August 2013

Life Annuities Health Financial

August 2013

PAGE 24

PLUS LES BROWN Takes You from Tongue-Tied to Terrific PAGE 12 Why SEX Matters with Annuities PAGE 44

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Regardless of how successful I am, how much business I have written, or how many leads I generate, I know that it all rides on how effective I am at running my meetings with clients.

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IN THIS ISSUE

» read it

Scan this QR code with any QR code reader on your smart phone

View and share the articles from this month’s issue

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AUGUST 2013 » VOLUME 6, NUMBER 8

ANNUITY

42 For Faster Acceleration, Ditch the GLWB Rider

By John Williams Indexed annuities sold with an eye toward accumulation can be a winning solution for your clients.

24 INFRONT

8 Industry Advocates, Regulators Ready to Take on Fiduciary Standards

24 Past & Future

By Patrick T. Leary The insurance industry faces the well-documented problem of an aging sales force, but new research shows just how steep of a challenge exists in recruiting and retaining a new generation of advisors.

By Cyril Tuohy Industry groups are gearing for their next big legislative battle around fiduciary standards and the responsibilities of financial advisors toward their clients.

12

FEATURES 12 S peak to Win

An interview with Les Brown Master motivational speaker Les Brown has wowed audiences around the world.

But there was a time when he would rather hide in the restroom than get out on stage. In the second part of his interview with InsuranceNewsNet publisher Paul Feldman, Les tells how he went from being tongue-tied to terrific in front of crowds and how to find the voice that your customers and audiences want to hear.

2

38

44 44 Why Sex Matters with Annuities

By Linda Koco The gender of the buyer can make a difference when making a decision on whether to take a lump sum option or an in-plan annuity option.

HEALTH

48 Consumers Need to Learn How to Drive Health Care Decisions

By Ron Fields Rising health care costs and changes in plans are leading to a growing need to guide consumers in making the right choices for themselves.

LIFE

36 Indexed UL is Not a Fad

By Michael C. Staeb Indexed UL always will be relevant, regardless of market conditions, and theoretically can be linked to the indexed price of anything.

38 Whole Life as Wealth Transfer Plan

InsuranceNewsNet Magazine » August 2013

By Lloyd Lofton A wealth transfer plan using singlepremium whole life can help your clients lock in or increase their existing values while eliminating market risk.

54 FINANCIAL

54 The Rise of the Household CFO

By Katie Libbe As women have become more empowered in the workplace, they also have become more empowered in handling financial matters.

ALSO IN THIS ISSUE AUGUST 2013 » VOLUME 6, NUMBER 8

61 NAIFA: Steps to a Successful Close

By Ray Vendetti Effective closing requires emotion and motivation. Here are some ways to add these two ingredients to your next sales interview.

58 BUSINESS

58 W hy Your Sales Training Needs a CAT Scan

62 LIMRA: Demand for Guaranteed Lifetime Income Continues to Grow

By Dan Seidman Objection is the biggest choke point in selling. In the first of this three-part series, we look at strategies to teach your sales people how to eliminate resistance.

By Jafor Iqbal and Joseph E. Montminy Advisors who help their clients develop and implement a solid retirement income plan stand to capture, manage and retain those assets for a long time.

INSIGHTS

64 Make Your Team Aware of Threats Against Your Practice

60 MDRT: Retirement Planning for the ‘New Economy’

By Larry Barton The threat posed by those with mental health disorders is one more area of risk that you must address in protecting your clients and your team.

By Philip A. Rousseaux If you are helping your clients retire today, and you want them to stay retired, you must adjust to the “new normal” and change the way you think about retirement planning.

EVERY ISSUE 6 Editor’s Letter 22 NewsWires

34 LifeWires 40 AnnuityWires

46 HealthWires 52 FinancialWires

INSURANCENEWSNET.COM, INC. 355 North 21st Street, Suite 211, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com

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13 INN 08.13 FOR AGENT USE ONLY. NOT FOR USE IN SOLICITATION OR ADVERTISING TO THE PUBLIC. August 2013 Âť InsuranceNewsNet Magazine 5

WELCOME

LETTER FROM THE EDITOR

Destiny at the Door

Y

OU ARRIVE IN A STRANGE TOWN and go to the back door of a school to meet a principal who refuses to shake your hand. He leads you to a stage and introduces you simply by saying your name and walking away. You approach the microphone and all applause stops.

The audience thought you were going to be someone else. And it is an all-white audience in rural Florida and you are an African-American.

This is a scene that usually ends with you realizing that you are in your underwear, and you snap awake from your sweaty anxiety dream. But, except for the underwear part, this was the making of Les Brown’s most awkward moment on stage.

Les relayed that story this month, in the second part of his interview with Publisher Paul Feldman. What would you have done in Les’ situation? I might have gone into a fetal position until the police or an ambulance showed up.

Les just looked in the back of the room and found the inspiration that allowed him to not only ease the tension but also to get people on their feet and cheering.

Pretty amazing, right? But, of course, he’s Les Brown, motivator of millions. Go watch one of his videos on YouTube. I guarantee you will come away wanting to slay dragons and save villages.

The thing is, Les Brown wasn’t always that Les Brown. He talks about his journey in this interview, too.

He saw that the future had something more in store for him and that he had to be ready for it. He had to be better in order to draw the good things to him. He overcame considerable obstacles to become the fire-breathing, stage-prowling Les Brown sensation.

He went from stammering in a church to bellowing wisdom in an arena packed with 80,000 people.

Obviously, he was brave, you might say. Braver than you could ever be, you might think. But it was not bravery that brought Les to the summit. It was seeing his goal so vividly that nothing would stop him from getting it. Turn on the local news and sooner or later

6

you’ll see an interview with a hero who saved someone from a fire/drowning/ assault/well/tree or what have you.

The hero is always asked the question: “Weren’t you scared?”

The answer is always, “No, I saw that this person was in trouble and I did what anybody would do.” But that’s not true.

This was a person who was ready to help and instinct kicked in.

Preparation and vision overcome fear.

Les said some people let their distractions keep them from seeing their destiny. We do this every day. We let events dictate our lives as we sit scared while opportunities bang at the door and move on.

We all have trouble with the vision thing. I will let you in on a secret that has sometimes helped me. It is based on the past being prologue. We have patterns that we settle into and end up in the same trouble or non-trouble. By non-trouble, I mean being so scared of living that you make as few waves as possible and end up living as little of life as possible.

So, with that in mind, sit in a quiet place and think back to where you were 10 years ago. Go and visit the person you were back then. Imagine what that person would ask you. What would you have wanted to have known from your future self? Answer those questions and then advise your past self.

Then go back 20 years. Do the same thing.

When I have done this, I have learned a few important things. One is that the stuff I worried about was rarely worth worrying about. Things came and went, good and bad, whether I worried about them or not.

The more important thing was understanding the things that worry and fear prevented me from doing. Those things usually involved career, experiences and family, particularly family. There were people I assumed would always be there, healthy and ready, when I was secure enough in my career to spend time with them. A story-spinning aunt who I finally would ask about the old days. A mom who would always be able to jump into the car for a day at the beach she loved or a walk in the city she treasured. A dad

InsuranceNewsNet Magazine » August 2013

who would be mentally available to answer the simple question, “Why?” I also understand that I put off having children because I was either not making enough money at the time or I wanted to be further along in my career first. I realized too late that no one is ever really ready to have kids and it just happens, whether you worry about it or not. I even have a name for the daughter I think I was supposed to have.

Here is the other part of the exercise.

Imagine that your future self visited you now. What would that person tell you?

What amazing things will happen to you in the next 10 or 20 years? What things turned out for the best? What mistakes did you make? What chances did you pass on? Who did you take for granted?

This is the point where you realize you always have another chance. It’s like the first time you saw A Christmas Carol and were relieved that Ebenezer Scrooge could wake up, become a better person and dance through Victorian London, ecstatic to be alive. You have that when you go home today and when you wake up tomorrow. What is that destiny?

On tough days, I sometimes look at the door, half expecting it to open. That’s when I know I am overdue for a visit from destiny. But it comes only when I am ready to listen.

Steven A. Morelli Editor-in-Chief

August 2013 Âť InsuranceNewsNet Magazine

7

INFRONT

TIMELY ISSUES THAT MATTER TO YOU

Industry Advocates, Regulators Ready to Take on Fiduciary Standards After a producer-licensing bill cleared a key Senate committee, fiduciary standards is the next issue that industry groups are tackling in Washington.

