that hole in the dike fixed really fast. Well, what was interesting was that he had placed ads in the Chicago Tribune, which he hadn’t told me at the time. Talk about pain — he got 1,200 résumés. He and his assistants threw out half of them just based on what the envelopes looked like. Just because they were sloppy or they didn’t like the paper. They just had to figure out a way to get rid of going through all these résumés. And if I had known at the time of the call about all that, I would have quantified the value of the time he was wasting so I could show him an actual dollar amount he was going to save. Also, you might have noticed that I got into a bit of the personal impact of his pain. The bar goes higher when that buyer starts to equate the problem (or, for others, the good things) that are messing with his home life. Your solutions seem to increase in value.

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Maximum Percent of Death Benefit Cap

American National

$8,822

$57,345

Mutual of Omaha

$9,061

$45,304

$90,608

35%

Prudential

$9,306

N/A

American General $10,240

N/A

$51,198

$102,396

40%

$88,224 $88,224

65%

Symetra

$11,079

N/A

$110,792

No Cap

Lincoln Financial

$13,073

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The competitor detailed comparison current as of 03/23/16. All information presented is deemed reliable but cannot be guaranteed to be accurate, since there are many factors that affect the characteristics of the product feature portrayed in the comparison which may not be contractual or described in competitor marketing material. 1) Guarantee is subject to premium payment requirements. 2) Cash-Out Rider may not be available on all substandard rated policies and some may only qualify for the Cash-Out option in the 15th Policy anniversary. 3) The riders are offered at no additional premium. However, the accelerated payment will be less than the requested death benefit because it will be reduced by an actuarial discount and an administrative fee of up to $500. The amount of the reduction is primarily dependent on American National’s determination of the insured’s life expectancy at the time of election. All riders are not available in all states. Policy Form Series: SGUL15; GCOR15; ABR14-TM; ABR14-CH; ABR14-CT (Forms may vary by state). American National Insurance Company, Galveston, Texas. For Agent Use Only; Not for Distribution or use with Consumers.

IMG-SG08

04.16

888-501-4043 | img.anicoweb.com June 2016 » InsuranceNewsNet Magazine

INTERVIEW PAIN VS. GAIN FELDMAN: How can you tell if somebody is pain-motivated or gain-motivated?

In contrast, VW had a commercial that I hated. It was two guys talking in a car, and then all of a sudden they get blindsided, T-boned. Then you see them get out, looking at their car, and it’s all banged up but they’re safe. The campaign was called “Safe Happens.” I hated that commercial. You have this gut-wrenching “Ugh!” of this impact and it’s a horrible, horrible feeling. Why would

training. This exercise not only has the whole group create the message, but it also gives them a message that they feel they have ownership of. SEIDMAN: When you’re talking to someYou create a chart of pain and gain, with body and they’re always playing the devil’s two columns. On the left side we have gain, advocate. They say, “Yeah, but” or “What and you list as many bullets of benefits as about this?” They’re always presenting the you can think of. On the right-hand side, bad portion of it — that’s pain-motivated. you have pain bullets, and sometimes you I’ll give you another example. If a guy says can just write the exact opposite of the leftto me, “I wanna go to Tahihand side. ti. I think it’d be gorgeous You do this with your there. Maybe I can surf and sales team to have the VS. hang out. It’s supposed to GOOD STUFF YOU GET THE PROBLEMS WE SOLVE collective brain power be really spectacular.” of everybody in the team FINANCIAL USE And I say, “Oh, my gosh. working together. And Nice return on your The money I’ve lost means I have It’ll take you 16 hours to get I’ll tell you a fun thing. investments. little discretionary funds. to Tahiti. You’ll be exhaustWhen people tend to Working with someone who has a The last person I trusted cost me ed. You’ll have jet lag. You’ll be one type of person great track record with client ROI. 35 percent of my portfolio! trash your whole vacation.” or the other, they have a Quarterly meetings to review My advisor never meets me; I get And he responds, “That’s hard time thinking of reand adjust investments. one phone call a year. OK. I’ll sleep on the plane sponses in the opposite We work exclusively with My other advisor was so young, and get there refreshed.” condition. seniors and understand there’s no way he understood our He’s positive, upbeat — So a gain-based person their needs. situation. he’s a gain-based guy. and a pain-based person Guaranteed minimum return with I can’t stand the volatility of my this product. current investments. can come up with all the FELDMAN: How can you bullets you need. But if AUTOMOTIVE USE learn to message to each you have all gain-based You’ll love the prestige of I'm embarrassed to drive older owning a new car. model in front of my company, of these two types? people in a group, then clients and prospects. they’re going to struggle This baby rides and handles My current car is not fun to drive – SEIDMAN: There are sevwith coming up with the like a dream. it runs and sounds like it’s old. I feel eral ways to do that. I like pain-based stuff. This is every bump in the road. to have people flip through why you want everybody The six-speaker sound system I’d like to use CDs or my iPod magazines and look at contributing. is fantastic! in my car, rather than a bunch of the articles, ads and even With financial serold cassettes. pictures. Like “Click It or vices, we have a gainThis has airbags everywhere, I’m nervous putting my small kids Ticket” — you might see based comment such all the latest safety features. into this older car. that sign in a photo. That’s as, “You’re going to get We offer a 1,000-year I’m surprised and frustrated when a warning — don’t do a nice return on your warranty. problems pop up with this vehicle. something stupid, someinvestments.” And the EMOTIONAL USE thing bad’s going to happen pain-based is “The monRelief Stress to you. That’s pain-based. ey I’ve lost means I have Delight Disappointment Or you might see another very little discretionary Content Frustration one that says “Our bank funds.” Trust Doubt pays the highest return on We build out ideas, Satisfaction Worry CDs of anybody in town.” responses and language Hope Fear There’s a positive, gainthat fit either a painbased message. based bullet point or a Excitement Anxiety So look around you. gain-based bullet point. Take car commercials for example. There you want to leave somebody with that in a are two great car commercials, that are car commercial? It didn’t work. The cam- FELDMAN: How do you use the lists in contrasting examples of pain and gain. paign didn’t last very long. People want to the process? BMW had an award-winning commer- enjoy their driving experience. cial where they showed people enjoying SEIDMAN: This is used in conversations. driving in their cars. It was a really fun, FELDMAN: Are there any tools to help It gets built into your questioning skills. It upbeat commercial. It said “We don’t sell develop the pain and gain messages? is used – in a big way – in objection-hancars, we sell joy.” It’s a perfect example of a dling. It bleeds everywhere through the gain-based approach to advertising. SEIDMAN: This is something we use in sales process. There is something else; it’s

GAIN

InsuranceNewsNet Magazine » June 2016

PAIN

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June 2016 Âť InsuranceNewsNet Magazine

INTERVIEW PAIN VS. GAIN something we’ve known forever in selling. People make decisions emotionally and use logic to validate their emotional response. We can use emotional words embedded in our phrases to spike that pain or gain. Gain emotions are relief, delight, trust, contentment. Pain-based emotions, bad emotions, are stress, disappointment, frustration. A very high percentage of skilled salespeople do not create a good emotional

After his son had the surgery, the insurance company rejected the claim because a dentist suggested an orthopedic procedure. Now, the company is going to pay it eventually. This is kind of a tactic some companies use to just delay paying, because the longer they hold the money, the more their profits are. That’s the way it is. But this guy’s angry, and his wife’s calling him all the time at work, asking, “Are

Stop offering sales training chronologically. Begin to identify gaps in your salespeople’s skills, and work first on those. connection with their buyers. In our world, which is so numbers-based, we sometimes get too caught up in the returns and statistics that we don’t create a good emotional connection. I realized this a few years ago as a sales consultant with a Blue Cross/Blue Shield team in Illinois. I was in the third year of training with this top organization for the top health benefits program in the Midwest. The company’s president had me go on ride-alongs with salespeople to see that they were using the stuff that I taught them. One of the first calls I went on was with a young rep, but he wasn’t a rookie. He was a real sharp guy — really good with his numbers. We’re sitting with an owner of this big chain of grocery stores, and he uses a question I taught him during the training. So I was happy he used the question. The technique is called “Taking away the solution.” The rep said, “You’re talking to us today about changing your benefits and switching to our insurance — what if you didn’t do that? What if you just stayed with what you have? What would that look like?” This technique gets the guy to help sell himself on switching to our services. And this owner’s face kind of darkens and he says, “Hell no! We’re not staying with our current company!” He told us that his college-age son ran into a tree while sledding and chipped a tooth. The dentist discovered that his son had two fractures in his jaw and needed surgery. 24

InsuranceNewsNet Magazine » June 2016

we going to get our $8,000 back from the last part of that surgical procedure?” And he’s really frustrated, so he’s not going to go with this insurance company any more. Well, this young rep is taking notes, and this guy’s getting really angry as he’s sharing this story. He finally runs out of gas and stops, and the sales kid says, “Oh, that’s too bad. Let me ask you another question.” And I was stunned, thinking, “Really, dude? You’re not going to go down the road with this guy, empathize with him or ask how he’s doing? Do something to connect with the guy’s story.” He had no emotional connection. FELDMAN: Salespeople often get stuck on a track where they want to ask all these questions. In that case, I would say that was a buying signal. So how do you stop yourself? SEIDMAN: Salespeople need to be absolutely phenomenal listeners. Good listeners are really engaged with what’s being said. Bad listeners are just waiting for their turn. In this case, you have to watch the guy’s face as he gets worked up and also get into his story. You would match his emotion by responding like, “Wow, that’s a really awful thing. Your wife’s really upset about it, huh?” You can just feed back some of the things that he’s told you — and let him get worked up a little bit more. It’s not going to hurt you at all.

I’ll give you one teaching moment for listening skills. Every one of us has a certain somebody who is a phenomenal listener. And you know that’s true because they’re always sitting there patiently, while you go rambling on and on and on, talking about your day or a sale that you blew. And you feel immensely guilty because you know that they’re such a good listener and you’re not. I know that happens to me. Obviously, you want to model success on what other successful people do. FELDMAN: What are key questions to draw out the person you are talking to? SEIDMAN: This is critical. We can ask a question, as early as possible in the relationship, in order to determine if your buyer is motivated by pain or gain. It’s the criteria question. Criteria are the standards by which something may be judged or decided, which is a perfect way to describe a sales call. Buyers need to make a decision. That’s a sales call. They’re hiding that information from us, and somehow we have to figure it out or get them to share it with us. Asking the right questions gets you in sync with people. And if you want to practice at home, here’s a really fun way to do this. Ask your kids what’s important to them about friends. You can ask about school, teachers or something else. But I like asking “What’s important to you about friends?” You’ll find their answers fascinating. FELDMAN: That’s great! I am going to try that. SEIDMAN: And then dig a little deeper: “Tell me more about that.” It’s a really great topic for kids, a way more fun topic than talking about schoolwork or the classroom courses or teachers or anything else. You’ll learn how to ask criteria questions, and I think you’ll also get a little closer to your kids at the same time. Find more information about Dan Seidman at gotinfluenceinc.com.

Read the full extended interview online at bit.ly/inn-seidman-0616

Industry Leaders Are Warning of an

HOW TO GET MORE DREAM CLIENTS IN 2016 INTERVIEW

Annuity MASS EXODUS. Are You Prepared? Back in 2014 we shocked the industry with our groundbreaking report. It was a wake-up call for the 1,000+ advisors who responded. The story of a $25M annuity producer who shifted the majority of his premium to IUL – and how it tripled his commissions – had many of you looking at the viability of your own practices. Fast forward to today and annuity producers are faced with an even bigger threat. If you’re relying strictly on selling annuities, now is the time to diversify your practice and ensure your livelihood despite the looming DOL fiduciary rule. If you are starting to see the writing on the wall, we urge you to attend our webinar held by the founder of IUL Sales Mastery University to learn:

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June 2016 » InsuranceNewsNet Magazine

NEWSWIRES

QUOTABLE

We’re Saving More but Still Charging Ahead Americans are doing a little better job of filling their piggy banks, but more of us are charging up the credit cards. That’s among the findings of the 2016 Consumer Financial Literacy Survey. Twenty-six percent of those polled said they are saving more now than last year, up two percentage points from the 2015 survey results. But on a more negative note, 69 percent said they are contributing income toward non-retirement savings, which was the same level reported back in 2014. Thirty-five percent said they are carrying credit card debt that they are unable to pay in full at the end of the month. One bright spot in the survey — millennials. This generation is doing better than any other age group at both paying off credit card debt and saving for the future.

COLORADO VOTERS WEIGH UNIVERSAL COVERAGE

Forget the Affordable Care Act — Colorado voters are considering whether to abandon the federal health care law and instead create a taxpayer-financed public health system that guarantees coverage for everyone.

Proponents of a single-payer health care system have been campaigning for voter support of ColoradoCare

The estimated $38-billion-a-year proposal on the Colorado ballot in November will test whether people have an appetite for a new system that goes further than the ACA. The state-level effort, which supporters call the ColoradoCare plan, would do away with deductibles. It would allow patients to choose doctors and specialists without distinguishing between those “in network” and those “out of network.” It would largely be paid for with a DID YOU

KNOW

tax increase on workers and businesses, and cover everyone in the state. If a majority of voters say yes, the system would start running in 2019 and essentially be a startup health cooperative bigger than companies such as Nike and American Express, according to the Colorado Health Institute, an independent policy group. A 21-person elected board would set the benefits and budgets. The system would be financed by payroll taxes of 3.3 percent for workers and 6.7 percent for employers. It would impose a 10 percent tax on investment income, people who are self-employed and some small-business income.

U.S. DRUG SPENDING GROWS 8.5% IN 2015

Americans are shelling out more money for drugs. Total spending on medicines in the U.S. reached $310 billion in 2015, up 8.5 percent from the previous year, according to a report by the IMS Institute for Healthcare Informatics. Specialty drug spending reached $121 billion on a net price basis, up more than 15 percent from 2014. Why are drugs costing us so much? The analysts blame

The average patient cost for a brand-name prescription filled through a commercial plan was $44 in 2015. Source: IMS Institute for Healthcare Informatics

InsuranceNewsNet Magazine » June 2016

$44

Economic activity appears to have slowed. Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high. — Federal Open Market Committee’s statement released after its most recent meeting

the increase in new brands of prescription drugs, greater use of generics and a small increase in demand for branded drugs. A growth in specialty medicines also contributed to the spending increase, with 2015 seeing a 21.5 percent rise in spending on specialty medicines over the previous year. Treatments for hepatitis, autoimmune diseases and cancer drove the high spending on specialty drugs.

MILLENNIALS ARE NOW THE BIGGEST GENERATION

Baby boomers, you’re history. The millennials are taking over. They now have surpassed boomers to become the largest generation in American history. There were 75.4 million millennials in 2015, compared to 74.9 million baby boomers, according to Census Bureau population statistics analyzed by the Pew Research Center. Millennials surpassed boomers, in part, thanks to the large number of young immigrants who are entering Millennials the country. Fewer older immigrants are coming in to replace baby Baby Boomers boomers. Pew projects that the millennial population will peak with 81.1 million living members in 2036. Not only are millennials the largest living generation in America today, they have become the largest demographic in the U.S. labor force, overtaking Generation X.

75.4M

74.9M

UprootedFeds Want Proof for Special Enrollment ophobia:

[NEWSWIRES]

QUOTABLE

Your clients’ fear thatThe going a in babies into being born America today are the luckiest nursing home may be their only option.

Open enrollment period crop in history. is the three-month time frame that grabs all the — Warren Buffett, chairattention once a year. But man of the boardto of BerkGive your clients the fl exibility stay it is the special enrollment shire Hathaway, in his loopholes that are getting a annualNationwide® letter to company in their home longer with investors second look by the federal YourLife CareMatters — currently the government. The Centers for Medicare & Medicaid Services (CMS) wants to tighten linked-benefi the rules that permit consumers to buy health insurance ononly the exchanges outside opent long-term care coverage enrollment season. partisans alike and providing possible lesthat offers: Major health insurers let loose a sigh of relief after that announcement. The number sons for the Affordable Care Act’s insurof people who are signing up for coverage outside open enrollment has led to concerns ance exchanges. • Cash ts people that can used by insurers that people are waiting until they are about to become sickindemnity to buy coverage.benefi most agree be on,” she said. CMS announced it will start requiring documentation or proof people who Brian Blase,independence a former Republican confor from anything to say help maintain they need to buy a plan or change coverage outside that window for reasons like margressional aide now with the free market riage, a permanent move or the birth of a child. The documentation will be required in Mercatus Institute 6-2 that efforts by Ver• Freedom to use 100% of the benefit the states that use HealthCare.gov for their exchange. mont and at least 17 other states to gather for informal exibility to conflict use with federal These special enrollment periods were permitted in case a life-changing eventcare, causes with and fl analyze the data a consumer’s insurance needs to change outside open enrollment. governing certain health plans. 1 friends or family aslaw caregivers Insurers have said they get a lot of expensive customers through these special enThe case involves Liberty Mutual, rollment periods. They suspect that some customers were waiting until they become which operates a self-insured health plan sick to buy insurance since no one was asking for proof that they qualified for a special for its workers and enrollment period.

BOOMERS AREN’T POSTPONING RETIREMENT

stock market moves affect younger workers or those with less education and fewer View our client-ready interactive tools at stocks. Only huge, long-term moves in the stock market nationwidefi affect retirementnancial.com/Uprooted timing,

The baby boomers have always done what they want when they want. Why should retirement be any different? Despite the rough-and-tumble stock market of the past few months, boomers have been beating a path to retirement. Nearly 403,000 American workers and 49% of those expecting a their spouses were awarded their first Social Security checks in January, the highrefund plan to save it est monthly total in three years. According to Social Security data, 3.2 million the researchers found, and only for wellworkers and spouses qualified for retireeducated Americans, who are most PLANS | MUTUAL likely ANNUITIES | LIFE INSURANCE | RETIREMENT FUNDS ment benefits in the past 12 months, up to own stocks. 3.3 percent from the previous year. That’s not a surprise to retirement re- MEDICARE SIGN-UP SURGE searchers. People retire for many reasons, CONFOUNDS EXPECTATIONS 1 Health care practitionerhealth, must state care and is appropriate plan of care. in private insurance plans including jobinformal security hittingin theEnrollment those magic birthdays when Socialin every Secu-state. Please through Medicare shot up by more Nationwide YourLife CareMatters may not be available contact Nationwide has to determine product availability in your state. rity or pension benefits start. But there’s than 50 percent, confounding experts and Guarantees and protections are subject to the claims-paying ability of the issuing insurance company. no evidence that short-term fluctuations When choosing product,market make sureinfluence that life insurance long-term care insurance needs are met. CareMatters is not intended to be a primary source of life insurance protection, so make in thea stock whenand worksure 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 lifeDID insurance YOU and ers call it quits. ageAssociated 65, women typically income long-term care insurance needs. Care should be taken to ensure these strategies and products areAt suitable. costs, as well as personalhave and financial objectives, time horizons and risk Courtney Coilebefore andpurchasing Phillip B. Levine,Life insurance, and long-term care coverage linked to life insurance, has fees and charges associated with it that include costs tolerance should all be weighed CareMatters. percent lower than thatcustomize of men. economics at Wellesley Col- such as gender, tobacco use, health and25 of insurance, which variesprofessors based on characteristics of the insured age, and additional ridersonthat a policy to fit individual needs. Source:charges National for Institute Retirement Security lege, found no evidence that big 10-year 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. June 2016 » InsuranceNewsNet Magazine NFV-0890AO.2 27 (6/15)

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out with a consumer and look at financial services, you start to realize that the model that’s typically in place in the marketplace today is largely broken. The greatest talk in the estate planning marketplace is “Boy, you better document all these accounts,” but no one’s really talking about how to do that. A few years from now, when these documents are all delivered electronically, there’s going to be a higher propensity for them to get lost. A great example is bank accounts. We all have them, but we no longer receive statements in the mail. So who knows about those bank accounts? Very few people do. There’s a great likelihood of the money in those accounts going unclaimed. Q: What are the consumer benefits of LegacyShield? A: LegacyShield allows your clients to safely and securely share all the information their loved ones will need at exactly the right time: bank accounts, retirement accounts, insurance policies and any other important accounts they’ve created over the years. It is not a product or software solution. It’s more of an ecosystem that allows all the stakeholders, from consumer to manufacturer, to exist within a platform together. The single-minded goal is to better serve and engage a client through the financial services process during their life journey. Q: What benefits are agents seeing as a result of using the software? A: One huge benefit is natural fact finding. Within 15 minutes of setting up your clients with LegacyShield, you’ll start to notice planning gaps. This gives advisors the opportunity to provide solutions to fill in those gaps that they’d

otherwise not know about. The second big benefit is referrals. We’ve found that producers who use LegacyShield with their consumers typically end up getting a number of referrals that they normally would not get. There is a natural inclination for clients to go back to the advisor and ask, “Hey, can you get this service for my parents? Can you get this for my uncle? Can you get this for my brother? Can we add them onto this service?” Most advisors are getting 10–12 referrals for every client who is on the system. Q: What response are you seeing from IMOs as a result of offering LegacyShield to their agents? A: When you look at an IMO today, its function is to add value to the agency that they can’t get on their own. Offering LegacyShield to agents allows IMOs to differentiate themselves in an incredibly unique way. There isn’t much comparable. There are bits and pieces of it, so there are parts of it. But you’re actually adding to the problem, not solving the problem, by using all those bits and pieces. The whole issue is that our lives are dispersed all over the place. Secondly, it gives the advisor a chance to offer additional products their IMO offers, since it naturally identifies gaps in clients’ plans. As a result, a number of them have signed on as enterprise accounts.

