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July 2016
If You’re Concerned About Disclosing Commissions Under the DOL Ruling, Then Maybe it’s Time to Meet The Industry’s Only DOL-Friendly Planning Process There is something David J. Scranton wants you to know before the new fiduciary standard is implemented – for the right advisors this will HELP, not hurt, your business! The host of a national TV show received by 40 million homes, regular guest on CNBC, Fox Business, Bloomberg, and others, as well as coach of hundreds of financial advisors and author of a much awaited book written for both advisors and investors, says the DOL rule can be positive for current advisors. Back in 2007, Dave Scranton unveiled a formal sales process which allowed him to consistently gather $60 million a year in assets, half of it going to annuities. He shared it with other advisors he coached. Those that followed Dave’s method had, and continue to have, year-after-year record-breaking production themselves. It turns out there is one thing in this sales process that is the key to it turning so many average advisors into top producers. And when the DOL rule is fully implemented, in less than a year, that key element, not found any place else, will make the Scranton Sales Process the only DOL-friendly sales process currently available. His current advisors, and others that get on board and perfect this process, stand to reap even more than the 30% to 100% yearly gains that they experience now. Turn to page 27 for an interview with David J. Scranton, and learn more about why the fiduciary rule is welcome news and about his upcoming book, Return on Principle: 7 Core Values to Help Protect Your Money in Good Times and Bad.
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How to Move Up to the Advanced Market PAGE 36
Flip Annuity Clients From ‘Save’ Mode to ‘Spend’ PAGE 44
How Direction Drives Sales PAGE 12
So you’re on LinkedIn... Now what? PAGE 58
Sales Master Al Granum’s Science of Selling PAGE 32
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IN THIS ISSUE
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JULY 2016 » VOLUME 9, NUMBER 7
FEATURES 24 Sales Ideas That Work Now By John Hilton
Do the classic sales methods still work in the Internet Age? Here’s a look at how today’s advisors are taking the sales lessons of yesterday and making them relevant for a new generation of clients.
32 The Science of Selling By John Hilton
Al Granum, who died at 91 in January 2014, left behind a system for selling insurance that remains universally accepted and is still used today.
INFRONT
46 A ‘Saw-Tooth’ Pattern to Cut Risk, Increase Returns
8 I ndustry Takes a Five-Barreled Shot at DOL By John Hilton The five lawsuits that have been filed against the fiduciary rule so far all seek a key ruling: an injunction that essentially calls timeout so the issues can be parsed and properly ruled upon.
LIFE
36 How to Move On Up to the Advanced Market By Bryan Pritchard The advanced markets provide an opportunity for you as an agent to increase your skill set by learning new sales concepts, and they open up a potentially lucrative new prospect pool.
38 Follow the Right Road Map to Guide Clients to IUL
INTERVIEW
12 Pain vs. Gain: How Direction Drives Sales An interview with Dan Seidman Buyers are motivated by one of two things: pain or gain. How do you use that motivation to your benefit? Dan Seidman, author of The Ultimate Guide to Sales Training, explores how to differentiate the two types of buyers and use their motivation as part of a larger sales process.
2
InsuranceNewsNet Magazine » July 2016
By Michael Tove Three strategies to increase the total return and minimize risk to an individual retirement account after required minimum withdrawals have begun.
HEALTH/BENEFITS
52 G roup-to-Individual Migration Spurs Private Exchange Growth By Jonathan Rickert Recent data shows that the shift away from group to individual health insurance coverage is underway, but is occurring at a slower rate than many experts predicted.
By Kevin Benjamin The road to attaining sufficient retirement income can be potholed by rising inflation, taxes, soaring medical expenses and long-term care costs. Indexed universal life insurance can help smooth the ride.
ANNUITY
44 W hen Annuity Clients Transition From ‘Save’ to ‘Spend’ Mode By Erica Davis Americans often have the mindset of “pay yourself first.” That’s what makes it so difficult for clients to think about spending their savings.
56 Tax Code Changes Can Spark a Client Conversation By Lloyd Lofton Buried within the tax code are a number of changes that can prompt a discussion with clients and position you as a valuable resource.
Indexed UL Can’t Should Be Sold to Seniors IT’S ABOUT TIME SOMEONE SET THE RECORD STRAIGHT.
Nobody can deny that seniors dominate as the biggest and most sought-after market for agents and retirement planners. But advisors are getting some bad advice these days when it comes to selling Indexed UL to this lucrative group.
MORE THAN 90% OF THE AGENTS WE TALK TO BELIEVE THE SAME MYTHS: • “Seniors simply can’t get approved”
• “Underwriting on an IUL policy takes too long”
• “There’s not enough time for the policy to grow”
• “IULs are best sold to Gen Xers and Millennials”
• “Fees are too high to capture gains”
WHAT AGENTS NEED TO KNOW.
Agents are being done a huge disservice by excluding Indexed UL for their senior clients. If this is your mindset, make no mistake: you’re missing out on one of the best ways to fulfill your moral obligation to senior clients by offering them a way to control their taxes and their losses, receive tax-free income and have a tax-free benefit to pass on to their heirs.
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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
JULY 2016 » VOLUME 9, NUMBER 7
61 N AIFA: Advisors Defend Clients’ Real Best Interest in Fighting DOL By Mark Briscoe Behind the scenes of a client’s happy retirement is a contingent of advisors working more subtly to address laws and regulations that could derail the client’s financial plans.
BUSINESS
58 OK, I’m on LinkedIn — Now What?
By Susan Rupe With 400 million users, LinkedIn is a giant database just waiting for you to slice and dice to find the right prospects and turn these online connections into clients.
INSIGHTS
60 MDRT: 5 Ways to Teach Your Clients How to Be Your Happy Advocates By Michael Morrow Incorporating referral building into your regular activities will make it easy for your clients to bring people to your door.
62 T HE AMERICAN COLLEGE: Ride-Sharing Services Changing Lives of Those With Special Needs By Adam Beck Innovations in technology will touch those involved in planning for the economic security of people living with special needs.
64 L IMRA: How to Get Robo-Advisors to Work for You By Konrad Wisniewski The financial advisor business model will evolve to keep pace with technology as advisors look to include technology-driven alternatives in their practices.
EVERY ISSUE 6 Editor’s Letter 22 NewsWires
34 LifeWires 42 AnnuityWires
50 Health/Benefits Wires 54 AdvisorNews Wires
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3500 Market Street, Suite 202, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli MANAGING EDITOR Susan Rupe SENIOR EDITOR John Hilton SENIOR WRITER Cyril Tuohy VP FINANCES AND OPERATIONS David Kefford PRODUCTION EDITOR Natasha Clague VP MARKETING Katie Frazier CREATIVE STRATEGIST Christina I. Keith AD COPYWRITER John Muscarello CREATIVE DIRECTOR Jacob Haas
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WELCOME LETTER FROM THE EDITOR
You Keep Saying ‘Honesty’…
“I
The Obama administration, relying on extensive academic research, estimated that conflicts of interest embedded in the way many investment professionals do business cost Americans about $17 billion a year, leading to annual returns that are about 1 percentage point lower.
sn’t honesty the best policy?”
How can you say no to that? Of course you can’t. That is the power of the Department of Labor’s public relations campaign to support its “conflict of interest” rule. The honesty question is the headline for an op-ed article by Rep. Tammy Duckworth, D-Ill., published in The New York Times on June 10. The phrasing has been the bludgeon wielded by the DOL and the fiduciary-only crowd since the beginning of their campaign. It’s a variant of the “what’s so hard to understand about putting your customers first?” line that so effectively shuts down an examination of the actual facts. So, in the pursuit of honesty and truth, let’s take a look at Duckworth’s argument and the reasoning that is supposed to support it. The op-ed focused on a case brought by Russell and Christine Kazda, who are Duckworth’s constituents in Illinois. It so happens that the Kazdas also were featured in a New York Times article on April 8, under the headline, “‘Customers First’ to Become the Law in Retirement Investing.” The difference between the two Times articles is that Duckworth’s is an opinion piece and the second is ostensibly an objective news story from a Times reporter. This is the case background in the news article: Their advisors took $172,000 of the Kazdas’ IRA savings and put it in illiquid real estate investment trusts and later invested money in an options strategy. They ended up losing about $125,000, which prompted the Kazdas to sue the advisors. “I could have had my fourth graders do it and they would’ve done a better job,” Mrs. Kazda said. Andrew Stoltmann, a securities lawyer in Chicago who represented the Kazdas, applauded the changes. “By imposing a fiduciary duty standard, this will cause the brokerage firms to self-police,” he said, protecting 6
InsuranceNewsNet Magazine » July 2016
most people from often unsuitable investments like “nontraded REITs, variable annuities in IRAs and active trading of stocks and options.” On the surface, this seems a case where these folks — he a retired mechanic and she an elementary school teacher — were victimized by some cowboys untethered from the best interests of their clients. Neither of the Times items named the sellers, but Kazdas’ attorney identified the two advisors on his firm’s website in an appeal to get more complaints against them. It is this kind of compiling that can lead to a class action. Both of those advisors were registered investment advisor representatives subject to the fiduciary standard at the time of the alleged infractions, according to FINRA. Let’s be crystal clear here: These advisors who are held up as examples of the rogue behavior that the fiduciary standard would stop are already subject to the fiduciary standard. So, what would the DOL’s rule do in this case? Nothing. What will the rule do? It just might extinguish a whole class of Main Street advisors, by the Times article’s own reckoning: The so-called conflict-of-interest rule covers only tax-advantaged retirement accounts and does not apply to most other investments. But it could lead to more sweeping changes across the financial services industry, making it harder for some smaller firms to do business and perhaps encouraging a further consolidation into larger companies better able to handle the detailed rules of compliance. What other reasoning does the Times reporter use?
To see just how questionable the underlying foundation is to the administration’s case and how far an overreach that $17 billion represents, visit bit.ly/dol-flaw-report and read the association’s point-by-point critique. Even the most objective reading of that report would cast some doubt on the “extensive academic research.” Looking back at Duckworth’s op-ed article, she concluded that “The fiduciary rule would stop the hawking of substandard investment products. It is better both for the consumers it protects from untrustworthy financial advisors and for the financial industry as a whole.” It is clear that imposing the rule would not substantially increase consumer protection, because it did not in the very case she cited. Also, she fails to note that the most egregious cases of financial fraud, such as Bernard Madoff’s $65 billion Ponzi scheme, were conducted under the Securities and Exchange Commission’s watch. Who actually benefits the most from the new rule? Lawyers certainly do. They have a whole new class to go after under the rule’s best interest contract exemption. The Times identified Duckworth as a congresswoman but failed to mention that she is also running for the U.S. Senate. And who is Duckworth’s largest group of contributors? Lawyers and law firms, according to the Center for Responsive Politics. The No. 2 individual contributor ($108,500) is Simmons Hanly Conroy, which bills itself as the Mesothelioma & Asbestos Law Firm. This is just one example of a campaign that uses shaming language to prop up fairly weak arguments — once you actually read that data and follow the links. We know what not telling the whole truth is, so we have to ask: “Isn’t honesty the best policy?” Steven A. Morelli Editor-In-Chief
INFRONT TIMELY ISSUES THAT MATTER TO YOU
Industry Takes a Five-Barreled Shot at the DOL Fiduciary Rule he lawsuits focus on claims T that the department overreached its authority and denied proper review after pulling fixed indexed annuities into the Best Interest Contract Exemption. By John Hilton
A
sk people in our industry the single most surprising aspect of the Department of Labor’s fiduciary rule and you’ll probably get a variety of answers. Many will point to the stunning late addition of fixed indexed annuities to the Best Interest Contract Exemption. Some will say it’s the very idea the DOL would set a fiduciary standard in defiance of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which called on the SEC to develop fiduciary standards. Still others are no doubt wondering why the DOL is even attempting to regulate financial advisors in the first place.
8
Lawsuit
Significant Claims
Goal
Court
U.S. Chamber of Commerce v. Department of Labor and Secretary Thomas Perez
The DOL “improperly exceeded” its authority in violation of the Employee Retirement Income Security Act (ERISA) and other codes, and “unlawfully created a private right of action.”
Plaintiffs seek an injunction preventing the DOL from enforcing the rule. Long term, court is asked to “vacate and set aside” the rule.
U.S. District Court Northern District of Texas
The National Association of Fixed Annuities v. Department of Labor and Secretary Thomas Perez
Definition of “reasonable compensation is so vague as to be without meaning”; inclusion of fixed indexed annuities in the BIC is “arbitrary and capricious” and “contrary to law.”
Plaintiffs seek an injunction preventing the DOL from enforcing the rule. Long term, court is asked to “vacate and set aside” the rule.
U.S. District Court for the District of Columbia
American Council of Life Insurers/National Association of Insurance and Financial Advisors v. Department of Labor and Secretary Thomas Perez
The DOL rule “unlawfully and arbitrarily imposes fiduciary duties on commercial sales relationships and communications that are not fiduciary in nature.”
Plaintiffs seek an injunction preventing the DOL from enforcing the rule. Long term, court is asked to “vacate” the rule and declare it unconstitutional.
U.S. District Court Northern District of Texas
Indexed Annuity Leadership Council v. Department of Labor and Secretary Thomas Perez
The fiduciary rule and the Best Interest Contract Exemption are “arbitrary and capricious” and exceed the DOL’s statutory authority.
Plaintiffs seek an injunction preventing the DOL from enforcing the rule. Long term, court is asked to “vacate and set aside” the rule.
U.S. District Court Northern District of Texas
Market Synergy Group Inc. v. Department of Labor, Secretary Thomas Perez and Assistant Secretary Phyllis Borzi
The DOL rule inflicts “severe and irreparable harm,” and its actions “violate applicable law and procedure.”
Plaintiffs seek an injunction preventing the DOL from enforcing the rule.
U.S. District Court for the District of Kansas
InsuranceNewsNet Magazine » July 2016
To some, the Employee Retirement In- be moot, because the industry is going come Security Act of 1974 is vague on to be moving on and getting ready for whether DOL has standing to issue such life under the rule,” she added. rules. These arguments (and many others) An Injunction Here, an are found within the five lawsuits that Injunction There have been filed against the DOL and Experts note that judges are loath to Secretary of Labor Thomas Perez. The grant injunctions. But DOL opponents $20 billion question is whether a judge need only to look at several recent legal will agree. setbacks dealt to Environmental ProtecA Goldman Sachs report pegs annual tion Agency rules to realize that victory compliance costs at about $13 billion in is possible. upfront costs and more than $7 billion Last summer, a federal judge in Wyannually. oming granted an injunction to halt The lawsuits all seek a key ruling: an Obama administration regulations injunction that essentially calls time out for fracking on public lands. Likewise, so the issues can be parsed and prop- a North Dakota district court ruled erly ruled upon. In this scenario, the ultimate ruling isn’t the focus. Just gaining the injunction will delay the rule until President Barack Obama is out of office. That gives opponents mmitted to you, — and a new adminisry and tration — time to better helping influence a final protected fiduly be ciary rule. And there’s a decent chance against the EPA on a rule that clarified surance. they could succeed, said Kim O’Brien, which bodies of water were covered by vice chairwoman and CEO of Ameri- the Clean Water Act. cans for Annuity Protection. “Irreparable harm” is the oft-cited gether , we are “If they don’t get the injunction, then standard that must be proved in orany decision they get in court is going to der to gain an injunction and plaintiffs the applicant
“The FIA industry was blindsided by this last-minute switch, and the impact will be highly detrimental to the FIA industry and its clientele.”
MITTED COMMITTED
e, reducing Law Firm
Plaintiffs
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Gibson Dunn & U.S. Chamber of Commerce, Financial Services Institute, Financial Services Crutcher Roundtable, Greater Irving-Las Colinas’ Chamber of Commerce, Insured Retireunderwriting. ment Institute, Lake Houston Area Chamber of Commerce, Lubbock Chamber vative of Commerce, Securities Industry and Financial Markets Association, and Texas Association of Business
simplified Bryan Cave
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Quest, Quest Diagnostics, ExamOne, any associated logos, and all xamOne, any associated logos, and all associated Quest Diagnostics registered or unregistered trademarks cs registered or unregistered trademarks are the property of Quest Diagnostics. All third party marks agnostics. All third party marks ® and ™ - are the property of their respective owners. of their respective owners. ©2016 Quest Diagnostics Incorporated. All rights reserved. ncorporated. All rights reserved.