By Cyril Tuohy

F

resh off the producer-licensing win in Washington earlier this summer, insurance broker groups are gearing up for their next big legislative battle around fiduciary standards and the responsibilities of financial advisors toward their clients.

But first, a few words about NARAB II. The National Association of Registered Agents and Brokers Reform Act of 2013, also known as NARAB II, cleared a key committee and is off to the Senate for a full vote. NARAB II will create a national clearinghouse for insurance agents and brokers to obtain approval to operate in multiple states so that agents only have to pass licensing requirements in their home state and once for NARAB. Now there’s plenty of behind-thescenes action on both sides of the fiduciary standards issue as agent and broker groups prepare testimony and position papers to be delivered before the U.S. Department of Labor (DOL) and the Securities and Exchange Commission (SEC).

Those in favor of fiduciary standards for a broader swath of distributors of financial products and services say the broader standards can do nothing but benefit the end clients, which are the retail and institutional investors. They argue that these clients deserve no less than to have their best interests at the core of every financial transaction.

Opponents say that while this may be true in the abstract, a lower standard is suitable, particularly if it comes at much lower cost. Some professional advice always is better than no professional advice at all, they say.

Switching over to the criminal justice side of the fiduciary duty aisle, those very 8

same regulatory agencies, SEC and DOL, have been just as busy filing complaints against financial advisors for breach of fiduciary duty in connection with raiding pension funds for private gain. The SEC has announced 65 legal actions so far against companies or individuals in the second quarter alone.

For its part, DOL also has been active.

In fiscal year 2012, the Employee Benefits Security Administration closed 318 criminal investigations with the help of other law enforcement agencies, DOL statistics show. The investigations led to the indictment of 117 people – including plan officials, corporate officers and service providers – for offenses related to employee benefit plans, according to DOL. Statistics kept by the Financial Industry Regulatory Authority (FINRA) show 294 people barred from the financial services industry in 2012, down from 329 in 2011. A total of 549 people were suspended last year, up from 475 in 2011. There were 1,541 new disciplinary actions last year, up 3 percent from the 1,488 disciplinary actions in 2011, according to FINRA. Not every legal action sought by the SEC and DOL involves financial advisors.

Some complaints target major institutions and their executives who often serve multiple masters: shareholders, customers and employees, for instance.

But it’s the cases where people have an explicit duty to protect the interest of their clients that do the most damage to an otherwise respectable calling, and where proponents of the fiduciary standard say investors and the industry at large can only benefit.

No one yet knows if broadening the fiduciary standard would lead to fewer enforcement actions against financial advisors, but those who favor applying the standard more broadly know that they would rather be safe than sorry.

Phyllis Borzi, assistant secretary of labor for employee benefits, is adamant

InsuranceNewsNet Magazine » August 2013

about protecting consumer interests first and foremost.

A consumer, she said recently, has an “absolute right to believe” his or her interests come first. What that means in terms of expanding fiduciary standards definitions, the industry will have to wait until fall to see.

Currently, only fee-based independent Registered Investment Advisors are required to act in a fiduciary capacity toward their clients.

Agents or financial advisors working for broker-dealers or an insurance company are held to the lower “suitability” standard, in which they are required to match clients with investment products that merely suit clients’ needs.

The bulk of a financial advisor’s income is commission-based. Critics of the model say it is tempting for advisors to steer clients to products on which they earn a commission, thereby subverting the spirit of working in the best interest of clients.

But that’s not quite the whole story, according to the National Association of Insurance and Financial Advisors (NAIFA) and other groups opposed to fiduciary rule changes, because it ignores what consumers can realistically afford.

NAIFA has argued that imposing a fiduciary standard on advisors is more expensive and isn’t the right fit for NAIFA’s “Main Street” clientele, 58 percent of whom earn less than $100,000 a year.

NAIFA isn’t alone in its opposition to the fiduciary rule.

“At the end of the day, we think this proposal would increase costs to participants, and we believe this would mean less choice,” said Lee Covington, senior vice president and general counsel of the Insured Retirement Institute.

“We think fees would be more costly for investors, and we think advisors would not provide that advice at that fee level.

We believe some advice is better than no advice,” Covington told InsuranceNewsNet in a telephone interview.

Do MEDICAL SEC requests for information on the different approaches to fiduciary standards of care were expected in July, but reviewing the comments and the data is likely to take months, and the SEC isn’t expected to act before later this year at the earliest.

Broker-dealers and financial advisors are regulated differently and subject to different standards with regard to retail investors, but investors often are unaware that such differences even exist, and of the legal implications of such differences, according to the SEC’s Study on Investment Advisors and Broker-Dealers issued more than two years ago.

NAIFA has again cited the costs to Main Street investors as a potential issue with the SEC’s review of a fiduciary harmonization process. Higher costs are likely to restrict access to investment guidance for small investors, NAIFA said, noting that the sweeping financial reforms contained in the Dodd-Frank reform law protect commissions and propriety products.

So far there has not been adequate evidence of consumer harm to justify requiring fiduciary status, nor has there been any economic analysis to determine the impact of fiduciary standards on middle-market consumers, according to NAIFA. But a coalition of organizations – which includes the Certified Financial Planner Board of Standards, the Financial Planning Association, the Investment Advisor Association and the National Association of Personal Financial Advisors – in a letter to SEC Chairwoman Mary Jo White urged the agency to establish a uniform fiduciary standard for broker-dealers and investment advisors that is “no less stringent” than the one under which registered investment advisors operate, which is to say a fiduciary standard.

Ultimately the question is how high a standard the government is willing to impose on financial advisors in the name of protecting investors. Cadillac advice is always available at a Cadillac price, but in the end, not all investors need or even want to drive a Caddy.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@ innfeedback.com.

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A licensed health care practitioner must certify the chronic or terminal illness to qualify for benefits. Chronic illness claims will require recertification by a licensed health care practitioner. Other terms and conditions may apply. This rider is not long-term care (LTC) insurance and it is not intended to replace LTC. The rider may not cover all of the costs associated with chronic illness. The rider is a life insurance accelerated death benefit product, is generally not subject to health insurance requirements, and may not be available in all states. © 2013 Prudential Financial, Inc. and its related entities.

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August 2013 » InsuranceNewsNet Magazine

11

Les Brown Reveals How He Learned to Motivate Millions

I

n last month’s edition of InsuranceNewsNet, Les Brown inspired us with his story about battling cancer and he told our readers how to “Master your Mind” to overcome doubts and accomplish anything. For most people, public speaking is either their biggest fear or their greatest asset in life. Speaking isn’t just about public speaking, it’s about communicating. From one-to-one to one-to-many, there is usually a direct correlation between one’s speaking ability and one’s income.

If you have seen Les Brown speak from the stage at Million Dollar Round Table, watched him on PBS or caught a glimpse of him speaking on YouTube, you would see an incredibly charismatic and larger-than-life persona that few speakers possess. His energy moves and inspires crowds to reach for their dreams and accomplish their goals. He has earned a string of awards from organizations ranging from Toastmasters International to The National Speakers Association, which awarded Les its top honor.

Les wasn’t always a master speaker. In fact, it might surprise people to learn that Les was not a natural in front of large crowds. In Part 2 of his discussion with InsuranceNewsNet Publisher Paul Feldman, Les tells how he went from being tongue-tied to terrific in front of crowds and how to find the voice that your customers and audiences want to hear.

12

InsuranceNewsNet Magazine » August 2013

August 2013 Âť InsuranceNewsNet Magazine

13

FEATURE

SPEAK TO WIN - WITH LES BROWN

FELDMAN: Most people are frightened to get on a stage and speak in front of a group, but you dazzle many thousands at a time. How did you develop that skill?

BROWN: I worked up to it. I could speak to small groups as a trainer. That is what I do best. Then one time, Dr. Charles Adams, a minister I admired, came to one of my trainings in Detroit.

When he came in, I said, “Man, I have been admiring you for years.” He invited me to come to his church the following morning and I said, “Absolutely.”

The next day, the Hartford Memorial Baptist Church was packed with around 3,000 people. Dr. Adams had the ushers bring me down front. He said, “Ladies and gentlemen, we have a motivational trainer, a young man by the name of Les Brown.” Then he said, “Mr. Brown, would you come up and give the morning prayer?” I said, “Yes, sir.” At that moment, I panicked. I’ve prayed with my kids. I say grace at the table. But I’ve never prayed in public in my life.

I walked up. I said, “Let us pray.” Everybody bowed their heads. I bowed my head and closed my eyes. I said, “Thank you, Lord, so much for this morning.