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InsuranceNewsNet Magazine » June 2016

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FEATURE ANNUITIES IN THE POST-DOL WORLD

ANNUITIE

IN THE POSTINSURANCE FIDUCI ARY

nce zations for insura ni ga or ng ti ke ar M e IR A club by the were left out of th d FMOs bor. But IMOs an La of t en tm ar ep D eed become a new br do have a route to ents ag and help annuity n io at iz n ga or of e. or to the IR A spac swing open the do

InsuranceNewsNet Magazine Âť June 2016

WOR

PAGE 41

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Will a new breed of IMO save the day? During this Annuity Awareness Month, awareness is pivoting toward the Department of Labor’s fiduciary rule, which will affect at least 65 percent of the funding for fixed indexed annuities. By Steven A. Morelli

June 2016 » InsuranceNewsNet Magazine

FEATURE ANNUITIES IN THE POST-DOL WORLD

HE TWO MOST TROUBLING WORDS for fixed annuities in the Department of Labor’s fiduciary rule turned out to be “financial institution.” With the definition of that phrase, the final rule effectively exiled independent insurance agents and independent marketing organizations (IMOs) from selling fixed indexed and “similar” annuities within retirement accounts. That is because the DOL placed any annuity that doesn’t have a fixed rate under the best interest contract exemption (BICE) if they are sold within 401(k)s and individual retirement accounts (IRAs). Nearly 70 percent of the dollars that buy fixed indexed annuities (FIAs) come from IRAs, and this percentage was expected to grow as Americans have fewer sources of retirement funds. The department specifically identified FIAs to be covered under the BICE. But it also added “similar annuities where contract values vary” in relation to the “investment experience” of accounts maintained by the insurer or an index or investment model. Many experts interpret that to include market value annuities (MVAs) and multiyear guaranteed annuities (MYGAs). For agents to sell one of these products in a qualified plan, they would have to abide by the fiduciary standard and have clients sign a contract with a financial institution. So, what is a financial institution? It can be an entity registered as an investment advisor under the Investment Advisers Act (an RIA), a bank, an insurance company, a registered broker or dealer, or any entity that the DOL determines is a financial institution in a future exemption. IMOs are not mentioned. This is significant because insurers rarely contract directly with independent agents or advisors to sell annuities. And with their greater responsibility under the DOL rule, insurance companies would have even less desire to contract with independent agents. Even though the preliminary version of the DOL’s “Conflict of Interest” rule was issued in April 2015, IMOs and insurers

are now scrambling because the first version of the rule placed only variable annuities under the BICE. FIAs were placed under the less onerous prohibited transaction exemption (PTE) 84-24, which does not require a contract signed by a financial institution. Insurance companies have been slow to identify the threat to their business, according to a prominent analyst speaking during a webinar in April. Fred Reish, a partner at Drinker Biddle & Reath in Los Angeles, said companies are doing the fact-finding that the VA industry has been able to do since the rule was introduced a year ago. “I don’t think (insurers) quite realize the impact this is going to have,” Reish said. “So for insurance products, they might be a little bit later. They’re waiting for feed-

Rule 151A case. When the Securities and Exchange Commission tried to regulate FIAs as a security with Rule 151A, the effort was stopped in 2010 by a law and a court decision. Observers said the DOL would be overreaching its boundaries to pull FIAs into the stricter BICE — and would give opponents a clear opportunity to sue the DOL. So insurance companies and the independent distribution channel were taken by surprise on April 6 when the final rule included FIAs in the BICE. As experts pored over the 1,000-pluspage document, they focused on the new processes required and the effect on compensation. When the first substantive comments on the rule’s effect surfaced in late April during companies’ first-quarter earnings

Observers said the DOL would be overreaching its boundaries to pull FIAs into the stricter BICE — and would give opponents a clear opportunity to sue the DOL.

InsuranceNewsNet Magazine » June 2016

back from the broker/dealers on what the broker/dealers want.” If that is true, then the independent insurance channel would be even further behind than that. IMOs and others in the independent channel were expecting to see business shift from VAs to the perennially record-breaking FIA sales. In fact, die-hard VA companies were openly talking about adding FIAs to their mix to take advantage of the less-onerous exemption until the DOL upended those plans with the final rule.

Trouble on the Horizon

InsuranceNewsNet first reported in October that industry advocates were raising a red flag after DOL staffers told them the department would likely place FIAs under BICE because they did not realize that the annuities were as “complex” as VAs were. Many in the insurance industry believed this was unlikely, primarily because of the

calls, another concern rose to the top — who is considered a financial institution, and how does an institution ensure that independent agents are upholding the fiduciary standard without having direct supervision? Some company CEOs said they couldn’t. American Equity CEO John Matovina said the financial institution requirement plopped an enormous liability risk on companies. American Equity was the No. 2 seller of FIAs last year with $6.7 billion worth, primarily in the independent channel. Seventy percent of the company’s annuities were sold in retirement funds. “We have serious questions about whether we could exercise the proper oversight of those agents given that they are independent and could be selling for multiple distributors. How are we going to exercise oversight of an agent selling an Allianz policy?” Matovina said. “Right now, we think the risk is too great.”

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FEATURE ANNUITIES IN THE POST-DOL WORLD

IMOs Look for Footing

structure to provide the documentation sued. Although that point was debated John Olsen, president of Olsen Annuity and procedures that the fiduciary stan- during an InsuranceNewsNet webinar in Education in St. Louis, said IMOs are still dard commonly calls for. April (available at youtube.com/Insuranreeling. Although the IMOs that Insurance- ceNewsNet), it is clear that companies’ “IMOs don't know what the hell to do,” NewsNet contacted say that they are still deep pockets would be targeted with or Olsen said, adding that even if IMOs were looking at the rule and can’t comment, a without agents in litigation. considered financial institutions, “IMOs few are looking at the EXPRO route. Many investment companies have been typically don't have anything like the inAlthough IMOs provide services and named in class action lawsuits accusing frastructure and systems and processes. products for agents, the caliber of those them of charging excessive fees and also How would they comply with the infra- systems would need to be similar to those breaching their fiduciary duty with their structure requirements of the best interest in the fiduciary space. They would need own employees’ 401(k) plans. contract?” the capacity for the significant documenInsurance companies also have been Olsen said IMOs and agents are looking for straight answers U.S. Individual Sales in 2015 by Market Type (in billions) to their questions about the rule’s impact, but the hard truth is the Variable Indexed Fixed-rate SPIA/DIA Total independent channel was simply left out. “IMOs got blindsided bigtime,” Olsen said. “There's almost $92 $5 Nonqualified $18 $19 $44 no guidance, no safe harbors, no guardrails.” But all is not lost for IMOs wanting to work with indepen$25 dent agents and qualified funds. $22 Employer Plan The key is in the last phrase in the DOL’s definition of financial institution: “any entity that the DOL determines is a financial $6 $67 $13 $34 IRA $120 institution in a future exemption.” An attorney with expertise on the DOL and insurance compaSource: LIMRA Secure Retirement Institute, U.S. Individual Annuities survey. nies said although IMOs don’t * Total nonqualified annuity sales include $5.5 billion of structured settlement sales. fall under the class exemption as insurance companies do, they can apply for individual prohibited trans- tation that a regulator or judge would named in class actions, especially for annuaction exemptions. request on a case. Processes also would ities. Allianz, the leading FIA seller, agreed “The IMO can become a financial in- need to be in place to ensure consistent in 2014 to pay a quarter of a billion dolstitution,” said Stephen Kraus of Carlton behavior that complies with the fiduciary lars to settle a class action over surrender Fields Jorden Burt. “The Labor Depart- standard. charges involving about 230,000 clients. ment has a procedure for getting an indiIMOs would also need to reassure inObviously, many millions of dollars are vidual exemption.” surance companies that they can be trust- at stake for companies. Will they open anIf IMOs apply for enough PTEs for ed to act as the financial institution in other segment of liability exposure? “substantially similar” individual transac- their stead. Sheryl Moore, CEO of Moore Market tions, the DOL can step it up to an EXA big reason insurers would need that Intelligence, analyzes the FIA market and PRO, which is the class exemption (PTE reassurance is the new litigation exposure said she is unsure the companies would be 96-62). for companies. Although there is not clear willing to make that leap. “If a number of the same organizations regulatory authority over the DOL rule, it “We don’t know how carriers are going come in for the same exemptions and the removed the companies’ ability to require to respond,” Moore said. “I have to ask conditions of the exemption are going to arbitration for disputes. if insurance companies are going to feel be the same,” Kraus said, “at some point Now clients can sue if they believe their comfortable entering into a BICE with the they have an expedited procedure for the agent did not act in their best interest. The client when the marketing organization is ones that come afterward.” rule says in that case the financial institu- the one who trains the agents and is makIt is not as simple as applying for the sta- tion can be held liable. ing sure the agents act in the client’s best tus, but it is a route some IMOs are conBecause insurance agents were not interest. Will companies feel comfortable sidering. One of the hurdles that IMOs named as financial institutions, some ex- outsourcing that responsibility to them?” must overcome would be developing the perts say that agents themselves can’t be In the days before this magazine went 34

InsuranceNewsNet Magazine » June 2016

insurance an be is the grant of an individual ions provided throughthrough The Departm ent decline s to expand or oker-dealer y, the definition Accordingl exemption. ment. The Department has the categor ies of Financi al Institut adviser ent ‘‘[a]nions of Financial Institution includes hange in the final to such interme diaries, but rather limits e product to clients. is described in the definition thatPOST-DOL entityTHE FEATURE ANNUITIES INthe WORLD definiti on of Financi al Institut ion to that assurances d for also Institution in an individual ment received severalof Financial the regulate d entities include d in the in that facturer granted by the Department t the applica bility of the exemption propose on which are the satisfy to have ot and ERISA 408(a) section to press, Some sayof that the DOL leftsubject IMOs offto under with d definiti en more thancompanies one were answering well-es tablishe d regulato ry conditi ons applicable a resounding no in earnings calls. the financial institution list because staffthe exemption after Code, 4975(c) of the itution’’ is involved in section and oversig ht. Howeve r, the Departm In addition to American Equity backers did not understand the industry. ent explained As utions. date of this exemption, that provides Unancialingproduc t. FIA This may has made away from sales in qualified plans, kefer thinks it’s possible that it was not provisio n to add entities to exemption, receipt of compensation in a forthethe mistake. mple, ifPrincipal thereasaid is a itproduc t relief would not pick updefiniti the on investment of Financialadvice Institution on must with connection hat is institutional an acknowled insuran ce ge with responsibility indepen- the “Igrant think of it was more menacing than through an individ ual Adviser’s thedent nd advice an ”investment provided by that, agents. or Unkefer said. “It could be that the a brokerdealer exempt ion. Accord ingly, the definiti to subject be ason must conditions the advisor who would be acting under DOL the didn’tsame contemplate the existence of fiduciary, stment “It’s adviser of Financi al Institut ion include s ‘‘[a]n that in the capacity of the fiduciary in order IMOs because they didn’t want them to Institution to ancial wish parties If ’’ exemption. class this the product to clients. entity that is ”describ in the definition toforth help them pick and choose the investexist. in the setfor on ofedFinancial definition the expand ked assuran ces that of ments in these plans, ” Principal CEO DanUnkefer makes the that indepenFinanci al Institut ion in case an individ ual not does xemption marketing include Institution todent nufactu in that iel J.rer Houston said in a call. marketers can assert their position exempt ion granted by the Departm ent of gment can they acknowled n not ries or other entities, have to satisfy the intermedia under section 408(a)toofthe ERISA and t the of Departmen application an submit heexecution exemption applicable section 4975(c) of the Code, after one ed for an individual exemption, with the ght by more stitutio ns. Asthan explain date of this exempt theirthat However, in the s on.exempt roleprovide information regardingion, he ion, the a relief for the receipt of compen the in exercising on of financial products,sation ution must acknowledge distribution connec tion with investm ent advice adhere to rity regulatory oversight of such entities, , andmust the Adviser ’s provided by an investment advice exemption, the their ability to effectively supervise and ns must be subject to fiduciar y, under the same conditi ons as procedures and with cies Advisers’ compliance Financial Institution that individual this class exempt ion.’’ If parties he obligation terms of this exemption. If a wish to theexpand ition set forth to in the the definition or Financi al to incentives entity from ion ser intermediary of other marketing exempt does not Institut ion to include marketi ng Standard, terest does not meet the definition of on acknow ledgment of which interme diaries or other entities , they can any by created ves Institution, wishes to obtain Financial or execution of the submit an applica tion to the Departm ent The than one the relief provided in this class stitution. sight by more for an individ ual exempt ion, with the product that ifHoweve the Department will exemption, ution. r, the information regarding their role in the that entity only he a request in an such consider ution exercising distribution of financial products, the ’ Institution’ ancial an individual for application hority must adhere to regulatory oversight of such entities, particular a to spect exemption. of the exemption, and their ability to effectively supervise er manufactur roduct and olicies procedures 4. individ t ual Adviser Independen s’ compliance with status fiduciary de the obligati on toand the terms of this exempt ion. If a ent’’ Section VIII(f) defines ‘‘Independ red supervisory viser from incentives to marketi ng interme diary or other entity as a person that: exemption, pect to the Interest Standar d, which does not meet the definition of tives created by any Financial Institution, wishes to obtain Institution. The the relief provided in this class He said produc the financial respones that 08APR3by establishing a new entity, an insurance R3.SGM the E:\FR\FM\08AP 4700 Sfmtif t institution 701 exempt ion, the Department will sibilityentity rests with other players in the dis- fiduciary. the only that conside r such a request in an tribution chain closer to the agent. “One way to be sure that IMOs continnancial Institution’’ applicationuefor an isindivid to exist we have ual to provide structure respect to a IMO particu lar A New Model? exemption.so that our agents have the technology to produc t manufa cturer Andrew Unkefer believes companies, reg- act as a fiduciary,” Unkefer said, referring dent dge fiduciar ulators, y agents and and consumers4. areIndepen calling to voluminous record keeping and manstatus a new IMO, something more from the aging product options. “That uired for supervisory Section VIII(f)multiple defines ‘‘Indepe ndent’’ RIA mold. can include vetting products so that we espect to the exemption, as a person that: Not that he is happy with the DOL’s can show that these recommendations

rule. Unkefer said the industry ought to were made in the best interest of the clifight it with everything they have. But he ent and we mitigate the influence of the said agents IMOs 08APR3.S should also be act- commission.” 4701 Sfmt 4700 and E:\FR\FM\ GM 08APR3 ing now to comply with it. His IMO has a search engine with 860 “You have to fight it and prepare to products to choose from, offering an array lose at the same time,” said Unkefer, who of options based on the client’s circumis president of Unkefer & Associates in stances and home state. Phoenix. “It’s a frustrating environment “It is just like how a broker doesn’t recfor people.” ommend just one stock or fund,” Unkefer 36

InsuranceNewsNet Magazine » June 2016

said. “They have an open architecture.” Although others have argued that insurance companies should be able to act as the financial institution for agents in individual transactions involving their products, Unkefer agrees with insurers who say they can’t imagine how they would be able to supervise independent agents. He also can’t imagine RIAs picking up the business, even though many fiduciary advocates say those advisors would be the natural insurance sellers in this new environment. “Turning to an RIA is not a solution,” he said. “I don’t know one RIA that sells insurance. They do it as a separate entity if they sell insurance.” Unkefer said RIAs and other financial advisors have been wary about mixing the different worlds of financial and insurance regulators. “Do you want the SEC regulating insurance when they don’t know anything about insurance?” Unkefer asked. “Insurance regulators have a hard enough time understanding our products.” Besides reviewing his operation, Unkefer is working with ERISA specialists on how to work his way to the exemption that would allow his agency to act as a financial institution. He acknowledges it would not be an easy process. The DOL would need to review an untold number of individual exemption requests before granting a class exemption. But the agency also would have to build an approximation of an RIA, but appropriate for insurance and without the guidance of a regulator and decades of precedence. “We would have to build the infrastructure, practices and standards out of thin air,” Unkefer said. “We are not reporting to a federal agency. We don’t have a selfregulating agency like FINRA. We report to state insurance departments, but they don’t have this experience.” Larger IMOs would be able to help not only agents but also the many IMOs that would not have the resources to develop these systems. “Most of our industry is made up of smaller IMOs,” he said. “They are people who have a handful of really great

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FEATURE ANNUITIES IN THE POST-DOL WORLD relationships with just a few agents and do under $100 million. They are going to have a hard time.” His agency’s ultimate dream is to build out its system to act as a hub for agencies. But Unkefer sees the opportunity as even larger than that. RIAs typically hand insurance business to an entity outside the agency, Unkefer said. They would not be able to do that any longer with transactions that fell under BICE. That is where a registered insurance fiduciary could step in. “They understand how to make a best interest recommendation,” Unkefer said. “But they don’t know the nuances and how these products best fit with the clients. That’s knowledge on our side of the street.”

More Standards and Less Compensation?

Once IMOs and agents act under the fiduciary standard, they still have to adhere to the suitability standard. Although fiduciary advocates proclaim the standard is superior, there are differences. Covering one doesn’t automatically cover both, Unkefer said. That is also an important point for IMOs and agents to consider as they contemplate moving into the fiduciary realm, he said. The “superior” fiduciary standard can potentially prevent what clients might believe is in their best interest, a reversal of the essential intent of the fiduciary standard. Unkefer gave an example of a client who has enough money to buy a pension income with an annuity. “And maybe that person wants to purchase a little bit more to make sure she never runs out of money,” he said. “In the best interest arena, someone might say that’s too much concentration and maybe they need to buy a security because, after all, they need to grow their money, don’t they?” Another challenge is figuring out “reasonable compensation.” One of the first questions with the DOL rule was what happens to compensation. After all, it is the actual target of the regulation, known as the conflict of interest rule. The “conflict” is posed by commissions and other third-party compensation, basically anything not paid by the clients themselves. Fiduciary, level-fee propo38

InsuranceNewsNet Magazine » June 2016

Main Changes From DOL’s 2015 Conflict of Interest Proposal to Final Issue

What critics said about the proposal

What the department did in the final

Asset list in BICE

By listing only certain asset classes to be covered by the BICE, the proposal limits investor choice.

The department has eliminated the list, so advice to invest in all asset classes is covered by the BICE.

Timing of the contract

The contract requirement is unwieldy, calls for the signatures of too many parties and must be executed too early in the process — before the customer even knows he or she will make an investment.

The contract requirement was eliminated for ERISA plans; it applies only to IRAs and other non-ERISA plans.

Disclosure

The disclosure requirements of the best interest contract exemption are overly cumbersome. In particular, the one-, five-, and 10-year projections are nearly impossible to execute.

The department significantly streamlined the disclosure requirements in the final BICE. In particular, requirements to include projections, as well as the annual disclosure requirement, have been entirely eliminated.

Web disclosure

The web disclosure requirements are too burdensome for firms and could be read to require disclosure of individual advisor compensation and salaries.

The department has streamlined this provision and clarified that individualized information about advisors is not required.

Data retention

The data retention requirements that called for the retention of detailed information on inflows and outflows are too burdensome.

The department has removed those requirements. Just as they would in other situations, firms have to retain, the records that show they complied with the law (in this case, the BICE or other exemption).

nents argue that sellers are induced to recommend products that offer the best commission rather than the best option for the client. That is the whole point of the exemptions — they allow what would otherwise be a prohibited transaction. For agents, marketers, companies, regulators, judges and juries to be sure that commission for one product wasn’t substantially richer than the commission for similar products, commissions would need to be about the same. But agents used to hearing the antitrust

warning might recognize that as stepping close to the line in the suitability world. As Unkefer put it, “to comply, you must collude.” However that conflict is reconciled, the commissions in the qualified space are likely to be lower than they are currently. Companies would face pressure to reduce the percentage paid in upfront commission. A good rule of thumb might be that if an agent would be uncomfortable revealing the compensation to a client or a jury, it might be phased out.

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FEATURE ANNUITIES IN THE POST-DOL WORLD And even though trailing commissions are not common in the current insurance world, they might figure in an insurance fiduciary future. Perhaps clients would be able to choose whether agents receive a lump sum or a trail, Unkefer suggested. Companies and analysts are looking into the rule’s effect on other compensation that the DOL would call sales incentives. BICE requires that companies “re-

prefer to avoid the whole qualified world altogether. The market for FIAs outside retirement funds was more than $16 billion in 2015. That is nothing to sneeze at, but the entire annuity market was $236 billion last year. Add to that the $23+ trillion in all retirement funds and it is clear that the bulk of business will be with retirement money.