July 2016 » InsuranceNewsNet Magazine 9
INFRONT INDUSTRY TAKES A FIVE-BARRELED SHOT AT THE DOL FIDUCIARY RULE in the DOL lawsuits say they can meet that standard. Most glaringly with the decision to move FIAs out of the 84-24 Prohibited Transaction Exemption to the BIC. Fixed indexed annuity sales in the first quarter were up nearly 33 percent when compared with the same period last year, marking the best first quarter in the products’ history, according to Moore Market Intelligence. The decision to require a BIC exemption to sell FIAs is going to devastate those numbers, researchers with the LIMRA Secure Retirement Institute said. Selling under the BIC means onerous and costly disclosures as well as a best interest contract with clients. The majority of the fiduciary rule goes into effect in April 2017, with some aspects delayed until Jan. 1, 2018. LIMRA sees total annuity sales going down 15 to 20 percent next year, with variable annuities plummeting 25 to 30 percent, and fixed annuities slipping 5 to 10 percent. And that prediction was made before the final rule took FIAs out of PTE 84-24 and put them into the BIC exemption. “The FIA industry was blindsided by this last-minute switch, and the impact will be highly detrimental to the FIA industry and its clientele,” according to the National Association for Fixed Annuities lawsuit. “Insurance carriers will need to restructure their distribution models, because they will not be able to guarantee in a BIC that independent agents selling insurance products from different carriers have acted in the best interest of purchasers.” Worse still, the DOL moved FIAs into the stricter standard long after its economic analysis was completed, and months after public comment wrapped up on the fiduciary rule. Opponents see a legal strategy for victory in this event timeline. “The department failed to consider the economic impact of its decision to take fixed indexed annuities out of the 84-24,” said Brian P. Perryman, shareholder with Carlton Fields Jorden Burt, a Washington, D.C., law firm.
The Rule 151A Playbook
The opponents most confident of beating the DOL in court are those industry activists around long enough to remember 10
InsuranceNewsNet Magazine » July 2016
a similar fight against the SEC over its ill-fated Rule 151A. Rule 151A was introduced by the SEC in June 2008 and adopted by the agency in December of that year. A month later, a coalition of insurance companies and marketing organizations filed American Equity Investment Life Insurance Company, et al., v. Securities and Exchange Commission.
back in 2009 when they were even more vilified and hated than they are today.” The lawsuits are also universally focused on the fiduciary rule giving clients a private cause of action for breach of contract. Only Congress has the power to create a private cause of action, the lawsuits state. “The Department bootstrapped its way into regulating matters outside its
The lawsuits all seek a key ruling: an injunction that essentially calls timeout so the issues can be parsed and properly ruled upon. Just gaining the injunction will delay the rule until President Barack Obama is out of office. Seven months later, the U.S. Court of Appeals ruled that the SEC failed to rigorously analyze the impact of Rule 151A. The judge told the SEC that it needed to prove Rule 151A would improve competition, capital formation and efficiency. “We thought the odds were against us,” O’Brien recalled. “The securities people hated these indexed annuities. This was
jurisdiction by first defining the term ‘fiduciary’ in an impermissibly broad manner, and then exploiting its exemptive authority to obligate financial services professionals to accept special duties and liabilities that have no basis in ERISA and the Code,” reads the U.S. Chamber of Commerce lawsuit. The DOL knows it cannot create a
private cause of action, which led to the overly complicated 1,024-page rule and use of exemptions to achieve its goals, Perryman said. “The challenge here will be establishing that what the Department of Labor cannot do through the front door, it can also not do through the back door,” he added. While plaintiffs from the five lawsuits have their days in court, the rest of the industry must carry on. And that means working on twin tracks to comply with the fiduciary rule even as the legal fight is carried out.
“We thought the odds were against us. The securities people hated these indexed annuities. This was back in 2009 when they were even more vilified and hated than they are today.” Disclosures, procedures and websites are all areas an eager attorney will search out for potential claims if the rule takes effect. And when investments inevitably don’t pan out as expected, some clients will be in a lawsuit mood, said Phillip Stano, a partner at Sutherland, Asbill & Brennan, a Washington, D.C., law firm. The industry has a golden opportunity to shape the landscape, he said. “It’s going to depend mostly on you to a large extent,” Stano said. “Are you setting yourself up for failure or for success? You will be well prepared to face the suit that’s about to come. And they will come.” 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.
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11
INTERVIEW PAIN VS. GAIN: PART 2
Once you know that clients base their decisions on either pain-based or gain-based reactions, how do you use that knowledge to improve your sales process? That is one of the intriguing details that Dan Seidman discussed in a wide-ranging interview with Publisher Paul Feldman. 12
InsuranceNewsNet Magazine Âť July 2016
PAIN VS. GAIN INTERVIEW
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13
IN
INTERVIEW PAIN VS. GAIN: PART 2
last month’s installment of the interview, Dan explained “direction,” which is the way people lean in their decision-making, either away from pain or toward gain. In this segment, he explores how to spot the differences and use that information as a basis for a larger sales process. Dan draws on decades as a sales trainer focusing on improving team performance. He’s the author of numerous magazine articles and books, such as The Ultimate Guide to Sales Training. He is especially passionate about adding gainbased techniques to the traditional painbased approach to balance how people actually make decisions. In this part of the conversation, we bring in another element of Dan’s background. He is also a World Masters athlete, which follows a lifetime
of competition. He earned three gold medals from playing on the U.S. basketball team at the World Masters Games, which are the Olympics for athletes over age 35. He is training for the next games in New Zealand next year. Of course, his athletics don’t have anything to do with sales, but they have everything to do with success. In this interview, Dan gets down to the details of pursuing excellence. FELDMAN: Can you tell us about the foundation of your thinking on pain-versusgain selling?
InsuranceNewsNet Magazine » July 2016
FELDMAN: How are you delving into this area for your next book? SEIDMAN: I had an American Psychological Association researcher compile 70-plus studies in over 1,200 pages on direction and motivation. I’m digging through all that data right now. And the book will be identical to the structure of Malcolm Gladwell’s writing where he takes interesting research and turns it into practical applications. When you start looking at pain and gain, you see it everywhere.
When you get pain and gain right, you’re speaking the buyer’s dialect.
SEIDMAN: Here are some of the historical concepts that create the foundation. The philosopher Jeremy Bentham made this statement in the 1700s: “Nature has placed mankind under the governance of two sovereign masters — pain and pleasure.” About 40 years later, Arthur Schopenhauer observed that people are not simply motivated — they are motivated toward something or away from something. It must be in one direction or the other. This is described in the Encyclopedia of Educational Psychology as the foundation of understanding what motivates people to get their classwork done, to obtain their degrees, to work hard at sports. In modern times, Roger Bailey has 14
used this effectively in his research on pain and gain. He made a name for himself working with Southwest Airlines and creating an assessment for hiring based on this. Anyone who’s flown Southwest knows how unique the staff is, and Bailey’s work was a significant contributor to how the airline grew.
For example, in one of his State of the Union addresses, President Franklin Roosevelt discussed what is famously known as the Four Freedoms: freedom of speech; freedom of every person to worship God in his own way; freedom from want — that’s individual economic security; freedom from fear — world disarmament to the point that wars of aggression are impossible. He has two gain-based statements followed by two pain-based statements. You start seeing this in the world around you and realize this validates the idea that people are influenced by one or the other. FELDMAN: How can salespeople use this pain-versus-gain awareness?
PAIN VS. GAIN INTERVIEW
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INTERVIEW PAIN VS. GAIN: PART 2 SEIDMAN: I’ll give you a few thoughts on that. First, remember to use criteria questions to find out whether your prospects are pain-based or gain-based buyers. They’re going to give us the standards they will use to choose whom they’re going to buy from. Here’s a criteria question — “What’s important to you about X?” X refers to your offering. So, in this case, it would be “What’s important to you about an agent or a financial advisor?” If somebody says, “The last guy lost 40 percent of our portfolio, and we missed going on an around-the-world cruise that we planned for years,” that’s a lot of pain. On the other hand, somebody else might say, “We want an 8 percent return. We’d be delighted to have money to use for things we enjoy — just get us an 8 percent return and we’ll be happy.” There’s a gain-based response. No. 2, create a direction field in your CRM, your contact manager. Why not add direction to a field in your records of all your prospects and customers? Then anybody clicking on that client’s record knows what direction should be addressed in conversations with them. And the last thing — train to fix the weakness gaps. Typically a sales system is taught chronologically. It’s a linear progression of the sales experience from finding a customer, asking questions, dealing with the resistance objections, presenting closing follow-up, upselling, referrals and so on. Nobody remembers all of that. Major, global selling systems teach everything chronologically and dump it on you all at once. Find out where your salespeople are weak, and fix them so you eliminate that weakness. FELDMAN: Is there a typical weakness that you find? SEIDMAN: Objection-handling is a huge one. Eliminate the choke points that end the sales conversation, and smoothly work through objections. Then you’ll move further down the path toward a close. You’re going to have deeper, longer sales conversations and close more people just 16
InsuranceNewsNet Magazine » July 2016
by fixing one step in the sales process instead of learning and trying to remember all of that. So train the gaps — don’t train chronologically. FELDMAN: Can you give us a case where you saw that make a difference? SEIDMAN: This one was a really big and exciting surprise for me. I had a company call me to do a keynote, and I convinced them to do an objection-handling tool
instead of a speech. Together we built the objectionhandling tool, which was language to use when people gave them resistance. They would be able to move past the resistance and have better conversations and eventually close a higher percentage. So this company called me six months after I trained them. They hired five kids out of college and sent them out to five territories that worked very well for their business.
Criteria Questions for Financial Services Professionals What’s important to you about money? What’s important to you about a financial advisor? What’s important to you about a financial tool? What’s important to you about an investment? What’s important to you about a financial company? What’s important to you about managing your money? What’s important to you about your financial future?
PAIN VS. GAIN: PART 2 INTERVIEW After the product training, the sales training was the objection-handling tool. They didn’t cover introductions or anything like that. They gave them an objection-handling tool, which had some questions embedded in it. They all went and started the same day. On the first night, the vice president of sales got a detailed email from each of the five kids basically saying, “Oh, my gosh, everything people said when they told me they weren’t interested was something you prepared me for.” He was shocked. But think about it — when you sell, you get the angst in your gut, the acidy feeling because somebody’s rejecting you, your product and service. And now think about it as a kid just trying to figure out, “Can I sell? It’s my first day in sales. Can I do this? Are people going to be mean to me?” But they all got past that, because we had prepped them with language skills to move past the resistance.
FELDMAN: Why don’t more managers invest in training? SEIDMAN: Some industries are really bad about this, especially ones that have high turnover such as automotive sales. In a lot of dealerships, they don’t like to train their people because it’s so expensive and the guy’s going to leave soon anyway.
FELDMAN: What about your experience with FMOs and IMOs? What are some of the sales challenges that you have seen there? SEIDMAN: The agonizing conversations I have with all these guys are around the 80/20 rule, and usually it’s 85/15. They focus on the tiny percentage of their people
Good listeners are really engaged with what’s being said. Bad listeners are just waiting their turn. They will say, “What if we train them and they leave?” And we reply, “What if we don’t and they stay?” If your sales pros aren’t going to improve performance and you’re keeping them hanging around, that’s just as bad.
who are performing. They just keep playing the numbers game and signing people under contract, hoping that if they get 10 new guys, one or two of them will perform. We’ve been doing it that way forever, and people are
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INTERVIEW PAIN VS. GAIN: PART 2 just resigned that that’s the only way to get this done. There are not a lot of organizations giving really good sales training. Or what’s worse is that they give you marketing training and call it sales training, which is an insult to our profession. It’s more about what you send, the literature,
FELDMAN: Are there any other parts of the sales process that people and organizations should focus on? SEIDMAN: One of the most important things that I teach people is, you have to work hard to disqualify buyers right upfront.
We listen at a rate of 600-1,000 words per minute. However, we speak at a rate of around 125-200 words per minute, with gusts up to 250 for professional talkers like TV and radio newscasters. With this gap between a human’s rabbit-like speed of listening and tortoise-like rate of speaking, it’s no wonder the mind wanders when a seller begins to talk.
how your invitations look and that kind of stuff. I’m tactical. I’m about, “How do we help people have a better conversation one on one, or one on two with a couple, in order to get them to buy from us?” That’s why these influential language skills are really what people need to focus on more than anything else. 18
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If you’re serving a meal to 40 people at a seminar and you’re going to get five or eight appointments, how quickly can you find out which are the 32 people you shouldn’t be talking to? Quickly disqualify people. If you’re really smart, you’ll disqualify them before you’ve bought them a meal. But the whole qualify/disqualify is a huge factor
in the sales process. That’s a big gap. FELDMAN: How do we close that qualify/disqualify gap? SEIDMAN: We’re back to criteria — the reasons people make decisions. A company should have a criteria list of questions to ask new prospects in terms of whether they’re worth pursuing. We tracked top performers in a company and found that somebody who spent 37 minutes on average and worked hard to disqualify buyers when they first engaged was a much better performer than somebody who had three or four calls, ran the numbers, maybe talked to their accountant, that sort of thing. Then they either got the sale or they didn’t, after they wasted 12 hours, on average, as opposed to 37 minutes. It’s a big deal to have criteria set up for qualifying and disqualifying buyers. FELDMAN: What about prospecting? SEIDMAN: The biggest complaint I get from sales managers, executives and entrepreneurs is that salespeople don’t prospect enough. I can give you an example of somebody doing it really well. I was brought in to train at an insurance company and worked with their top performers. Their No. 1 guy in the country was from Arkansas. I asked him, “How come you do better in Arkansas than anyone else in the country?” He said that he has in his contract that when anyone does business with him, they agree to give him 10 referrals. He said, “They have to give them to me right when they sign on the dotted line. I tell them during the conversation that this is part of my agreement.” I asked him how he gets people to agree with that, and he said, “I tell them that I don’t spend any money on marketing, because I am very selective about the clients I work with. So you’re the kind of person I want to work with, and I won’t be chasing anybody else. The next 10 people I’ll be talking to will be 10 people that you feel I should be talking to. So you get more time and attention. I don’t spend money preparing marketing brochures and doing a radio show like some people like to do.”
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INTERVIEW PAIN VS. GAIN: PART 2 And the clients are already sold on the reasons they should move the money, so it’s not like that’s a deal-killer at all. He said he has always received 10 from each and all he is doing every day is working with the warmest leads he can get. Since then, I actually started putting that in my speaking agreement. I ask for five referrals to other companies or industry experts in all my speaking and training gigs now. Those are the three really big things — qualifying, objection-handling and getting referrals — for advisors and marketing organizations to focus on.
These ideas are organic; they work both in your professional and your personal life.
Try the criteria questions with your kids; “What’s important to you about your friends?”
FELDMAN: As an athlete and somebody who understands the work ethic required to succeed at athletics, what are some tips that you would give somebody to apply that type of mentality to their own business? SEIDMAN: There’s actually some research done on this. Jack Groppel wrote about it in the book The Corporate Athlete. He and Jim Loehr formed the Human Performance Institute in Orlando, which was bought by Johnson & Johnson. These guys worked with pro tennis players and identified that the top performers had rituals they went through all the time. I also have rituals I go through. Like, I played basketball this morning. I get up at 4 in the morning, and at 5, I walk into the gym and all my buddies whom I’ve known and played with for years are there. I say, “Hi,” tie my shoes and walk down to the opposite end of the floor. I don’t want to talk to anybody. I go through the exact same warmup routine that I’ve done for, like, 15 years. I get warmed up; I’m loose; I’m feeling it. And then I get together and we start playing. Then other people are trying to get going. They show up a little bit late. They’re not stretched out properly. Their shots are looking stiff and cold, like they are. They’re struggling because they don’t have a ritual so that when they show up, they’re ready to go. And business pros need to figure out “What is the ritual that makes me most successful?” In my office, I have a chart hanging on 20
InsuranceNewsNet Magazine » July 2016
You’ll learn some interesting and important things from their response. my lamp shade that chunks out my day. FELDMAN: What does the chart show? SEIDMAN: I’m writing my next book, so I’ll spend 60 minutes doing some writing at the start of my day. After the kids get off to school at 7, I can sit down and write for an hour. Then I’ll start sending out some emails, and after that I will ignore emails for a good chunk of the day. I’ll do lead generation calls and coaching calls with clients. We’re building a sales-training, gamification tool, so I’m scripting. I am rewriting all my sales training modules so that we can animate and do simulations
of sales experiences based on questioning skills and objections. FELDMAN: Are rituals essential to being successful? SEIDMAN: The best performers are almost religious in how they make sure they take care of their time, because your time is the most precious thing you have. If you don’t manage your time really well, you’re not going to be productive.