Amen.” Then I sat down. After about 30 seconds or more, somebody opened their eyes and said, “The devil had his tongue.”

I went to see Dr. Adams at the end of the service. He wouldn’t see me. They said he was very busy.

So, the word went out. “They called up this guy up, Les Brown, to do the morning prayer, and he just closes his eyes and says, ‘Lord, thank you so much for this morning. Amen.’ The shortest prayer in the history of the church.”

When I left there, I sat in my car.

I said, “This will never happen to me again. I have to learn how to speak.”

FELDMAN: How did you overcome your aversion to public speaking?

BROWN: I knew I was good in small groups, but I could not bring myself to think and to speak and to be confident before a large audience. I met a speaker named Mike Williams, who is my mentor to this day. I told him, “I’ll give anything to speak like you.” He said, 14

InsuranceNewsNet Magazine » August 2013

Les Brown’s 4 Keys to Speaking 1. You must get started!

Start speaking wherever you are. Just start.

2. Join a group like Toastmasters or National Speakers Association.

3. Find a mentor or a coach, someone doing what you want to do and learn from them.

4. Invest in a personal development library of books, CDs and DVDs.

These four steps are a foundation to great speaking.

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FEATURE

SPEAK TO WIN - WITH LES BROWN

“I’ll teach you.” And he taught me.

Because of Mike’s teaching, I’ve gone from speaking to one person to speaking to more than 80,000 people in the Georgia Dome.

Mike helped me to begin to recognize and conquer my inner restriction.

I would just freeze when I would stand before a larger audience. My mind would empty out.

In fact, at the Georgia Dome, I made the mistake of looking out at the audience before going out on stage. Then I ran and hid in a restroom. My friend Dexter Yager came to the restroom and said, “Brown, are you all right?” And I said, “No. I have to get myself together.” He said, “The band is stalling. They need you to come out. We want to introduce you.”

Then my mentor, Mike, said, “Man, come out of the bathroom.” I said, “I can’t, Mike. I don’t know what to say.

My mind is empty. I can’t think. My heart is beating real fast. I’m having shortness of breath.”

Mike said, “Brown, are you scared?” I said, “Yes.” He said, “Brown, listen to me.

They came to see you. You didn’t come to see them. All I’m asking you to do is get the microphone, maintain eye contact with me, and pretend you’re in your living room. I’ll be down front.”

So, when I came out of the restroom and we’re walking toward the stage, I said, “Will somebody pray for me?” And so they stopped, and they prayed for me.

Then I remember going up the steps and somebody asked, “Do you think he’s going to be all right?” And Mike said, “Yes. He’s going to be just fine.”

I went up and gave a speech called “It’s Not Over Until I Win,” and that has become the biggest seller in the history of speeches. That speech was driven by fear.

have a stream of thinking where you: tell them what you’re going tell them, tell them and tell them what you told them.

Find out what the audience needs to hear. Never let what you want to say get in the way of what they need to hear.

Then look at aspects of your own story that you could use to distract, dispute and inspire. All of us have things that we’ve gone through and knowledge that we’ve acquired. Use those things as a tool to distract your audience from their current story. How we live our lives is a result of the story that we believe about ourselves. And so, what we do with our story is to distract the other person from listening to their story.

Whether you’re talking to a person one on one, or whether you’re talking to an audience, they all have a conversation going on in their head. As you execute and deliver your story, you dismantle the audience’s belief system. Through that experience, through your energy signature, you inspire your audience to make new choices with their lives. So, the value of your story is that people do business with people they know, like

FELDMAN: You have said that a meaningful message depends on not only understanding your listener’s story but also using your own story.

What did you mean by that?

BROWN: Doing an assessment to determine your listener’s needs is the key to becoming more impactful when communicating with someone. One of the things that I strongly believe is to 16

InsuranceNewsNet Magazine » August 2013

and trust. You have to establish a level of trust and confidence immediately by telling your story in a way that the person will begin to identify with you. Then you create a bond, a connection.

Many speakers miss out on the opportunity to speed up that trust and that bonding process because they don’t take the time to learn how to tell their story strategically and experientially. Often, their presentations are filled with information. If information could change people, everybody would be skinny, rich and happy. You must have a way in which people can identify with you, and you have to be able to go through the mind and touch the heart.

Words spoken from the heart enter the heart. Those words will have far more influence on an audience or an individual.

FELDMAN: How can a salesperson speak from the heart and make that connection with a stranger?

BROWN: First of all, I would let a person know why I do what I’m doing.

“Doing an assessment to determine the needs of your listener is the key to becoming more impactful. Find out what the audience needs to hear.”

BELIEVING

is POWERFUL

Believing in yourself requires knowing that your life has value and that there is hope for your life. You don’t have to be on top of the world already in order to look up. No matter what your circumstances are, there is a reason for you still being here. How can you begin to believe in yourself more?

1. Get positive encouragement from others. Make it a point to be around people who make you feel good about yourself, whether friends, family, co-workers or mentors such as teachers and coaches.

2. Give yourself internal encouragement. Concentrate on saying things and doing volunteer work, working out, taking a class, listening to music or motivational tapes, reading inspirational books and the Bible, anything that makes you feel good about yourself. Get in the habit of saying positive things to yourself. Find a positive expression or several that work for you and put them on a card where you can look at them during the day. One of my favorites was given to me by a friend. It goes: “Good things are going to happen to me.” Say it repeatedly but each time put the emphasis on a different word or phrase:

GOOD things are going to happen to me.

Good THINGS are going to happen to me.

Good things ARE going to happen to me.

Good things are GOING to happen to me.

Good things are going TO HAPPEN to me.

Good things are going to happen TO me.

Good things are going to happen to ME.

3. Make deposits in a positive memory bank of achievements or good things you have done with your life. Savor your victories and achievements and moments of joy. Store them away for the hard times so that they can provide light in the darkness and hope when it seems like there is none.

4. Give yourself a break. Too many people blame themselves for hard times, when often it is just simply a down cycle that has caused the sky to fall down upon you. We all go through those cycles in our lives. Don’t assume responsibility for matters that are out of your control.

5. Grant yourself permission to make mistakes now and then, realizing we are God’s, not gods. Even if hard times in your life are the results of your actions, you should not condemn yourself. Has there ever been a life free of mistakes? I’ll answer that one for you. NO! So, take responsibility, take time to contemplate where you went wrong, and then accept that you are not perfect. Learn from your mistakes, make a commitment to change, then move on.

6. Put together a book or other positive reference source to bring you up when you slide into low moments. I call my version of this my Spirit Book because I go to it when I need my spirits lifted. It has pictures of my friends and family members enjoying life with me. It reminds me that hard times don’t last forever, and that better times are ahead.

7. Get busy on smaller steps that take you toward your dream. Do not overlook the need to have small victories. I love small victories and accomplishments because you can build upon them so easily to achieve great things. So take victories wherever you can find them, whether from cookies that come out of the oven just right, to a 15-minute exercise program that leaves you feeling exhilarated. One step at a time, day by day.

Stay in pursuit of your dreams and goals.

8. Resolve to replace worry with work, avoid the idle mind when you are vulnerable. Fretting should be banned as a waste of natural resources. What is ever accomplished by worrying about what might happen? People who fret and worry and chew their nails waste too much time. Focus on solutions, not problems, and the way will become clear.

9. Look your best so that your appearance reflects how you see yourself and attracts the sort of people you want to attract. I don’t know how people can expect to feel good on the inside when they look like 30 miles of dirt road on the outside.

When you are feeling down and out, dress as though you feel like a million dollars. If nothing else, people will wonder what you are up to.

10. Make a list of prized possessions, such as photographs of those you hold dear, and note why they have meaning for you. This is simply a way of reminding yourself of the people and things you value most in life. It is difficult to stay down and out for long when you stay in touch with those things that give your life meaning.

Les Brown, It’s Not Over Until You Win!, Fireside Books, 1997.

August 2013 » InsuranceNewsNet Magazine

17

FEATURE

SPEAK TO WIN

When I was a salesman at Sears, I would introduce myself and then say: “I’m so glad that you’re here. I came to work in this department because I love the products. I love the Sears brand and my work gives me an opportunity to meet positive people just like yourself. Tell me, what color do you like?”

If the customer was looking at a coat, I would not ask, “May I help you?” I would compliment them and tell them I’m excited about being there. I want to find a way to open up the conversation.

Most of all, I want to let them know that I’m here to serve them, and I’m excited about the opportunity to do that.