“Sixty-five percent of indexed annuity sales are qualified, so it’s not like you can skate through and hope this doesn’t affect you.” frain from awarding financial incentives to advisors to act contrary to the customer’s best interest.” Specifically the section says: In addition, neither the financial institution nor (to the best of its knowledge) its affiliates or related entities may use or rely on quotas, appraisals, performance or personnel actions, bonuses, contests, special awards, differential compensation or other actions or incentives that are intended or would reasonably be expected to cause advisors to make recommendations that are not in the best interest of the retirement investor. Besides removing many of the perks agents and advisors enjoyed in the insurance and broker/dealer space, this prohibition also takes away many of the methods marketers use to attract sellers. Although some are predicting that marketers would simply fold, others say competition would shift to the marketers that provide the best infrastructure for ensuring fiduciary compliance.

What About the Nonqualified Market?

American Equity issued a memo to producers saying that although the company will not be selling FIAs in the qualified space, it has sold 30 percent of its FIAs with nonqualified money and will continue to focus on those sales. That might be regarded as a glimmer of hope for agents and advisors who would 40

InsuranceNewsNet Magazine » June 2016

Moore, the annuity analyst, was doubtful that agents would be able to avoid running into retirement funds. “Sixty-five percent of indexed annuity sales are qualified, so it’s not like you can skate through and hope this doesn’t affect you,” Moore said. The good news is that business is likely to continue growing for basic, systemic reasons. Americans are taking more control over their retirement, whether they like it or not. More of that funding is contributed by and directed by the consumer. And many are realizing that their lifeline could very well be longer than their money line. Looking at their options for long-term security is still an anxious exercise. Stocks are forever nutty, even if they show longterm gain. After all, who knows if they will end up retiring during a down cycle? Certificates of deposit are still paying between 1 and 2 percent, with no increase expected in the near future. Americans are searching for safe gain, and “indexed annuities are a natural beneficiary of that mentality,” Moore said. Commissions are expected to drop because of pressure to offer only “reasonable compensation,” but product changes might also affect commissions. “We’re probably going to see products with shorter surrender charges,” Moore said. “But we’ve been heading that way for a few years now anyway because of increased sales through banks and broker/ dealers.” Another reduction she expects to see is in the hybrid indexes that have been

coming up in the past few years. The reconstituted indexes allow companies to promote “uncapped” returns that are limited through other means. However, the new indexes offer an attractive marketing message.

Once You’re In …

Unkefer agreed with Moore that it would be difficult for agents to avoid retirement funds. “If you expect to make a living selling insurance products solely with nonqualified money, it is not a realistic goal,” Unkefer said. “That’s a trip to the poorhouse.” It is also not in keeping with the general drift toward a more holistic approach to clients. “If you’re a good advisor, you are going to be focusing on planning and problem-solving and not product selling,” he said. “And to do great planning and not pay attention to 70 percent of the client’s assets is just not possible.” He also did not think it is possible to jump into and out of the fiduciary standard. Even though the BICE would cover only individual transactions and not the relationship with the client, it would be difficult to explain the two standards to clients. “So I’m going to sell these products using the best interest standard,” Unkefer said. “But when I sell nonqualified products, I’m going to go off the reservation and sell these products that give me a big upfront commission where I don’t have to do that other stuff.” He said it is going to be easier — and safer — to hold to the fiduciary standard across the board. “Think in the way of a litigating attorney,” Unkefer said. “How will you be able to explain to a jury how what you did was good for the consumer?” Senior Writer Cyril Tuohy and Senior Editor John Hilton assisted with this article. 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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hortly after last year’s annuity issue was released, we began feeling the first tremors of the Department of Labor’s ruling under our feet. In that June 2015 magazine, we declared ourselves in the “golden era of annuities.” Despite the culmination of the DOL quake this past April, “golden era” remains true. As the annuity industry has done since Roman times, we simply must remain flexible and open to new ideas. In this year’s Annuity Thought Leadership Series, great minds from seven different companies offer their own ideas on how financial professionals can help Americans with their wealth, security, futures, dreams and legacies in new and lucrative ways.

INSIDE The 7 Traits of a No Client Left Behind Booming Advisory Practice By David Scranton of Advisors’ Academy PAGE 42

Industry’s Future Depends on Education Q&A with Barry Stowe of Jackson National Life Insurance PAGE 48

A Unique Perspective Q&A with Brian Donahue of DMI PAGE 44

ISN Premier Removes Barriers to RIAs Offering Annuities, Life Q&A with Matt Meyer and Michael Robinson of ISN Premier PAGE 50

The “Huge” New Way to Serve Clients for Their Entire Lives Q&A with Mike McCarthy of Great-West Financial PAGE 46

Branding Yourself as a Financial Resource Q&A with Mark Williams of Brokers International PAGE 52

Call of the Rider: Boomers’ Favorite New Annuity Trend Q&A with Pat Foley of OneAmerica PAGE 53 June 2016 » InsuranceNewsNet Magazine

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The 7 Traits of a No Client Left Behind Booming Advisory Practice by David Scranton, CLU, ChfC, CFP®, CFA, MSFS

ead that title one more time. About 15 years ago, it would have read slightly differently. At that time, I wouldn’t have been able to include the word “booming.” At that time, I hadn’t yet discovered the secret to parlaying my unique business model into sky-high closing ratios and sustained business growth. Once I did discover the secret, and that’s when everything changed. It wasn’t long before I began gathering $60 million or more annually of new client assets, split between the annuity and securities sides of my business. Not only did my own business explode, but its success also enabled me to open a second business—Advisors’ Academy—through which I’ve helped financial advisors across the country achieve levels of success they never dreamed possible. Through it all, we’ve helped many thousands of grateful clients enjoy retirement with secure savings and reliable income. So what exactly is the secret? What are the “7 Traits?” Before I get into them, I think it’s important to understand how I first came to realize that something fundamentally important was missing from my approach to sales and business overall. Because the truth is, I was by most definitions already a highly successful financial advisor at that time. In fact, I was so successful that I was scheduled to give a speech at a prestigious sales conference in Las Vegas in the summer of 2001. Ironically, it was only a few days before that conference when I discovered that my supposed success wasn’t nearly as impressive as it looked from the outside.

‘I’m a Failure’

Yes, I was doing well financially because in 1999 I made the decision (based on independent research that told me the tech bubble was about to burst) to pull all my clients out of the stock market and put them into annuities and non-stock, income-generating securities. That business model has continued to serve me and my clients well through all the market chaos of the past 16 years. But in 2001, I hadn’t yet developed a compelling and effective Sales Process for converting prospects to clients. My “success” at that time was based primarily on pre-existing mutual fund clients who trusted my leadership enough to embrace my new, more conservative model and on referrals they sent my way once the market plunge of 2000–2003 began. But like any good advisor, I was also doing a lot of marketing, and when I sat down one day to crunch the numbers, I realized I was actually losing money on one of my primary marketing strategies at the time: dinner seminars. Though it wasn’t a huge loss financially, I realized the opportunity cost was potentially massive. I was wasting time that could have been spent working on other aspects of my practice, growing my business and helping more people. I came to the hard conclusion that, in the end, I simply wasn’t a good enough salesman. Thus, when I finally took the podium at that 42 42

InsuranceNewsNet Magazine » June 2016 InsuranceNewsNet Magazine » June 2016

conference in Las Vegas in 2001, that’s exactly what I told my audience of fellow advisors. “I’ve got a confession to make,” I said. “I’m a failure. I can’t close. I’m a bad salesman.” They all laughed at first, thinking it was a joke. But for me, the situation couldn’t have been more serious. Realizing you can’t sell well enough in a client-oriented business is sort of like a doctor realizing he is driving patients away with a poor bedside manner. He may be brilliant when it comes to diagnosing illness and prescribing treatment, but something fundamentally important is missing, and it’s hurting his practice.

Two Sales, Not One

Most advisors focus too hard on selling the product and not enough on selling themselves. For me, I realized the missing ingredient was a Sales Process that not only educated prospects about my product offerings in a compelling way, but that also motivated them to want to work with me. In other words, I realized I needed an approach that essentially made two sales, the first of which was the most important: Before the prospect bought any product, they first needed to buy me. Thus, I spent the next year developing that very thing: an approach to sales that focused on my planning process rather than product. In the years after that, I refined and perfected this model and began teaching it to other advisors. Its basic objective is to lead the prospect on a discovery process in which they reach four critical conclusions in chronological order: 1) That they’ve got a “cancerous” investment they need to sell. 2) That their current advisor can’t help them solve this problem. 3) That I can help them solve the problem. 4) That my product is the right product for their needs. That may sound simple enough, but as with most things, the devil is in the details. My process is designed to achieve its objective so reliably that it allows you to get a written commitment from a prospect, usually in a first meeting, before any product is ever mentioned. Not a verbal commitment—talk is cheap, and we all know prospects can walk out of a meeting and change their minds. This is a written commitment, which ensures you’ve made the most important close before ever talking about a specific product: You’ve sold yourself as a trusted leader and financial educator. That speech in 2001, when I confessed I was a “failure,” became one of the most pivotal events in my life—not only for me but also for all my future clients. It helped me complete a process I began two years earlier when I radically changed my business model to one that I felt could better serve today’s generation of retirees and near-retirees. That process was my evolution from ordinary, sales-focused financial advisor to financial educator and visionary.

“Before the prospect bought any product, they first needed to buy me.”

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In the course of helping other advisors make that evolution for themselves over the years, it’s been inspiring to see so many overcome their initial doubts and limiting beliefs once they really get the Sales Process down. From there, they embrace their leadership role and their commitment to “no client left behind” and enjoy a booming business year after year.

The 7 Traits

The “no client left behind” philosophy and approach is really a byproduct of my Sales Process and its synergistic relationship with every other aspect of your business. To maximize those synergies and ensure that the Sales Process is working in coordination with your practice management and marketing efforts designed to attract new business instead of chasing it, there are certain traits you need to adopt and follow diligently. These are 7 Traits of a No Client Left Behind Booming Advisory Practice: 1. Be an Educator—I often describe my Sales Process as being like judo instead of karate. In other words, it’s all about momentum, not force. It’s designed to lead the prospect toward making the right decisions through an educational process. You don’t have to overcome objections with verbal trickery. If you follow the process and educate the prospect properly, he will make the right decisions 99 percent of the time because he wants what’s best for his money. In other words, once you’ve closed the door on the first sale (you as their advisor), by the time you get to products, the annuity will sell itself. That’s what comes from being an educator instead of a salesman. 2. Attract, Don’t Chase—Your persona as a financial educator shouldn’t begin in that first meeting. It should be evident in every aspect of your business—on your website, in your office and, especially, in your marketing strategies and materials. Leave dinner seminars for the salesmen, and focus on things like educational workshops, adult education courses, guest speaker opportunities, op-ed articles, radio, television and books. Prospects should walk into a meeting eager to continue a learning process you’ve already started for them in some way or other. Your credibility and reputation should precede you, allowing you to attract new business so you don’t have to chase it—which is the key to true success in any field. 3. Avoid Things That Make You Look Like a Salesman— Take care not to undermine your credibility by slipping into bad old habits. Specifically, these would include things like engaging in too much small talk at the start of a meeting, giving product solutions or proposals for free, offering too many free meetings, or holding meetings in prospects’ homes. Those are all things that make you look like a salesman. Remember, the goal is to consistently posture yourself as a trusted leader and educator—and, as such, your time is valuable.

reflect your status as a professional whose services are highly in demand, and who has a reliable team helping him run his practice like a well-oiled machine. 5. Maximize Your Greatest Growth Resource: Clients—If you’re following my Sales Process and adhering to all the “no client left behind” traits, your clients should be your biggest fans. Make the most of that relationship with marketing strategies that allow your clients to help you get in front of small groups of well-qualified prospects. Whether through direct referrals or “bring-a-friend” educational events, clients love to help friends and relatives by recommending their “guy.” 6. Make Your Practice Stand Out From the Competition— Never allow your business to get lumped in with your competitors’ in the public eye. Separate yourself from the pack. For example, my business model utilizes a “blue ocean strategy” that puts me (and other advisors who use it) in a niche that is not only distinctive but also virtually uncontested. I’m not “an annuity guy.” Rather, I am the Income Specialist in my market—the area’s only qualified authority on “The Universe of Non-Stock Market Income Generating Investment Strategies.” 7. Kaizen—Practice the Japanese concept of “continual improvement” in your business and in your life. Even after all these years, I am constantly honing and tweaking my Sales Process and exploring new marketing and practice management strategies—all with firm belief that even the best can always get better. It’s important for me to remember that at the time I realized I was a “failure,” I was considered—by many others—to be a great success. My quest for improvement back then is what led to my revolutionary Sales Process, and to these seven accompanying traits that ensure you leave no client behind while enjoying a booming business! David Scranton is the Founder of Advisors’ Academy, leading their mission to help advisors maximize their potential through the ever-changing landscape of our industry.

Are you serious about blowing away the results you’ve had in prior years? Download David Scranton’s complimentary guide “The 7 Steps Sales Process for the One Appointment Closer” at

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4. Do Only $1,000 an Hour Work—Years ago, a statistic calculated by LIMRA determined that a financial advisor’s time should be worth at least $1,000 an hour whenever he or she is face-to-face with prospects. In order to make that happen, you need to make sure you’re delegating paperwork, client services, event planning and every aspect of your business that can be done for less than $1K an hour to other qualified people. In essence, run your office like a doctor’s office. It should June 2016 » InsuranceNewsNet Magazine June 2016 » InsuranceNewsNet Magazine

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A Unique Perspective

rian Donahue has a very unique perspective on changes in the financial services industry over the past 30 years. He began his career in the early ’80s as a financial advisor selling life insurance, benefits and mutual funds. In 1989, he began DMI in the basement of his home, primarily marketing universal life insurance, which at the time was still a relatively new product that hadn’t been accepted by many of the main life carriers or agents. By the beginning of the 1990s, he began to see a focus by the boomers on accumulating assets for retirement with 401(k) retirement plans and an explosion of mutual funds sales. Brian decided to adjust his business model at DMI to introduce fixed annuities to fill the need for safe growth products. Still serving as President of DMI today and marketing both fixed annuities and life insurance, Brian weighs in on both distinct product lines and offers a view on the Department of Labor ruling that may surprise you. Q: In the past 27 years, how have you seen the producer evolve in the industry? A: When I started as a financial advisor, it was old-school life insurance, disability insurance and health insurance. Long-term care really wasn’t even around. When I founded DMI back in 1989, we were a life IMO, primarily universal life. The business really began to change in the ’90s. The markets took off, assets were growing, mutual funds were becoming mainstream and fixed annuities were in their infancy. We started to sell fixed annuities in 1992. They had a lot of appeal because the rates were so much higher than CDs and money markets, but they were very vanilla— typically five-year surrender products offering a low commission to the agent with a small override to the IMO. Because they were very high in value to the customer, we began to focus on them more. Everything really changed in 1995 when index annuities were introduced. With annuities having no underwriting, it was merely a repositioning of an asset. Left pocket to right pocket sale. Identify the asset to be moved and move it based on risk, return, objective, taxes and time horizon. Life agents began migrating toward annuity sales in a very big way. There was no more underwriting, surrender charges were now 10 years, and premium bonuses were introduced, adding to the consumer appeal. The commissions got bigger for the agents, the bonuses got bigger for the consumer, liquidity improved, living riders were added, and the value improved to the customer. By 1996, we were much more focused on fixed annuity and fixed index annuity sales than

we were on life. We’ve always believed in the value of life insurance—we always will—but fixed annuities really changed the landscape over the following 20 years. Q: What are the parallels between annuities and life insurance? A: There are several. Both products provide the opportunity to accumulate money safely with a reasonable return; both offer tax advantages; and both can provide stable, secure, reliable, predictable income streams at retirement. We use software for our life sales that really demonstrates the power of life insurance in producing a real tax-advantage income stream and legacy. Arguably, life insurance can provide it better than annuities. The advisor needs to change the approach and sales process a little bit. It’s a little tougher sale, but it’s about uncovering the premium within the client’s budget versus repositioning the asset. Having said that, life insurance will always be the foundation of our business. It can be immune to the economic and pricing challenges that annuities have and it’s obviously immune to many regulatory challenges that annuities have encountered in the past and are facing right now with the DOL ruling. Q: What other advantages does life insurance have over annuities? A: The age range of the customer is broader, allowing for more prospects. A typical fixed annuity prospect starts at preretirement. Life insurance is needed by people in their 30s, 40s, 50s and beyond. You won’t find that with an annuity. Of course there’s the traditional need for life insurance—the death benefit. In my opinion, life products have never received the same amount of notoriety in terms of ingenuity like we have seen with index annuities, but any advisor who has never sold life or maybe moved away from life to focus more on annuities needs to take a serious look at them now. Life products have come a long way over the last few years. Like annuities back in the ’90s, life products are now state-of-the-art, providing living benefits like long-term care, great accumulation opportunities in cash value and tremendous legacy and income tax advantages. The market will continue to force more creativity and consumer features. This is all good news for the agent, the IMO and, most importantly, the customer.

“It would be prudent for advisors who are currently selling annuities to consider adding life insurance to their business.”

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Q: While life insurance helps advisors sell to younger demographics, how important is it for baby boomers specifically? A: It can help them meet their retirement needs, not just provide a death benefit. When you survey boomers, they’re looking for reliable, predictable guaranteed income streams they can’t outlive; life insurance can deliver that. Many advisors position it with their clients as a “super Roth”—overfunding these policies

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A: Our mission has always been to help our advisors grow their business. We have always educated advisors about the benefits of cross-selling life and annuities. This isn’t a new concept for us. We have had many life-only advisors whom we have worked with to introduce annuities into their business and vice versa. We have a three-team approach of incredibly talented marketing, sales and business management consultants. Every business must have marketing to grow. For advisors who make the wise decision to add or increase their life insurance sales, our marketing team brings fresh ideas and concepts to financial advisors. They consult with advisors to develop a comprehensive marketing plan for each advisor that will generate new life sales leads and keep existing DMI’s strategic marketing team believes clients engaged. Inbound marketing, that every prospect will buy—it’s just a branding, web development, social matter of time. media, email marketing, seminars and multimedia services including radio The DMI Reactivation Program is their and video are all marketing areas we exclusive automated system that is creating specialize in that can help financial adincredible results with NO additional prospecting time. Results like… visors with life sales and annuity sales. Our sales consultants design life » The agent who received a response in 30 seconds that set up an cases by finding the right life product immediate appointment that resulted in a sale. that solves the client’s needs. We have » The agent who implemented the program on Friday and closed a years of experience developing cases $300,000 annuity case on Tuesday. from simple term to complicated ad» The agent who received 103 reactivated leads from his “NO” database. vanced market techniques, and we include everything needed to prepare the advisor to make an educated, professional sales presentation to clients. Finally, because life insurance has underwriting, our business management team knows how to compile a complete underwriting file. can address all of those concerns. It’s a life insurance product. From exams and medical records to negotiating with underwritThe advisor needs to be educated and understand the features to ers, they move your life cases through underwriting to get the find the right one for the client. best offer and get your client’s policy issued and delivered. DMI is fortunate to have nearly 30 years of success and expeQ: What is DMI doing to help advisors continue to sell annurience behind us. I have seen so much over the years, but I beities in the wake of the upcoming DOL changes? lieve this is one of the greatest opportunities yet for financial advisors. I look forward to seeing how our business at DMI and the A: We will continue to do what we have always done through industry as a whole continues to grow over the next 10 years. challenging times: Educate our advisors so they are aware and informed and keep them focused on the enormous sales opportunity they have with the boomers, where they can provide real value and benefit by offering annuities and life insurance as part Are you ready to take your business to of their retirement strategy. the next level? These millions of boomers have significant retirement concerns. There are annuity products that are just unbelievably See how other advisors are reaping the value-driven for the customers. So we’re not in any way abanbenefits of DMI’s exclusive Reactivation doning annuities, but we are saying it would be prudent for adProgram today at visors who are currently selling annuities to consider adding life insurance to their business to be able to add even more value to their clients. . Change always brings opportunity. Advisors need to continue to grow their business by finding more prospects and meeting with existing clients and doing all the good work they have always done while this DOL ruling shakes out. It’s far from finalized. We will continue to fight the good fight alongside industry advocacy groups, carriers and other IMOs. can produce large sums of cash value that can provide tax-free income streams during retirement. There’s just so much flexibility and so many different ways that a life insurance policy could be used now for what boomers are asking for. They’re concerned about long-term care, leaving a legacy, retirement income and are very concerned about safe growth. They don’t have time on their side to afford losses, but they want good, stable, fair returns. There is one product that

DMI’s Remarkable and Proven Strategy on Old Leads REACTIVATI N PROGRAM

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Q: How does DMI help annuity advisors take on the challenges of adding life products to their practices? June 2016 » InsuranceNewsNet Magazine June 2016 » InsuranceNewsNet Magazine

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The “Huge” New Way to Serve Clients for Their Entire Lives

ou’ve heard of Putnam Investment Management and Empower Retirement, but perhaps not of another affiliated brand: Great-West Financial®. This long-standing institution is now becoming a player in the annuity space. In this Q&A, Senior Vice President and 25-year annuity distribution veteran Mike McCarthy describes Great-West’s timely advantage and a powerful vision to serve clients for life. Q: What inspires you to work in this industry? A: The thing that inspires me is what we do to help people. We help protect their hard-earned money and provide them with the ability to live with dignity in retirement. And what we do for people is so important that it doesn’t just help them during life, but it helps them after death; it helps their families. We provide people with investment, insurance and retirement income strategies to help them plan for and have the dignified retirement they have envisioned for themselves and their family. Imagine, that might be how their grandchild pays for medical school and goes on to cure cancer or something. To me, it’s a very noble industry.