Read part 1 of Dan’s interview online at bit.ly/inn-seidman-part1.
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NEWSWIRES
QUOTABLE
Greenberg Faces Trial In N.Y.’s AIG Fraud Case
The economy is continuing to improve. Growth looks to be picking up from the various data that we monitor.
The New York state attorney general’s office has been pursuing those who led AIG for years and now is one step closer to getting its wish. AIG’s former chairman, Maurice “Hank” Greenberg, will have to stand trial for fraud, according to a court ruling. New York state has contended that the 91-year-old Greenberg, as well as other company officials, should be held accountable for fraudulent transactions during the time they ran the company. Greenberg has argued AIG already had fulfilled any financial obligation with a civil settlement it made with the Securities and Exchange Commission in 2009. But New York state’s Court of Appeals ruled for the second time that the case can go forward. Greenberg ran AIG for almost four decades until he resigned in 2005 amid probes into the insurer’s accounting practices. In 2006, AIG reached a $1.64 billion settlement with federal and state securities and insurance regulators. In the current case, New York state will seek to go after bonuses Greenberg and other AIG officials accrued during the time they engaged in allegedly fraudulent transactions. Republicans who brought the politically charged legal challenge in an effort to undermine the law. If the decision is upheld, it could roil the health care law’s insurance markets, which are still struggling for stability after three years.
EEOC ISSUES NEW WELLNESS PROGRAM RULES JUDGE SIDES WITH HOUSE REPUBLICANS AGAINST ACA
Will there ever be a time when the Affordable Care Act isn’t the subject of a court case? In the latest legal setback for the health care act, a federal judge ruled that the Obama administration is unconstitutionally subsidizing medical bills for millions of people while ignoring congressional power over government spending. The ruling from U.S. District Judge Rosemary Collyer was a win for House DID YOU
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So many employers have jumped on the wellness bandwagon that it was only a matter of time before the federal government got involved in it. The Equal Employment Opportunity Commission ruled that employers can give their workers big incentives or health insurance discounts if they answer questions about their health. The EEOC explained how corporate wellness programs comply with antidiscrimination laws, including the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act.
Voters in Switzerland overwhelmingly rejected a controversial initiative that would have guaranteed all Swiss residents a minimum income on which to live. Source: The Wall Street Journal
InsuranceNewsNet Magazine » July 2016
— Federal Reserve Chair Janet Yellen
Employers generally are prohibited from using information about the health conditions of workers and their family members unless the information is collected under a voluntary wellness program. The wellness program would be considered voluntary only if the incentives or discounts don’t exceed 30 percent of the cost of an employee’s individual “self only” health coverage. This 30 percent incentive applies separately to family and spouses, so together they can get 60 percent of the self only policy if they both participate. The rules go into effect in 2017 and apply to all wellness programs, including those not tied to health insurance programs.
ADULT SMOKING RATE DIPS TO HISTORIC LOW
Fewer Americans are lighting up. Cigarette smoking among adult Americans dropped to a historic low in 2015, nearly two percentage points below the previous level, the U.S. Centers for Disease Control and Prevention reported. The rate of 15.1 perSmoking Rates cent, or about 37.4 mil24.7% in 1997 lion adults, represents more proof of declining 15.1% in 2015 smoking, considering that the rate was 16.8 percent in 2014, 20.9 percent in 2005 and 24.7 percent in 1997. About 16.7 percent of adult men smoke traditional cigarettes, compared with 13.6 percent of women. Males between ages 18 and 44 represent the largest smoking segment, at 18.5 percent. Adult whites smoke at a 17.4 percent rate, alongside 16.8 percent for blacks and 9.9 percent for Hispanics.
[NEWSWIRES]
QUOTABLE
Number of Uninsured Americans Drops by 7.4M
For all its issues, the 401(k)’s biggest value is that it turns spenders into savers.
The number of Americans without health insurance fell by 7.4 million last year as the individual mandates for coverage and expanded assistance programs under the Affordable Care Act encouraged more people to sign up for health insurance coverage. The U.S. Department of Health and Human Services said that among adults ages 18 to 64, 12.8 percent lacked any health insurance in 2015, down from 16.3 percent in 2015 and 20.3 percent in 2014. Among all Americans, fewer than one in 10 is now uninsured.
Fewer than 1 in 10 is now without medical insurance.
ADMINISTRATION PROPOSES LIMITS ON SPECIAL ACA SIGN-UP
The Obama administration wants to limit special sign-up periods under the Affordable Care Act after insurers complained of abuses. Under a policy change, people who try to get coverage after moving to a different community will have to show they were insured at their previous address at least some of the time during the previous 60 days. Like other private health insurance, the subsidized coverage sold under the health law has an annual sign-up season. Outside that period, consumers get new coverage only for limited reasons, such as the birth of a child or the loss of employer-provided benefits. Insurers complain that the health law’s special enrollments have been loosely enforced, letting people get covered if they’re sick, only to drop it later.
FED LOOKS AT INSURER REQUIREMENTS
The Federal Reserve wants to set prudential and capital rules for insurance companies designated as systemically risky and smaller insurers with depository affiliates. The Fed issued two proposals. The first outlines prudential standards for insurance firms designated as systemically important financial institutions by the Financial Sta-
bility Oversight Council — a distinction currently shared only by AIG and Prudential. MetLife was designated in December 2014 but challenged its designation in court, winning its case in February 2016 (the FSOC has said it will appeal). Fed staff described the prudential standards as effectively “best practices” for risk and liquidity preparedness, and the proposal estimated that the costs associated with compliance “are not expected to be material within the context of the institutions’ existing budgets.” For smaller insurance firms — the second proposal said there are currently 12 that would be affected — a “building-block” approach would be used, whereby each of the firms’ component entities would have to be capitalized at the level required by its individual regulator. This would effectively preserve the states’ pre-eminence in regulating insurance firms while preserving bank regulators’ prerogative to require capital standards.
— Ted Benna, creator of the 401(k) plan
ELECTION ANGST HURTING U.S. ECONOMY
Politics has been known to turn brother against brother and turn best friends into bitter enemies. But the upcoming presidential election is giving the U.S. economy heartburn. Some 60 percent of business economists say that uncertainty about the November vote is damaging prospects for growth this year.
60% of economists say political uncertainty is dragging down the U.S. economy. In their latest forecasts, members of the National Association for Business Economics have once again marked down their expectations for this year, pegging the overall growth in gross domestic product at just 1.8 percent. That’s down from 2.2 percent in the group’s March survey and 2.6 percent in December of last year. The slowdown comes as businesses are growing increasingly uneasy about the outcome of the presidential election, and the wider uncertainty about the policies advanced by the next occupant of the White House. That political uncertainty was cited by nearly 60 percent of the economists surveyed as a drag on the U.S. economy this year.
Americans aged 45-54 have the highest credit card debt, with the average individual owing more than $9,000. Source: ValuePenguin
DID YOU
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InsuranceNewsNet Magazine Âť July 2016
SALES IDEAS THAT WORK NOW FEATURE
Do the classic sales methods still work in the Internet Age? Here’s a look at how today’s advisors are taking the sales lessons of yesterday and making them relevant for a new generation of clients.
July 2016 » InsuranceNewsNet Magazine
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FEATURE SALES IDEAS THAT WORK NOW
T
he framing was barely completed on Marc Silverman’s MBA when he started planning how to make it as a young advisor in Miami. During the 1980s, Florida’s beach paradise attracted high-net-worth investors in droves. Financial services professionals shared in the wealth accumulation
but with significant updating. For example, few people today would be using Al Granum’s one-card 10-3-1 system, but would be wise to understand the underlying theory. Granum was a pioneering insurance agent with Northwestern Mutual who developed and tested sales theories. One of those ideas was that for every 10 prospects contacted, three appointments
Marc Silverman, owner of Silverman Financial in Miami, says young advisors need to be creative and do things to stand out from the pack.
that swept up a generation of South Florida professionals. Fresh off the University of Miami campus in 1983, Silverman was confident he could sell. And he was willing to put in the work to get in front of clients. What he needed was a plan to make it happen, something that stood out from all the other ambitious 20-something advisors. “You’ve got to have a methodology for getting in front of people, some way of doing it,” said Silverman, today the face of the highly successful Silverman Financial. “Getting in front of people” remains the obvious key to sales in 2016. The tools and best methods to make that happen have changed significantly. No longer can an advisor lock himself in an office and pound the phone keys all day. It won’t work, sales experts say. Or rather, it is no longer the best way to maximize your sales opportunities. The conventional wisdom that Silverman and others learned is still important,
would result, leading to one sale. His system and other landmark sales concepts remain relevant, but with modifications to fit today’s busy lifestyles and reliance on technology.
‘I have ideas that are stronger than this.’ And I mailed those to 15 businesses every week.” Known as “surprise and delight” marketing, this technique is becoming more prevalent. Agents and advisors are finding that the investment in a surprise gift to consumers is rewarded with name recognition and brand loyalty. Earlier this year, researchers at Emory University in Atlanta confirmed that pleasant surprises work. Measuring brain activity using magnetic resonance imaging (MRI), the researchers found that the region known as the brain’s pleasure center responded much more strongly when the event was unanticipated. “What this means is that the part of the brain that has always been associated with pure pleasure really cares about when you get something unexpected,” said Gregory Berns, an assistant professor of psychiatry at Emory. Marketing people have long known this. A good surprise-and-delight campaign includes two key components. First is a “wow” factor that Silverman accomplished with the block of wood. Second is the payoff, or the contact and eventual sales conversion. Silverman would follow up with a phone call. The uniqueness of the initial
Agents and advisors are finding that the investment in a surprise gift to consumers is rewarded with name recognition and brand loyalty.
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Silverman’s own career grew as he employed new inventive techniques that are now part of many successful agents’ playbook.
Standing Out From the Crowd
Silverman used a few memorable techniques to ensure he would stand out to his cold contacts. “I went down to Home Depot and I got a large piece of wood and I had them cut it into the size of postcards,” he recalled. “On the reverse side of the wood I wrote
contact — would you forget receiving a block of wood in the mail? — helped him get a face-to-face introduction. “(The wood) said nothing about what I did or who I was, but then I would go on to say ‘I’m in the insurance business and I’d like to stop by, shake your hand and introduce myself,’” Silverman said. “It was just a matter of getting my foot in the door.” In today’s fast-paced world, getting that foot inside the door is harder than ever. A Harvard Business School survey
HOW TO SELL ANNUITIES TO A SKEPTICAL CLIENT FEATURE
July 2016 » InsuranceNewsNet Magazine
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FEATURE SALES IDEAS THAT WORK NOW of 1,000 professionals found that 94 per- say ‘You know what? I investigated this cent worked at least 50 hours a week, and three months ago and I should have done almost half worked more than 65 hours. it … and I didn’t. Now I just need to get According to a survey by the Center this closed.” for Creative Leadership, 60 percent of those who use smartphones are connect- Communication Barriers ed to work for 13.5 hours or more a day. Cooke remembers the insurance sales An agent might make cold calls for techniques when he started out in the hours before even 1980s. Agents got getting someone to the local newspaanswer. per every day and Glenn Cooke, turned to the birth who owns the agenannouncements. cy Life Insurance They would then Canada, knows too send an approach well the struggles letter to the new parwith phone selling. ents, “soft-pedaling” “Some of the peothe idea of buying a ple these days with life policy. phones you just “This warmed Glenn Cooke, owner of Life Insurance can’t get through to,” them up a little, took Canada, says his agency is committed Cooke said. them from a comto a follow-up system in which leads are called on a strict schedule and no So to do that callpletely cold lead to warm lead is forgotten. ing and follow-up a little bit warm,” requires diligence Cooke explained. and discipline in order to make it pay off. “You sent 100 pre-approach letters, you At Life Insurance Canada, where Cooke got your 10 phone calls, your three apemploys three brokers and an adminis- pointments and your one sale.” trative staffer, they use special customer Thirty-five years later, times have relationship management (CRM) soft- changed. Agents working the phones in ware that Cooke helped design. 2016 have barriers to deal with that didn’t The CRM includes a “calendaring” exist when Al Granum was a sales master. component that makes sure the brokers For one, Do Not Call lists. The Federal don’t lose track of any leads. All Life Insurance Canada business is not face-to-face, so a disciplined system is a must, Cooke said. Regular calls are scheduled, and if someone doesn’t answer, they go back into the system and a re-call is scheduled. “People are so busy and they don’t like to answer their phones, so you’re never getting through on the first call,” Cooke said. “We pound on them Trade Commission initiated the first Do and we call and we call and we call.” Not Call registry in 2003. As of the close Some calls do go through and meet of fiscal year 2015, the registry contained with a receptive voice. But the potential 223 million active phone numbers, up client fails to follow through. What to do? from 218 million one year earlier. Cooke’s CRM reschedules them for a 90Likewise, the nearly complete societal day follow-up call. transformation to two-parent working “That 90 days is key,” he said. “At 90 families means daytime calls are likely days they’re almost as good as fresh leads. futile. Half of all homes do not even have What I find is you’ll hit so many of them, a landline any longer. Ten years ago, 90 some of them will pick up the phone and percent of homes still did.
As a result of these and other trends, Cooke has abandoned the cold-calling route. “It doesn’t work,” Cooke said. “Technology has moved on. It’s not a method of communication that’s commonly used. Cold-calling is really objectionable to the consumer. “So you need to find some sort of machine or methodology that will generate leads that are not cold anymore. You want at least mildly warm leads.”
TXT Me L8er
An old sales axiom refers to being where the customers are. Some agents have figured it out and are treading into social media in search of sales. Still, compliance departments don’t necessarily like it. But Cooke said the return on investment cannot be ignored. Gen Xers and younger will not answer the phone, he said. “You can call them 10 times and they won’t answer,” Cooke said. “But they will respond to a text. We’ve seen numbers where we’ve taken like 10 numbers that we cannot communicate with, who won’t pick up a phone, and we’ve sent them texts. Two of them have responded.” As a result, Cooke is modifying his CRM system to automatically send a text to warm leads who do not respond after
“We’ve seen numbers where we’ve taken like 10 numbers that we cannot communicate with, who won’t pick up a phone, and we’ve sent them texts. Two of them have responded.”
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InsuranceNewsNet Magazine » July 2016
multiple phone calls. The phone remains “our first line of defense,” he said, but texting drastically increases the odds of getting a response. “Of the 10-3-1, it increases the 10,” Cooke added. “If they’re under 40, there’s a good chance they will respond to your text.” In annual surveys, LIMRA reports that more than 90 percent of life insurance companies had social media programs in
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FEATURE SALES IDEAS THAT WORK NOW place last year. That’s up 55 percent from the number of companies managing social media in 2010. However, some agents still perceive social media as a risky new channel fraught with regulatory and compliance land mines. Many insurance agencies prefer to dabble in it, perhaps sending a conservative tweet a day but not maintaining a Facebook page.
Raise the Expectations
The advisor rewards existing clients with a social event or education, and opens the door to potential new clients. “Allow those clients to be able to invite their friends, their family, their neighbors, their co-workers,” Terry said. “Now you’ve got a warm introduction and the opportunity to tell your story.” Frankly, Terry said, those events are
90 percent of life insurance companies had social media programs in place last year. That’s up 55 percent from the number of companies managing social media in 2010.