FELDMAN: That’s a good example of positive attitude, which is central to all that you do. In fact, your book, It’s Not Over Until You Win, is all about a winning attitude. How does someone develop that?

BROWN: The most important victory that one could ever have in life is the victory over yourself. For 14 years, I was losing the battle with Les Brown.

There’s an old saying, “If there’s no enemy within, the enemy outside can do us no harm.” When I do sales training, the training is focused on the seller. I don’t focus on methods and techniques.

I don’t focus on going back to the basics. I focus on the seller because when you face rejection again and again and again, it begins to take a toll on you. That past is tied up in your inner dialogue.

In the movie Magnolia with Tom Cruise, there’s a line: “We might be through with our past, but our past is not through with us.” I believe that how we perform and how we show up in life has a great deal to do with our internal dialogue, or what psychologists call our self-explanatory style. Many times, when things happen to us, we unconsciously beat ourselves up.

A study said more than 87 percent of our negative self-talk goes undetected by the conscious mind. So we have to monitor ourselves and we have to work to keep up a sense of optimism and possibility. We have to overcome that inner conversation that says, “I can’t do that.” I look at my own life. I was born on the floor of an abandoned building 18

InsuranceNewsNet Magazine » August 2013

What to Do When You are Stuck 1. Evaluate where you are. Ask yourself what brought you to this point. Are you learning or are you merely doing the same thing over and over again? You can’t do the same thing over and over and expect that the results will be different. That’s crazy! What you have done in the past will only get you what you’ve gotten so far. Change your approach.

2. Accept responsibility for your life. Know that it is you who will get you where you want to go, no one else. Say to yourself, “I got myself into this. I can get myself out of this. I am not going to be a volunteer victim.”

3. Be determined to handle any challenge in a way that will make you grow.

4. If you have a plan, put it to work now. Do whatever works best for you.

5. Take action. Do something that will move you toward handling the challenge today.

6. Help somebody else. If you are spending a lot of energy feeling sorry for yourself, find someone you can help and forget about yourself for a while. What you give is what you get.

7. Take charge of your emotions. Master them or they will master you.

8. Expect things to get better.

9. Reinterpret the past so that things that have been a burden actually empower you.

Les Brown, Live Your Dreams, William Morrow, 1992

SPEAK TO WIN - WITH LES BROWN in a poor section of Miami called Liberty City. I was labeled educable mentally retarded and put back from the fifth grade to the fourth grade. I failed the eighth grade and I have no college training. I could not see myself having anything of value to say to someone who had a college education. I had a tremendous inferiority complex.

Then I met a man who was a very effective communicator. He was a speech and drama teacher, and he asked me to do something in school. I told him that I couldn’t do it, but he insisted. And the kids in the class started laughing. He said, “Why don’t you follow my direction?” I said, “Because I’m not one of your students.” He said, “Do what I’m asking you to do anyhow.”

Then a student said, “He’s Leslie. He has a twin brother Wesley. His brother is smart, but he’s DT.” The teacher said, “What’s DT?” The student said, “He’s the dumb twin.” And I said, “I am, sir.”

As the class erupted and laughed, he came from behind his desk and said, “Don’t you ever say that again,” as he

pointed at me. “Someone’s opinion of you does not have to become your reality.” In that conversation, he distracted me from the label that I had bought into.

He inspired me to believe that I was someone other than the “dumb twin.”

That conversation impacted me. It gave me a new identity for myself.

When you are able to come to the mindset that “I can make this happen,” you’re able to accomplish things you never realized you could do. The key is winning the victory over your inner conversation. It’s being able to challenge yourself and raise the bar on yourself every day. We must win that mental game that we play with ourselves that says, “I can make this happen.”

When you do that, you discover that you have a drive. You have a passion.

You have determination. You have a willingness to stay in the game. You have a mental resiliency that will propel you to new heights that you could not achieve if you did not conquer the inner demons that stop all of us from achieving our goals.

FEATURE

“The most important victory that one could ever have in life is the victory over yourself.”

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August May 2013 » InsuranceNewsNet Magazine

19

FEATURE

SPEAK TO WIN - WITH LES BROWN

“What are five things you want that audience to walk away with that would make this a successful event?”

FELDMAN: In a crowded field of motivational speakers, how did you distinguish yourself?

BROWN: With any audience, you have to conduct communications intelligence. I noticed that 99 percent of speakers had a memorized speech and they would go back and give it over and over again. Perhaps it was a great speech for one particular audience, but the speakers had the mindset that one speech fits all situations. I didn’t believe that. I was looking for a way to make myself to stand out. I encourage anybody who is involved in sales or speaking to answer the question: What is it that you can do that could make yourself stand out?

Henry David Thoreau said, “Do not go where the path may lead, but go where there’s no path and leave a trail.”

And so, what I decided to do was simply to ask, “What is it you want? What are five things you want that audience to walk away with that would make this a successful event?” Then, I would talk to the group’s president. I would talk to the marketing director. I would find out what they are looking for.

I would arrive at the presentation early, and I would ask them to let me talk to five of the top salespeople. I would interview them separately to find out what are they doing that’s different from all the rest. Then I would talk to the people who are going to hear the speech and ask: “If you were speaking today, off the 20

record, what do you think this audience needs to hear?”

I would craft my message from what I got from the people who invited me to speak. I would incorporate the stories, the methods and the techniques of the top five performers. I would call out their names from the stage. I would use them as examples of what’s possible for everybody. I would tell the audience that those top performers are an example of what we all can do when we’re willing to raise the bar on ourselves and hold ourselves accountable to a higher standard.

I would insert the views, opinions and the feelings of the people in the audience. I would bring all that together on the stage. As a result, I would create an experience that was thought provoking, inspiring, humorous, inspirational, and motivational. I would give my audience something that changed how they were thinking and inspired them to make new choices.

As a result of the impact that I made, my audience didn’t think about the fact that this guy doesn’t have a college education. Because of the impact that I made, and the experience that I created, my lack of formal education never became an issue.

FELDMAN: What was the most awkward situation you’ve been in as a public speaker and were you able to turn it around?

InsuranceNewsNet Magazine » August 2013

BROWN: This girl invited me to speak at her school. She was the only AfricanAmerican at this school in Wildwood, Fla. When I got there, she drove me to the school, and she had me stay in the car. She ran in, came back and said, “In 15 minutes, go and knock on the back door.” So I said, “OK,” but thought this was strange.

I knocked on the back door and the principal opened up and said, “You’re Les Brown?” He looked like he’d seen a ghost. He had been expecting Les Brown, the jazz bandleader, to speak, and posters of that Les Brown and His Band of Renown had been put up all over the school.

I had extended my hand and he wouldn’t even shake it. He just led me to the stage area, walked to the microphone and said, “Ladies and gentlemen, Les Brown.”

The audience applauded, but when I walked out on the stage, the applause stopped cold. I knew I had to deal with the fact that they were looking for Les Brown, the bandleader.

I saw a banner in the back of the room that said, “You have the power, and this is the moment to seize your dream.”

I stood back and said, “This is a very proud moment for you. I want you right now to give these young people a round of applause, these young people who’ve taken the road less traveled, these young people who have greatness within them. Give them a tremendous standing ovation.”

I knew they were going to clap for their kids, and they did. Then I said, “And young people, you’re here because of your parents’ love. You’re here because of the people in this audience who believed in you. Stand up and give them a round of applause.” That got them all up in there. I went on to get a standing ovation, but that was a shocker for them.

FELDMAN: That was quite the recovery. How could they resist that? You were tapping into what was important to them in particular and what’s best about people in general.

BROWN: That’s what you should always be doing.

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For Agent Use Only — Not for use with General Public

[NEWSWIRES]

Men say they are “paying more attention” to saving for retirement. bitly.com/QRattention

Health Care Mandate Mix-Up Even though the Obama administration has postponed compliance with the employer mandate under the Affordable Care Act (ACA) for one year, the act’s individual mandate reportedly remains in force. The individual mandate is the requirement that most Americans obtain health insurance starting in 2014 or pay a fine.

With one mandate delayed and one not, and with certain legislators now calling for postponement of both mandates, some Americans may get downright confused. Or maybe they will conclude they won’t have to do anything about ACA at all.

Confusion is already abundant over the public health care exchanges that are being created under ACA. For example, only 14 percent of Americans say they understand how the exchanges will work, and fewer than 1 in 10 of uninsured consumers knows what types of plans will be available in the exchanges, according to a LIMRA survey.

We’re thinking this might be a good time for agents and advisors to gather some resources together to send out to clients who ask for insight or guidance.