Plan Services (formerly J.P. Morgan Retirement Plan Services). Now Great-West Financial is continuing to develop variable annuities and other retirement income strategies to help turn people’s retirement savings into retirement income streams. We already have great financial strength, and right now is the perfect time for us to become a leader in annuities. We have no legacy book of business that we’ve got to manage under the DOL. We don’t have to go back and fix anything. In this current low-interest environment, some providers have huge legacy books of business that are really putting a strain on them. When you’re guaranteeing someone 5 or 6 percent in a lessthan-2-percent environment, you’re not making money. Capital is the most precious thing an insurance company has, and companies that must deploy capital for business that was already sold can’t be in as good a position as we are. We’re in a great spot. We are nimble and committed to the retirement income space, and there’s a big commitment from (President and CEO) Bob Reynolds to make us a top-five provider in 3–5 years. The way we’re going to do it is by building a portfolio to work with clients throughout their entire life stage of investing—growth, accumulation, income, retirement income and wealth transfer products. We can provide strategies to help advisors work with clients and advise them throughout their entire lifetime.

“Right now is the perfect time for us to become a leader in annuities.”

Q: What is surprising about Great-West’s position in the retirement industry? A: Great-West is a huge organization. We’ve been around for over 100 years. It’s one of the biggest companies that nobody knows. In 2014, Empower Retirement was created by combining the retirement resources, expertise and scale of Great-West Financial’s retirement services, Putnam Investments and Great-West Financial Retirement

Q: How does Great-West provide a competitive and diverse portfolio of products for advisors? A: We are listening to advisors. We’ve done several focus groups throughout the country to see what they like and don’t like about the retirement income space, what their needs and wants are. We’ve done it with consumers too, so we’re not building products in a vacuum. We’re building products based on the feedback of financial advisors and their clients that will allow advisors to work with their clients throughout their entire life, throughout all their stages of investment.

Any guarantees are subject to the claims paying ability of the insurer. The principal underwriter is GWFS Equities, Inc., and securities, when offered, are offered through GWFS Equities, Inc. and/or other broker/dealers. GWFS Equities, Inc., Member FINRA/SIPC, is a wholly owned subsidiary of Great-West Life & Annuity Insurance Company. Great-West Financial® and Empower Retirement refer to products and services provided by Great-West Life & Annuity Insurance Company (GWL&A), Corporate Headquarters: Greenwood Village, CO; Great-West Life & Annuity Insurance Company of New York (GWL&A of NY), Home Office: NY, NY; and their subsidiaries and affiliates. Putnam Investment Management is affiliated with GWL&A and GWL&A of NY and its subsidiaries. The trademarks, logos, service marks, and design elements used are owned by GWL&A. PT266008 (5/2016)

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The Annuity Issue • Special Sponsored Section

Q: How has consumer feedback shaped your products?

a reset, allow them to add money to the contract after they start taking income, and then increase their income if they cross through an age span and the income factor A: We’re not building products that we have to squeeze would yield more. Not only give the “pay raise” but also them into. We’re interviewing them and hearing exactly potentially reduce fees. So there is a lot of flexibility built what’s important to different individuals. We’ve learned into the product. Also, we don’t use a volatility control that we need to build products that have multiple living or an asset transfer program or an algorithm in our probenefit options because different clients need different tected accounts. Some companies, when they provide a strategies, and I use the word “strategies” because we’re guarantee, will put the client into a portfolio that’s 50-50, or it’s got volatility controls with some type of a program that will put clients into and take them out of the market. Great-West Financial has a program called Community Impact, which supports their We don’t do that. We use a belief that focuses on financial literacy, health and wellness are some of the best invest60-40 balance fund. We bements that can be made within one’s community. The program focuses on: lieve that’s a better value to » Teaching school-age children the skills they’ll need to make good financial the customer than to be put decisions throughout their lives in and taken out of the mar» Championing causes that promote good health ket based on some algorithm.

DID YOU KNOW?

» Engaging associates in making personal & meaningful contributions to their community

Community Impact Program Accomplishments (since 2011) » $3.2 million in funding donated for financial literacy programs » 615,000 students reached by these programs » $2.1 million of our associates’ donations, fundraising efforts & volunteer time matched » Awareness & funding assistance for: heart disease, breast cancer & childhood poverty In addition to this program, Great-West includes paid volunteer time for any charity as one of their many employee incentives. What else don’t you know about Great-West?

Find out at www.GreatWestStrategy.com. not here to just push products—we’re here to help advisors and clients to and through retirement—and I don’t like to say “solutions,” because “solutions” implies there’s a problem. We also have a lot of flexibility built into our products because of clients’ different needs. And those needs will change over time, sometimes unexpectedly. Q: How do you offer more flexibility? A: Instead of having restrictive, one-size-fits-all products, we offer a multitude of strategies. For example, with our VA contract, you have the ability to utilize our contract as an investment-only variable annuity (IOVA) with a return-of-premium death benefit and then add the rider after issue. We charge the same amount for single and joint lives. And we give multiple ways for clients to increase their retirement income. Many others will give only one way, which is a reset through market performance. We give three different ways. We’ll give

Q: What else do you do for advisors to help them sell?

A: Because of our size and our breadth, we can bring more resources to advisors to help them grow their business. Like I said earlier, we’ve been in the retirement business for a long time. Empower is the second-largest defined contribution recordkeeper in the industry based on number of participants. Our sister company, Putnam Investments, is a well-known and respected mutual fund provider. And then we’ve got this portfolio of products in the insurance and retirement income space. We believe we can provide you with more resources to grow your business than any other company out there, period. Personally, I always want to work with somebody who’s got the most tools on their tool belt, and that’s the value proposition that we bring to advisors.

Access a powerful, flexible portfolio of strategies that will enable you to serve clients for life. Get your complimentary Strategy Kit today at

www.GreatWestStrategy.com.

June 2016 » InsuranceNewsNet Magazine June 2016 » InsuranceNewsNet Magazine

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The Annuity Issue • Special Sponsored Section

Industry’s Future Depends on Education

arry Stowe, Chairman of Jackson National Life Insurance, has an extensive background as an insurance industry executive. Prior to his appointment as chairman of Jackson, Mr. Stowe served as the chief executive of Prudential Corporation Asia. He also previously served as a director of the Life Insurance Marketing Research Association (LIMRA) and the Life Office Management Association (LOMA).

The products and services we provide are critically important to society. This is a noble profession; the work we do is good work and an important part of the social fabric of the country. Q: What is Jackson’s operating motto?

Q: What drew you to work in this industry? A: I was looking for a role that suited my personality. I ended up getting an entry-level sales and service job at what was then Corroon & Black [now Willis Corroon]. Pretty quickly, I learned that I had some proficiency at selling, and as I moved along, I recognized just how much the industry resonated with me. I continue to be motivated by not only how the insurance business helps people, but also that we have such a profound positive impact on society. I think there’s a big opportunity to shift the perception of the insurance industry as a whole. Everyone can agree that insurance is important to protect their treasured belongings. But rarely are people excited to say they work for an insurance company, and the view of our profession is one that’s decidedly negative. It’s time to get rid of the jargon, focus on education and help all of our stakeholders understand the value and importance of insurance.

A: At Jackson, we “do well by doing good.” By that, we mean the work we do is positive both for consumers and for society. Our industry is virtuous, and we believe that story needs to be articulated in a clear way. Not all industries can make this claim, but our industry can. We also believe in acting responsibly and with integrity. We are especially proud of our corporate social responsibility program, which is a perfect example of how fostering empathy in an organization can result in an outpouring of social good. Our associates fuel our desire to support local charities and are also financially generous. Corporate donations and sponsorships are directed to community enrichment programs and charitable organizations, principally focused on children, seniors and financial literacy for all ages. With these programs, we’ve made a significant impact in the local communities where we operate; last year our employees volunteered 13,000 hours with nonprofit organizations. Our charitable program is largely led by our employees, making our impact that much broader.

It’s time to get rid of the jargon, focus on education and help all of our stakeholders understand the value and importance of insurance.

Q: How will Jackson support advisors through changes imposed by the Department of Labor? A: We are concerned that, despite the objective, the rules the DOL issued will hurt middle-market investors more than they help them, by limiting the availability and quality of financial

About Jackson National Life Insurance Jackson is a leading provider of retirement solutions for industry professionals and their clients. The company offers a diverse range of products including variable, fixed and fixed index annuities designed for tax-efficient accumulation and distribution of retirement income for retail customers, and fixed income products for institutional investors. Jackson subsidiaries and affiliates provide specialized asset management and retail brokerage services. Jackson prides itself on product innovation, sound corporate risk management practices and strategic technology initiatives. Focused on thought leadership and education, the company develops proprietary research, industry insights and financial representative training on retirement planning and alternative investment strategies. Jackson is also dedicated to corporate social responsibility and supports charities focused on helping children and seniors in the communities where its employees live and work. For more information, visit www.jackson.com. Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of the variable annuity and its underlying investment options. The current contract prospectus and underlying fund prospectuses, which are contained in the same document, provide this and other important information. Please contact the Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money. Variable annuities are long-term, tax-deferred investments designed for retirement, involve risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59½.

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InsuranceNewsNet Magazine » June 2016 InsuranceNewsNet Magazine » June 2016

Jackson® is the marketing name for Jackson National Life Insurance Company® (Home Office: Lansing, Michigan) and Jackson National Life Insurance Company of New York® (Home Office: Purchase, New York). Jackson National Life Distributors LLC. Not FDIC/NCUA insured • May lose value • Not bank/CU guaranteed • Not a deposit • Not insured by any federal agency

This advertisement was paid for by Jackson. PR2136 06/16

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advice as well as the variety of retirement solutions. Jackson will, of course, continue to provide quality products and services designed to fit a wide range of investor needs, wants and goals. We believe in the financial professional model and stand behind the value of advice as a vital component of successful financial planning. Above all, we will continue our mission to ensure investors have the products, knowledge and confidence they need to make appropriate investing decisions and fund their financial future.

there is Social Security. Advisors know that Social Security was never meant to be more than a supplement to people’s retirement, but many of their clients don’t know that and so have planned on Social Security being a significant part of their retirement income. The truth is that many consumers need to look to alternative retirement products that can meet their needs to live comfortably into and through retirement.

Q: What challenges will advisors face in the near future?

A: For a very long time, our industry has let other people tell the story of what we do and why we do it, but the problem is, they’ve gotten much of the information wrong. We look forward to investing more resources in consumer education to help empower people to make financial decisions and to raise the profile of the profession and the industry. It’s exciting to be at the forefront of the movement to champion financial literacy and retirement savings and to drive the required level of change. Our mission is to raise the overall level of financial education and confidence in the U.S. by providing useful information framed in a way that is relevant, consumable and engaging for the modern investor. Jackson believes you shouldn’t wait until somebody is 58 years old to introduce retirement concepts. We need to work on a larger scale to start educating kids at the elementary school level with basic financial concepts and continue to educate and talk to students throughout their academic careers. For example, 5-yearolds can learn the basics behind how we use money (earn, spend, save, donate), while 18-year-olds should learn about how compound interest impacts saving and spending, how to budget to include rent and other living-on-your-own expenses and how student loans might impact their financial future. Jackson has a fantastic resource called the Center for Financial Insight, which serves as a central component of our educational strategy, offering information for investors on a variety of different aspects of finance and investing. The materials are written in a way that everyone can understand and are purely educational; we don’t include a sales or product pitch because investors need this information regardless of how and with whom they choose to invest.

A: The new DOL rules primarily impact financial advisors— they must quickly meet an enhanced fiduciary standard, comply with new disclosure, reporting and sales requirements and evaluate increased litigation risks. These substantial additional regulatory requirements and increased legal exposure may make serving low- and middle-income investors less commercially feasible. This is especially alarming because while the products we sell are important, the most critical component is the advice that the client gets on the front end. Advice is critical. We are concerned that the outcome of the changes is that it will become more difficult for middle-class Americans to get the financial advice they so urgently need. Q: What are consumers’ retirement needs in the coming years?

Q: What is next on the horizon for Jackson?

You shouldn’t wait until somebody is 58 years old to introduce retirement concepts.

A: The baby boomers just started turning 65 last year. We are at the start of a bell curve where an enormous section of the population will soon be retiring. They need advice, and they need products to help them meet their goals. We want to see retirees not just getting by, but getting to live their lives to the fullest by discovering hobbies, passions and talents that they may not have previously had the time or resources to pursue. Millennials are also now the largest population in America. We are learning about their savings patterns and what they will want their retirement to look like, because we can already tell that they are unlike any generation we’ve ever seen before. We have to start developing products and solutions for them now. Our mission as an industry should be to ensure that millennials don’t end up in the same predicament as the baby boomers when it comes to saving for the future. Q: What problems exist within the boomer generation that advisors need to know? A: American baby boomers are the richest generation in humanity, but they are also both under-saved and over-levered. People didn’t plan on living into their early 90s, and if they did, they might better understand how much they need to save to do it. Pensions, which were the backbone of retirement for many of our parents, have largely disappeared from the private sector. Instead, we have defined contribution plans, but many people don’t contribute or don’t contribute enough. Then

Visit the Center for Financial Insight at

www.JacksonCFI.com. To learn more about Jackson National Life Insurance Company, visit www.Jackson.com.

June 2016 » InsuranceNewsNet Magazine June 2016 » InsuranceNewsNet Magazine

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The Annuity Issue • Special Sponsored Section

ISN Premier Removes Barriers to RIAs Offering Annuities, Life

wo industry veterans, Matt Meyer and Michael Robinson, head up ISN Premier, a unique company on a mission to help registered investment advisory firms expand upon the services they offer consumers. ISN Premier provides insurance services for all sized RIAs. Matt, Managing Partner, has worked in financial services for 16 years, with extensive experience supMatt Meyer porting advisors and assisting high-net-worth families with their insurance needs. Michael, Managing Partner, has 23 years experience in the financial services industry with experience as a global fixed income trader, wholesaler, educator and trainer. In this Q&A, they both weigh in on fiduciary responsibility and a surprisingly simple way RIAs can counteract a trending competitive threat. Q: What’s your take on the Department of Labor ruling? Michael: I believe there are still many unknowns about the ruling, especially with regard to Best Interests Contract Exemption (BICE). This model is the most similar that exists today for advisors; however, there are variables still unknown with how the advisor will adhere to the multiple disclosures required.

and specifically designed to fit the RIA’s business model. Matt: The competition for assets now is much greater because companies that used to just sell insurance are expanding their services to provide asset management and other financial products and services. So from a defensive perspective, selling insurance enhances the relationship, and it will help prevent Michael Robinson clients from contacting other advisors who might take over their asset business. Having the insurance expertise and back office support will only enhance the firm’s position in the marketplace. Q: What hesitations might RIAs have in offering annuity and life products? Matt: The core business for an RIA is to manage assets and provide financial advice. The RIA has to have the right partner in order to be comfortable with the process, because they don’t want to jeopardize their core business. Our company represents over 30 insurance carriers and 200 insurance products— that’s a lot to keep educated on. What we do is distill all the products and make the discussion more about insurance as an asset class and part of a diversification or portfolio approach. An insurance product can be presented as a noncorrelated asset bond alternative, and the conversation with the client then is not product-driven; it’s concept-driven.

What we’re doing is like “insurance in a box.” We’re delivering a fully functioning insurance department for an RIA.

Matt: We work with many fiduciaries now and believe that our firm is and will be well-prepared to assist any RIA in adhering to legislative protocols. Our services are designed to assist an RIA in a comprehensive manner, and we are continuing our efforts to help deliver insurance solutions that fit this model. Q: Besides fulfilling their fiduciary responsibility, why should RIAs offer annuities and life insurance?

Michael: We see more consumers wanting a single point of contact for their financial needs. Clients are expecting more from their advisors—their investments, their retirement, their life insurance, even their mortgages. We also believe that insurance should be viewed as a more significant part of a well-balanced, diversified portfolio. Many insurance companies now are designing products that are bond alternatives

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InsuranceNewsNet Magazine » June 2016 InsuranceNewsNet Magazine » June 2016

Q: How can RIAs start offering these products? Michael: The vast majority of RIAs have a broker/dealer affiliation. Many of the producers within these RIAs have used variable annuities in the past, but many have not used other insurance-based solutions. We introduce them to fixed index annuities, income-for-life models, indexed universal life, premium finance, private placement and other strategies—we show them how they can incorporate these into their business. ISN Premier accomplishes this with our Synergy program platform specifically tailored for the RIA. Our Synergy program

The Annuity Issue • Special Sponsored Section

provides full back office, licensing department, sales desk and commission accounting to fulfill all their insurance needs from inception to completion of any insurance transaction. Matt: We offer transition training seminars for RIAs that help them get comfortable with how we will best work together. If we’re not doing individual consultation with the RIA, we conduct these training seminars for their advisors. Our training seminars are primarily concept-based. We help advisors read tax

what is best for the client. Often the advisor will ask us to help with the presentation to the client. We’re not trying to change what they do. We’re not causing any disruption. We’re showing them how they can layer insurance to enhance their practice and add the most value for their clients.

Matt: It’s the stickiest relationship with the person who manages your money. A great example—I’m working with a top advisor from an RIA. He decided, “You know what? I’ll just ask a couple of my clients about their insurance.” ISN Premier is a division of ISN Network He found seven policies with two of his clients that the insurance advisor hasn’t talked to them about in over five years—over $2 million of cash value in these policies that had not been reviewed. ISN was founded in 1986 by Hector Serrano, who had been instrumental in They didn’t know who owned the policy or who the helping Private Ledger, a broker/dealer in San Diego, develop their insurance beneficiaries were. division. Along the way, Hector realized there was a real need for back office This is a perfect example of asking the questions support for the boutique broker/dealer so that they could add insurance services to their platform. ISN Network was formed to fill that need. and having that relationship with the client and the client being more than willing to give that RIA that ISN Network began by supporting broker/dealers with life insurance, annuities information. The RIA was comfortable enough to and long-term care and has grown to now include other nontraditional groups, ask that question because he knew he had the including RIAs, P&C shops, LTC firms and 403(b) agencies, as well as CPA and insurance experts behind him, ready to go. attorney groups. All have grown with the addition of insurance services to their

About ISN Network

platforms in partnership with ISN Network’s Synergy program.

returns, use social media and network with CPAs and attorneys, along with other practical applications and concepts. Michael: ISN Premier offers full onboarding. We will adapt our training to fit a small or large RIA. We work with the RIA to better understand their business model and type of clientele in order to customize the system we will provide. Q: Why the side-by-side approach? Matt: We view our firm as their business partner. We’re integrating at the highest level—establishing business plans, setting goals and tracking performance. Our goal is to become fully integrated from the top down. We adapt to their culture and become a seamless extension of their business. Michael: After the onboarding is complete, the RIAs are saying, “ISN Premier is delivering concepts and solutions utilizing insurance products that I have never thought of for my clients in the past,” and they’ll say something like, “You know what? I have a client who provided me their policy information. I know it has cash value, but their situation has changed. They’re retired now and want something that is safe, but they also want to build cash value. I’m not fully educated on the life and annuity product landscape. What should we do?” Matt and I will provide what we call our PAR program (Policy Analysis and Review), a forensic examination of insurance policies held. This includes evaluating the performance and identifying how that addresses the needs of the client. We will make recommendations, in coordination with the advisor, based on

Q: In addition to enhancing client relationships, how else does ISN Premier support RIAs? Matt: What we’re doing is like “insurance in a box.” We’re delivering a fully functioning insurance department for an RIA. It is as deep as integrating with websites, providing the tools and resources, all the way up to the point of sale. We are able to implement and build out an entire insurance division within a company. But it doesn’t have to be all or nothing. Our platform can be as simplified as just running the back office, or we can integrate and answer phones on behalf of the RIA’s insurance department. So this insurance in a box can be customized, but the concept is we are delivering a very sophisticated insurance solution for a company to be able to handle the most sophisticated transactions in the insurance business, and to get there overnight.

The barriers are gone. See how you can finally add life and annuity offerings to your agency— overnight—with the complimentary Insurancein-a-Box Starter Guide. Get yours now at

www.ISNinabox.com.