Even among agents schooled in working the phones, Cooke sees a reticence to make repeated calls. “They call once, they call twice and then that’s it,” Cooke said. “I’ll call somebody five, six, seven, eight times. They’re busy. I’ve been thanked by people for continuing to call because they’re so busy.” The discipline to work the phones needs to come from the top down, some industry veterans say. John Del Pozzo said he didn’t know anything when he started out as a young insurance agent, but knew he had to make 15 appointments a week. No excuses. If not, he had to work the phones on Saturday. And if he still didn't get to 15, he made calls Sunday night, Del Pozzo explained during a LIMRA conference earlier this year. “When you came in on Monday, that was the expectation,” said Del Pozzo, senior vice president of producer general agent distribution for Ohio National Financial Services. “You were expected to have two to three sales a week. A hundred cases a year.” It seems as though that is no longer the expectation in a business where the pool of potential customers continues to increase as life insurance sales keep falling. “If you don’t have a case count requirement, you’re making a case to your field agents that case counts don’t matter,” Del Pozzo said.
Client Base Gold
Another neglected source of potential sales exists in the filing cabinets … um, the hard drives of many agents. That is their existing client base. John Terry entered the financial services 30
industry in 1987. Now a sales coach with Vision Advisors in Hot Springs, Ark., Terry previously ran an investment advisory firm. Industry studies show it takes $395 to turn a prospect into a client, Terry said. Sometimes simple things can provide a better return, he added. “It’s a simple thing, but for less than a
InsuranceNewsNet Magazine » July 2016
dollar a week, you can touch every client you’ve got with a postcard, to re-engage and reconnect with your existing clientele,” he said. “If you do a good job getting in front of the client, identifying what their needs are, solving their problems, those clients can and will refer you to other clientele as a result of that.” Some agents are moving away from holding events as a way to cultivate future clients. For some, the perception exists that laborious events are a waste of time in today’s fast-paced world. That is faulty thinking, Terry said. Seminars, dinners and other events can serve two purposes, he explained.
just part of being a community-minded agent. Just being a part of the community and taking the initiative to meet people can be a key part of selling. After all, you can’t sell to a stranger. The concept is known as “gratitude marketing,” or cultivating long-term, meaningful relationships with your clients. Believers say financial advisors can increase client retention, referrals and revenues. In addition, it can be a good strategy to reach out to the next generation. “One of the things we’ve gotten away from in the industry is building relationships,” Terry said. “And one of the areas
John Terry, author of three books and a frequent speaker at sales training conferences, says young advisors don’t spend as much time as they should building relationships in the communities they work.
that I’ve seen that is really lacking in the sales training of many individuals today is they become transaction-focused and transaction-oriented.” Doing things like an annual client review and sending birthday cards helps build value in the relationship. It also “cultivates and builds friendships,” which leads inevitably to word-of-mouth referrals, Terry explained. Studies show each client has direct influence over eight people. “People tend to stay in a group of people who are like-minded,” Terry said. “If you can do a good job as a producer in solving those problems, then you have the opportunity to be introduced to those clients to help them solve the same problems.”
‘A Lot of Yeses’
Another clever idea Silverman used to maximize his first impression involved a $2 bill. He got a copy of a bar association book and started mailing letters with $2 bills included to Miami attorneys. Silverman sent the letter “religiously every week” to 15 attorneys, outlining his disability income protection products. “I had a lot of noes, but I also had a lot of yeses,” he recalled. Since his salad days, Silverman has gone on to enjoy abundant successes, both as a financial advisor and as a worldwide speaker. His diversified client base includes public corporations, individuals, trusts and estates. His motto is “promise a lot and deliver more.” “The key I think to being successful is you’ve got to consistently do something over and over again and don’t change from what you’re doing,” Silverman said. “Even if you have great success, you never stop doing it. … Because if you stop, it all stops.” 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.
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31
FEATURE THE SCIENCE OF SELLING
The Science of Selling
Al Granum distilled his sales wisdom from his decades at Northwestern Mutual into the One-Card System, which helped propel thousands of careers.
A
l Granum was born to sell life insurance. Through his legendary OneCard System, he left a legacy of teaching others how to perfect what came naturally to him. Granum, who died at 91 in January 2014, left behind a system for selling insurance that remains universally accepted and used today. Granum grew up in northern Wisconsin and graduated Phi Beta Kappa from the University of Wisconsin-Madison in 1943, simultaneously earning his Bachelor of Arts and Master of Arts in Life Insurance. After serving three years during World War II in the U.S. Navy, Granum began a long career with Northwestern Mutual. After just eight years as a life insurance 32
InsuranceNewsNet Magazine » July 2016
agent, Granum qualified as a life member of the Million Dollar Round Table. He was appointed managing partner in Chicago in 1963, and his agency became the first office in the industry to write more than $150 million of new business in a 12-month period. The agency ranked first in company volume and/or premium 37 times, and 42 of Granum’s 45 agents qualified as MDRT members. During this time, Granum conducted the research and developed the methodology for his famed One-Card System. The “paper and pencil” system was developed in the 1960s (before computers and cell phones) as a way to keep track of activity, prospects and clients. It was designed based on his research and client-building philosophy to promote
cultivating and maintaining long-term relationships. There are two main components of the OCS. The first is a system to help manage relationships. Granum used colored index cards to capture key information about suspects, prospects and clients. The system provided a reminder to call on birthday/life events, and provided a quick, at-a-glance reference of client interactions. Granum’s research showed there is a time lag between meeting with a prospect and purchases being made. Only 60 percent buy the first year, with 30 percent in the second and 10 percent in the third. The OCS created a system of follow-through to avoid missing out on 40 percent of the sales. By tracking prospects and clients, Granum turned client management into a predictable science. The second component of his OCS is a system for tracking activity. Granum created a booklet called “The Success Manual” to help representatives focus on the science of the business. Based on his 10-31 research, the manual provided a place to track and analyze daily activity. This component of predictable relationships meant that the representatives could predict based on his/her activity what production would follow. Another Granum system involved sifting and winnowing clients. Granum directed representatives to take an honest look at their client base to determine who met the definition of a client — someone likely to purchase again. This let reps identify the clients on which they should focus their time and efforts. In June 2012, to honor his legacy and commitment to lifelong learning, Northwestern Mutual and The American College formally launched the Northwestern Mutual Granum Center for Financial Security. The center provides original, cutting-edge research, thought forums, webcasts and advisor resources. Granum is the only person ever to be honored with the industry’s top three awards: the John Newton Russell Award from NAIFA for outstanding service to the institution of life insurance in 2002, the Solomon S. Huebner Gold Medal from The American College in 2003, and induction into the GAMA International Management Hall of Fame in 1983. — John Hilton
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July 2016 » InsuranceNewsNet Magazine
33
LIFEWIRES
QUOTABLE
Lincoln Aims To Slice Turnaround Times in Half Seeking to appeal to Generation X and millennials who value speed and convenience, Lincoln Financial has introduced a term life policy that aims for approval in as little as 20 days. That’s half the time it takes to underwrite traditional term life coverage, the company said. The company’s TermAccel — short for term accelerated — offers face amounts from $100,000 to $500,000 with terms of 15, 20 and 30 years. Issue ages range from 18 to 50 years old. The traditional, fully underwritten review of a life insurance policy can run as long as 45 days from the time an agent submits the application to the time the policy is issued. TermAccel aims to cut that to an average of 20 to 22 days, a Lincoln executive said. Major insurers have been rolling out faster term life underwriting processes over the past three or four years. Some industry experts have even gone so far as to predict that in the future, the only way to buy term will be online.
AXA DUMPING TOBACCO INVESTMENTS
AXA Group said that it would join the global movement to exit tobacco investments by unloading about $2 billion in cigarette company stocks and bonds. The decision to exit such investments comes after a campaign by activists at the Union for International Cancer Control, the Tobacco Free Portfolios initiative and other organizations. AXA noted that tobacco was ‘’the major cause of long-term noncommunicable diseases,’’ responsible for the deaths of 6 million people each year.
NEW PRODUCTS COMING FORTH
Summer is bringing forth a bounty of new products. Here are a few of them. Allianz Life added enhancements to the Allianz Life Pro+ fixed index universal life insurance policy. Allianz Life Pro+ offers a convertible term rider that helps clients add additional coverage that can adapt as their needs and lifestyle change, and a multiplier interest bonus to accelerate the accumulation potential of the policy. The convertible term rider – one of nine optional riders available on the polDID YOU
KNOW
?
34
icy – allows the policyholder to add term insurance to their permanent policy, subject to certain limits, and have the option to convert all or a portion of the term coverage, over time, to permanent coverage. Conversion is available in policy years two through 10, without additional underwriting. Securian Financial and Annexus have formed an alliance and launched Balanced Growth Advantage — a new indexed universal life insurance policy with uncapped interest crediting potential. A key feature of Balanced Growth Advantage, relative to traditional IUL policies, is its uncapped interest crediting potential. While many traditional IUL policies only provide interest up to a cap, BGA offers clients the ability to benefit from the growth of the S&P 500 Price Index, subject to an index allocation factor. Clients also benefit from protection from downside markets and partial credits applied to accumulation value withdrawn from the balanced indexed accounts, including policy charges. AIG launched a streamlined portfolio of IUL insurance products. The two new IUL policies, Max Accumulator+ and Value+ Protector, both issued by Amer-
participants between 18 and 39 said that they would look for life policies online before they consulted a financial advisor. 70% ofinsurance
InsuranceNewsNet Magazine » July 2016
Source: Life Ant
The industry as a whole is coming under pressure from the consumer and the expectations of that consumer. We’re being ‘Uber-ed’ and ‘Amazon-ed’.
— Andrew Bucklee, senior vice president and head of insurance solutions distribution with Lincoln Financial Distributors
ican General Life, offer flexible death benefit protection, the potential to grow cash value with guaranteed floors to protect against loss in down markets, and multiple customization options to meet evolving individual and small-business needs.
DELAY IN CHINESE DEAL FOR U.S. INSURER
The Chinese insurance conglomerate Anbang has been on quite the global shopping spree lately. It’s most famous purchase was New York’s WaldorfAstoria Hotel, and it is working on deals to acquire financial firms in Europe and South Korea. But Anbang’s purchase of Fidelity & Guaranty Life has hit the skids. Anbang withdrew its application with the New York State Department of Financial Services to acquire the company for $1.57 billion, Fidelity & Guaranty said in a filing with the Securities and Exchange Commission. Anbang’s spokesman gave no reason for the filing withdrawal and Fidelity & Guaranty’s people weren’t speaking about it either. It’s not the first time Anbang has stepped away from a deal in the U.S. In March, it abruptly ended its $14 billion bid to buy Starwood Hotels and Resorts.
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hij abc INSURANCE | INVESTMENTS | RETIREMENT
Please keep in mind that the primary reason to purchase a life insurance product is the death benefit. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2015 Securian Financial Group, Inc. All rights reserved. F82833-25 5-2016 DOFU 5-2016 49968
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. July 2016 » InsuranceNewsNet Magazine
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LIFE
How to Move On Up to the Advanced Market s you move upmarket, you will A have a larger circle of lawyers, accountants and other advisors to contend with. By Bryan Pritchard
A
re your sales stuck in a rut? This can happen for many reasons, but ultimately nothing is more frustrating than putting in the time without seeing results. It doesn’t matter how long you’ve been stuck or even why. What matters is how you get “unstuck.” Not having enough time is a common excuse used by agents. I get it — agents are busy and often working around their clients’ schedules, so they are strapped for time. With only so many hours in a day, you have a finite amount of time to meet new clients and take applications. Once you have maxed out the working hours available to you in a day, what more can be done to increase sales? The answer: Sell larger policies. It’s time to meet the advanced markets. The advanced markets are concepts that deal not only with high-net-worth individuals, business owners and their families, but also with charitable and nonprofit organizations. The advanced markets provide an opportunity for you as an agent to increase your skill set by learning new sales concepts, as well as opening up a potentially lucrative new prospect pool. Business owners and high-net-worth individuals may have more than one problem that you can solve. Selling more than one policy or solution to an individual turns them into a client instead of a one-product customer. This will strengthen your relationship. One big advantage to working with business owners and their advisors can be reaping the benefits of their business owner referrals. These professionals generally have a healthy book of indi36
InsuranceNewsNet Magazine » July 2016
It is crucial that you understand these new audiences, and you can pivot and tailor your presentation accordingly. vidual and business owner clients who may benefit from the services you can provide. Referrals offer a multitude of opportunities, but it’s vital that you prepare yourself to be able to assist your clients in a multitude of ways, because no two sales scenarios are exactly the same. In order to succeed in the advanced markets, you’ll need to break out of your comfort zone. Learning to overcome objections is a key to sales success. But this skill becomes even more important when you're working in the advanced markets. Your standard “kitchen table talk” will no longer suffice. Unlike personal sales, where you’re generally dealing with one decision-maker at a time, in the advanced markets you will interact with attorneys, accountants and other advisors, all of whom can influence the sale. It is crucial that you understand these new audiences and can pivot and tailor your presentation accordingly. Consider the personalities of those to whom you will be presenting, and anticipate the objections they may have. Tap
into your skills of understanding the psychology of selling. Overcoming these obstacles may seem like a daunting task at first, but with time you’ll see that these additional obstacles may be a blessing in disguise. In addition to honing your presentation skills to business owners and their advisors, you will want to gain a better understanding of some key areas of advanced marketing. These include executive compensation, business succession planning, qualified plans and premium finance. It’s also important both to know that the sale typically takes a longer time for advanced markets and to get buy-in from the client’s other advisors. If you’re committed to learning the strategies and beginning to build your pipeline of business, as the big cases come through you will find out why so many veteran agents focus their practice on advanced markets. One way to gain knowledge in these markets is by attaining CLU (Chartered Life Underwriter) and ChFC (Chartered Financial Consultant) designations.
HOW TO MOVE ON UP TO THE ADVANCED MARKET LIFE Holding these designations can be a great way to help you gain a significant advantage in this competitive market. They can help you advance your career by providing in-depth knowledge of the insurance needs of individuals, business owners and professional clients alike. Attaining these designations doesn’t happen overnight though, so while you hit the books and study, it may be beneficial to find a seasoned agent who works in the advanced markets to show you the ropes. An experienced agent can help you learn the ins and outs of the advanced markets through applicable, real-world experience. This mentorship could provide invaluable lessons on how to present to clients that no book can teach. If the mentorship route doesn’t pique your interest, there are other solutions. There is no right or wrong answer when it comes to learning about the advanced markets, as there are many places you can go for information and many people with whom you can consult. What’s the best way for a producer who is new to the advanced markets to tackle the challenge? Work with a carrier with
What’s the best way for a producer who is new to the advanced markets to tackle the challenge? Work with a carrier with expertise in the advanced markets. expertise in the advanced markets. These carriers can work with you to show you how to pull together various advanced marketing concepts and sales opportunities in a clear, concise manner. That’s one of the many reasons partnering yourself with a company that has expertise in the advanced markets is crucial to your success. In addition, when you work with a company that gives you access to subject matter experts and advanced planning attorneys, it’s their job to help make complex cases simple. There are many things you need to consider when your client is a high-networth individual, a business owner, a charitable organization or a nonprofit.
Do you ever wonder what approach to use, what questions to ask and what strategies make sense? Are you concerned with creating the design or making the presentation? What about product fit? All of these questions can easily be resolved if you’re working with a carrier that has this expertise. They can help you turn technical information into action-oriented solutions for your clients, and in turn help you advance your own business. Bryan Pritchard is an advanced sales consultant at National Life Group. Bryan may be contacted at bryan. pritchard@innfeedback.com.
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July 2016 » InsuranceNewsNet Magazine
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LIFE
Follow the Right Road Map to Guide Clients to IUL an economical alternative to a guaranteed universal life (GUL) insurance product. To gain insight into the client’s mindset and goals, and to help determine the type of IUL insurance solution or other financial product that may be appropriate, conduct a comprehensive needs assessment at the outset of planning. Establish the need for a death benefit — whether to protect surviving family members, help ensure business continuity or provide a charitable legacy — and proceed from there. Hawaii’s Hana Highway is an example of why even the road through paradise requires careful guidance.
he road to retirement income T can be filled with a number of potholes. Here is how indexed universal life can help smooth the ride.
upward market movement and access to multiple flexible options for income in retirement. Here is a road map to help match the new breed of IUL solutions to client needs.