Of course, that assumes current resources are available, which may or may not be the case.

WHAT? THERE ARE SURGING INTEREST RATES?

The nation’s largest pension plans experienced decreases of $25 billion in asset value and $72 billion in pension liabilities, and the pension funding deficit dropped by $47 billion to $179 billion at the end of June, according a Milliman study. That’s in comparison to May. “We’ve had a record year of funded status improvement so far in 2013, and June continued that trend,” commented John Ehrhardt, co-author of the study.

How did that happen? “It’s all about the interest rates,” he said. “The year-todate asset improvement has helped, but it’s the reduction in benefit obligation thanks to surging interest rates that

has gotten these 100 pensions much closer to 90 percent funded sta-

DID YOU

KNOW

?

22

tus than we could have imagined at the beginning of the year.”

A lot of people thought they’d never ever hear the term “surging interest rates” this year, but there it is. How ’bout that?

DOES THE FIO ‘GET’ THE INSURANCE INDUSTRY?

Insurance wags have been wondering whether the new Federal Insurance Office (FIO) created by the Dodd-Frank Act would “get” the life insurance and annuity industry and, if so, in what way.

Now, they have a glimpse.

In its first annual report, the FIO presented a broad-brush look at the industry that it is charged with monitoring, but FIO also spotlighted some issues that keep industry leaders awake at night. For instance, the report notes

that an increasing proportion of the population faces the increased risk of outliving their retirement assets, and

OVER THE PAST YEAR, total mortgage and home equity debt obligations fell 3.1 percent to $8.4 trillion and total non-mortgage debt owed by consumers rose 7.1 percent to $2.5 trillion. Source: Equifax

InsuranceNewsNet Magazine » August 2013

that “insurers face the risk that liabilities on lifetime annuity contracts will exceed the underlying assumptions in effect when the annuity products were priced and sold.”

It also spotlights some opportunities.

For instance, it notes that demographic changes (such as aging baby boomers and decreased fertility rates) “present opportunities for insurers to offer alternative lifetime-income solutions to protect the retirement security of individuals (e.g., certain deferred fixed annuities).”

Hmm, where is this going? More reports are coming, so it’s wait-and-see time.

TIME TO SOUND THE LTD ALARM

At least one third (33 percent) of surveyed full-time workers lack long-term disability (LTD) insurance, according to a Sun Life Financial white paper. That could be a signal that the disability insurance industry needs to do some educating in this area – yes, again.

Some workers do have the option of paying for coverage through a group LTD plan at work, but Sun Life said 38 percent of such workers declined the offer, with most remaining uninsured.

Why do they decline, you ask? Some don’t think the risk justifies the cost, the insurer said. Others haven’t considered the issue, and still others find disability too unpleasant to contemplate. That seems like a road map to opportunity for the enterprising insurance person who’s into giving wake-up calls – and sounding alarms.

HOW MUCH MONEY ARE PEOPLE SOCKING AWAY FOR THE GOLDEN YEARS?

If considering all American workers, the retirement savings piggy bank is pretty lean. The average amount of retirement funds saved up per household is just $53,000, according to a 2013 retirement survey from Transamerica. Only 18 percent have saved $250,000 or more.

That’s not end-of-story, though. Among so-called “power planner” households, the coffers look greener. For instance, the 22 percent of households who set aside 10 percent or more of their annual sala-

[NEWSWIRES] ry for retirement report having saved up $161,000 so far, and 37 percent of that group peg their total at $250,000 or more.

Other power planner groups also have higher percentages of households with $250,000 or more saved up.

So just who are these power planners? They’re “ordinary Americans” of all ages, the majority with less than $100,000 in annual household income.

Oh, and 59 percent of all workers fall into one or more of the power planner categories – “a surprisingly high percentage,” according to the researchers.

Maybe they need a power-visit from their local insurance agent or advisor.

QUOTABLE Investors under the age of 40 are often overlooked due to the focus on the baby boomer generation. However, these investors are the key to financial services firms’ long-term success.

— Kevin Chisholm, associate director at Cerulli Associates

BOOMERS TURNING ON TO LTC CONCERNS

67

is the top retire% What ment concern of the old-

est baby boomers? Nearly one third (31 percent) of of 67-year-old boomers say LTC 67-year-old boomers say for themselves the answer is providing long-term care (LTC) or spouse is top concern for themselves or their spouses, according the MetLife Mature Market Institute.

Not coincidentally, we think, more than 10 percent say they currently are providing regular care for a parent or older relative.

Many of these individuals report that the level of care has increased. Even so, slight-

ly less than one quarter of the eldest boomers own long-term care insurance,

according to institute numbers.

Another survey – this one from Nationwide – found something similar: Even though most of the age-50-and-up crowd does have a plan for retirement finances, the company said, more than

One Regulator Continues, Another Leaves In New Mexico, speculation has ended about who will be the state’s next top insurance regulator in the wake of changes to the state’s insurance regulatory structure. John G. Franchini will be superintendent of insurance of the newly-created New Mexico Office of the Superintendent of Insurance.

John G. Franchini

Jim Riesberg

Meanwhile, in Colorado, Jim Riesberg up and surprised a lot of folks in late June when he resigned his post as insurance commissioner and director for the Colorado Division of Insurance.

If Franchini’s name sounds familiar, it’s probably because he has been superintendent of the insurance division of the New Mexico Public Regulation Commission (PRC) for the past three years. A constitutional amendment subsequently pulled the insurance division out of the PRC and made it an independent office.

The nominating committee did consider other candidates for the top post in the new office, but ultimately decided to keep Franchini on board.

Colorado’s Riesberg had been the state’s top insurance regulator since July 2011. He gave little reason for his departure other than to say “I feel it is the right time for me to step away from this role.” While the Colorado Department of Regulatory Agencies searches for his replacement, Doug Dean will serve as interim commissioner. That name might seem familiar, too. That’s because Dean had served as Colorado Insurance Commissioner from 2003 through early 2005.

He continues as director of the state’s Public Utilities Commission.

half (57 percent) do not account for LTC expenses.

Seems like the big disconnect between LTC awareness and LTC planning is continuing.

HE STOLE EMPLOYEE BENEFIT CONTRIBUTIONS

Employees at an Anoka, Minn., furniture company had contributed regularly into their employer-sponsored healthcare, dental and 401(k) plans, or so they thought. Turns out that David Elvig, the owner and founder of E-Street Makers, had other ideas. According to the Employee Benefits Security Administration (EBSA), Elvig siphoned off some of the

contributions to pay company expenses in 2009 and 2010. As a result, providers

cancelled the health and dental plans and some employees defaulted on loans they had taken from the 401(k), EBSA said.

The case did go to trial, but even though Elvig was a member of the Ram-

sey, Minn., city council, the jury found him guilty of two counts of theft by swindle. He got 60 days in jail, plus an order to pay more than $24,000 in restitution.

Stealing from his own employees’ plan contributions? Come on!

GUARANTEED RETIREMENT INCOME ROCKS

A lot of workers really want to have a guaranteed income in retirement, so much that they are willing to pull the belt a little tighter in order to get it. That’s what Bank of America Merrill Lynch found out in its 2013 survey on workplace benefits.

Four out of five (79 percent) of the 1,000 employees it surveyed said they would be willing to give up 5 percent or more of their salary if it meant having reliable income to help them live com-

fortably during their later years. What’s more, nearly two fifths (38 percent) say they would give up 10 percent or more, and among pre-retirees, over half (52 percent) said they would give up 10 percent or more to have such a guarantee.

August 2013 » InsuranceNewsNet Magazine

23

Sales capacity and an aging field force threaten the long-term growth of the industry, but nimble organizations can address these issues and position themselves for profitable growth in the future.

By Patrick T. Leary

24

InsuranceNewsNet Magazine Âť August 2013

FEATURE

PAST & FUTURE

T

he insurance industry faces the well-documented problem of an aging sales force, but new research shows just how steep of a challenge it faces in recruiting and retaining new generations of agents and advisors.

LIMRA and McKinsey & Co. recently completed the latest chapter of an ongoing joint effort started in 2002 to monitor how various insurance distribution channels are responding to socioeconomic trends. The study finds that, although the outlook is positive for those organizations willing to embrace change, time is running out to address some critical industry issues.

Two separate, but related, underlying trends threaten the long-term growth of the industry: sales capacity and an aging field force. While some channels have made progress in these areas, overall not enough new talent is entering – and staying in – the industry to replace those retiring or leaving.