June 2016 » InsuranceNewsNet Magazine June 2016 » InsuranceNewsNet Magazine

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The Annuity Issue • Special Sponsored Section

Branding Yourself as a Financial Resource

rokers International’s new CEO and President, Mark Williams, was literally born into financial services and has maintained his passion for this industry’s work throughout his career. In this Q&A, Mark explains the appealing differentiators of Brokers International, including innovative ways for advisors to brand themselves as financial resources.

rely on these relationships to put us out front on meeting the new changes. Q: What mission is behind the services you provide for advisors?

A: We believe in information, and we believe in branding agents as financial resources. After all, the concerns faced by the general population about retirement can be eased with products they sell. To this end, we have over a dozen cost-effective programs that can help agents build credibility as a resource, increase client referrals and get in front of new audiences with their message. Several of these programs are exclusive to Brokers International. Q: What personal mission drives you in this industry? One of these programs is the CPA Alliance Program, which continues to be our most requested. Utilizing it, agents have the A: I have personally been in the financial services industry for 27 opportunity to host continuing-education seminars for CPAs. On years and have been everything from an agent to a director of maraverage, agents can meet and connect with up keting. My father has been an insurance agent to 35 CPAs who can introduce the agent’s serhis entire career. My mother owned a P&C vices to their clients. Often, the CPAs will see agency and my sister is a wholesaler. So, it’s the personal value of the products covered in been a wonderful business for my family. these seminars and become clients themselves. The insurance business does wonders for Another exclusive way we can help agents families, usually at their worst times. With • Media Minefield build their brand is through Media Minefield. the ever-growing problem of retirement in • Take One This program puts financial professionals on this country, annuities are still the one prod• Automate my the news in their local markets for 3–5-minute uct that offers a consistent paycheck until the Appointments interviews. Since this is not paid airtime, apday you die and possibly until the day your • The Compass pearing in these segments allows our agents to spouse dies. They help provide a sense of • Women’s Mentoring position themselves as a recognizable financial security that nothing else anywhere can proAgent Network resource in their community. vide outside of just working. • CPA Alliance Program Recently, we also added several client-facLearn more at ing seminar packages to our offerings. The one Q: What drew you to Brokers International? BrokersFinancialResource.com. package gaining the most traction right now is our “Retirement Purse Strings” seminar, which A: I have known and worked with Bill McCarty, addresses the specific challenges and opportuthe previous president, for several years, so it nities women face when planning for their financial future. The was an easy decision to join Brokers International. I came to the uniqueness of this seminar puts our agents in front of one of the company as the chief sales officer, and last month I became the most influential consumer markets. chief executive officer and president. It is a tremendous opportuOur mission is to continually strive to add more programs so nity for me to help build on Brokers International’s name and repagents can have a choice in how to present themselves. Rather than utation. Our longevity in the industry is fantastic and the fact that following a one-size-fits-all approach, we take a look at an agent’s we own a broker/dealer and an RIA positions us well for future practice and determine the best possible tools and resources for his growth. or her business. By owning a broker/dealer and our own RIA, we can tailor almost anyone’s business model and help them build for Q: What does Brokers International have in place to help the future. advisors thrive during the DOL changes?

BI’s Exclusive Programs

A: When it comes to the Department of Labor’s fiduciary rule, we have several advantages to help agents meet the DOL’s requirements. First, we have an in-house field suitability and compliance officer who can help us advise agents on interacting with clients under the new fiduciary requirements. Second, since we represent several annuity carriers, we are not bound by one carrier relationship. This gives us the ability and freedom to help our agents find the best products for their clients. If your IMO is using one carrier 99 percent of the time, you clearly aren’t recommending other products. Plus, at Brokers International there’s no extra incentive to write one carrier over another. All of our programs are based on the amount of premium you write with us in total, which is going to be important under new regulations. Third, we have strong ties with some of the biggest and best carriers in the industry. As this rule gets reviewed, we can 52 52

InsuranceNewsNet Magazine » June 2016 InsuranceNewsNet Magazine » June 2016

Ready to be known as the trusted financial resource in your local market? Select the program that fits your business at

www.BrokersFinancialResource.com.

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Call of the Rider:

Boomers’ Favorite New Annuity Trend

at Foley has been in the financial industry his whole career, with 14 years in the field and now 20-plus years in corporate roles, currently serving as President of Individual Life and Financial Services at OneAmerica. He has seen annuities evolve from a vehicle for lifetime income in retirement to a trending tax-deferred growth vehicle and then back again to a popular way to fund retirement. But there’s a third use for annuities that’s trending strong right now, which Pat illuminates in this interview. Q: Why has financial services been your only career? A: I was recruited into this business many years ago by a guy who said, “The beauty of this industry is the more you help people, the more you help yourself and your family,” and I’ve been able to live that personally and professionally during my entire career. There aren’t very many professions that you can say that about. Q: What are our industry’s shortcomings in serving middle America? A: I think middle America wants to be able to go to bed at night and feel confident they’ve addressed their three big concerns, which are “What if I die prematurely?” “Will I have enough accumulated to enjoy retirement?” and “When I’m in retirement, will I be able to handle any type of catastrophic health event?” Financial professionals have been addressing these needs for as long as I’ve been in the business. I just think that over the last decade or so, financial professionals have gotten more involved in asset accumulation and maybe have neglected protection. Conversely, more consumers are saying, “I want you to talk to me about protection.” And it’s not just about premature death but also about protection in the event of a catastrophic health event in their later years. It’s a big deal because of the aging of the baby boomers. They know they have to address it. Most of them have seen it firsthand with their own parents. Plus, unlike their parents’ generation, boomers’ kids may be more than likely to live all over the country, so boomers can’t count on them, necessarily, to be there to help.

sition to buy an annuity but who want benefits comparable to the annuity with longterm care benefits on top of it. This creates the benefit pool with a life insurance Today’s consumer wants their product that you can access in agent or planner to provide them the event of a long-term care with customizable solutions. Make event. If you don’t use it and sure clients are thankful that you you never need the long-term addressed their needs specifically care benefit, you can pass it and recommended a customized on as a death benefit tax-free solution. to your family. We actually created the product design Here’s How… for this over 20 years ago. It’s Care Solutions is a product line patented, and it is truly one of that addresses people’s concerns the most unique products in over a wide variety of situations. the industry today. What we have is something that addresses consumer concerns; it’s backed up by an A+ rated, 140-year-old company; and all of our premiums in the product are guaranteed for the life of the product. So, unlike some of the traditional long-term care products out there, you don’t have to worry about being 75 years old and getting a notice that your premiums went up. Again, because of the increasing market demand out there for this kind of protection, sales are exploding. OneAmerica is the marketing name for The State Life Insurance Company® (State Life), offering the Care Solutions product suite. On July 23, 2015, State Life was rated A+ (Superior) by A.M. Best. This is the second-highest of 16 possible ratings assigned by the agency.

QUICK TIP:

Get More Referrals

Q: What role do annuities have in providing the protection boomers are asking for? A: One of the things that’s becoming increasingly popular, and something that we as a company have pioneered, is annuities that provide additional benefits. Specific with our Care Solutions, which includes an asset-based annuity, we provide additional long-term care benefits on top of the benefits of tax deferral. We’re allowing the annuity chassis to provide more benefits in retirement, including tax-favored benefits to help in the event of health care issues. We have seen many surveys of people in their retirement years, and their No. 1 concern is “Will I have enough income?” Their No. 1A concern—I say “1A” because it’s so close to No. 1 that I can’t even call it their No. 2 concern—is “What if I have a catastrophic health event and need additional services or care?” We’re getting the word out to financial professionals and advisors that we do have this great solution, and the reception has been outstanding. Our year-to-date sales are up almost 30 percent in our Care Solutions product line. Q: Do you have any life insurance options that provide similar solutions? A: In our Care Solutions product suite, we have two sets of products. One is the annuity products with long-term care benefits. The other products, which are basically a life insurance chassis for people who aren’t in a po-

For use with Financial Professionals only. Not for public distribution.

June 2016 » InsuranceNewsNet Magazine June 2016 » InsuranceNewsNet Magazine

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LIFEWIRES

Life Sales Perform Feats of Strength in 1Q Life insurance sales keep rolling along, with first-quarter application activity up 5.4 percent over the same period last year. This marks the sixth consecutive quarter of growth, according to the MIB Life Index. For the fourth consecutive quarter, younger buyers (44 and under) led all other age groups in application activity. At the close of the first quarter, individually underwritten life insurance applications by the 44-and-under group were up 6.9 percent compared with the same quarter last year. This was nearly twice as much as the 45-59 cohort (up 3.5 percent) and those ages 60 and older (up 3.6 percent).

INDIVIDUAL LIFE COMBO SALES REBOUNDING

Individual life combination products bounced back 14 percent in 2015. This was a rebound from the previous year’s decline in new premium growth, according to LIMRA. New premium totaled $3.1 billion in 2015, which represents 15 percent of all new premium collect$3.1 Billion ed for individual life New premium insurance products. total for 2015 There were more than 200,000 policies sold in +37% 2015, a 37 percent in- Over 2014 totals crease compared with 2014 totals. LIMRA reported that products with chronic illness acceleration riders grew 38 percent and represent 59 percent of the combination life insurance market. Products with long-term care acceleration riders experienced stronger growth in 2015, up 51 percent from the prior year, but they represent only 28 percent of the market.

confirmed that it would appeal the court decision, ramping up the tension over a designation that other companies are also seeking to shed. The move signaled that the Obama administration is preparing to defend the designation it has assigned to so-called non-bank Systemically Important Financial Institutions. This label subjects the companies to greater scrutiny by the Federal Reserve. The Treasury Department issued a one-sentence statement simply saying that it would appeal a ruling by District of Columbia federal judge Rosemary Collyer that MetLife did not pose a risk to the financial system. The decision to appeal was not unexpected after Collyer blasted the Financial Stability Oversight Council for “arbitrary and capricious” handling of MetLife’s risk assessment.

NEW PRODUCTS SPRING FORTH

TREASURY TO APPEAL METLIFE’S SIFI WIN

When a federal judge overturned MetLife’s too-big-to-fail status, that wasn’t the final word on the issue. The U.S. Treasury Department DID YOU

KNOW

A number of new life products have sprung onto the scene recently. Here is a rundown of a few of them.

New York Life announced insurance sales reached a record high of $1.3 billion in 2015, boosting individual life insurance in force to a new high of $923 billion. Source: New York Life

InsuranceNewsNet Magazine » June 2016

QUOTABLE

Life insurers want everyone to receive the benefits to which they are entitled rather than paying unpaid benefits to state governments.

— American Council of Life Insurers, in a statement, adding that more than $600 billion has been paid to beneficiaries in the past decade

American National Life announces Signature Plus Indexed Universal Life (IUL) insurance is available in New York state. This product offers death benefit protection, four indexed crediting strategies, a fixed account and an interest rate enhancement. Signature Plus IUL can provide the opportunity to earn interest based on the performance of the S&P 500 index without the client being directly invested in the index. Therefore, the accumulation value will never decrease based on the fluctuations of the S&P 500 index, as all four of the indexed interest crediting strategies have a built-in floor. Guardian Life announced it is making voluntary permanent life insurance available through the workplace. Guardian’s latest offering enables businesses to offer employees individual, permanent life insurance protection on a voluntary basis that they can keep even if they change jobs. This coverage builds tax-deferred cash value, has premiums that are guaranteed never to increase and does not require a medical exam. This coverage can be fully paid up by age 65, so the employee has no additional premiums on retirement. John Hancock became the latest carrier to offer term and permanent life insurance coverage to applicants living with HIV if they meet certain criteria. This product offers face amounts of $2 million to applicants ages 30 to 65, subject to a favorable and stable clinical course, strict adherence and response to antiretroviral therapy, and the absence of significant immunosuppression conditions.

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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 ©2016 Securian Financial Group, Inc. All rights reserved. F82624-2A 4-2016 DOFU 4-2016 45865

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. June 2016 » InsuranceNewsNet Magazine

LIFE

What Clients Don’t Know About Whole Life Dividends he dividends paid out by T some whole life policies can be the incentive that drives a client to choose whole life over term. By Brad Cummins

he decision to purchase life insurance is a big one for clients to make. One of the first choices clients must make in buying life insurance is whether to go with term or permanent life — and if they decide to go with permanent coverage, then whole life insurance frequently wins out. One reason for whole life’s popularity is that this type of coverage will remain in force throughout the “whole” of the client’s lifetime — provided that they continue to make the policy’s premium payments. In addition, whole life can provide clients with a number of advantages in areas other than just death benefit protection — especially with whole life insurance plans that include dividend payments. Unfortunately, these types of life insurance policies tend to often be overlooked for one reason or another. The reasons for this often are based on misinformation. But the truth is that dividend-paying whole life insurance can provide your clients with some substantial benefits, especially if they plan to keep the policy for the long term. Here are some facts about dividends that might help seal the deal for clients to choose whole life.

Not Just a Return of the Premium

Many whole life insurance policyholders — and even some insurance agents — are under the misconception that the dividends paid out on whole life insurance policies are simply a return of the policyholder’s premium. But this is not necessarily the case. Rather, a dividend is paid out when the insurance carrier’s income minus its expenses is more than its projected worstcase scenario. 56

InsuranceNewsNet Magazine » June 2016

The good news for policyholders is that a dividend is actually considered a return of excess premium — and because of that, the dividend won’t be taxable to them as income, according to the IRS. So, clients may choose to receive their dividends in cash (i.e., having the insurance company send them a check for the amount of the dividend). But the benefits don’t stop there. In many cases, the dividends on a whole life insurance policy can exceed by quite a bit the amount of premium that is paid. So this is one way that dividend-paying whole life insurance can be a winning situation for clients.

Additional Benefits of Dividends

Clients may not realize there are numerous other benefits to owning a “participating” (i.e., dividend-paying) whole life insurance policy. Here are some examples. » Dividends can be used to reduce your clients’ annual premium payments. As a result, in some cases, policyholders may never need to pay another out-of-pocket premium on their policy again. » Dividends also can be used for purchasing additional amounts of death benefit. What’s more, clients can do so

without the need to provide evidence of insurability or having to go through a medical examination in order to qualify for the added insurance coverage. » Dividends can be used for increasing the policy’s cash value so that clients can use it later for paying off debt or supplementing retirement income. As with other types of permanent life insurance policies, the funds that make up the cash value component of a dividend-paying whole life insurance policy are allowed to grow on a tax-deferred basis. This means that there will be no tax due on the gain until the time of withdrawal. This allows those funds to compound at a much faster rate than they would if they were in a taxable account. Clients may object to the fact that a whole life insurance policy’s premium can typically be higher than that of a comparable term insurance plan. But they may not realize that the whole life policy will provide them with a great deal more in benefit. This is especially the case if clients want to use the policy not only to provide for their loved ones through the death benefit but also to save money for the future.

WHAT CLIENTS DON’T KNOW ABOUT WHOLE LIFE DIVIDENDS LIFE

Reap the Benefits of Dividends

While many people may think of whole life insurance as providing only death benefit protection, the truth is that there are numerous other advantages to obtaining this type of coverage.

value over time. And it is also the type of coverage that will give clients the built-in ability to increase their insurance protection over time, should they choose to go that route. With dividend-paying whole life insurance, clients have many options they may not have considered. Clients may believe all whole life insurance policies are created equal, even though many whole life insurance policies may seem to operate in a similar fashion. So make sure you give clients all the facts they need to select the right whole life plan for their needs. Help your clients make sure that their life insurance policy provides coverage for the other goals they have set for it. For example, be sure that the type and

Many whole life insurance policyholders are under the misconception that the dividends paid out on whole life insurance policies are simply a return of the policyholder’s premium. Clients need to consider that whole life allows them to do more than put a financial provision in place in case of the unexpected. Whole life also helps them create a financial asset that will grow in

the amount of coverage will be sufficient to pay off a client’s final expenses, debts and any other financial hurdles that their loved ones may be hit with if or when a claim should be made. It is also important to tell clients that dividends on whole life insurance policies are never guaranteed. Just as they say about even the best-performing investments, “past performance is not indicative of future results.” You can, however, help clients increase their likelihood of receiving whole life insurance dividends by purchasing a policy through an insurance company that has a long-standing reputation for paying them out. Brad Cummins is the founder of LocalLifeAgents, a Columbus, Ohio-based firm of independent insurance agents. Brad may be contacted at brad.cummins@ innfeedback.com.

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June 2016 » InsuranceNewsNet Magazine

LIFE

Longevity Could Be Written All Over Your Client’s Face ow research in longevity H could make a photo of your client’s face more important than their blood in determining life insurance underwriting. By Susan Rupe

he iPad soon could replace the vial of blood as the most accurate tool for obtaining information for life insurance underwriting. That’s the word from a noted expert on longevity science, whose research on unlocking the secrets to why some people live much longer than others inadvertently became the foundation for a science-based method of underwriting. Dr. S. Jay Olshansky presented his findings on longevity and how they form the basis for this new method of underwriting at the 2016 LIMRA Life Insurance Conference earlier this year. Olshansky is a professor in the School of Public Health at the University of Illinois at Chicago and research associate at the Center on Aging at the University of Chicago and at the London School of Hygiene and Tropical Medicine. His research on longevity has been published in numerous magazines, newspapers and scientific journals. In addition, he is co-author of the book The Quest for Immortality: Science at the Frontiers of Aging. Olshansky is co-founder of Lapetus Solutions, which is developing a web-based underwriting platform based on his research. What set this method apart from traditional underwriting are its speed, its ability to obtain accurate information about the applicant’s health without the need for taking blood and urine samples, and the scope of questions asked of the applicant. Instead of ordering blood tests for the applicant, the life insurance agent is asked to take a photo of the applicant’s face and upload it to the website. And although the applicant is still asked questions about his tobacco use, height and weight, the questioning is focused more on the health and 58

InsuranceNewsNet Magazine » June 2016

longevity of the applicant’s family members — particularly his parents and grandparents. The whole thing can be done online, preferably with a tablet, Olshansky said. With this process, he said, the underwriting process could be reduced to a matter of minutes.

The Science Behind the System

Olshansky said he hadn’t intended for his research to be applied in the life insur- As part of the Lapetus Solutions web-based underwriting ance industry. He said his platform, a photo of the client’s face, uploaded to the site, is research was focused on a major factor in determining longevity. Here is a sample of answering the question: why what appears on the screen after the photo is uploaded do we age and live as long as and the client information is entered in the system. we do? Insurers traditionally have calculated longevity and mortality based of aging and why it is that we are able to on a formula created by an actuary in predict longevity in fundamentally differ1825, Olshansky said. That formula was ent ways than what the insurance industry an assessment of the relationship between has been using.” age and duration of life and mortality risk. Benmosche suggested Olshansky pres“That formula has been used essentially ent this science to the insurance industry forever,” he said, with some modifications and describe a practical way that the insuch as the testing of body fluids and tak- dustry can make use of this information. ing tobacco use into account. Olshansky said he showed Benmosche But the science that underlies the rela- a photo of a 100-year-old man and his son tionship between all of these risks and du- who was 70 years old but looked more ration of life has never been applied in the like 50. “In the world of aging science, we insurance industry directly, he said. “In- have seen a consistent phenomenon,” Olsurance underwriters know that smoking shansky said. “The children of long-lived is bad, so they assume it is bad for every- people tend to look younger throughout one. They know that obesity is bad, so they their lives. For example, if you’re 70 years assume it is bad for everyone. The fact is old, you could look 50. What this means that they’re not. In fact, there’s a lot going is that while these people may be chronoon that determines the duration of life that logically 50, 60 or 70 years old, biologically has actually never, ever been used in the they may be 10 to 20 years younger, which insurance industry to assess risk.” means their mortality risk is that of someone who is 10 or 20 years younger. Since The Industry Shows Interest the risk of death in humans doubles about Several years ago, Olshansky was invited every eight years, these are not trivial difby Bob Benmosche, former CEO of AIG, ferences. A difference of eight years means to discuss the future of longevity. “I gave a that actual mortality risk is about half that presentation to his people on the science of the average person your age.”

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LIFE LONGEVITY COULD BE WRITTEN ALL OVER YOUR CLIENT’S FACE This is all basic science that had never been used in insurance underwriting before, he said. Olshansky began working with Dr. Karl Ricanek of the University of North Carolina-Wilmington, the creator of facial analytics. Ricanek had created a computer program that does what your eyes do when you see someone’s face and determine whether they look younger or older. But the program also assesses how old that person looks relative to others their age. The two scientists began taking the information generated from that program and translating that into actual mortality risk.

in insurance underwriting.” For example, the questions that Olshansky’s program asks go beyond asking for information about the applicant himself. Many of the questions ask about the health and longevity of the applicant’s parents, grandparents, uncles and aunts. How long did they live? What was their cause of death? How many relatives survived to age 85 and beyond? Another section of questioning for women deals with the age at which they reached natural menopause. “How long we live is related to the length of time when reproduction occurs,” Olshansky said. “Women who go through natural

“We created a program that allows us to assess risk in fundamentally different ways using the tools of aging science.”