By Kevin Benjamin
Differentiate Among the Choices
H
awaii’s harrowing Hana Highway can challenge even proficient drivers with its precipitously narrow road, 617 hairpin curves and dozens of one-lane bridges. To clients, navigating toward retirement readiness may seem like traversing the Hana Highway. Having an expert at the wheel helps! Similarly, financial professionals who are educated about agile solutions such as indexed universal life (IUL) insurance products may be able to help consumers fuel their futures. But how do you guide the discussion about IUL? The road to attaining sufficient retirement income can be potholed by rising inflation, taxes, soaring medical expenses and long-term care costs. Today’s IUL offerings are designed to support consumer goals for accumulation, participation in 38
InsuranceNewsNet Magazine » July 2016
IUL insurance products are not one-sizefits-all. Some consumers, particularly those who are ages 35-55 and focused on wealth accumulation, may be attracted to a powerful IUL insurance offering designed to maximize cash growth potential and options for accessing cash value, income-tax free. When reviewing this or any type of IUL solution with clients, be sure to tell them to consult a qualified tax expert regarding their individual circumstances. Also, please note that all tax statements in this article are based on current tax law. Other clients may be more comfortable with an IUL product that focuses on guarantees while offering death benefit protection and the opportunity to accumulate cash value within a narrower band of volatility. These consumers (perhaps ages 40-70) may view an IUL solution as
Explain the What and the Why
Go beyond explaining that IUL insurance may help fulfill many needs, including the need for accumulation. Review why accumulation is so crucial to begin with. Consumers don’t necessarily know how much income they will need in retirement or which contingencies may develop along the way, and they may underestimate their life expectancy and the impacts of inflation on their spending power. As LIMRA’s “Industry Trends” blog shared on April 19, older Americans experience higher inflation rates than other consumers, primarily due to the amount of their budgets devoted to health care. Even a low inflation rate can seriously erode purchasing power over the long run: “LIMRA Secure Retirement Institute modeled the effect 2 percent annual inflation could have on a 20-year retirement. Using a fixed monthly income of $1,341 (the average monthly benefit paid by Social Security) and assuming that monthly expenses increase from $1,341 to $1,993 at the end of the 20-year period, the inflationary impact results in a shortfall of $73,376. When the calculation is run at 3 percent inflation, the shortfall jumps to more than $117,000.” Clients also may need help understanding that an accumulation strategy
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855-277-2090, ext. 8120 July 2016 » InsuranceNewsNet Magazine
39
LIFE FOLLOW THE RIGHT ROAD MAP TO GUIDE CLIENTS TO IUL is important because taxes, like inflation, may impact their retirement income. And tax cuts don’t seem likely. With legions of consumers aging out of their peak earning years and the Congressional Budget Office projecting a $534 billion federal deficit for fiscal year 2016 (about $100 billion more than the 2015 shortfall), there’s no guarantee tax rates won’t increase to address fiscal challenges. Explain to clients that an accumulation strategy leveraging IUL insurance also may be appropriate given the potential for escalating health care and lifestyle costs in retirement. According to an Urban Institute report, the median share of household income spent on health care by Americans ages 65 and older is projected to rise to 19 percent by 2040, up from 10 percent in 2010. And clients may spend less on commuting, career attire and other expenses after exiting the workforce, but the savings may be offset by higher vacation, dining and entertainment costs.
account options, all with guaranteed floors for loss protection in down markets. A leaner IUL insurance policy design may build cash value more conservatively through index interest accounts and offer a guaranteed crediting bonus via account value enhancement after a specified number of years of policy ownership. At any rate, the volatility control features of contemporary IUL insurance products merit review with clients. Consider that from 2009 through 2013 alone, there were 11 stock market corrections of 5 percent or more, according to a recent article by Jim Stack, president of Investech Research.
The road to attaining sufficient retirement income can be potholed by rising inflation, taxes, soaring medical expenses and long-term care costs.
Leverage New Educational Tools
Understand the Moving Parts
Today’s IUL products have evolved in response to carrier innovation and multiple consumer needs. These products have multiple moving parts. They include cap and participation rates, ties to U.S./ foreign indices, and integrated or optional accelerated benefit riders. When reviewing potential solutions with clients, consider the following IUL attributes:
» Volatility control features (aimed at reducing the impact of market ups and downs).
Also, consumers who have used dollarcost averaging in their investment strategies, expecting this approach would be advantageous during market downturns, may not realize its potential inverse effects on their portfolios when they’re in an income-producing mode. When clients are aware of factors that may impact a portfolio’s accumulated value and the amount of assets they may need to liquidate to help ensure a consistent stream of retirement income, they may appreciate more fully the role that modern IUL insurance solutions are built to serve.
» Options for client access to cash values (to optimize income distribution).
Review Unique Feature/Rider Combos
» Growth strategy (the potential for strong, long-term cash accumulation).
» Protection features (choices for death benefit payout to beneficiaries). IUL products designed for robust wealth accumulation may offer many index-crediting options rather than just one or two. For example, it’s possible to offer an IUL solution that not only is tied to a hybrid index that dynamically adjusts exposure among equities, fixed income and cash, but also features several index-crediting 40
InsuranceNewsNet Magazine » July 2016
other, older types of policies. For example, when the conditions of a living benefit rider for chronic illness on an IUL insurance contract are met, the policyholder may be eligible to receive an accelerated portion of the death benefit even if the illness is not expected to be permanent. Keep in mind, however, that cashvalue life insurance policies are subject to Modified Endowment Contract rules (see Internal Revenue Code Section 7702A) that discourage overfunding based on face amount, the insured’s age and other factors. Cash-value life insurance also contains additional mortality charges that will increase the expense of the product. And withdrawals in excess of total premiums paid are taxable unless taken as loans (which are subject to interest charges). Given these considerations, consult a policy illustration for more information.
The loan and withdrawal features of modern IUL insurance products may come in handy whether clients wish to pay for a wedding, fund a college education, supplement retirement income, cover health care expenses, start a business or create an emergency fund. Some IUL contracts offer a unique combination of built-in features and available riders designed to help consumers leverage multiple options for tax-free income. The riders alone may be cutting-edge, with fewer limitations than for riders on
New IUL insurance solutions have resulted in new educational resources. Clients and prospects may appreciate the opportunity to peruse the latest product guides with you or use an interactive, online tool to glean insights into some ways various life events may impact their retirement income. Explore web-based carrier resources developed for use during prospect meetings to enhance awareness of how IUL products are designed to help. Given people’s profound needs along their retirement journeys, it’s no wonder the allure of IUL insurance apparently has revved up. In fact, LIMRA reported IUL premium grew 15 percent during 2015, compared with 2014. Modern IUL solutions offer a number of features, particularly for accumulation, volatility control, tax-advantaged access to cash values and death benefit protection. These provide ample opportunity to outfit clients with financial fuel for retirement. So, with the right selection, you can help clients enjoy a safe ride on even the most treacherous journeys through retirement. Kevin Benjamin, CLU, ChFC, FLMI, CRPC, is a national sales manager for AIG’s life insurance business. Kevin may be contacted at kevin. benjamin@innfeedback.com.
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1 This policy does not participate directly in any stock or equity investments. The cap is guaranteed for the first policy year. Thereafter, the cap may be changed annually by Oxford Life. 2 Rate applies to the first ten years policy years based upon rate at issue. 3 The income account value is not available for withdrawal or cash surrender and is only used to calculate the guaranteed lifetime withdrawal benefit amount. The Guaranteed Lifetime Withdrawal Benefit is available at the time of application for an additional annual fee of 3/4% of the accumulation value of the base contract. Rider form GLWB210 and state-specific variations where applicable. 4 For eligible qualifying event. Not available in all states. Rider form DA520 and state-specific variations where applicable. An investment in this contract is subject to possible loss of principal and earnings, since a surrender charge and market value adjustment may apply to withdrawals or upon surrender of the contract.
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July 2016 » InsuranceNewsNet Magazine
41
ANNUITYWIRES
Indexed Annuities Set Sales Records $13B Fixed indexed annuities continued their wild ride in Q1 2016 the first quarter, according to Wink’s Sales & Market Report. Total first-quarter sales were $15 billion, which $11.5B was a dip of 3 percent from the previous quarter but Q1 2015 a surge of nearly 33 percent when compared with the first quarter of 2015. It marked the highest first quarter for indexed an33% nuity sales in the history of the product line. Allianz Life’s Allianz 222 Annuity was the No. 1 selling indexed annuity for the fifth consecutive quarter. Multi-Year Guaranteed Annuity (MYGA) sales also racked up first-quarter sales records. First-quarter MYGA sales were $10.9 billion, up more than 60 percent when compared with the previous quarter. Meanwhile, traditional fixed annuity sales slid more than 40 percent over the previous quarter, with sales of $1.2 billion. The top traditional fixed annuity in overall sales was the Reliance Standard Life Apollo-MVA product. On the MYGA side, New York Life was the No. 1 carrier, with a 22.8 percent market share.
MORE THAN 2/3 EXPECT TO OUTLIVE SAVINGS
citing uncertainty over Social Security as among the greatest obstacles to achieving financial security in retirement.
Life expectancies are climbing, but Americans’ retirement savings are not. A Northwestern Mutual study showed that two- METLIFE FACING BIG thirds of Americans believe it’s possible DECISION ON ANNUITIES they will outlive their savings. MetLife might wait until the fall to decide About a third said they have at least which structure it will use to sell annuities, a 51 percent chance of running out of company executives said. money before they die, while 14 percent Under the Department of Labor fidusaid they are 100 percent sure of outliving ciary rule, product manufacturers say they their savings. have options. They can asDespite these pessimistic sume liability as a financial findings, only about 21 perinstitution for the sale of 14% are sure cent said they have increased variable and fixed indexed they will outlive their retirement savings. annuities by signing a besttheir savings. More than four in 10 said interest contract exemption they have done nothing at all with clients. Or they can to keep from outliving their leave that responsibility to savings. the product distributor. Only 21% have Not only were the surAn insurance companyincreased their vey participants seemingly affiliated broker/dealer such retirement savings. resigned to outliving their as MetLife Securities would savings, they weren’t too be considered the financial confident about falling back institution in the sale of a on Social Security either. Only 24 per- VA. However, the insurance companies cent said they expect Social Security to are the institutions that will have to cerbe there when they retire, with 28 percent tify whether insurance products are in a DID YOU
KNOW
?
42
was named the fixed index annuity leader for Eleven companies are now offering qualified 25 consecutive quarters, based on sales. longevity annuity contracts (QLACs).
InsuranceNewsNet Magazine » July 2016
Source: LIMRA
QUOTABLE
We feelare that overall the fixed There 11 companies offering indexed annuity market will not get QLAC (qualifying longevity annuity smaller. products. While this is contract) — Allianz Life chief a Dieter smallWemmer, and new part of the DIA financial officer
market, we expect to see an uptick in sales in 2016. client’s best interest. Insurance companies may feel they have more control over a large proprietary sales force than they do over independent agents. Some insurers have expressed reservations about their presumptive status as the financial institution when selling through the independent agent channel. In the case of FIAs, the best-selling annuity category last year, a majority was sold by independent agents.
NEW PRODUCTS BURST ONTO SCENE
Here is a rundown of some new annuity products that burst onto the scene in time for summer. Nationwide, which rocketed into a top -three spot in the sales of fixed indexed annuities (FIAs) in the fourth quarter of last year, has launched a pair of FIAs with a “joint option” feature. InsurMark announced the addition of three solutions-driven annuities to its portfolio. The two FIAs and one MYGA can help advisors better position clients to achieve their retirement planning goals through strategies for protection, accumulation or income, as appropriate. The two new index partners, BNP and Morningstar, represent two exclusive indices that offer clients an alternative to traditional index crediting strategies often available through FIAs. Pacific Life hopes a new income rider on its variable annuities will soothe worries by promising guaranteed income no matter how markets perform. The guaranteed minimum withdrawal benefit (GMWB) rider, marketed as Enhanced Income Select, is aimed at retirees looking for more income flexibility from their VA contracts.
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The 10 Selling Roadblocks to Watch For Be sure to address all the Roadblocks first, as early in the conversation and meeting process as you can. Successfully remove the Roadblocks and the road to the sale will be clear—no old-school closing techniques are needed.
1
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.
2
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.
3
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.”
4
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.
5
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.
6
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.
7
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.
8
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.
9
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.
10
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Client is distrusting, angry, or emotionally difficult. Don’t try and force something that just won’t happen. For your own welfare you must let go of the clients that have difficult personalities and are impossible to work with.
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www.20MillionMarketing.com For financial professional use only — not for use with the public. ©2016 United Advisors, LLC. All rights reserved. July 2016 » InsuranceNewsNet Magazine
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ANNUITY
When Annuity Clients Transition From ‘Save’ to ‘Spend’ Mode W hy don’t many deferred annuity owners take advantage of the income that the product has earned for them? Here are some insights. By Erica Davis
M
ost annuity owners enjoy the advantage of tax deferral that occurs during the annuity accrual phase. However, only about 25 percent of those annuity owners take advantage of the income phase of their annuity — otherwise known as annuitization. That’s according to the most recent Gallup Survey on Annuity Owners. Why is that percentage so low? It could be due to a combination of any of the following reasons. First of all, perhaps the other 75 percent may be unaware of their annuitization options and what the advantages to those options even are. Many people with qualified annuities will simply take their required minimum distributions when they have to, and many who have nonqualified annuities will let their annuities continue to grow for as long as possible. Second, this situation may exist because the bulk of annuity owners who are at or beyond retirement age have been programmed to save-save-save throughout the years, and now they find it difficult to turn those savings into an income stream. They just can’t wrap their heads around that transition. Moving from “save mode” to “spend mode” is a tough adjustment for many retirees. After all, it is difficult to fight a mentality and habit that you have de44
InsuranceNewsNet Magazine » July 2016
veloped and fine-tuned over several decades. Americans are often raised and conditioned with the savings mindset of “pay yourself first.” A third reason why annuity owners may not be annuitizing is because they don’t expect they will ever need that money to live on. They intend to pass it as a legacy to their children someday.
tax hit. Often when this happens, those beneficiaries may be in their peak earning years and this “gift” from their parents ends up kicking them into a higher tax bracket. Mom and Dad probably didn’t think about that (since they were probably stuck in save mode). But wouldn’t it have made more sense for Mom and Dad to take care of the taxes, since they were retired and in a lower tax bracket than their beneficiaMoving from ries? Don’t let your clients and “save mode” to their beneficiaries pay Uncle “spend mode” Sam more than they have to, is a tough especially when you can help adjustment for them keep more of that money many retirees. in the family. Changing someone’s beAmericans are haviors and mindset is not an often raised and easy feat, and I don’t want to conditioned with challenge any advisors to do the savings it. What we can help with, mindset of “pay however, are awareness and yourself first.” education. Those are the keys to helping people with the heart of this issue, how to minimize the tax effect on deferred annuity gains. You can educate your clients by showing them simple ways where active planning now can help reduce taxes later. Here are some ideas you can share with your fixed deferred annuity clients to help them take care of the taxable gains. Split a deferred annuity. It So they let the funds sit and continue doesn’t have to be all or nothing — you to grow — along with the taxable gains. can help your client carve off and annuThey probably haven’t explored other ve- itize portions of the annuity over time. hicles that could help achieve their goal Whether your client has qualified or in a more fruitful and tax-efficient way. nonqualified funds, they can be split. A chosen portion stays in the existing deA ‘Gift’ With A Kick ferred annuity contract and the rest is Mom and Dad get the tax deferral perks transferred or exchanged into a singlethroughout the years with their deferred premium income annuity (SPIA). annuity. But when they die, their children The funds moved into the SPIA will be (as the beneficiaries) end up getting the liquidated over a specified period of
WHEN ANNUITY CLIENTS TRANSITION FROM ‘SAVE’ TO ‘SPEND’ MODE ANNUITY time, whether over a certain number of years, or for the annuitant’s lifetime — spreading out the taxable gains over that time frame. When splitting qualified funds, all income payments are taxable in the tax year that they are distributed. Be aware that once qualified funds move into an SPIA, required minimum distributions
to carry over a pro-rated cost basis into the SPIA and leave the remaining cost basis in the existing deferred annuity. In order to do this, the SPIA payout must be for a period of at least 10 years, or for the annuitant’s life expectancy. Creative repositioning. Whether splitting an existing deferred annuity or moving the full amount into an SPIA, the income payments made could then be directed to fund a life insurance plan. In essence, the owner is transforming a taxable account into a new financial vehicle that will eventually pass a larger, and tax-free, benefit to the heirs. For example, let’s say that Tom is 65 and has a qualified deferred annuity worth $100,000 that he would like his adult children to receive someday. He could move the $100,000 into a 10-year period certain SPIA and spread the taxes out over that 10-year period (which most likely would not push him into a
Which do you think Tom would prefer to pass as a financial legacy to his kids: a fully taxable annuity worth $100,000 or a tax-free benefit of $165,000? no longer apply to that amount, and the SPIA payments do not satisfy other RMDs on other qualified deferred annuity funds. When splitting nonqualified funds, Section 2113 of the Small Business Jobs Act of 2010 states that the client is able
higher tax bracket). He can keep some of the annual income payment to help pay for taxes and direct the rest each year to fund a 10-pay whole life plan that provides $165,000 of death benefit. Which do you think Tom would prefer to pass as a financial legacy to his kids: a fully taxable annuity worth $100,000 or a tax-free benefit of $165,000? And which do you think those beneficiaries would appreciate more? The only clincher here is that Tom would need to be insurable, so be sure to keep that in mind when considering this strategy. There is much room for creative problem-solving in the financial industry. We have a wide range of products and tools at our disposal — we just need to make sure we challenge ourselves to use them creatively. Erica Davis is a senior marketing resource specialist at United Life. Erica may be contacted at erica.davis@ innfeedback.com.