Today’s affiliated insurance sales force is now less than 150,000, down 40 percent from the 1980s. Recruiting new tal-

ent in the industry remains relatively flat and turnover continues to be high, especially in the first few years of an advisor’s career. If this trend continues, it will have a significant impact on the industry’s ability to sustain profitable growth.

This ongoing struggle to attract and retain new talent has created an additional challenge: that of driving up the average age of today’s advisor. This is especially the case in the independent insurance environment. The bulk of the independent field force has more productive years behind them than ahead of them.

Compounding the issue is that fewer career advisors (the historical breeding ground for independent distribution) are following the traditional career path, instead choosing the investment space in which to grow their practices. This presents a critical challenge for organizations that rely on independent insurance advisor distribution: Where will the independent advisors of the future – and their business – come from?

The aging of the field force also brings to the forefront, more so than ever, the issue of business continuity. It becomes

The bulk of the independent field force has more productive years behind them than ahead of them. critical to assist advisors in the twilight of their career with succession planning to provide for an orderly transition to the next generation. It is a concern, then, that sufficient transition plans are not in place for many of these individuals. Fewer than half of the advisors planning to retire within the next three years have a succession plan in place; many have not even thought about it.

Organizations must develop strategies that maintain and build firm value

Figure 1: Where have all the life insurance agents gone?

Life Policies (thousands)

Career Agents 300,000

18,000 250,000

16,000 14,000

200,000

12,000 150,000

10,000 8,000

Number of career agents

Number of life policies

20,000

100,000

6,000 4,000

50,000

2,000 0 1973 1975 1981 1983 1986 1989 1991 1993 1996 1998 2001 2004 2007 2010 Source: LIMRA’s Drivers of Sales (2012)

0

August 2013 » InsuranceNewsNet Magazine

25

FEATURE

PAST & FUTURE

Figure 2: Traditional Vs. Contemporary Advisors Insurance*

Investments

Insurance-Oriented Advisors 1% 1%

Other

Investment-Oriented Advisors

Mix of Business1

8%

Advisory

Mix of Business1

3%

2%

3%

8%

10%

30%

48% 91% Traditional

39%

90%

Contemporary

and prevent “productivity retrogression” among senior advisors who may be content with their practice “as is.” To maintain and grow the field force, and ultimately the business, it is critical to give senior advisors a stake in the transition (perhaps in a legacy leadership role) and to help identify successors to ultimately take the reins of practice leader.

So What?

Although consolidation, technology and business efficiencies certainly have contributed to the decline in the number of advisors, there is no doubt that advisor count and retention play critical roles in the amount of life insurance business written. When comparing the number of career agents with life policy sales figures, there is a close relationship, especially after 1985. There is a similar relationship with retention. As LIMRA’s 2012 “Drivers of Sales” research demonstrates, “feet on the street” is a confirmed driver of individual life insurance sales.

Therefore, organizations not only must identify new sales talent, but create an environment where new sales professionals can be educated in selling insurance, successfully launch a career and flourish in those critical first few 26

Percentage of sales or revenue

years. Once established, it is likely that a new recruit will embrace the career and become a successful long-term practitioner.

Furthermore, as organizations look to grow their market share or protect their current market share, particularly in the insurance space, it is especially important that they follow through on providing a positive experience. They need to retain promising performers in order to maintain company sales growth and profitability. As organizations compete for sales talent today, they compete not only within their own channel, but also with other financial services channels (including independent distribution networks) and other professional sales positions.

As such, firms must remain vigilant in managing their sales forces. It is a buyer’s market, as the shrinking number of advisors has been in a position where the advisors can call the shots when placing their business. This poses a challenge for companies competing for sales talent. Advisors demand higher payouts, and these payouts have put a squeeze on distribution economics. Higher payouts have motivated affiliated advisors to consider becoming independent.

InsuranceNewsNet Magazine » August 2013

40%

Traditional 1

27%

Contemporary * Includes Annuities

Source: LIMRA (2013)

In the wake of the financial crisis, they were content to remain with their firms.

While their satisfaction today remains high, there is evidence that satisfaction is eroding – particularly among affiliated advisors – and advisors are considering leaving their firms as the economy gains strength.

Firms must provide a value proposition beyond compensation that aligns with the needs of today’s most desired recruits. When switching firms, these individuals seek professional growth over higher payouts. They are looking for an environment that will best facilitate the growth of their practice, in a culture that best compliments their personal selling styles. This is especially the case among younger advisors in the early stages of their careers.

Advisors joining the industry today value different aspects of a career than did those in the past. No longer is it just about “being your own boss” or building personal wealth. Today, their success formula includes the opportunity for professional growth, to contribute to the growth of the firm, to have a voice in the firm’s strategic direction and to be part of a team versus operating as a solo practitioner. It’s not that compensation

PAST & FUTURE isn’t important – this is far from true.

But in today’s environment, strong compensation is an expectation. It is in other areas where organizations can differentiate themselves in order to attract and retain the best and brightest of today’s sales force.

Changing Times

While the underlying issues of sales capacity and an aging field force create a background against which today’s industry operates, other developments merit attention as well. Ultimately, these developments present opportunities for organizations that, if leveraged appropriately, can set them apart from the competition.

These three realities dictate the current state of distribution and the framework in which today’s financial services organizations now operate: [1 ] The dominance of independent distribution.

[2] The emergence of the contemporary advisor.

[3] The development of the integrated sales and service model.

1. Independent Distribution Independent distribution is the leading sales channel for many core industry products. Today it accounts for more than half of the life insurance written and for two thirds of the annuity business written. In the independent realm, advisors are actively screening carrier partners, while independent distribution networks (insurance marketing organizations and brokerage general agencies, for example) have become central to distribution strategy. These organizations now play a critical role in the competition for sales talent and market share.

More independent advisors today prefer to place their business through an intermediary as opposed to placing it directly with a carrier.

With much of the business now written through independent channels and, with industry consolidation creating large mega-distributors and distribution networks, these organizations now have

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Advisors joining the industry today value different aspects of a career than did those in the past. significant leverage among manufacturers. In an effort to differentiate themselves, these independent organizations have gone beyond the traditional mix of services to provide other value-added support such as advanced marketing attorneys and marketing services.

Further, these independent distribution networks will seek new sources of revenue, which likely will lead them to expand into new markets, offer new services or tap into new sales channels.

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August 2013 » InsuranceNewsNet Magazine

27

FEATURE

PAST & FUTURE

Figure 3: Advisors’ Interest in Smart Phones, Tablets and Social Media is High Use a smart phone to...

Currently use

Access information Obtain quotes while traveling Gather data Present information Train or continue education

Would like to use

73%

18%

58%

9%

26%

31%

37%

19% 14%

Do not use 16%

32%

37%

44%

38%

48%

Use a tablet to...

Access information Obtain quotes while traveling Gather data Present information Train or continue education

60%

28%

50%

12%

33%

35%

17%

46%

33%

47%

24%

19% 20%

52%

24%

Use a social media for...

Team communication/collaboration Promoting my practice Source new clients Communicate with existing clients

16% 15% 13% 11%

21%

63%

22%

63%

21% 19%

66% 70%

Source: LIMRA & McKinsey & Co. (2013)

Carriers must decide what value proposition, beyond product, that they will provide to these organizations in order to have a seat at the table. These trends raise the question of how far carriers need to go in providing services to these increasingly vertically integrated marketing organizations. As supported in LIMRA’s 2012 “Turning Point” research, the key to the future success of independent organizations and carriers will be having a clear strategy for differentiation and executing it well.

For those organizations not working through independent distribution networks, but distributing directly to advisors instead, there is increased competition as advisors constantly revisit and reevaluate their carrier relationships and look to “shorten their shelves.” Today, independent advisors place business with just half of the companies to which they are contracted.

Furthermore, almost half have stopped writing business with at least one carrier in the past two years, typically due to noncompetitive product offerings. Other contributing factors include the carrier’s financial instability, a desire 28

to reduce the number of companies to which they are contracted, and service and support issues. As such, advisors constantly evaluate organizations, providing opportunities for manufacturers to develop product, service and delivery models as points of differentiation to attract the business of today’s independent advisors.

2. Today’s Contemporary Advisor Over time, competitive pressures, market demands and new regulations have created a new profile for today’s advisors.

Many have broadened their practices, incorporating investment and advisory solutions. Likewise, investment-oriented advisors now include insurance and advisory services as part of their business.

Financial services organizations have responded in kind, as many now offer – to varying degrees – a wide range of insurance, investment and advisory solutions through affiliated and third-party channels.