Their Intent Was Research

“Our intent was to do research – not work in the insurance industry,” Olshansky recalled. That all changed when The Washington Post published an article on their research. As a result, he recalled, “We were inundated with photos that people wanted us to analyze. We received 1 million images within a month.” Soon afterward, Olshansky and Ricanek were contacted by a number of entrepreneurs who told them their research had created something that could alter the insurance industry. “We realized we created a program that allows us to assess risk in fundamentally different ways using the tools of aging science that allow us to tap into underlying biological factors that influence the duration of life,” Olshansky said. “None of these factors had been used or considered at all 60

InsuranceNewsNet Magazine » June 2016

menopause late tend to live significantly longer than those who go through natural menopause early. But asking about menopause — this is not a question that is asked during insurance underwriting. “Even if you smoked or had other harmful behavior risk factors, if you went through menopause late, you have longlived ancestors and you look young for your age, there is a high probability you will live a long life.” As a result of his longevity research, Olshansky said, the industry now has an ability to “identify subgroups of the population who should be considered superpreferred individuals with a very low risk of death and a high probability of long life.” Another example of a change in the traditional way of questioning is regarding tobacco use. In the industry, he said, former smokers are considered nonsmokers

if they quit more than a year ago. “But former smokers are NOT the same as nonsmokers – they have a significantly higher mortality risk,” he said. “We would want to ask former smokers more questions: how long since you last smoked, how long were you a smoker, how much you smoked, if you live in a house with a smoker.”

The Practical Application

Olshansky and his partners constructed a computer platform that takes this knowledge of aging science and puts it in one place. The agent can take a photo using a tablet, enter the applicant’s answers to the questions, upload the applicant’s photo and get an estimate of their expected longevity. The program also gives the agent the probability of the applicant’s surviving to age 65 and the probability of their surviving beyond the projected life expectancy. “But all the client would see is whether or not they are accepted for coverage, at what rating and what the premium would be,” he said. Looking ahead to the future of science-based underwriting, Olshansky said that wearables can be used to capture data on an individual’s daily activities and physical patterns. “A year’s worth of data from a wearable can tell you how well you’re driving your body — your sleeping patterns, your step patterns, your bloodglucose levels — all science based,” he said. “From there, we can predict things such as what’s the age at which you’re likely to begin experiencing some frailty or needing some assistance. We can generate a healthy life expectancy as well as an overall life expectancy.” Olshansky said he has met with 20 or 25 insurance carriers who are interested in the technology, and he estimates that the first company to begin using it could have it up and running sometime this summer. Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com.

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June 2016 » InsuranceNewsNet Magazine

ANNUITYWIRES

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What to Do About FIAs? Keep On Selling! Ever since the Department of Labor issued its best interest rule, annuity sellers have been channeling “The Sound of Music” and singing “how do you solve a problem like fiduciary?” The answer: Keep on selling those fixed indexed annuities! In the near term, a “fire sale” effect could mean a rise in FIA sales as agents push to sell as many as possible before April 10, 2017, when the DOL fiduciary rule starts going into effect, some industry experts said. But so long as interest rates remain low, FIAs will continue on their hot streak, said Sheryl J. Moore, publisher of Moore Market Intelligence and Wink’s Sales & Market Report, which tracks FIA sales. “They will drop slightly when the new procedures go into full effect in January 2018,” Moore said. “However, I think we are still going to continue to see record sales for indexed annuities. The low-interest-rate environment is really fueling sales of these products.” Advisors should pretend the fiduciary rule doesn’t exist in the short term, said annuity expert Jack Marrion. “This has no effect this year, and there’s nothing you can really do about it, so keep selling,” said Marrion, CEO of the consulting firm Advantage Compendium. “Try to ignore all the noise.”

NEW PRODUCTS DEBUT

Some new annuity products have hit the scene in time for summer. Here is a rundown of a few of them. Athene Performance Elite has been enhanced with the addition of two new volatilitycontrolled indices offered with crediting strategies. The new indices include a global multi-asset index sponsored by BNP Paribas and a dividend-focused equity index sponsored by Morningstar. The new indices will also be available in newly redesigned versions of the Athene Ascent Pro indexed annuities. These income-focused products offer a versatile optional income rider (available for a charge) that delivers multiple income solutions, including guaranteed income. Athene also is launching Athene MYG, a Multi-Year Guaranteed Annuity offering multiple durations. DID YOU

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55%

of baby boomers have savings for retirement

42%

Symetra Life introduced Symetra Income Edge, a single-premium fixed indexed annuity that includes a lifetime withdrawal benefit along with upside potential both before and after withdrawals begin.

68% of baby boomers who own annuities at annuity least $100,000 was named the fixedhave index leader for saved for retirement,25 compared with only 58% ofbased all boomers. consecutive quarters, on sales.

InsuranceNewsNet Magazine » June 2016

market, we expect to see an uptick — Blunt, inChris sales inpresident 2016. of the investments group at New York Life

Symetra Income Edge’s guaranteed lifetime withdrawal benefit provides lifetime withdrawals up to a maximum withdrawal amount each year. The maximum withdrawal amount can never decline due to account performance. Amounts up to the maximum withdrawal amount may be withdrawn annually, regardless of the contract’s remaining value. The maximum withdrawal amount is guaranteed to grow each year for up to 10 years after issue. Midland National has released an electronic application for annuities that will allow agents and financial professionals to submit annuity applications online. The e-app option is offered on all the annuity products available on the Midland National illustration software.

BABY BOOMERS’ RETIREMENT CONFIDENCE IS GETTING WORSE

of them have saved less than $100,000

Source: Insured Retirement Institute Wink’s Indexed Sales & Market Report, 3Q 2015

Baby haven’t done a Thereboomers are 11 companies offering great job saving forlongevity retirement. If QLAC (qualifying annuity they now screw up the decumulation contract) products. While this is phase, we are going to take a bad asituation small and part of the DIA andnew make it worse.

Baby boomers’ confidence in a secure retirement has hit rock bottom. The Insured Retirement Institute’s latest research report found less than a quarter of baby boomers, 24 percent, are confident they will have enough savings to last throughout their retirement years. This is the lowest level since IRI began this research study in 2001. Connecting Americans with guaranteed sources of retirement income that cannot be outlived, like annuities, continues to be an elusive goal, IRI leadership said. Only 55 percent of boomers reported having savings for retirement. And nearly half of those with savings, 42 percent, have saved less than $100,000 — an amount that would generate less than $7,000 a year in retirement income.

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Fully discuss and evaluate each client’s current financial situation and future objectives prior to recommending a product. Products issued by Great American Life Insurance Company®, a member of Great American Insurance Group (Cincinnati, Ohio). © 2016 Great American Life Insurance Company. For producer use only. Not for use in sales solicitation. 4212-SP63 June 2016 » InsuranceNewsNet Magazine

ANNUITY

Will Floating Rates Become the New Indexed Annuities? A new annuity gives some of the appeal of indexed annuities to traditional annuities by linking to the LIBOR. By Cyril Tuohy

ow can an annuity offer the promise of gain from indexed products with the simplicity of a traditional annuity? Security Benefit Life is hoping it has that answer with an annuity designed to fit in between the traditional and indexed segments by indexing to the London Interbank Offered Rate, or LIBOR, on top of a base rate for a guaranteed period. The new floating-rate annuity, marketed as RateTrack, offers a five-year guarantee period option that yields a base rate of 2 percent and another percentage based on the three-month LIBOR rate. Total current credited interest rate in the first year: 2.63 percent. The company’s seven-year guarantee period option credits investors 2.4 percent and 0.63 percent based on LIBOR for a credited rate of 3.03 percent in the 64

InsuranceNewsNet Magazine » June 2016

first year, according to Security Benefit’s website. If U.S. interest rates rise, LIBOR also will rise, since the Interbank rate typically tracks the benchmark federal funds rate. But if rates falter, LIBOR also will falter. The LIBOR component is reset upward or downward annually, and the total credit interest rate is reset annually on the contract anniversary. For clients looking for a steady income, 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.

Experts Favor Floating Rate Product Jon Legan, an illustrations analyst for Annuity Rate Watch, an independent

annuity database firm outside Boston, said RateTrack represents a “whole new category” of fixed annuity, not just a new index geared to control volatility on an indexed annuity product. RateTrack’s simple, uncluttered design and the product’s reasonably generous interest rate floor offer encouraging signs that new products can be more simplified and transparent. “It’s so much more clear to the consumer what they are getting and what they can hope for down the road,” Legan said. But will this particular type of fixed annuity win over consumers in a world where fixed annuity sales rose 7 percent last year on the strength of fixed indexed annuities (FIAs)? “I do think the product will do well,” said Sheryl J. Moore, president and CEO

This represents a “whole new category” of fixed annuity.

WILL FLOATING RATES BECOME THE NEW INDEXED ANNUITIES? ANNUITY of Moore Market Intelligence and Wink, annuity data tracking services in Iowa. “I also think that other insurance companies are going to copy Security Benefit Life’s design.” RateTrack offers a relatively competitive credited rate, she said, “without the risks of reserving for a typical MYGA (Multi-Year Guaranteed Annuity). It will be interesting to see which insurance company will be the first to join Security Benefit in this new quasi-MYGA dance.”

Sold Through Multiple Channels

Doug Wolff, president of Security Benefit Life, said RateTrack will be attractive to banks and financial institutions that sell fixed annuities and CDs to a primarily conservative clientele. Independent advisor representatives also should find some appeal in the floating rate annuity. Advisor feedback indicated many annuity clients are hesitant to invest in annuities now if interest rates are poised to rise in the near future. “When savers and consumers are nervous, they sit on the sidelines in cash

waiting for rates to go up, but they have suffered,” Wolff said. With average national yields on CDs at around 0.27 percent and money market funds at 0.11 percent, savings may be liquid, but they are also losing value, even with low inflation. Security Benefit believes the time is right to launch a floating rate annuity because interest rates remain historically low and the equity market is volatile, Wolff said. Stability-inclined clients who are willing to stretch a little more for yield will find themselves rewarded, thanks to the LIBOR “float.” The LIBOR component, in effect a floating index, offers RateTrack annuitants a hedge against the lower account values dictated by rising interest rates. In theory, the floating rate instrument means no loss in market value of the annuity, as a potential buyer will want to pay full market value for the investment, Wolff said. But what happens when LIBOR rates diverge from the federal funds rate benchmark, as they did between the

second half of 2008 and late 2009? LIBOR briefly rose, while the federal funds rate dropped. LIBOR eventually fell back to track the federal funds rate, but in any case, a floating rate annuity investor would have benefited because LIBOR rates were higher before falling to track the benchmark. Unlike the popular FIAs that tie credited interest to a backward look over how an index performed in the past, RateTrack is tied to current rate movements. That is why Legan considers Security Benefit Life’s floating rate annuity a true hybrid annuity. It incorporates elements of traditional fixed annuities while at the same time paying “homage” to FIAs by offering annuitants “upside” pegged to LIBOR. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril. tuohy@innfeedback.com

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ANNUITY

High Anxiety: How DIAs Answer Your Clients’ Deepest Fears L ess than 20 percent of Americans believe it is “extremely likely” that Social Security will be available for them. By David Simbro

n the past five years, a new category of annuity products — deferred income annuities (DIAs) — has emerged as a key strategy for advisors developing retirement income plans for clients. DIAs allow your client to start receiving guaranteed income sometime in the future regardless of their current age. But keep in mind that income annuity payments taken before age 59½ may be subject to ordinary income tax and a 10 percent IRS penalty. Sales of DIAs are growing, going from $1 billion by the end of 2012 to $2.2 billion in 2014, according to LIMRA. The growing use of DIAs is not surprising in the face of the planning challenges advisors must address when it comes to helping clients secure retirement income. Chief among the challenges are market volatility and longevity. We can’t predict how the market will perform leading into 66

InsuranceNewsNet Magazine » June 2016

or during a person’s retirement, nor can we know how long that individual might spend in retirement. Yet tackling the challenges of market volatility and longevity risk is critical to giving individuals the confidence they will have financial security in retirement and not outlive their savings as so many fear they will. In fact, according to Northwestern Mutual’s 2016 Planning & Progress Study, 34 percent of individuals believe there is a greater than 50 percent chance they’ll outlive their savings in retirement, and an additional 20 percent believe there is a greater than 75 percent chance. Less than 20 percent of Americans say it is “extremely likely” that Social Security will be around for them. Retirements also are getting longer. A person’s needs can change, often significantly, during retirement. This further underscores the need for plans that can deliver a base of guaranteed income but also the opportunity for continued asset

growth and income generation. This is why advisors are turning to planning strategies that are equal parts offense and defense — certainty alongside flexibility — and DIAs are playing a key role. Since first becoming available, DIAs have been well-received by individuals who want a guaranteed lifetime income. The level of income depends on the amount of premium that clients put into the annuity and how long they choose to defer taking

Advisors are turning to planning strategies that are equal parts offense and defense — and DIAs are playing a key role. the income. The longer the deferral period, the higher the income stream. Northwestern Mutual partnered with Michael Finke, dean and chief academic officer at The American College, and Wade Pfau, professor of retirement income at The American College, to study

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Client has no emotional motivation to change. Clients are driven to buy by their emotions. Without significant negative emotion, called Breakthrough Emotion, no sale can be made.

Client won’t leave current advisor, or themself. Bring up the fact that your client will have to leave their current advisor in the first meeting. Otherwise, after all your planning work is done they may realize they are more attached than they thought.

Client doesn’t give a clear “Yes” or “No.” Make sure to get an Upfront Agreement regarding your process and how decisions are made. Make sure they know you won’t accept a “Think about it,” and only will accept a “Yes,” “No,” or “Next Meeting.”

Client doesn’t see you as being different or unique. You must be able to complete this statement “Working with me will be different from any experience you’ve ever had working with any other financial professional because …” and ensure your clients know why.

Client wants something that is unrealistic or unobtainable. Have your clients articulate their irrational thinking and how they got there. Continue to address this Roadblock in the first meeting and throughout subsequent meetings anytime it appears.

Client wants to take control of the meeting process. It’s important to make the client feel like they are in control, it makes them feel safe. At the same time, however, you must ensure you maintain control of the entire meeting process and don’t let your client veer you off course.

Client is overly focused on details instead of concept. Details, especially in the first meeting, are distracting and will throw your entire meeting off course. Remember, the sale is essentially made in the Concept Box so stay here until that occurs.

Client has inaccurate or biased information. Your clients are getting information from all over the place. Your job is to help sort through that information with them and teach them what is accurate. Provide transparent information with both pros and cons.

Client has a fear of being burned due to past experience. Question your clients on if they’ve ever been burned in the past right in the first meeting so that experience isn’t stuck in the back of their minds the whole time they are with you.

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ANNUITY HIGH ANXIETY: HOW DIAS ANSWER CLIENTS’ DEEPEST FEARS the impact of DIAs on retirement plans. The professors conducted more than 50,000 Monte Carlo simulations to determine how a portfolio designed to provide $100,000 of real lifetime income behaves, both with and without a DIA. The simulations were adjusted for longevity, stock and bond market performance, and inflation. The research found that including a DIA in a retirement portfolio can help reduce the cost of funding retirement while also helping offset risk and providing asset allocation flexibility. In a paper based on the research, “The Retirement Income Challenge,” the professors detailed three important findings. 1. DIAs help mitigate uncertainty and can help reduce the cost of retirement. The cost of retirement includes the actual cost of generating a guaranteed income in retirement in the face of unknown variables such as longevity and asset returns. When a retirement plan allocates a portion of assets to a DIA, the average cost of retirement can be reduced. This happens because the DIA softens the potential financial blow of a long lifetime or poor market returns by guaranteeing a portion of retirement income.

More than half of U.S. adults believe there is a 50 to 75 percent chance that they will outlive their savings, while one in 10 says there is a 100 percent chance. Fewer than two in 10 Americans say it’s “extremely likely” that Social Security will be there when they retire. Only one-quarter (24 percent) expect that Social Security will be their primary source of income in retirement, compared to one-third (32 percent) of current retirees. Nearly half (44 percent) of Americans cited a lack of savings as an obstacle to retirement. From the Northwestern Mutual 2016 Planning & Progress Study

2. DIAs allow clients to take on more equity risk. Setting aside assets before retirement to buy a DIA places a portion of the retirement portfolio into a bondlike asset. With a level of guaranteed income, individuals may then invest the rest of their assets more aggressively while maintaining the same risk profile. 3. Participating DIAs that have potential for dividends can also help overcome low-interest rate environments. Dividend-paying DIAs offer a lower guaranteed income floor with possible upside potential through the distribution of dividends, providing potential additional value alongside the protection against inflation and longevity. Dividends can be distributed as cash or used to buy additional retirement income.

What to Tell Clients About DIAs

When helping clients determine whether 68

InsuranceNewsNet Magazine » June 2016

a DIA would work in their personal retirement plans, a few areas are important to consider. Help your client understand that a DIA provides added diversification across assets, not just investments. Many people think about diversification in terms of the mix of equity and fixed income in their investment portfolio and consider that key to mitigating risk. But it is important to see that the addition of a DIA provides an added level of risk mitigation by diversifying among assets not just investments. A DIA is ensuring income payments for a lifetime, which can’t be compared directly to the income possibilities of investments. Is your client comfortable setting aside money today for income tomorrow? While DIAs let the client lock in a stream of guaranteed income years before retirement — something no other financial tool can do — it does mean that they are giving up some liquidity, or access to that money. Deferred income annuities have no cash value, premiums are nonrefundable and once the DIA is issued, accessing the money used to pay the premium is limited and subject to fees. So, like a 401(k) or other retirement

tool, a DIA works best if the client is following a strategy of “contribute and don’t touch,” as these assets are for future income generation. If clients do not have the funds needed for their current day-to-day living or unexpected expenses, they should not purchase a DIA. Is leaving money to loved ones important? For many people, life insurance often serves as the financial solution to leave a legacy for loved ones. However, if your client does not have life insurance in place and wants to ensure a portion of the annuity premium is passed to beneficiaries if the client should die early, DIAs can be designed to include certain features, including: » Providing a death benefit to a beneficiary should the client die during the deferral period. » Allowing payments, if already started, to continue to a beneficiary for a certain number of years after the policy owner's death. » Making income payments for the length of two lifetimes (joint annuity) versus one (single). Deferred income annuities can be an integral part of comprehensive retirement plans, allowing individuals to cover their fixed expenses (such as housing, health care and transportation) with a reliable income stream. A growing number of investors are finding that a DIA can help bridge the gap between their income needs and what Social Security and their pension benefits (if any) may provide. DIAs are not an all-or-nothing solution, though. Rather, it’s best to think of them as one part of a larger retirement income strategy, and they should be considered carefully in context with other factors such as income, how much clients have saved and how much they will need to save to reach their retirement goals. David Simbro is senior vice president, life and annuity products, Northwestern Mutual. David may be contacted at david.simbro@ innfeedback.com.

Red rover, red rover, NAFA’s calling YOU right over. Become a supporting partner today for just $99! Though the fixed annuity industry escaped unnecessary oversight through the reversal of Rule 151A back in 2010, threats still exist within the marketplace. In order to protect your livelihood, the products you sell and the clients you serve, it’s important you join NAFA, the National Association for Fixed Annuities. As the only organization dedicated to advocating for fixed annuities while promoting the awareness and education of these products, NAFA makes a difference in the lives of thousands of annuity professionals every day. Show your support for fixed annuities through membership and enjoy: • The opportunity to impact annuity regulation, policy and education, and shape the future of the industry • Access to NAFA’s members-only website and Annuity Marketing Portal for resources you can use to educate yourself and your clients • Industry-leading research, reports and email updates from some of the foremost fixed annuity marketplace leaders • Discounted continuing education courses, E&O coverage, product-specific training and more through NAFA’s elite Vendor Partners • Insider knowledge, news and updates about industry events and key issues likely to impact your practice

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Use code NAFAINN16 to access your first year of membership for only $99. Visit nafa.com/membership to join today! Questions? Contact Joe Grecu, Director of Membership and Development. joe@nafa.com | 414.332.9306 ext. 2 June 2016 » InsuranceNewsNet Magazine

HEALTH/BENEFITSWIRES

QUOTABLE

Health Insurance Rate Hikes Could Hit Double Digits Health insurance rates could be a bitter pill for consumers next year. Insurers are seeking rate hikes for 2017 that could reach well into the double digits. Health insurers have begun filing premium requests with individual states in advance of the next enrollment season under the Affordable Care Act. And so far, it hasn’t been pretty. For example, in Virginia, nine insurers are seeking average premium increases that range from 9.4 percent to more than 37 percent. What’s fueling the increase? The ACA has been a financial drain for many companies. And the markets are still searching for stability as the ACA enters its fourth year. Standard & Poor’s health insurance analyst Deep Banerjee said he expects premium hikes in the exchange business to be higher for 2017 than in the larger, more stable market for employer coverage. Insurers are facing higher medical costs from health law customers, and some companies initially priced their coverage too low in an attempt to grab new business.

A LOOK AT THE 2017 EXCHANGES: WHO’S IN? WHO’S OUT?