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July 2016 » InsuranceNewsNet Magazine
45
ANNUITY
A ‘Saw-Tooth’ Pattern to Cut Risk, Increase Returns H ow fixed indexed annuities can achieve three specific goals to preserve and grow your client’s qualified retirement account. By Michael Tove
C
entral to the Department of Labor’s fiduciary rule is the preservation and growth of qualified retirement accounts such as individual retirement accounts and 401(k)s. Specifically, achieving a best practices result should focus on three particular goals: 1. Maintaining sufficient return to offset or exceed the schedule of required minimum distributions (RMDs) throughout the average retiree’s life expectancy, which the IRS estimates is anywhere from age 70 to age 86. 2. Minimizing account volatility. 3. Reducing the RMDs (with the emphasis on “required minimum”) without sacrificing the opportunity to take more than the required minimum if desired.
Minimum Required Return
A retiree starting RMDs at age 70, living to the “official” (IRS life table) life expectancy of 86, requires an average annual return of just under 5 percent. If that person lives to age 90, the return necessary to offset the RMDs climbs to nearly 5.3 percent per year. However, it’s not enough to compute raw average return. Return without consideration to volatility is only half the picture. In order for a return of 5 percent to offset the schedule of RMDs, that assumes a constant return of 5 percent. Unfortunately, when an account is subjected to volatility, the swings from high to low are bigger and sometimes does not produce the return to offset the RMD schedule. It’s math. 46
InsuranceNewsNet Magazine » July 2016
This is another reason why market exposure is not beneficial to the long-term sustainability of an IRA facing RMDs. Unless you can find a level, guaranteed real return of 5.3 percent (through age 90), a more realistic minimum required return would be closer to 5.5 percent without significant market volatility and 6 percent or more per year with it.
$99,840). But RMDs are calculated on last year’s value, subtracted from the current. This means if the markets fall, the RMD is not recalculated and the previous RMD must be subtracted from the lesser account value. For example, suppose markets fall 25 percent. That same $4,000 RMD is subtracted from the new account value of $75,000 (net RMD of
Scheduled RMDs
$12,000
$10,000
$8,000 Biannual Reset Traditional $6,000
$4,000
$2,000 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 Age
Reducing Volatility
The compounding benefit of dollar-cost averaging — making regular contributions to purchase new shares — is welldocumented. However, the exact reverse occurs when an account facing RMD withdrawals is exposed to volatility (the swings in value from positive to negative). For example, assume a $100,000 IRA with 4 percent RMD ($4,000). After the RMD, the account, now worth $96,000, must experience 4.17 percent growth to regain the initial $100,000 (note that 4 percent growth on $96,000 is only
5.33 percent), further reducing the account to $71,000. To recover the initial $100,000, a one-year return of 40.85 percent is required. In short, an IRA facing RMDs cannot be exposed to market risk. Even portfolio diversification cannot reduce systematic risk (the risk associated with broad market collapses), such as what occurred repeatedly between 2000 and 2016.
Minimizing RMDs
At first blush, this seems impossible. The table of RMDs, published by the IRS,
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July 2016 » InsuranceNewsNet Magazine
47
ANNUITY A ‘SAW-TOOTH’ PATTERN TO CUT RISK, INCREASE RETURNS offers no variance. However, a unique crediting strategy using fixed indexed annuities $140,000 provides a way to accomplish just this. FIAs credit growth $135,000 through an indirect measurement to market indexes. Although annuity owners get to participate in the upside $130,000 movement of markets with interest credits, they have no market loss exposure be$125,000 cause there is no actual marBiannual Reset ket investment. Traditional Right away, this strategy $120,000 provides an obvious way to reduce volatility, but a quirk of math with crediting strat$115,000 egies used by some carriers offers more. This occurs when the $110,000 carrier tracks market values daily but credits (locks in) less often than annually (such as every two or three $105,000 years). In other words, the accounts simultaneously reflect two different values: a $100,000 “real time” value from daily 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 tracking and an “official” Age value at the point of lock-in. (A drawback is that there are only a few annuities on the market that The first graph illustrates how a bi- the RMD is desired, that may be taken track daily and credit every other year.) ennial reset strategy would fare against out of the account. But when the RMD is While daily tracked (real-time) values a traditional account of identical return. not needed, being able to conserve even may fluctuate, they cannot fall below the Note how the saw-tooth pattern of RMDs a little of it (and thereby not pay taxes on previous locked-in values and thus can- in the annuity (red) results in less man- that portion) results in a significant longnot lose from their previous official value. datory withdrawal in the odd years com- term benefit. With rising markets, each new lock-in re- pared with that required under a more The goals of these three strategies are sets the official value higher, but only on traditional account strategy (blue). The to increase the total return and minimize the policy’s anniversary (lock-in) date. difference is the undistributed amount risk to an IRA after RMDs have begun. Under this situation, in the “odd years” that remains in the account, continues to Considering the principal objective of the when real-time values have not locked in, compound through time and results in a fiduciary rule is to maximize total benefit the real-time value can be higher than greater total return to the account. for a client, it’s easy to see how this stratethe previous locked-in value (but never The second graph illustrates the re- gy accomplishes this. lower). However, the IRS regards only the sulting benefit to the account from this “locked-in” value for calculating RMDs. phenomenon. Actual results will vary, Michael Tove, Ph.D., CEP, Therefore, the odd-year RMDs come out but given an assumed constant return of RFC, is president and founder of AIN Services. He may against a lesser value than actual (real- about 6 percent from age 70 through age be contacted at michael. time) values. 90, this saw-toothing results in a net av- tove@innfeedback.com. This means the mandatory withdrawn erage savings of about 2 percent per year amounts are smaller than they would oth- and more than 4.2 percent increased total erwise be. This includes an account reduc- return in the account. Mathematically, Like this article or any other? tion from the previous RMD, which while the differences between the saw-tooth growing in real time, is not being reported and traditional strategies proportionally Take advantage of our award-winning jouruntil the next lock-in. This differential cre- increase with greater market volatility. nalism, customizable ates a “saw-tooth” pattern of RMDs. Obviously, if an amount greater than
Residual Account Value
As seen in the
July 2012 issue
Life
Annuities
of InsuranceNewsN
et Magazine
Health
July 2012
48
licensure and reprint options. Find out more at innreprints.com.
InsuranceNewsNet Magazine » July 2016 Exclusive digital report for LIMRA Member Companies and their Producers. This report may be redistributed freely and may not be edited or modified without permission from InsuranceNewsNet.
Signature Indexed Universal Life Insurance with FOUR One-Year Indexed Strategies! ALSO AVAILABLE IN NEW YORK! FOUR One-Year Interest Crediting Strategies Based upon the Performance of an Index, all with 100% Participation Rates X Point to Point Uncapped with Interest Rate Spread and 0% Floor X Point to Point with Cap and Higher Floor of 1.5% X Point to Point with Cap and 0% Floor X Point to Point with Specified Rate and 0% Floor The Signature Indexed Universal Life Insurance policy is not a registered security or stock market investment and does not directly participate in any stock or equity investments or index. When you buy this policy, you are not buying an ownership interest in any stock or index. American National and its agents do not make any recommendations regarding the selection of indexed strategies. American National and its agents do not guarantee the performance of any indexed strategies. There is not one particular interest crediting strategy that will deliver the most interest under all economic conditions. Policy Form Series: IUL14; IUL14(NY); ULPTP14; ULPTP14(NY); ULSR14; ULSR14(NY); ULNC14; ULNC14(NY) (Forms may vary by state). American National Insurance Company, headquartered in Galveston, Texas is licensed to conduct business in all states except New York. Business is conducted in New York by American National Life Insurance Company of New York, headquartered in Glenmont, New York.
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49
HEALTH/BENEFITSWIRES
QUOTABLE
Mega-Mergers: The Latest Here’s the latest on the two power couples of the health insurance world, Cigna/Anthem and Aetna/Humana. First, Cigna/Anthem. The two companies are trying to work out some conflicts in advance of their planned merger, Anthem CEO Joseph Swedish said, while some analysts wonder if the two insurers will ever be able to mesh their differing styles and become a market giant. The proposed Cigna/Anthem marriage still awaits approval by the U.S. Department of Justice. Rumors about a potential snag in the merger surfaced after Cigna publicly warned it no longer was sure the deal could be closed by the end of 2016 and Anthem publicly disagreed. Now, on to Aetna/Humana. The Missouri Department of Insurance realized that if it can’t stop the planned merger of those two health insurers, it can at least put some obstacles in the path of their selling coverage in that state. Missouri has ruled that the merger is anticompetitive, and wants to block the two companies from selling individual health insurance (other than catastrophic plans), small group health insurance, group Medicare Advantage and individual Medicare Advantage plans in 65 of Missouri’s 114 counties. The Aetna/ Humana merger also awaits federal approval.
TYPICAL FAMILY’S HEALTH CARE COSTS HAVE TRIPLED SINCE 2001
How much does a typical family actually pay for health care? The Milliman Medical Index crunched the numbers. Milliman looked at a family of four receiving coverage from an employer-sponsored preferred provider plan. The researchers found that in 2016, health care costs for that family will increase by 4.7 percent — the lowest rate of increase in the history of the Milliman study. However, the total dollar increase of $1,155 marks the 11th consecutive year that the cost increase has exceeded $1,100. The index surpassed $25,000 this year for this hypothetical family, with the employer paying $14,793 of the total health care costs and the employee — through payroll deductions and out-of-pocket costs — paying $11,033. The Milliman Medical Index has more than tripled in the past 15 years, with an average of 7.8 percent in annual increases. One significant change over that 15-year time span is the increasing shift in cost DID YOU
KNOW
?
50
from employer to consumer. In 2001, the first year the index was compiled, employers paid 61 percent of costs while workers paid 39 percent. In 2016, the same split is 57 percent and 43 percent. TOP 5 CONDITIONS BY SPENDING 1. 2. 3. 4. 5.
Mental health Heart conditions Trauma Cancer Pulmonary conditions
MORE SPENDING GOING TOWARD MENTAL HEALTH
A new study shows mental health already takes up much more health care spending than any other type. The study, conducted at the Center for Sustainable Health Spending, found mental health outpaces other types of care — including heart conditions, trauma, cancer and pulmonary conditions — when factoring in institutionalized patients. Overall health care spending has grown
45 percent of those surveyed said health care costs are the top obstacle to financial security in retirement. Source: Northwestern Mutual
InsuranceNewsNet Magazine » July 2016
$201B $147B $143B $122B $95B
Source: Business Wire
It is a holy mess. This is a nationwide issue, and it affects plans everywhere. Litigators are just beginning to pay attention to this. — Ursula Taylor, partner at the Chicago law firm of Butler Rubin Saltarelli & Boyd, on shortfalls in federal reimbursements to health insurers
by 5.9 percent since 1996, while the gross domestic product, a basic measure of the economy, has grown at just 4.3 percent, Dr. Charles Roehring reports in the study, published in the journal Health Affairs. The top five health conditions in the U.S. by spending are mental health at $201 billion, followed by $147 billion on heart conditions, $143 billion for trauma, $122 billion on cancer and $95 billion on pulmonary conditions.
HEALTH INSURERS SUING OVER ACA LOSSES
It all started when Highmark, the fourth-largest Blues company, filed suit in an attempt to recoup millions of dollars it said it lost under the Affordable Care Act. Blue Cross and Blue Shield of North Carolina soon followed. Highmark sued the federal government for $223 million in losses sustained in 2014. In addition, Highmark says it will be owed another $500 million for losses on member claims by July when a government accounting is due. The Blues in North Carolina sued over a $129 million shortfall in ACA payments. Through a risk-sharing tool called risk corridors, the government had promised to pick up a share of the losses during the early years of the Affordable Care Act because insurers had little information about setting appropriate rates for a new population. Instead, insurers received payment for only about 12.6 percent of the amount claimed — $362 million for $2.87 billion in losses claimed by the carriers, according to the Chicago law firm of Butler Rubin Saltarelli & Boyd.
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HEALTH/BENEFITS
Group-to-Individual Migration Spurs Private Exchange Growth Employers with three to 49 workers offering coverage dropped from a high of 66 percent in 2010 to 54 percent in 2015. By Jonathan Rickert
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Photo: Cody Pickens
ealth insurance experts have been predicting the eventual migration away from group employer-sponsored plans to individual plans for some time now — even before the passage of the Affordable Care Act (ACA). Those who see this change as inevitable compare it with the supplanting of employer-paid pensions by 401(k) accounts as an example of how an industry can change in a relatively short period of time. Recent data shows that the shift away from group to individual health insurance coverage is underway, but is occurring at a slower rate than many experts predicted. However, the erosion of employersponsored group coverage isn’t happening across the board. It is occurring mostly in the small group market — specifically, those small businesses with fewer than 50 employees. In some regions, small groups are breaking up swiftly, while in others the change is more gradual. Regardless of the timing or geography, however, industry analysts and researchers concur that the shift to individual health coverage in the small group market is undeniable. Even though nearly 90 percent of businesses view health insurance as important to recruiting and retention, the number of companies offering health-related benefits actually dropped by 5 percent from 2014 to 2015, according to a 2015 report by the National Small Business Association. This is reinforced by Kaiser Family Foundation data for 2015 indicating that the likelihood of offering health benefits differs significantly by size of firm, with only 54 percent of employers with 3-49 workers offering coverage, compared with 97 percent for firms with more than 100 workers. InsuranceNewsNet Magazine » July 2016
The individual market has shown explosive growth in a relatively short period of time. At the end of the first quarter of 2015, more than 20.1 million people had enrolled in individual, non-group medical plans — nearly double the number who were enrolled at the end of 2013, according to reports by Mark Farrah Associates and the Kaiser Family Foundation. Contributing to this growth is the disaggregation of small groups. A wide range of industry, employer and consumer forces are converging to drive this shift from small group to individual coverage.