As such, the competition for clients, especially pre-retirees, will be especially fierce as more advisors across various insurance and investment channels now

InsuranceNewsNet Magazine » August 2013

Today, independent advisors place business with just half of the companies to which they are contracted. provide an entire suite of products and services to meet client needs. These advisors and their carriers no longer just compete with other insurance-oriented advisors and carriers, but also with investment-oriented advisors and their firms. These include independent advisory representatives (IARs), bank advisors, and advisors affiliated with full-service and independent broker/dealers.

This emergence of contemporary advisors – who have expanded their prac-

PAST & FUTURE tices to include new offerings beyond the traditional product set – has contributed significantly to today’s distribution environment and is becoming more engrained. For today’s career and independent insurance advisors, 30 percent of their gross revenue comes from investment and advisory business, up from 23 percent in 2004. What is very telling is that almost half of insurance-oriented representatives consider their primary area of expertise to be something other than insurance.

Yet, while the contemporary advisor is becoming increasingly prevalent, this does not mean that the traditional advisor is going away. A significant number of advisors in both the insurance and investment space remain successful by focusing on traditional core business. As a result, organizations now must support multiple types of advisors, each with unique needs. No longer is one support model sufficient; companies must identify where they will build competitive advantage that will align the most desired advisors with their strategic priorities.

3. The Integrated Sales and Service Model The increased need to deliver products and services in an efficient and cost-effective way – coupled with the evolving expectations of today’s consumers – has created today’s integrated sales and service model.

Similar to the consumer products space, financial services organizations are adopting the concept of multichannel marketing (also referred to as “omni-channel retailing”), where consumers are presented with a consistent experience across web, mobile and retail stores. In this approach, technology takes center stage as the organization gains a single view of the customer across its channels, as opposed to several siloed views. It recognizes that today’s customers will leverage multiple outlets as they research and buy products and services.

Well entrenched in the consumer products space, today’s customers have come to expect multichannel marketing and distribution regardless of the product or

FEATURE

service they are buying, including financial services. As such, firms and their advisors must be able to deliver this consistent experience across affiliated and third-party channels, as well as across contact center, web and mobile platforms.

Today’s advisors recognize this need.

Demands in the technology arena are more specialized; yesterday’s differentiators are today’s table stakes. To meet the needs of today’s clients, advisors are demanding more advanced technology for client acquisition and maintenance.

Their interest in smart phones, tablets and social media is high; a significant number would like to incorporate such technology to access information, obtain quotes, gather data, present information and use for training or continuing education. Advisors also say they plan to increase their use of social networking and video conferencing to contact their clients. In fact, research shows that the number of advisors who expect to initiate daily or weekly contact with their clients via these methods is expected to rise significantly over the next three years.

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29

FEATURE

PAST & FUTURE

Figure 4: A Better Assessment of Priorities Setting Priorities Based on Perceived Value and Delivery Satisfaction Higher

Lower

Maintain to Retain

Perceived Value

Sastisfaction with Delivery

Diminishing Returns

Remain Vigilant

Higher

Differentiator Lower Source: LIMRA

Service and Support

Today’s distribution environment places competitive pressure on organizations to try to “be all things to all people” – forcing them to step back and review the service and support they provide to both traditional and contemporary advisors.

However, it would seem that organizations are focused more on quantity than quality. Advisors receive more support services today than they did in 2004, but many of these services are not highly valued. Today’s advisors have raised the bar, requesting more specialized services in point-of-sale support, technology management, development and coaching, remote sales support, marketing services, and new-business processing.

Organizations must align their strategies and provide the services and support that best position them for profitable growth today and in the future, while recognizing the value that certain services provide to an advisor’s practice. The competition for sales talent and the business of today’s advisors is particularly fierce. Financial services organizations operating in both affiliated and third-party (i.e., independent distri30

bution) channels must provide a value proposition beyond compensation that aligns with the needs of their top performers – but that also appeals to advisors with other firms as they look to place their business. This exhibits itself in the following ways: Th e need for specialized service and support.

The changing role of field leadership.

Th e growth of second-line management and product/functional specialists.

Th e increased demand for wholesalers (especially point-of-sale wholesaling) and the growing importance of sales desks.

Opportunities in Focus

Forces of change among manufacturers, distributors, advisors and consumers have reshaped the distribution landscape. This has driven companies to reevaluate their distribution strategies and create new approaches that leverage the business dynamics in play. In today’s en-

InsuranceNewsNet Magazine » August 2013

vironment, organizations and their advisors can deploy four best practices to gain clarity and position themselves for success: client specialization, retirement planning, knowledge of client life events and team-based business models.

1. Client Specialization Currently, 43 percent of advisors incorporate client specialization and segmentation into their practice model.

And, according to research, those who do so can expect to increase their production by an average of 15 percent.

When segmenting their clients, advisors tend to use level of affluence, occupation, age and life events as the primary dimensions.

As advisors themselves become more specialized, the resulting demand for specialized support (particularly both in-person and remote sales support) increases. In addition, support from product specialists, sales desks and wholesalers has become increasingly critical to advisor success. Collaboration and team-based business models are approaches that allow advisors to integrate their resources and serve their clients in a consistent manner.

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31

FEATURE

PAST & FUTURE

Figure 5: Four Best Practices can Drive Advisor Productivity Productivity driver1

Practice

Teaming/partnering2

Regularly partnering with other advisors

Client specialization

Targeting specific client segments

Retirement planning for pre-retirees

Creating retirement plans for additional 30% of clients

Knowledge of client life events

Increasing awareness from 5 to 8 life events per client

Potential annual production gains for advisor grossing $200,000 per year3 $30,000 $26,000 $9,600 $7,333

¹ Drivers of productivity identified through multivariate regression. ² Effect holds for those who regularly refer clients with special needs to other professionals, occasionally or regularly conduct joint fieldwork, or are part of a formal sales team that shares clients, revenue, expenses and support. ³ Regressions control for effect of channel affiliation, years of experience, firm tenure, education level and gender on productivity.

Source: LIMRA & McKinsey & Co. (2013)

2. Retirement Planning Our research further shows that advisors who engage in retirement planning activity can increase production by 5 percent.

It is common knowledge that the growing retirement market presents tremendous opportunity to meet the accumulation, protection, payout and wealth transfer needs of today’s consumers. The retirement market includes not only current retirees, but also pre-retirees who are accumulating retirement assets and preparing to enter the payout phase, leveraging those assets to fund their retirement years. Adding to the retirement dynamic are concepts such as “phased” retirement and part-time retirees, those individuals who take on second careers in retirement.

While there is significant opportunity in the retirement space, there also are challenges. Of the estimated 50 million pre-retirees today, many lack understanding of retirement risks, most find it difficult to communicate goals and concerns, and two in three clients who have advisors still fail to create a plan. In addition, many advisors don’t know how to frame the retirement income discussion. Fur32

ther, according to LIMRA’s “Advisor Perspectives on Retirement Planning” study, half of retired clients will switch to a new advisor in retirement.

It is clear that advisors who employ retirement planning as part of their business models have higher net incomes than those who do not. In addition, advisors find that formal written plans can bring benefits such as fostering client relationships and directing discussions toward product solutions.

Once a plan is established, it follows that the advisor would provide the means to put the plan into action. Advisors believe that these plans can help them build assets under management through rollovers and referrals. Recent LIMRA research shows that about seven in 10 of them use software packages to generate plans, saving time while enhancing the professionalism of the finished product.

3. Knowledge of Client Life Events According to research, advisors can increase production by almost 4 percent through building awareness of their clients’ life events. Developing knowledge of events such as retirement, marriage/

InsuranceNewsNet Magazine » August 2013

divorce, a receipt of a large sum of money, serious health issues, the birth of a child and unemployment can help advisors better align product and services solutions to meet their clients’ needs. However, this approach means engaging clients at a new level that requires more time – putting pressure on advisors’ ability to manage a large number of clients effectively.

LIMRA research of life insurance shoppers (reported in the “Buyer-Nonbuyer” study) supports this approach.

More than two thirds of life insurance shoppers ultimately purchased a policy when experiencing certain life events or triggers, including: Changed marital status.

Purchased a home.

Started/expanded a business.

Became a parent.

Received substantial assets.

As such, advisors who are proactive in identifying current and new prospects

PAST & FUTURE

FEATURE

Figure 6: Impact of Retirement Plans on Advisor Net Income Pre-retirees age 40–55

$373k

$399k

$377k

$303k

<25% of clients with retirement plans

Retirees

$325k

$280k

25–50% of clients with retirement plans

>50% of clients with retirement plans

<25% of clients with retirement plans

25–50% of clients with retirement plans

>50% of clients with retirement plans Source: LIMRA (2013)

experiencing life events can position themselves nicely for current and future sales opportunities.