The nation’s largest health insurer said it is whittling down its exchange business to the point where it will be active in only “a handful” of state exchanges, its CEO said. UnitedHealth CEO Stephen J. Hemsley said the company will exit most of the 34 states where it offers plans on the ACA exchanges. UnitedHealth, which serves 70 million Americans, already planned to withdraw from marketplaces in Arkansas, Michigan and portions of Georgia next year. Last year, the insurer said it suffered financial losses and threatened to leave all of the exchanges by 2017. The insurer reported anticipated losses of $1 billion in 2015 and 2016. Hemsley said the small market size

DID YOU

KNOW

and high risk of doing business in the exchange led to the decision. Even though Aetna lost more than $100 million on its ACA business last year, the company’s chief is wearing rose-colored glasses as he looks out at that sea of red ink. Aetna chairman and CEO Mark Bertolini said the nation’s third-largest health insurer still sees a good business opportunity in the ACA. But he cautioned that Congress needs to provide leeway for companies to design lower-cost plans tailored to young, healthy people. “We will see the dynamics of the market get tougher as we go forward if we don’t get those kinds of structural changes,” he said. Despite the company’s losses on ACA business last year, Bertolini said Aetna expects to break even this year. Anthem aims to pull a small profit from the ACA exchanges this year, and its CEO said he’s “really glad” to be serving nearly 1 million people in this still-

8 out of 10 customers in the ACA marketplace get subsidies to help pay their premiums. Source: Associated Press

InsuranceNewsNet Magazine » June 2016

Source: Business Wire

(The ACA) is likely in for a significant market correction over the next year or two. There have been a lot of signals from insurers that premiums are headed up. —Larry Levitt, Kaiser Family Foundation

developing market. But Anthem delivered its optimism with a big caveat. CEO Joseph Swedish said the state-based exchange business still needs to be stabilized, and they are talking with government officials about ways to accomplish that. Anthem has taken a measured approach to the ACA. It sells coverage in 14 states and has no plans yet to expand. Anthem leaders told analysts they were focused on cutting expenses and improving the profitability of the business they have. Even so, the insurer said its exchange enrollment has grown more than expected and reached 975,000 by the end of this year’s first quarter, a 23 percent increase from the end of 2015. The ACA marketplace is proving to be the right place for Centene. Centene, which just closed on its $6 billion takeover of Health Net, did not disclose its profit margin on the ACA exchange plans, but it is “achieving margins at the higher end of our targeted range,” Centene CEO Michael Neidorff said. Centene offered low-premium, high-deductible plans in many areas, which appealed to the price-sensitive consumers shopping for the ACA’s individual plans. About 90 percent of Centene’s marketplace enrollees were eligible for premium subsidies, and many rotate in and out of its core business of Medicaid. Medicaid expansion also has funneled thousands of new members to Centene. The company covered nearly 1 million Medicaid expansion members in nine states, with many coming from Health Net.

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HEALTH/BENEFITS

Broker Role Grows With the Adoption of Private Exchanges LightSail didn’t use a broker because brokers played a far less visible role in the sale of exchanges at the time. But this has changed significantly in the past few years. Brokers now play an important By Rebecca Motola-Barnes and role in this process. This is because they Beth Raskin not only are a company’s trusted advisor, doption of private exchanges is but they also have the insight to match on the rise, and that’s the company’s needs with the good news for brokers. offerings of a complementary exFrom 2014 to 2015, the number change. In LightSail’s case, major of members enrolled in private stops on the journey where the exchanges more than doubled, to broker could provide significant 6 million, according to Accenture. impact included becoming eduWe anticipate this growth will cated about private exchanges, continue over the next few years. choosing an exchange, selecting Private exchanges predated the benefits, determining a funding Affordable Care Act but were strategy, internal change mannot widely used before the ACA agement, making adjustments to was enacted. Now employers are the offering over time and proseeking more benefits choices for viding performance data. their employees, more employee Education first: The first task engagement in benefits and a shift for LightSail was to obtain a thorto a defined contribution strategy. ough education about private exAs a result, they are seeing private changes. Although the number exchanges as an attractive option. of enrollees in private exchanges As private exchanges began to is growing quickly, it still makes take off, some brokers feared that up only a small piece of the overLightSail co-founder Danielle Fong sits atop a generator. The company, known for innovation in energy storage, their role would be diminished. all market. Employer-sponsored strives for the same level of innovation in employee benefits. In fact, the opposite has hapinsurance covers about 147 milpened. With the growing comlion nonelderly people, according plexity of the benefits marketplace and a talent. At the time it began evaluating to the Kaiser Family Foundation, comshifting regulatory environment, employ- new benefits offerings, LightSail had pared to only 6 million who are currently ers are increasing their reliance on knowl- only one carrier offering only one health enrolled in private exchanges. For brokers, edgeable advisors. insurance plan. that means most clients and prospects will Employers need brokers to do a number Although a private exchange was a know little about private exchanges. of things, from explaining how a private fairly new concept, the idea made sense. The switch to a private exchange alexchange could meet their specific needs LightSail wanted to make its costs more lowed LightSail to rethink and redesign to talking about how other companies predictable with a defined contribution its entire benefit package, given that it had have navigated the marketplace and im- funding rather than a defined benefit only one carrier at the time. So the complemented the new model. strategy. LightSail also was interested pany also needed to explore what benefits Fortunately, this is much easier now in making its benefits package as robust it wanted to offer beyond health insurance than it was just five years ago, when the as possible by offering a wide range of and how those benefits would be valued first wave of early adopters chose private health insurance and ancillary choices so by its employees. exchanges. Now those early adopters can employees could customize their benefit Choosing an exchange: As LightSail share their experiences of how private ex- portfolio to meet their individual needs. worked through its needs, it became clear changes work in practice and what others Finally, LightSail was attracted to the on- that the company needed an exchange can expect as they make the move. line, guided shopping experience that that had broad capabilities. This is a comLightSail Energy, a California-based some private exchanges offered. mon situation, as reinforced in a 2015 Brokers, initially worried that private exchanges would squeeze them out, are finding a place helping companies.

Photo: Cody Pickens

InsuranceNewsNet Magazine » June 2016

company that develops innovative energy storage systems, was an early adopter, having moved to a private exchange in 2011. The company was grappling with common issues; health care costs were rising at the same time that LightSail wanted to rethink its benefits package and enhance it to attract and retain top

BROKER ROLE GROWS WITH THE ADOPTION OF PRIVATE EXCHANGES HEALTH employer survey conducted by the Private Exchange Evaluation Collaborative. The study found that employers are looking for private exchanges with comprehensive capabilities and services such as guidance, ease-of-use, communication and support. At this stage, brokers can play a critical role in helping clients find the best exchange for them. Given the fast pace of change and the many new entrants in the field, brokers may want to consider exchanges with a broad base of existing customers and a proven track record of success. Brokers also will want to help their clients navigate the variety of offerings that are called private exchanges, as there are important differences between full-service private exchanges and benefits-administration-only systems. Selecting plans: LightSail chose an exchange offered through Liazon, which gave the employees the opportunity to select from more than 20 product lines. This includes ancillary benefits ranging from dental, life and vision insurance to legal plans, identity theft protection and more. For employers, having all their benefits on one centralized system frees them from administrative complexity. For LightSail, ensuring that all the plans and benefits were consolidated on the exchange was key, as having to research and choose multiple carriers and administer the plans would have been incredibly difficult otherwise. The exchange model also makes it easier for brokers to sell ancillary products, since employers often wish to include diversified offerings to their workers. And a recent study by Liazon found that each employee who purchases health insurance also buys an average of five ancillary benefits. Determining an employer contribution funding strategy: One of the most important parts of launching an exchange is determining the most appropriate employer contribution. In the case of LightSail, funding was based on each employee’s marital/dependent status and age, resulting in eight different contribution levels. This was designed to cover health

insurance premiums plus a small amount left over for a flexible spending account. It was similar to the company’s previous system of covering 100 percent of health insurance premiums for single health plans plus a $1,000-per-year FSA contribution. By moving to defined contribution levels instead of paying premiums, LightSail was able to stop paying the most costly premiums and better manage costs year to year. Brokers are an integral part of helping clients determine the most appropriate employer contribution strategy. By taking into consideration a client’s budget, longterm objectives and benefits philosophy, brokers can make recommendations on

adept at selecting their own benefits. Ongoing support is a key desire for many employers. Brokers should be ready to give advice on the types of support each exchange offers during open enrollment and throughout the longer term. Making adjustments over time: Between years two and three on the private exchange, LightSail moved from smallgroup to large-group plans. Among other benefits, the shift changed the premium structure and made it possible to stop grouping employees by age. LightSail was able to take advantage of the new products that were added to the exchange and offer new benefits such as legal plans and identity theft protection to employees. Providing performance data and metrics: Brokers should provide their clients with data on the performance of their exchange in meeting their goals. Were costs controlled? What plans are workers choosing? Are employees satisfied with their current benefits and engaged in their health care decisions? Brokers who are helping clients navigate the privateexchange landscape are likely to field questions about many of the same issues LightSail faced. Given the relatively low levels of awareness and knowledge about private exchanges — and the fast-growing interest in them — current clients who are satisfied with a broker’s services are a great source of referrals. In addition, brokers who truly understand their client’s mentality and consider their long-term needs will be the most sought-after resource to help navigate the journey.

As private exchanges began to take off, some brokers feared that their role would be diminished. In fact, the opposite has happened. the contribution designs that meet client goals. Brokers help clients decide whether to use a self-insured or fully-insured strategy, identify how much defined contribution to provide each employee and determine variances by tier of coverage or employee group, as well as figure out whether to offer waiver credits and wellness funding. Internal change management: To ensure all employee questions were appropriately answered, LightSail coupled pre-enrollment offline communications with the customer support that was part of the Liazon offering. By leveraging the exchange’s decision support feature, including tailored recommendations and plan comparisons, employees became

Rebecca Motola-Barnes is director of people operations at LightSail Energy. Rebecca may be contacted at rebecca.motolabarnes@innfeedback.com. Beth Raskin is vice president of operations at Liazon. Beth may be contacted at beth.raskin@ innfeedback.com.

June 2016 » InsuranceNewsNet Magazine

NEWSWIRES

QUOTABLE

Financial Insomnia Striking More People

It’s very similar to the research on driving skills. Since it happens so gradually, we’re not aware our abilities are getting worse over time.

More Americans are counting sheep at night when they really are counting their financial problems. That’s according to CreditCards.com, which found that the average person said they are losing sleep over 2.3 financial issues. People are lying awake at night over saving enough money for retirement (39 percent), paying for education (30 percent), health care or insurance bills (29 percent), affording the mortgage or rent (26 percent), and credit card debt (22 percent). The study found that more women than men are experiencing financial insomnia, with 68 percent of women losing sleep over finances compared to 56 percent of men.

AMERICANS ARE DREAMING A DIFFERENT DREAM

— Michael Finke of Texas Tech University on a study showing that financial literacy declines with age

characteristics of The American Dream today, the top two answers were having a happy family life (59 percent) and being financially secure (58 percent).

The American Dream has long defined this nation, but that dream is evolving along with everything else. A third of Americans said their definition of The AGING-OUT ADVISORS CREATE American Dream has changed in just the AN EXPERIENCE GAP past five years, and more than half said Plenty has been written about the “gentheir view of The American Dream is diferation gap,” but it’s the “experience gap” ferent than how their parents viewed it. that is most troubling to those in the That’s from the 2016 financial advisory secNorthwestern Mutual Today’s American Dream: tor. About 33 percent Planning and Progress of all financial advisors Study, which explores are expected to retire Americans’ attitudes in the next decade, and and behaviors toward that begs the question Happy Family Life money, financial deciof where the next gension-making and longeration of advisors will term financial security. come from. In today’s view of A Fidelity study conThe American Dream, cludes firms can attract Financial Security happiness and security and ele v ate tho s e are valued considerably much-needed future more than wealth, opportunity and movleaders in three key ways: “stabilize, evaling up in social class, the study revealed. uate and accelerate — in order to groom When asked about the most defining them from ‘advisors with potential’ to the

59% 58%

DID YOU

KNOW

The average monthly Social Security check for retired workers is $1,341. Source: Renaissance Capital

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. Source: Social Security Administration

InsuranceNewsNet Magazine » June 2016

next generation of firm leaders.” Unfortunately, the same report shows that 75 percent of registered investment advisory firms don’t have a solid succession plan in place, and that’s a problem, as the financial planning industry faces a shortfall of 25,000 advisors across the U.S. within the next five years. Further hampering efforts to cultivate the n ext ge n e r a tion of financial advisory leaders of all financial advisors is the fact that expected to retire in the next decade only one in five advisory trainees at industry firms makes it as a professional financial advisor.

33%

FINANCIAL LITERACY DECLINES WITH AGE There has been much weeping and wailing over the sorry state of the younger generation’s financial abilities. Now it seems that financial skills also decline as people get older. A study from Texas Tech University and the University of Michigan found that the ability to answer basic financial questions decreases as people age, and that rate of decline almost exactly matches the gradual erosion of memory and problem-solving abilities later in life. That trend is worrisome because householders 60 years and older control more than half of the wealth in the U.S. What was even more concerning, however, is older respondents didn’t report a loss of confidence in their ability to make financial decisions, the researchers said.

Financial Insights

with Dean Zayed

Serious Challenges Ahead for Advisors Unprepared for DOL Rule

Q: How does the DOL fiduciary rule affect registered investment advisors (RIAs)? The new DOL rule is geared toward protecting the best interests of a particular kind of investor, in this case, retirement investors. So, the essence of the new rule is that it demands a financial advisor provide investment advice based on the specific investment goals and best interest of the client—not based on trying to promote a certain type of product. Proper, well-constructed RIAs that have already embraced this fiduciary duty should only be minimally impacted. It’s important to note that advisors will find themselves required to adhere to a different—and more stringent—set of fiduciary standards for retirement accounts. Unprepared advisors that can’t adapt could be seriously challenged.

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Q: How is Brookstone uniquely positioned to assist advisors in a post-DOL world? As a full-service TAMP, we’re excited about having the DOL rule in place. We know that our current advisors are already positioned to transition with the new rule seamlessly, as would any prospective advisor who wanted to join our team. We have an in-house compliance department that maintains a rigorous review of regulatory policies and procedures in order for our advisor network to stay in line with the kind fiduciary duty being demanded by the DOL. But we’re able to offer our advisors more than just compliance support. As with any investment scenario, Brookstone advisors will be able to take advantage of our Investment Advisor Specialist Teams to help them through issues like the implementation of the DOL ruling as well as seamlessly transitioning your book of business to Brookstone. Our comprehensive training programs and tech support will be invaluable as well. And our Portfolio Strategy & Case Study Design Team will help our advisors construct portfolios that are in keeping with the new ruling moving forward.

e tiv va

Q: How does the DOL make it more ideal than ever to transition to an RIA? I do see the DOL rule as being quite bullish for RIAs because it mandates that the entire industry move in the direction of adhering to this fiduciary duty. It will require full disclosure of all relevant aspects (including compensation) and set standards for compliance and recordkeeping policies. RIAs have been adhering to these fiduciary practices for years now, so a legitimate turnkey asset management platform (TAMP) like Brookstone’s will already have in place all the infrastructure and operational support necessary for an advisor to adapt to the new DOL rule.

Q: What advice do you have for agents to consider when transitioning to an RIA? For an insurance agent to add financial advisory to his practice and join an RIA is certainly an important professional decision to make, so they want to make sure they’re moving to a true, all-purpose TAMP that not only supports every aspect of their independent financial advisory practice, but helps to promote their future growth as well. We feel the new DOL rule positions RIAs like Brookstone for growth because it promotes an important aspect of our business that we’ve had in place for a long time now—regulatory fiduciary duty. With the new DOL call to action on the horizon, prospective advisors will want to make sure they’re joining an RIA that is truly adhering not only to fiduciary standards being set forth by the DOL in the area of retirement advice, but to a fiduciary duty as it should apply to all investors.

aining l Tr ve Le ti-

Continu ou s, M ul

ean Zayed, president and CEO of Brookstone Capital Management, shares his thoughts on current trends for registered investment advisors (RIAs) and their place in the ever-changing financial landscape today.

Q: How can advisors prepare to protect their businesses in this rapidly changing industry? Well, I think the quantum leap that investor knowledge has taken with advancements in technology has obviously made them more market savvy, with access to a universe of market data and information they may not have had just 5-10 years ago. What does this mean? It means investors are more cognizant of advisor fee structures and more demanding of actively managed portfolios for those fees. It means they are able to monitor intricate details of market activity with click-button ease of the internet. It means they are more determined to experience positive results even in declining markets. What we’ve done at Brookstone to prepare for this rapidly changing environment is to enact fee compression as a competitive advantage so that the savings of lower fees can be handed back to clients. We’ve enhanced our platform using an open architecture approach so that our advisors can construct more broadly based portfolios using a blend of actively managed boutique strategies, strategic asset allocation strategies with large brand-name investment firms, and unique management of fixed income instruments. We’ve implemented a robo-solution for our advisors that allows them to streamline their entire business and help their clients react to changing market conditions more quickly. We like where we’re positioned for the new DOL ruling, and in general, because Brookstone has been adhering to that level of fiduciary duty since our inception. We’ve built our business around that standard of regulation for 10 years now and have all the pieces in place not only to serve retirement investors at the highest level of code and conduct, but all investors across market cycles. •

www.RIAsuccess.com June 2016 » InsuranceNewsNet Magazine

The Wrong Executor Can Destroy Even the Best Estate Planning I t’s not enough to help your clients plan for their estate. Help them avoid making a disastrous executor choice. By Victor Ngai

t some point in the estate planning process, your client will need to select an appropriate executor to carry out their wishes. Here are some things they may not know about the executor’s duties as well as some guidelines to help them choose the right person for this important task.

Executor Selection

Executors often don’t have a realistic understanding of what they’re getting into when they accept the position, if they are even consulted beforehand. Much of the problem can be traced back to the testator, the individual who has executed the will. They designate an executor and assume that the person has the ability, acumen, stability, time and desire to fulfill the executor’s duties. Many testators don’t ask the executor if they are interested in and capable of serving in the position. In addition, the designated executor may be reluctant to decline the request. This is a mistake. I am reminded of a situation in which the deceased person was a single father of minor children, and his brother was his only close family member. The decedent named his brother as the executor because he believed the executor must be a family member. The brother was named the guardian of the children for the same reason. The problem was the brother didn’t know how to manage his own affairs, let alone someone else’s. The result could have been disastrous for the decedent’s children because they were the beneficiaries of the estate. Fortunately, responsible and close friends of the family intervened. Depending on the size of the estate and the complexity of the decedent’s life, the 76

InsuranceNewsNet Magazine » June 2016

executor’s role can be a thankless job. Before naming an executor, the testator should understand the role, think about the qualities of the person who can handle that role, and then discuss it fully with that person so everyone understands the expectations and what is needed to undertake the job.

Executor Mistakes

One of the most frequent mistakes is an executor’s failure to communicate adequately with the decedent’s family, friends, heirs and loved ones. People generally want to be kept up-todate and to understand reasons why certain things have been done or not done. This can go a long way toward ensuring peace and family harmony at a very emotional time. For example, in the absence of specific directions, the executor has the power to distribute the assets as he or she sees fit. Yet certain beneficiaries may have particular interests in specific assets such as heirlooms and collectibles that the executor may not be aware of. If the executor unwittingly distributes that item to another heir who is not as emotionally tied to the item, it can easily create acrimony. The easiest solution is to sit down with the heirs, determine their preferences and have a discussion. Another common problem occurs when the heirs are dissatisfied over the length of time required to finalize the estate, especially if one of the heirs is also the executor. This may be caused by the ignorance of the other heirs about the estate probate or administration process, and perhaps a feeling that the executor is taking advantage of their position to profit over the other heirs.

The easiest way to resolve this is to have regular update meetings with all parties who have an interest in the decedent’s estate. Providing a regular summary of what has been done with the estate and the rationale behind it will allow for reasonable and amicable discussions to be had before tempers flare. Failing to hire and bring in experts as quickly as possible also can become a major headache for executors. Experts can include an estate attorney and an accountant as well as the decedent’s financial advisor, business and real estate appraisers, and insurance professionals, among others. For example, imagine if an executor valued the decedent’s home based on

Many testators don’t ask executors if they are interested in or even capable of serving in the position. values seen on a real estate agent’s website or an internet search. Is that value based on comparable sales? Does the website know that the house was renovated recently? Does the internet know that an investor is buying up the block to build an apartment complex or a shopping mall? Does the website know that there has been significant criminal activity in the area recently? Of course, the answer to all these hypothetical questions is no. The only way to get a real value of the property is to engage a local appraisal company that is familiar with all of these issues. Sometimes executors are pressured to make distributions too soon. Frequently, executors are family members and heirs to

THE WRONG EXECUTOR CAN DESTROY EVEN THE BEST ESTATE PLANNING the decedent’s fortune in addition to serving as executors. As a result, they succumb to the demands made by fellow heirs expecting an inheritance. Money has a habit of changing a lot of people’s attitudes. But an executor’s job isn’t simply to distribute wealth. Their job is to make sure that all debts and liabilities are discovered and resolved satisfactorily, and to handle and close out the decedent’s day-to-day affairs. Distributing assets too soon may result in insufficient assets to pay off creditors. That may leave the executor personally liable for the debt; so it is clear that adequate reserves must be maintained to ensure the payment of all of the decedent’s debts prior to a complete distribution of the estate. The list of the executor’s duties is very long. Those duties include: » Dealing with attorneys and the court system to probate the will and transfer assets. » Finding and marshaling all of the assets. This requires going through all of the decedent’s personal belongings, records

and documents, as well as dealing with various institutions such as banks, brokerage houses, insurance companies and the decedent’s employer.