Industry Trends
For many years, the rising cost of group health insurance and the lack of access to affordable individual insurance have been a driving force behind reform efforts, most importantly the ACA. Many small employers have been exempt from ACA
plan benefit requirements so far, and are continuing to offer their pre-ACA plans to employees. These protected plans are commonly referred to as grandfathered plans. However, once the ability to extend noncompliant coverage expires in 2017, it is expected that more small businesses will cease employer-sponsored coverage for their employees.
Employer Trends
As group rates increase and more individual options become available, employers are opting to cease coverage for some workers (part-time, hourly, retirees) or all of their workers, who will then purchase individual coverage through public or private exchanges. This is evidenced by recent market data from the Kaiser Family Foundation indicating that employers with 3-49 workers offering coverage dropped from a high of 66 percent in 2010 to 54 percent in 2015.
GROUP-TO-INDIVIDUAL MIGRATION SPURS PRIVATE EXCHANGE GROWTH HEALTH
Consumer Trends
Since the advent of government subsidies through the ACA, workers often have been caught in the middle. Without employer group insurance, workers would qualify for a subsidy while the group premiums available to them are too high for them to afford. As group disaggregation continues, workers are taking a more active role in understanding their coverage choices and associated costs. We are seeing people move between small group and individual coverage with greater frequency than in years past. An aging population, combined with new consumer trends, make for greater movement between the group and individual coverage categories. Compounding that is the fact that consumers switch insurers at a rate of 34 percent per year, according to research from Gartner. Dramatic changes in the employment landscape also contribute to the trend. The average worker today stays at each job for only 4.6 years, according to the most recent available data from the Bureau of Labor Statistics. More job changes mean a greater frequency of group-to-individual coverage events. All these changes put more pressure on individuals — to provide their own health care, bridge gaps in income with savings, manage their own retirement planning, and invest in their own education to keep their job skills marketable and up to date. This underscores the need for insurers to view their customers not as members of groups or individual policyholders, but as consumers who need to be matched to the right products to meet their needs at a particular point in their lives. Instead of the traditional episodic approach, insurers can set a higher, longer-term goal of gaining “members for life,” retaining consumers as they move between group and individual coverage and ultimately into retiree coverage over their lifetimes. As the disaggregation of small employer groups continues, insurers need to create a smooth continuum of coverage
for non-group individual consumers: under 65, not retired; under 65, retired but not Medicare-eligible; and over 65 and Medicare-eligible. Here are three main reasons why it is important for insurers to retain their small group members if they lose coverage. 1. Small groups are usually fully insured and therefore represent significant loss of financial value per member. 2. The members who transition from group to individual coverage are likely to have a better risk profile than those in the broader individual member market. 3. With customer acquisition costs ranging from $100 to $1,000 for insurers, it is much less costly to retain an
existing group member than to try to replace them. How can insurers succeed in gaining members for life? The foundation of an insurer’s member-for-life vision is to make it compelling and convenient for consumers to stay with their insurer as their employment situation, health and other insurance needs evolve over a lifetime. One way to do that is to leverage e-commerce through a private exchange platform to make the group-to-individual transition experience outstanding. When group coverage is no longer available or
employees terminate employment or retire, the bridge to appropriate, affordable individual coverage should be seamless. For workers who are already on a group private exchange, the insurer can guide the workers through the shopping and enrollment process for individual coverage. For workers who are not already on a private exchange, the employer can provide a roster, enabling the insurer to reach out to invite the worker to register, shop and enroll in coverage. Ideally, the private exchange should help subsidyeligible workers obtain and use their government allowance. The group-to-individual migration creates new opportunities for insurers to leverage their private exchange for e-commerce across all group and individual lines of business. The benefits to workers, employers and brokers are significant. Workers benefit by transitioning to affordable subsidized or non-subsidized coverage that suits their personal needs and situation. Employers benefit with more options for managing costs and maintaining loyalty. Brokers benefit by retaining customers while taking advantage of a new channel for voluntary product sales. As the U.S. insurance market continues to evolve, insurers and consumers alike will gain as insurers take a more holistic view of consumers. Distinctions between group and individual segments will become less important over time. When the high cost of acquiring new customers and the unique financial characteristics of small groups are taken into consideration, insurers will want to look for new ways to retain members. Ultimately, the goal for an insurer will be to match each consumer with the health and voluntary products that best meet their needs at the particular time of their lives, regardless of line of business. Jonathan Rickert is CEO of Array Health. He may be contacted at jonathan.rickert@ innfeedback.com.
July 2016 » InsuranceNewsNet Magazine
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NEWSWIRES How Are We Doing? It Depends
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15%
of adults have ZERO How well are Americans doing financially? It depends cash savings on who is doing the asking. Most American households said their finances have strengthened slightly, but nearly half reported that they would struggle to meet $400 in expenses from an unexpected emergency, according to the Federal Reserve’s annual survey on economic well-being. The latest Fed survey found that 69 percent of those responding reported that they were either “living comfortably” or “doing OK.” That’s up from 65 percent in the 2014 survey and 62 percent in 2013. However, 31 percent, or approximately 76 million adults, said they were either “struggling to get by” or were “just getting by.” And 46 percent said they would have difficulty covering an emergency bill of $400. Meanwhile, new research by personal finance site WisePiggy shows that more than half of Americans can’t afford a financial emergency and would need to rely on some form of debt – credit cards, personal loans – or borrowing from family and friends to weather the crisis. Even more worrisome is that a full 15 percent said they have zero cash savings on hand for any unexpected expense and one-third (34 percent) have only enough savings to cover expenses for three months or less.
REGRETS VS. RECHARTING
A sobering onethird of Americans said they regret the major choices they made in their lives, such as when or where t he y went to regret their major school, the prolife decisions fession they chose and where they worked. Yet many embrace the prospect of recharting their course, an opportunity afforded by the fact that Americans today are living longer than ever. According to an Allianz Life survey, more than nine in 10 Americans expressed having a favorable view of living 30 extra years. Although most survey respondents (56 percent) said they would
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“travel extensively” or “live in a different place” (35 percent) with their 30 extra years, nearly a quarter noted they would “take more risks in life,” a common theme among the one-third of Americans who said they regretted many of their major life decisions. Included among those top regrets are not following their dreams (39 percent), not taking risks with their career (38 percent) and not taking risks with their lives in general (36 percent). More than a third also said they wish they’d been more gutsy in their choices and done things they really wanted to do.
AMERICANS ARE AFRAID OF RETIREMENT
Most people dream of walking away from the 9-to-5 grind. But a surprising number of us are having nightmares about retirement instead of dreaming about it, according to the latest COUNTRY Financial
In the U.S., people expect 43 percent of their retirement income to come from Social Security and Source: Renaissance Capital other government benefits. Source: Transamerica Center for Retirement Studies 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.
InsuranceNewsNet Magazine » July 2016
QUOTABLE
The hollowing of the American middle class has proceeded steadily for more than four decades. — Pew Research Center report
Security Index. Eighty-one percent of those in the workforce are worried about their retirement preparedness, according to the survey. American workers are extremely worried about their savings being adequate to support them in retirement. In particular, they fear running out of money completely, not having the money to pay for the things they want to do, and not being able to afford medical or long-term care expenses.
RETIREES SAY: WE WANT TO STAY HOME! Even though retirement communities seem to be popping up everywhere, an overwhelming number of people nearing or in retirement want to remain in their of retirees do not current home as want to move long as possible. That’s according to the results of a new survey released by The American College. The survey found that 83 percent of the respondents do not want to relocate in retirement. The study also saw almost no homeowners with a strong desire to rent in retirement. The survey, created to better understand retirees’ attitudes about home equity and housing decisions, also revealed that 44 percent have considered using home equity in retirement, but that only 25 percent feel comfortable spending it as a source of income. It also found that only about 20 percent of the respondents felt that it was extremely important to leave their home as a legacy asset to their children or other heirs, while 45 percent listed it as not important.
83%
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Tax Code Changes Can Spark a Client Conversation C haritable giving and college expenses are just two important areas that have changed in the tax code. By Lloyd Lofton
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recently made some adjustments to my retirement funding vehicle. In doing so, I spent a little time updating myself on the 2016 changes in the tax code, as I usually do, so I can stay up to date as I advise my clients. There are a number of interesting changes to the tax code, some of which are buried in the rules. These are the ones I seek out because they often are indicators of predictable buying behaviors. They offer you a way to have a conversation with prospects and clients that will set you apart from other advisors.
Qualified Charitable Distributions
Congress brought back qualified charitable distributions (QCDs) retroactively after they had been expired for the past few years. Now QCDs have been made a permanent part of the tax code. This means your clients who waited until mid-December to decide whether or not they should make a QCD no longer have to wait to decide. QCDs can be made only from individual retirement accounts, and only if your client is age 70½ or older at the time of distribution. This means you can mine your client database or you can target individuals who have an IRA, have an interest in making charitable distributions or have provided for their family in other ways and are looking for something to do with a dormant IRA. Because this provision has frequently been authorized retroactively, you can ask tie-down, trial-close questions to uncover prospects who might have an interest in making a QCD. Agent: “In the past, have you had to wait until mid-December to decide if you were 56
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going to make a qualified charitable distribution?” Prospect: “Yes.” Agent: “Is that what you wanted to do, wait to decide? Or would you have preferred to know earlier in the year so you could plan better?” Prospect: “Yes, I would rather have known. I might have made some different decisions with my distributions if I had known.” Agent: “Let me tell you how it will work for you going forward.”
Retirement Plan Portability — SIMPLE IRAs
Another provision in the new rules has an important impact on SIMPLE IRAs, one that can help you capture future wallet share from your clients. SIMPLE IRAs
have some odd rules. One such rule states that, beginning with the first deposited contribution in your client’s SIMPLE IRA account, the funds can only be rolled into another SIMPLE IRA. This limitation applied only to the SIMPLE IRA funds, not other retirement account money. According to the new rules, after two years have elapsed since your client’s first deposited contribution into their SIMPLE IRA, they are now able to roll any other eligible retirement funds into their SIMPLE IRA. So how can this help you grow your book of business? Let’s look at this approach. You have a client whose current employer offers a SIMPLE IRA and who also has an account from a prior employer. That client now can consolidate those accounts. Agent: “How has your SIMPLE IRA limited your ability to consolidate your retirement funds from previous employers?”
Prospect: “Well, I was told I couldn’t move the money from my last job into this plan, so I think I have two retirement accounts now.” Agent: “Is that what you wanted to have happen, to have separate funds or be limited in the way you could earn a return on your money?” Prospect: “That’s not what I wanted but I don’t think I had a choice.” Agent: “Let me tell you how we can make it work with the recent changes in the retirement account rule.”
529 Plan Out-of-Pocket Relief
Many changes were made to the rules for the 529 college-savings plans. But the one that I want to point out, relative to predictable buying behaviors, is the one that directly affects the out-of-pocket expenses of your clients who have or will have kids in college. My two youngest kids graduated from college in the past year. Although
peripheral equipment, internet access and software are now considered qualified education expenses and are considered under the 10 percent early distribution penalty exception. For existing clients, and as an opener to new prospects, you now can demonstrate your value by asking a tie-down question to see whether this has been a concern for your client or prospect. From there, you can pivot to a full presentation. Agent: “John, you mentioned you have a son in college or about to go to college. I had to pay out of pocket for my kids’ living expenses and other things like their computer, Internet access and software. Is that something you plan on having to pay for?” Prospect: “Yeah, I guess I’ll be stuck with those expenses. He has a scholarship for the school but I know books and other things like a new computer are expensive.” Agent: “Let me tell you about the new rules that can help you reposition these out-of-pocket expenses for his computer, internet access, software and other expenses.”
There are a number of interesting changes to the tax code, some of which are buried in the rules. These are the ones I seek out because they often are indicators of predictable buying behaviors. they had funding for most of their college expenses, their apartment, food and ancillary expenses were provided out of pocket by their parents — us. Now, as the parent of six kids, I can say to you that if you think you are going to tell your college-bound teens that they can go to the library if they need to use a computer, you are in for … “the look”! Many of these ancillary expenses were not previously considered “qualified education expenses” in the penalty exceptions for the 10 percent early distribution requirement. With the changes in the 2016 retirement account rules, computers,
We have looked at QCDs, SIMPLE IRAs and 529 plans, and how to fashion a tie-down, trial-close question to engage the prospect in the pain of the event and introduce a solution we as experts can bring to them. Now it’s your turn to practice asking questions to uncover your prospects’ and clients’ predictable buying behaviors. These behaviors are lifestyle issues they have in common, the life events they are going to experience anyway. The process includes asking a question you already know the answer to, in a way that allows you to show your knowledge of their predictable pain and demonstrate how working with a professional like you will benefit them and their family. Lloyd Lofton is president of the Senior Insurance Marketing Association. Lloyd can be contacted at lloyd. lofton@innfeedback.com.
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BUSINESS
OK, I’m on LinkedIn — Now What? F ind your ideal prospect on LinkedIn by adopting a strategy to seek out the right connections and incorporating it into your work routine. By Susan Rupe
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ou jumped on the social media bandwagon a few years ago but your online presence hasn’t brought any new clients your way. In fact, you doubt whether it was even worth posting an online profile to begin with. So what’s the use of being online anyway? LinkedIn can be a valuable tool for getting yourself introduced to your ideal prospects, according to Kevin Nichols, co-author of The Indispensable LinkedIn Sales Guide For Financial Advisors. In fact, with 400 million users, LinkedIn is a giant database that “you can slice and dice as many ways as you want if you take the time to develop your ideal prospect profile in LinkedIn searchable terms,” he said. Nichols and his co-author, Matt Oechsli, researched social media and sales to come up with a strategy to help financial professionals turn their online connections into clients. Don’t make these common mistakes. “The most common mistakes I see 58
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advisors make is creating a profile, maybe developing a decent brand on LinkedIn, but showing very little activity,” Nichols said. “Their profile sits there almost like a Yellow Page listing and they’re not interacting with other people. It’s a social media, so you have to go out there and actually engage and develop relationships with people.” Engaging on LinkedIn involves commenting on and sharing information that your connections have posted. Developing relationships involves what Nichols calls “being a giver” — offering helpful information to connections. It also includes finding what he calls “connectors” among your LinkedIn contacts — those people who take pride in setting people up and creating synergies between others. Another mistake advisors often make, Nichols said, is having a staff member post material to LinkedIn on their behalf. “They’re just pushing content,” he said. “Narcissism is a social media killer. If all you do is post about you and about what you do, you’re not going to get the engagement that you’re looking for, and you’re not going to get the results you’re looking for.” Instead of constantly posting selfpromotional content, he said, successful LinkedIn users post articles that are designed to position themselves as experts
or to spark comment from their connections. Don’t make your LinkedIn profile look like a resume, he cautioned. Although many LinkedIn users are on the site because they want to attract a potential employer, a financial advisor needs a different type of profile from a job-seeker. “If you’re an advisor looking at client acquisition, you need a profile that describes how you add value,” he said. “Think about who’s reading your profile and tailor it to them.” Define your ideal prospect profile. Before you can meet your ideal prospect on LinkedIn, you need to consider who that prospect is and how to find them, Nichols said. Where does that prospect live? In what type of industry do they work? What job titles do they have? Do they have a shared interest or belong to any organizations? Does their profile contain certain keywords such as “promoted,” “retired” or “looking for opportunity”? After you have figured out your ideal prospect, it’s time to put LinkedIn’s Advanced Search feature to work. By going to the Advanced Search section of LinkedIn and filling out the fields in that section such as “title” or “company” or entering keywords such as “vice president” or “sold my business,” you can access a list of those ideal prospects, along with whether they are your current connections or connected to any of your current connections.
OK, I’M ON LINKEDIN — NOW WHAT? BUSINESS Using the Advanced Search, you can find business owners, centers of influence, people in a particular age bracket or those who have money in motion (such as those who recently sold a business). From there, you can approach your current connections if they are among your ideal prospects, or you can ask your current connections to introduce you to their connections who would be good prospects for you. Cook up a 3-2-1 recipe. Your ideal LinkedIn presence is the right mix of content, engagement, personality and promotion, or what Nichols calls the “3-2-1 recipe.”