» Dealing with accountants and the tax authorities to file tax returns and clear any tax situations such as income and estate taxes.

» Determining the value of the assets, which may involve dealing with various appraisal concerns.

» And finally, dealing with heirs who may be grieving and predators seeking to take advantage of the death.

» Safeguarding those assets, such as guarding and boarding up a home until it can be disposed of.

Many of the duties of the executor may also involve personal responsibility and liability. As you can see, this isn’t an easy job. In many cases, no one will be thanking the executor, but instead will be finding fault with their actions. That is why a thorough understanding of the job is required and the person must have the capabilities and fortitude to tackle this major responsibility. Help your client to choose wisely as you help them plan their estate.

» Dealing with all of the decedent’s creditors. These range from the hospital where the decedent was treated to the funeral home to the more mundane utility bill. » Continuing business ventures while the estate process is proceeding, or managing rental property and landlord-tenant affairs. » Winding up the decedent’s last affairs, such as turning off utility service, selling the home, and closing out credit cards and various accounts.

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

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June 2016 » InsuranceNewsNet Magazine

BUSINESS

Why Good People Underperform very manager has been in this situation. After you conducted a long search and a series of interviews, you found an individual who appears to have all the right credentials. She said all the right things and presented herself really well, so you hired her. Three months later, you are questioning your decision. Things are not getting done the way you expect, and there is something about her approach and behavior that is upsetting the rest of your team. You realize there is a mismatch that has to be addressed. You say to yourself, do I really have to do this all over again? What went wrong? I don’t want to repeat another hiring mistake. What are the root causes of why employees don’t get the job done? It is usually one or a combination of these four deficits.

they need to do the new job properly. Perhaps you did not set performance expectations and standards. You must establish clearly defined criteria that delineate what success looks like. You may ask, “How do I know it when I see it?” This comes from measurable indicators of performance so that the employee can make their own adjustments as they progress. Do they know what you really expect of them, or have you assumed they can pick it up on their own? When accountabilities are unclear, the ball gets dropped, turf wars rage, confusion reigns and productivity plummets. Did you talk to the employee to be sure your communication was clear? It is important that you meet to review their progress regularly so you know what is happening on the ground. It should be daily for the first week. Once a week for the rest of the first month. Once a month for the next six months. At least once a quarter after that. You shouldn’t be a micromanager, but you must keep everyone on the right track and make course corrections as soon as they are necessary.

1. Skill Deficit

2. Resource Deficit

G ood people who are smart and have experience don’t always do the job well. Look beyond the obvious symptoms, and examine some of the root causes of the problem. By Doug Duncan

They don’t know how to do the job. Do they have the skills to do the job? Training takes time and money, but if someone needs special technical capabilities, it is critical that you quickly address the situation. Employees may not know how to take the knowledge and experience they have from previous positions and add the skills 78

InsuranceNewsNet Magazine » June 2016

Can anyone really do the job? Sometimes the pace of the job makes people bone-weary. Is there just too much work coming their way too fast? Goals and standards should provide a little stretch to be sure that people are challenged. The “art” of management is knowing when the stretch turns into an

insurmountable chasm that discourages people from trying. Make sure the employee is managing their time, resources and priorities effectively. What additional resources or training can you give the employee so they can handle the volume of work? The resources you should consider adding might be people, time to do the job, money, equipment, technology and other logistical support. The systems don’t have to be the most up to date, but if they keep crashing, then even the best performer becomes frustrated and unproductive.

3. Motivational Deficit

They don’t seem to want to do the job. Be sure the job uses the employee’s skills, values and interest. Most people fall into the trap of choosing a profession or job that is a bad fit. Rather than trying to understand ourselves to make sure we choose the calling that aligns with our strengths and interests, we choose a job because of peer pressure or because it’s the first thing that comes along. The net result is that most people are in a job they don’t like. Their motivations deteriorate, and they end up falling into a pattern of acceptance because they don’t know what to do next. Know the demands of the job. Know the type of person who will be successful in that particular job. Hire people whose behavioral traits fit that job. That is why the right behavioral assessments are important to use in the hiring process.

WHY GOOD PEOPLE UNDERPERFORM BUSINESS

4. Behavioral Deficit

They seem to be a “fish out of water.” Managers often will hire people for their skills and then fire them for the behaviors they actually exhibit on the job. This is not a negative judgment about the employee but rather the result of a poor behavioral fit between the individual and the job behaviors required. Note whether there is a lot of conflict and stress among the people with whom they deal. An employee’s insensitive or aloof attitudes toward co-workers can damage the team environment and lead to employment discrimination lawsuits. Managers should take immediate action on any hostility. Conflict between interdependent groups can prevail because business objectives, deadlines and priorities are unclear. Be sure that the behaviors required to perform the job match the employee’s core behavioral traits. The classic disaster occurs if a strongly independent saleperson is promoted to a sales manager’s position that requires patience and strong team-building skills.

Different behaviors and skill sets may be required for different jobs. A problem can occur when the employee’s behavioral traits don’t fit with the company’s culture. While the employee presented well on paper, their compatibility with the organization’s value and mode of operation can be inconsistent with your expectations. This is important and can lead to devastating results. The behaviors required to perform the job also must fit with the manager’s style and approach. Every employee/manager relationship is unique and requires a different management approach. A decisive boss with a decisive direct report will require different handling than will a decisive boss with an indecisive employee. One size does not fit all situations. Both the manager and the employee must learn how to adapt to each other’s style. Ask yourself whether you have coached the employee in the behaviors that are necessary to perform well on the job. Have you given them training or mentoring to help them

cope with and handle the issues they face? One-on-one counseling can be critical to integrating the new employee into the organization and the job. You must set the proper expectations and priorities in each area to get each employee to perform at full capacity. Good people who are smart and have experience don’t always do the job well. Look beyond the obvious symptoms, and examine some of the root causes of the problem. Sometimes the fault is with the person, but sometimes it is simply because you put a good person in the wrong spot in your organization. You have three times in an employee’s life cycle when you can affect the culture and success of your organization. Those times are when you hire them. when they are on the team and when you let them go. Have a focused plan in all three instances. Don’t wing it and hope it all works out. Doug Duncan is president of TalentValue. Doug may be contacted at doug.duncan@ innfeedback.com.

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June 2016 » InsuranceNewsNet Magazine

MDRT INSIGHTS

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

Rethinking Prospecting: The Best Lead Source You’re Not Using W hy prospecting among your existing clients may be the easiest way to grow your practice. By Ryan J. Pinney

’m often asked about the best ways to prospect for new leads, especially online leads. While prospecting is still something we need to do, I’m more convinced than ever that the real prospecting needs to be done among our existing clients. When you prospect for new leads, you’re starting from scratch every time. You have to earn that prospect’s trust, educate them, convince them to buy your product and hope they buy from you. Remember, they also may be shopping among a handful of other agents. Now, let’s change that scenario. What happens if you prospect among your existing clients? You’ve already earned their trust. You’ve already educated them on the basics of life insurance and personal finance. You’ll need to explain what this latest offering or opportunity may be, but if you’ve laid the groundwork, you’ll be starting with an educated consumer. How much better are your chances when you approach someone who’s already done business with you? A lot better, as I discovered.

Identify Your Best Clients

In our agency, we spent time going over the metrics of three types of clients. We refer to these clients as: » Suspects. These are people we’re marketing to, but they haven’t expressed a specific interest in a service or product yet. According to Forrester Research, however, 84 percent of these people will go on to buy from you or a competitor within 24 months. » Prospects. These are traditional “leads,” people who’ve expressed an interest, but 80

InsuranceNewsNet Magazine » June 2016

haven’t made a purchase yet. Many agents spend the bulk of their time working these leads, even though only about 50 percent of them are ready to buy now, according to Gleanster Research.

ance, for example, and invite them to talk about the product and how it can help protect their finances.

» Buyers. These are your clients, including your best advocates — the people who give you referrals. They’ve already bought a product from you, but unless it’s time for an annual review, how often do they hear from you?

The final step in this process is the use of marketing automation software to automate and scale your prospecting efforts.

Use Technology to Increase Efficiency

Are you spending enough time with the people who account for 80 percent of your profits? For most of you, the answer is probably no.

When we analyzed our client interactions, we realized that our clients and advocates accounted for nearly 80 percent of our profits and less than 20 percent of our agency’s total expenses. My guess is your analysis will reveal the same thing. Now ask yourself — are you spending enough time with the people who account for 80 percent of your profits? For most of you, the answer is probably no.

Offer Them New Products

The best way to shift your prospecting efforts from suspects and prospects to buyers is to offer them additional products and services. If you sell only life insurance and your clients already have bought a policy, they have little incentive to go through the process again. One possible exception is if you can rewrite a policy to include a rider for coverage they don’t have, such as long-term care. Another alternative is to find a partner agency that can help broaden your product range, as well as provide logistical and marketing support. Once you have a well-rounded portfolio of products, it’s time to create a simple email nurture sequence that lets your clients know how else you can help them. These emails don’t have to be comprehensive or designed by a professional. All they need to do is inform your best clients that you are now able to offer disability insur-

Using software allows you to create emails and campaigns once and send them to as many clients as you want. Once you enroll a client in a campaign, your software sends the emails in that campaign at pre-selected times, with no action required by you and your staff. You can ask clients to call you, schedule a consultation, visit a web page, get a quote or attend a webinar — it’s up to you. This kind of drip email marketing frees you up to sell, meet with clients, perform annual reviews, attend conferences or grow your business how you see fit. You also can create campaigns specifically for targeted groups of clients, such as business owners or high-net-worth clients. Ultimately, the key to prospecting among your best clients is to have a standardized, systematized and automated way to reach out to them. Once you create the system, you can replicate campaigns for each new product and service you want to offer. Ryan J. Pinney is an eight-year Million Dollar Round Table (MDRT) member with seven Top of the Table qualifications. Ryan may be contacted at ryan. pinney@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.

How to Connect With Clients W hen you keep your clients happy, you grow your practice even more.

By Lisa Horowitz

cannot remember how many times I have been told that ours is a business of building and maintaining relationships. To achieve success, you must focus on preserving and respecting relationships with your colleagues as well as your clients. This does not mean that your success will be guaranteed if you do these things. After all, you do have to sell your products and services so that you can build a financially successful practice. But you must learn to strike a balance between building relationships and building your business. And building relationships does not have to be difficult or time-consuming. Today’s technology is making our business so much more efficient — all we have to do is use it. For example, you no longer need to spend 10 minutes on a client phone call. You can email or text a client when you have a reason to be in touch. With so many ways of communicating, there is almost no reason why we shouldn’t be staying in touch with clients regularly. Please don’t misunderstand what I am advocating here. I am not saying that you should inundate your clients with frequent messages. However, at least once or twice a year, you must touch base with them for reasons that are not related to making a sale. This is a great way to maintain a good relationship.

Keeping Clients Happy

Here are five things you can do right now to keep your clients happy. 1. Show up. If you have a client who is involved in a charitable endeavor or a community event, support him or her by attending the event, volunteering to help or even writing a check. When clients see that we are supporting what they sup-

port, it helps create and sustain a bond with them.

that is worse. Keep your clients in the loop as you go through the underwriting process, and let them know if you are having trouble obtaining additional information from one of the professionals they use. Ask them for help if you need to. Clients appreciate your candor.

2. When a client reaches out to you for anything — whether it is advice, guidance or information — get it for them. If you don’t have it at your fingertips, let them know you will get back to them with whatever they asked for, and make sure you do so, and do so in a timely manner. If you make a commitment to a client, honor it. If this seems simple, it is. So there is really no justification for not doing it.

4. Connect your trusted colleagues with your clients. Nothing pleases everyone like a successful and mutually satisfying introduction. Obviously, before you start, make sure you thoroughly vet the person you are introducing. We all have stories about making a referral or a connection and then having it backfire. Take time to research the person properly, because when the introduction or connection goes well, everyone wins.

3. Be honest. When going through an insurance application, for example,

If you have clients in a charitable endeavor, attend the event and maybe even write a check! please be forthcoming about the process and the potential issues you foresee. I have always found that clients appreciate it if you properly prepare them for a rating, a decline or a premium increase. So many times I have been conservative in my quotes, only to end up with a better-than-predicated offer. It really makes clients happy when you bring them good news. For example, the standard rate offer you were expecting turns out to be a preferred offer. This is more desirable than showing a preferred quote and having to go back with a standard offer or an offer

5. Don’t wait for your client to contact you when they need something. Reach out to clients — and not just to sell a new product. If you know about the meaningful times in their lives — whether they are good or sad — let them know that you know and are willing to help. If you hear of a death in the family, pay a visit and acknowledge the loss in whatever way is appropriate for your client. If a baby is born, send a gift or a card. If you have group clients and you know something about changing regulations that will affect them, send them information. If a new form comes out that could be useful to them, send it to them. Don’t wait for them to ask. If you persist at these strategies, you will find they will make your clients happy. All of us know that the best source of new sales is a current client — so keeping a current client happy will keep you happy as well. Lisa Horowitz, CLU, ChFC, is founder of Lifecycles: Resource Management for Lives in Transition. Lisa may be contacted at lisa.horowitz@ innfeedback.com.

June 2016 » InsuranceNewsNet Magazine

THE AMERICAN COLLEGE INSIGHTS

With over 89 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

Life Insurance Considerations for Special Needs Families L ife insurance can “keep the lights on” for a special needs child while keeping that child eligible for means-tested government benefits. By Adam Beck

had lunch recently with one of the members of the advisory board of The American College MassMutual Center for Special Needs. As both a parent of a child with autism and a former financial services executive, she certainly understands the importance of life insurance as part of the special needs financial plan. She is also the CEO of an international nonprofit that arranges services for families supporting children with autism. When she brought up the topic of life insurance, one remark in particular stuck with me. She said, “I have parents making $28,000 a year who come to me, and they have life insurance. If it comes down to paying the heating bill or paying their insurance premiums, they know the premiums are more important for their child’s future security.” Regardless of family income, life insurance serves a crucial role in the future economic security of a person living with special needs. Here are five key questions for parents or caregivers of special needs children who are considering purchasing life insurance for the first time:

1) How much is enough?

There really is no simple answer to this, as every family’s situation is different. Some considerations include the parents’ ages, their income, the child’s life expectancy, anticipated support from other family members, cost of living, other assets, whether or not the child will earn an income, and the projected cost of lifetime care. Life insurance funding a special needs trust for the lifelong care and support of a person living with disabilities will require a larger policy face amount than life insurance being used to support a spouse and children 82

InsuranceNewsNet Magazine » June 2016

or fund an estate. That is because the insurance proceeds will be needed to pay for the cost of the child’s care throughout their entire lifetime. This is a contrast to normal family situations where the insurance may be required to fund a child only through several years of college.

2) Who should be the beneficiary?

This may be the only easy answer: generally, the beneficiary should be a special needs trust. Under current federal law, anyone with more than $2,000 in assets becomes disqualified from most means-tested government benefits, including — and this is extremely important for persons with disabilities — Medicaid. By naming the special needs trust as the beneficiary of a life insurance policy, the funds will not be included in the calculations for means-testing purposes. In this way, the child can remain eligible for programs like Medicaid and Supplemental Security Income. Additionally, the drafters can designate a trustee to manage the funds on the part of someone who may be incapable of managing their own finances.

3) Who should be the insured?

Here again, the answer varies. Often, if there are two parents, each should have a policy on the other, so that both parents are the insured of a policy. There are situations, however, in which the child with special needs should be the insured. It is unpleasant to think about, but this would be advisable when a child is not likely to outlive the parents. In this case, the proceeds from the child’s life insurance policy would be used to replace the parents’ lost wages, cover incurred medical costs and supply funds that may be needed to catch up on missed retirement contributions for the parents. A child living with disabilities likely will be ineligible for a range of life insurance products, namely any permanent policies. A term life policy, perhaps with a graded life benefit, may have to suffice. This is a particular area in which a

financial advisor who is both knowledgeable about insurance products and sensitive to your concerns can make a tremendous difference in your making the right choice.

4) What about my other children?

A skilled advisor will make sure to help you plan not only for your child with special needs, but also for your own retirement, for your estate and for your other children. Any well-structured plan will include life insurance policies that provide financial protection to all children.

5) How much of a priority should this be?

Life insurance should be a very high priority for the special needs family. The costs of life insurance will increase, the longer the family waits. If you postpone this conversation too long, it may be too late. As my colleague mentioned, even for working families simply trying to get by, if a child with special needs requires financial protection, life insurance should be as high of a priority as paying the electric bill. That’s because, should a wage-earning parent die, the life insurance may be the only thing keeping the lights on for that child in the future. By working with a knowledgeable and compassionate professional, such as an advisor holding the Chartered Special Needs Consultant (ChSNC) designation, parents and caregivers can make sure they are getting accurate advice from someone who understands their challenges and can help them avoid common mistakes. Establishing a special needs trust and using life insurance products as a funding source will be important steps in this challenging process. Adam Beck is director of The American College MassMutual Center for Special Needs. Adam may be contacted at adam. beck@innfeedback.com.

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June 2016 » InsuranceNewsNet Magazine

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.

Automated Underwriting Cuts Fraud, Errors and Omissions C arriers that have begun implementing automated underwriting share the lessons they have learned in the process. By Mary M. Art

he insurance sales and purchase process can be time-consuming for everyone involved. Even after an application is submitted, weeks or even months may pass before a policy is issued. Companies are seeking to streamline this process in order to meet the expectations of all stakeholders, including financial professionals and prospective buyers. To learn more about what actions companies are pursuing to automate underwriting, LIMRA surveyed 60 companies in the United States and Canada and found nearly two-thirds already have implemented automated underwriting for at least part of their business. With automated underwriting, everyone benefits. Companies gain access to information in order to make more accurate decisions, process more business and issue policies faster. Financial professionals benefit from greater ease of doing business thanks to faster policy issue and the potential to use e-applications, e-signatures and e-delivery. Clients and prospects benefit from less intrusive underwriting practices that make the purchase process faster and more convenient.

Getting Started

Term life insurance is the product most typically underwritten through automated solutions, with whole life and universal life the next most common products for automated underwriting. There are three main approaches to automating underwriting. Companies often use more than one of these methods depending on policy size, underwriting category and so on: » Fully automated underwriting is 84

InsuranceNewsNet Magazine » June 2016

completed by a program that enables rules-based risk assessment. Risks are accepted or declined based on specific rules; underwriters are not part of the process. This often is used with simplified issue products. » The triage approach uses a program to select a group of policies that may be fully automated and a group of policies to be reviewed by an underwriter. This is the most common approach used today. » Partially automated underwriting applies rules-based assessments prior to review by underwriters.

Finding Success

underwriting also encourage companies that are considering it to design carefully upfront and then monitor the systems, testing regularly and making adjustments as needed along the way. It is important to involve all parties — marketing, underwriting, actuarial, information technology — to ensure buy-in and a well-thoughtout design.

Looking Forward

Companies that have already built solutions have plans to improve them. Some plan to integrate straight-through processing, e-signatures and e-delivery into their solutions. Others will incorporate additional data sources and predictive

PERCENTAGE OF COMPANIES THAT REPORT SUCCESS

MEETING AUTOMATED UNDERWRITING GOALS Companies may have multiple goals 77% Reduce fraud, errors, omissions for automated un71% Achieve consistent decisions derwriting, but all of 68% Reduce the time it takes to issue a policy them seek to reduce 67% Automate some of our life insurance products the time it takes to 65% Reduce policy issue cost issue policies. Oth60% Meet financial professional demand er goals include re55% Achieve scalability ducing policy issue 54% Improve business flexibility costs, achieving con53% Increase business intelligence sistent decisions and meeting consumers’ 52% Meet consumer expectations expectations. Eight in 10 companies that currently use au- modeling as they seek to replace paper, tomated underwriting solutions report increase accuracy and reduce the time to success with them. issue policies. Companies report automated underAutomated underwriting can help writing is most successful in reducing companies move toward greater efficienfraud, errors and omissions; achieving cies with underwriting and policy issue. consistent decisions; and reducing the As companies streamline this process, time to issue policies (See chart). they can expect to increase business and better meet the expectations of their cusOvercoming Challenges tomers, both prospective consumers and As they develop automated underwriting financial professionals. solutions, companies face multiple challenges, most notably in allocating hu- Mary M. Art is a research man and financial resources. Companies director for distribution and technology research at shared a number of best practices, such as LIMRA. Mary may be constart small and add to the systems based tacted at mary.art@innon learning from early initiatives. Com- feedback.com. panies that are developing automated

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