Take a targeted approach to introductions. Using LinkedIn is more than a game to see who can collect the most connections, Nichols said. “It’s about who can get you the right introductions,” he said. “We need to see who knows who on LinkedIn. There’s no better tool than LinkedIn to understand the relationships between people you currently know and people that you want to know.” Go for the O-to-O conversion. After you get introduced to your ideal prospect, Nichols said, you need to build rapport online, but don’t leave it there. It’s time to go for what he calls the O-to-O (online to offline) conversion. “LinkedIn is a great
broken down the routine into daily, weekly, monthly and occasional actions. DAILY Responding to messages and invitations in your LinkedIn inbox; reviewing your newsfeed and commenting or sharing items in it; checking discussions in a few of your LinkedIn groups and commenting on them; finding a new connection; posting a status update with appropriate content; reviewing the “keep in touch” listing of connections who have work anniversaries or new jobs; finding someone who fits your ideal prospect profile; or reviewing LinkedIn profiles of those with whom you have meetings scheduled. WEEKLY Requesting an introduction; searching for prospects using your connections’ lists of connections; posting relevant content with three to five of your groups; touching base with a dormant connection; or searching for your ideal prospect profile in a group directory. MONTHLY Conducting an advanced search; conducting a meeting with a LinkedIn center of influence; or uncovering an idea from a connection’s profile. OCCASIONALLY Reviewing your profile and updating if needed; reviewing who’s viewed your profile; and posting a promotional update.
It consists of three parts engagement. “That’s you going out and engaging with your network. You commenting on their posts and sharing their posts,” he said. Then there’s two parts content. “Content is posting relevant articles, videos, things approved by your firm, things that will help your network see you as a thought leader.” One part of the recipe is personal. These are posts that share insights into things that interest you or activities that you pursue outside of your work. Finally, there is a dash of promotion — an occasional mention of a service that you offer along with an invitation to contact you.
place to start the conversation but in order to make the sale you need to take the conversation offline as quickly as possible,” he said. “The quicker you take that relationship offline, the more likely you ultimately will bring that person in as a client.” The 30-minute routine. Doing all of these things sounds like it takes up a big chunk of the workweek, but Nichols said you can see results from spending 30 minutes a day on LinkedIn. But that’s not 30 minutes of surfing the site, he said. “Too often, you can end up spending two hours online without seeing any results because you go down a rabbit hole of looking at this profile and then that one,” he said. Instead, Nichols and Oechsli have
How quickly you begin to see results depends on how disciplined you are, Nichols said. “We’ve seen some people have success with getting personal introductions with people in a couple of weeks, and with some others it is taking up to six months to get an introduction. “But if you can incorporate a 30minute LinkedIn routine — telling yourself ‘with my morning cup of coffee I will do my LinkedIn routine’ — you should see results fairly soon.” 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. (She’s on LinkedIn, too!)
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MDRT INSIGHTS
The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.
5 Ways to Teach Your Clients How to Be Your Happy Advocates C lients often want to provide referrals but don’t know how to do so. Here are some ways to incorporate referral building into your regular activities. By Michael Morrow
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he best referral is one given by a happy client. How do you obtain happy clients? You create happy clients when you exceed their expectations by providing value and experience, which is enhanced by the wow factor. Exceeding client expectations is critical to building a base of happy clients, but it does not automatically result in client advocates who consistently generate referrals. Most often, happy clients want to promote their advisor but they don’t know how to do so. Advisors need to show their clients how to be advocates on a regular basis. Always look for opportunities to give casual reminders that you are taking new clients. The following are five key strategies to add to your current referral process that will eliminate the gap of a client who wants to help but doesn’t know how.
Educate
Clients need to understand clearly and be able to communicate your value and your specialty. Be specific about what you offer and who can benefit from your services. This will make it easier for your clients to tell their family members, friends and centers of influence about you and the fact that you are taking new clients. One way to ask for referrals is to include a note on the back of your business cards. It can read, “The highest compliment we can receive is a referral from our satisfied clients.”
Timing
Advisors often think it’s unprofessional to ask for referrals. However, your mindset should be, “I offer great value and I 60
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know I can help clients’ friends and family members.” Ask for referrals at a time when your client has had the opportunity to experience your value and excellent service. Once you believe that your clients would be happy to help, ask, “Whom do you know that I could help?”
Credibility
Consider using a letter of introduction to introduce yourself to the person your client referred. It is very important to send a copy to your client and include a carbon copy — or “c.c.” line — with your client’s name at the bottom of the letter. This builds credibility with both the referral and your client. The client will be prompted to have a conversation about you and your service, which increases the chance of securing an initial meeting with the referral. Show your client a sample of the letter of introduction that you will send. It will put your client at ease and help them better understand your referral process. For example, we work from a template letter and customize it for each referral.
“The highest compliment we can receive is a referral from our satisfied clients.” Make It Easy
Share timely industry and company information through email or snail mail that clients can share with their friends and family. Include on materials a “please feel free to share with friends” note to encourage clients to pass the information along. Anything that leaves your office should include information about you that explains your expertise and value proposition. Be sure it answers the questions: » What makes you different? » Who is your target market? » What areas of finance do you specialize in? Your website also opens the door to your business, so make sure it represents your brand properly. The top three things your website should do are: » Communicate your expertise and value proposition. » Offer timely content. » Have up-to-date and easy-to-navigate information.
Be Prepared
Sometimes it is difficult for clients to think of people to refer to you. Enter client meetings prepared with people or companies within their circles with whom you want to connect. Connecting with clients on social media makes it easy to find second-degree connections that your clients can introduce you to. Every time a client gives you a referral, you should send a thank-you note to the client, no matter what the outcome is with the referral. It shows professionalism, good manners and gratitude. The goal is to make the entire experience a positive one for both the client and the referral. Michael Morrow, CFP, is a financial advisor, speaker, author and commentator. He is the author of The Loyalty Edge and a nine-year member of the Million Dollar Round Table. He may be contacted at michael. morrow@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.
Advisors Defend Clients’ Real Best Interest in Fighting DOL A dvisors use their expertise and persuasiveness to help protect consumers from potentially harmful laws and regulations.
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By Mark Briscoe
nsurance and financial advisors offer products and services that provide 75 million American families with financial security. These skilled professionals are on the front lines with people planning for retirement, working to attain financial goals or facing setbacks due to illness, disability or the death of a loved one. Advice, planning, products and services are the most obvious benefits advisors offer. But advisors who are politically involved provide an additional service to their clients, one that many of those clients probably never consider. Politically involved advisors use their expertise and persuasiveness to help protect consumers from potentially harmful laws and regulations. “As advisors, we have strong, longterm relationships with our clients,” said NAIFA President Jules Gaudreau. “This is very personal to us. We know the realworld issues clients face as they prepare for retirement and work to provide financial security for their families. We can explain to Congress and regulators how government decisions will impact these plans. We are working just as much in our clients’ interests when we are advocating in Washington, D.C., as when we are going over financial options with them back home.”
The Clients’ Best Interests
A case in point is the Department of Labor’s fiduciary rule. As it was proposed, the rule was unworkable for advisors and their clients. It would have placed impossible requirements and restrictions on financial professionals, would substantially increase costs for consumers and would leave many retirement investors
without access to personalized services and advice. It threatened to tear apart beneficial advisorclient relationships that had existed and thrived for years or even decades. “We knew the DOL rule was bad, and it had the potential to devastate our business and large segments of our client base,” Gaudreau said. Making changes to the rule became a primary grassroots lobbying focus of NAIFA members. They wrote tens of thousands of letters to the secretary of labor and to their representatives in Congress, explaining how the rule could harm their clients and other consumers who need financial advice. Nearly a thousand advisors, representing every state, visited their representatives and senators on Capitol Hill as part of NAIFA’s 2015 Congressional Conference. They told lawmakers personal stories from the perspective of their clients, many of whom are small-business owners and medium- and small-scale investors. They also used their personal relationships with lawmakers as well as meetings in their home districts to advocate on their clients’ behalf. NAIFA staff, leaders and members engaged regulators and lawmakers in more than a dozen official hearings, briefings and meetings. NAIFA Past President Juli McNeely and a client of hers who owns a small business testified at a DOL public hearing, giving officials direct insight
into how the proposal would have affected consumers. In the end, all of this grassroots activism had some success. The final rule, issued by the DOL in April, contains numerous revisions that remove or soften restrictions and requirements that would have harmed client relationships. “The rule is much better for advisors and our clients than previous versions,” Gaudreau said. “But it is very complex, and some parts of it remain troubling. This is something NAIFA is watching very closely, and we are poised to ramp up our advocacy on behalf of our members and consumers if provisions of the rule need to be addressed.” Advisors look out for their clients’ best interests on a daily basis. This is most apparent when a wellprepared retiree is able to maintain a high standard of living throughout their lifetime or when a family is able to remain financially secure after a breadwinner’s death. Behind the scenes, though, there is a contingent of advisors working more subtly to address laws and regulations that could derail these financial plans. They, too, will be working in their clients’ best interests in ways that most people may never realize. Mark Briscoe is senior director-strategic communications at NAIFA. Mark may be contacted at mark.briscoe@innfeedback.com.
July 2016 » InsuranceNewsNet Magazine
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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.
Ride-Sharing Services Changing Lives of Those With Special Needs I nnovations in technology will touch those involved in planning for the economic security of people living with special needs. By Adam Beck
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still remember my first Uber ride. It was the summer of 2012, and nobody quite knew what to expect of this service that was brand-new to Philadelphia. Friends on the West Coast had talked about it, but it seemed like the type of luxury that I might indulge in only for certain special occasions. Today, I take Uber several times per week. In the four years since then, talking about what Uber means for a particular industry or society at large has become a trope of so-called thought leadership that aims to engage millennials while illustrating a grandiose economic theory. But it helps to know how these developments can change the lives of families that have special needs members. As their advisor, you can help them access these liberating services and products, such as self-driving cars. A recent conversation with the parent of a child with autism showed me the significance of services like Uber and got me thinking about my role in helping families fit them into their budget. “My son feels so free now; there’s so much he can do without me,” she remarked. And it was all thanks to the Uber app. Its impact also will touch those involved in planning for the economic security of people living with special needs. Five years ago, before ride-sharing services like Uber and Lyft were commonplace, most people living with a disability were restricted in many ways due to transportation limitations. Depending on the nature of the condition, many people had to live in an urban center where public transportation would be readily available or they would have to rely on parents, friends, neighbors or social workers to provide rides at designated times. Today, people with special needs may find greater 62
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independence — personal and financial — thanks to ride-sharing services. And that independence can only grow with the impending advent of self-driving cars. This is not to say that ride-sharing services are always a viable option for many with disabilities, particularly given the checkered legal history that both Uber and Lyft have when it comes to discrimination based on physical disability. In theory and by law, services like these should be open to all and should try to maximize opportunities within otherwise underserved markets. But in practice, far too often this is not the case. Even so, self-driving cars should eliminate discriminatory barriers. This is because technology, unlike people, lacks the ability to discriminate. Almost. There is growing consensus that self-driving cars, or mostly autonomous vehicles, will be on the road by 2020, if not sooner. That’s merely four iPhone releases from now. The technology offers the promise of mobility and independence for many — including those who are elderly or disabled — but that independence may not be doled out equally. Indeed, many people with disabilities, including blind people, may not be able to participate fully in the driverless car revolution. Disability advocacy groups, fortunately, have been vocal in supporting fully automated vehicles that would serve the spectrum of special needs communities. That advocacy is presently focused on the National Highway Transportation Safety Administration, which is considering regulations that would govern self-driving cars. For many living with special needs, driverless cars — and for now, ride-sharing services — can mean:
» Greater flexibility in choosing where and when to work. » Expanded options for where to live. » Independence in going to medical appointments, shopping and other activities.
» Overall, greater equality and inclusion in society. Driverless cars also will surely navigate their way into special needs financial plans and the lives of those who manage them. Autonomous vehicles and ride sharing lead to greater independence for people with disabilities. This means that as advisors work with clients who are caregivers, the clients will not be as limited by geography (where the client must live), the job the parents must take or the types of employment the person living with the disability may pursue. Clients will need to budget accordingly, but they can have greater freedom in choosing to relocate or retire knowing that their loved one will still be able to enjoy a certain level of independence. So often, when new technology emerges, we think of how it will make our own lives easier or make a task more convenient. Generally, attention to innovation focuses on the most obvious and immediate aspect of that innovation. For example, when air conditioning became mainstream, few looked at it and said, “This will result in greater political clout and new economies for states like Arizona and California.” Rather, we thought, “This will make me nice and cool in the summer.” When Uber burst onto the scene only a few years ago, most people thought, “How convenient is it to have a car pick you up with the push of a button?” For millions, however, these automobile innovations undoubtedly herald a new era of independence — and with that, a plethora of new considerations about how to live their lives. Considerations that, at the very least, you can think about from the back seat of a car. Adam Beck is director of The American College Center for Special Needs. Adam may be contacted at adam.beck@innfeedback.com.
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LIMRA INSIGHTS
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ike it or not, robo-advisors are here to stay. As they evolve, robo-advisors are shifting from retail to institutional use. Giants such as BlackRock, Fidelity, Schwab and Vanguard are building or adopting their own robo-advisory offerings. “Practice management” is largely cited as the reason why these firms are introducing a robo-advisor platform to help their distribution partners improve their practices by expanding their respective markets. LIMRA research has found that roboadvisors currently represent more of a threat to “self-directed” investment models than they do to the “traditional” financial advisor model. But this is changing. Today’s younger, more sophisticated investors who are attracted to the roboadvisor alternative are tomorrow’s clients. As a result, the financial advisor business model will evolve to keep pace, and forward-thinking advisors will look to include technology-driven alternatives in their practices. In 2012, online investment advice firms (which include firms in the retail and institutional markets) managed $118 billion in client assets. This number is expected to reach $655 billion by 2019, according to Tiburon Research. Although growth in online investment advice is predicted to be strong, the total assets robos hold under management are relatively small. To put this into perspective, the 500 largest asset managers in the world held $78 trillion in total assets under management at year-end 2014. Assets under management for North American firms equaled $45 trillion, according to Towers Watson research. The expected growth for robo-advisors over the next few years represents 64
InsuranceNewsNet Magazine » July 2016
opportunity, especially with the evolution of robos’ capabilities. The algorithms used to determine the investment mix are advancing, and some robo-advisor firms have unveiled more sophisticated investment strategies with expanded investment options. There are robo-platforms that claim to protect clients against severe market downturns. The algorithms are designed to monitor the hedging strategies of institutional money managers in order to provide downside protection. For example, if equity markets are expected to be under pressure, then assets are allocated to U.S. government bond indexed exchange traded funds. Conversely, if strong market performance is anticipated, then portfolios will be weighted toward equity indexed ETFs. Robo-advisor firms are looking into more actively managed investment strategies instead of the “typical” passive investing approach. In addition, robo-advisor firms are providing a wider array of investment options at no additional cost, including bitcoin, commodities, private equity and real estate. Right now, robo-advisors are focused solely on investment management. Consequently, financial professionals who concentrate on life insurance, or create tailored investment plans for clients, may not benefit from the solutions currently available through robo-advice. But, to succeed, financial advisors will need to provide more value-added services to become more holistic and offer more than investment and insurance management. By offering a robo-advisor platform, traditional advisors can expand their business and add sales capacity to their practice. Advisors also can develop
relationships with existing clients’ families as older generations transfer wealth to younger generations. This would create the opportunity to introduce young investors to the advisor’s robo-platform, then keep them as clients as their investments grow and require the advisor’s counsel. Given their level of acceleration, robo-advisor tools will become pervasive rather quickly. As firms build their own robos, acquire the technology or partner with robo-advisor firms, the automated solution will become part of the toolset that many firms provide. From the financial advisor’s perspective, it is going to weed out those who are doing only what a robo-advisor can do. Advisors who work with robos can bring more focus on relationships. With the proper integration, robo-advisors will allow traditional advisors to spend more of their time and effort engaging with clients and serving their broader planning needs, strengthening client relationships, and knowing the client as a person. These are things that a robo-advisor cannot do. Konrad Wisniewski is a research analyst for LIMRA’s distribution and technology research arm. Konrad may be contacted at konrad. wisniewski@innfeedback. com.
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