4. Team-Based Business Models Our results also show that regularly partnering with other advisors can increase production by 15 percent. The growth of team-based business models not only represents a change in philosophy, but also a change in culture that has implications for recruiting, talent management, client service and practice support.

Until now, the financial services industry has been built around a solo distribution model, where advisors build their own practice and their organization provides a compensation and support model that drives success.

Team-based models can alleviate pressures on advisor practices and help them succeed, and advisors in teambased practices cite several reasons for employing them: Th ey wanted to grow the practice and increase productivity.

I t evolved from informal partnering/ joint work.

Th ey sought ways to better serve clients.

I t was necessitated by the growing complexity of the business.

Team-based models fit nicely into today’s business environment and address challenges around sales capacity and business transition. Advisors entering the business today seek a team approach in their sales model. And, according to our study, advisors placed in team-based business models are more likely to succeed than those in traditional solo practices.

Specific advantages to team-based business models include: allowing for an orderly business transition to the next generation of advisors, providing a work culture of success where new advisors are not overwhelmed and can rely on their team members for support, addressing complex client needs through the various specializations of team members, and allowing the practice to engage and manage a large number of clients effectively.

A New Distribution Landscape

Challenges in distribution economics, advisor business models and consumer

preferences have created an environment where the economics of distribution are under pressure. This is driven by the increasing cost of supporting and serving a limited number of advisors, as well as managing the demands of multichannel sales and distribution. As such, there is a new distribution landscape, one that financial services organizations have the opportunity to leverage for their benefit. While the clock is ticking on addressing issues around sales capacity and an aging field force, nimble organizations have their eye on the clock and are taking steps to address these challenges and position themselves for profitable growth in the future.

Patrick T. Leary, MBA, LLIF, is assistant vice president, distribution research, for LIMRA. In this capacity, he oversees LIMRA’s distribution research department. This area studies a wide range of distribution channels, including affiliated and independent insurance agents, financial institutions, worksite, broker/dealers and direct response.

Patrick can be reached at Patrick.Leary@ innfeedback.com.

August 2013 » InsuranceNewsNet Magazine

33

[LIFEWIRES]

Life insurance ownership linked to feelings of security bitly.com/QRsecurity

Financial Advisors can Use an Injection of Life It appears that these are discouraging times for financial advisors. Clients aren’t asking about life insurance and, as a result, advisors aren’t selling as much of it as they would like.

Those findings are from a recent Saybrus Partners survey, which found that 52 percent of financial ad-

30

%

of advisors DON’T regularly PROVIDE LIFE insurance

visors did not describe their insurance sales efforts as “successful.” Making matters worse, 44 percent of the advisors polled said

that no more than 10 percent of their current clients had asked them about life insurance.

Among the 30 percent of advisors who do not regularly provide life insurance to their clients, almost half (49 percent) said “selling life insurance detracts attention away from their practice,” and nearly one out of five (17 percent) said they don’t sell it because “life insurance is too complicated.”

It would seem that this opens a door for life insurance specialists to form relationships with financial advisors who are having difficulties in convincing their clients to say yes to life. In a similar survey taken last year, 42 percent of financial advisors said they would be interested in either working with a life insurance specialist who can help identify solutions for their clients or attending a life insurance seminar aimed specifically at financial advisors.

CUTTING COMMISSIONS = IGNORED MIDDLE MARKET?

Some say that lower commissions plus an agent shortage are leading to an ignored middle-income population.

In the first quarter of 2013, every major individual life insurance product line saw premium growth – but all product lines, except term, saw policy count drop, according to LIMRA. Life insurers have contended with a bleak economy, high unemployment, historic low interest rates and new regulations. This has led to a hike in premiums on certain policies, making them unattractive to buyers. Despite these factors, companies are doing very little to solve the problem of getting middle-income Americans covered by DID YOU

KNOW

?

34

life insurance, maintains Byron Udell, president and chief executive officer of AccuQuote. “Most people are not rich – there’s your middle market.”

The other major factor contributing to the problem is that there is about half the number of licensed life insurance agents today compared to 30 years ago,

Udell said. Fewer agents means “less life insurance gets sold. Period.” About 75 percent of life insurance is still bought face to face, Udell said. “If you’re trying to win a war, you need troops on the ground to get the war won because you got to win it in hand-to-hand combat.”

With all that violence going on, you have to hope people have their life insurance!

INDUSTRY LOOKING AT LIKELY MEGATRENDS

What keeps company executives up at night? Tighter regulation, tougher capi-

STATE AND LOCAL GOVERNMENTS IN THE U.S. would be permitted to turn their retirement systems over to life insurers under Senate Bill 1270 that seeks to diminish public-pension deficits. Source: Senate Finance Committee

InsuranceNewsNet Magazine » August 2013

tal requirements, economic volatility and longevity risk due to big demographic changes are the trends causing the most concern for insurance executives, according to a Towers Watson survey.

While the findings are not entirely new, the fact that the industry has “been there, done that” is no longer the issue, according to Patricia Guinn, managing director of Towers Watson’s Risk and Financial Services segment and author of the 2013 Insurance Megatrends Survey.

“Perhaps most significantly, the industry has to consider whether ‘been there, done that’ is adequate preparation for megatrends that, quite literally, are unlike any we’ve seen before,” Guinn wrote in the report’s conclusion.

Few execs feel they are adequately prepared for these challenges, according to the survey. Only 11 percent of respon-

dents said they were “poised to leverage” trends in shifting demographics and longevity risk. In addition, only

10 percent said they were prepared to take advantage of new regulatory, legislative and capital constraints. A total of 16 percent said they were prepared to capitalize on the bigger role of advanced technology and big data.

NORTHWESTERN MUTUAL ON A ROLL WITH RECRUITING

Northwestern Mutual keeps rolling along in its recruitment efforts, and is on pace to surpass its largest goal in the company’s 156-year history.

The company announced that so far this year, it has recruited more than

1,100 financial representatives across the country – a more than 8 percent

increase from 2012 – and nearly 3,000 financial representative interns. In January, the company announced its most aggressive recruiting effort as it sought to recruit more than 5,500 financial professionals.

This year marks the second consecutive year that Northwestern Mutual has increased its recruiting goals to record levels. In 2012, the company surpassed its recruiting goal of 5,000 financial professionals.

RETHINKING BIG CASES

FEATURE

August 2013 » InsuranceNewsNet Magazine

35

LIFE

Indexed UL is Not a Fad I ndexed life insurance products aren’t for all clients, but they could be a good choice for a client who is investing for the long haul.

By Michael C. Staeb

M

any advisors are under the mistaken impression that indexed universal life insurance (IUL) is a fad that eventually will founder and go the way of first-to-die and credit life insurance.

What those individuals fail to consider is IUL’s flexibility. Like all universal life products, IUL has flexible premiums as well as death benefits that are not as easily accessible in other products. It is also the only general account product that has interest crediting linked directly to stock market performance without actually being invested in the market.

IUL always will be relevant (whether we’re in a bull market or a bear market) and theoretically can be linked to the indexed price of anything.

To quote Bobby Samuelson, an industry expert on IUL, “When times are bad, people just want return of capital and, when times are good, people want return on capital. The great thing is that IUL gets both.”

Indexed life insurance is not for everybody, but it’s not for the elite either. An ideal client for IUL is someone who has a steady income stream and who is looking to maximize tax-preferred retirement savings vehicles.

Most important, any client buying IUL needs to understand it is a midterm to long-term play, generally at least 10 years, and ideally 20 years or longer.

First of all, I don’t claim to be a retirement planning expert. That said, I believe a strong possibility exists that we will experience substantially higher taxes over the next 25-50 years. Today’s top income tax bracket is the lowest it has been since the Great Depression (with the exception of 1988-1992). With an unsustainable national debt, higher taxes should be viewed as inevitable. Between that and

36

the tax treatment of various savings vehicles, the following order of maximizing contributions (where available) is what I recommend to my clients: [1] 401(k) with employer matching: I tell my clients to contribute only what is needed to maximize the employer matching. This is free money, so don’t pass it up, even if it’s taxable. Employers who match 401(k) contributions most commonly do so dollar-for-dollar up to 3 percent of salary. If matching is not dollar-for-dollar, it may still be worthwhile, but consult a retirement planning professional to maximize the match effectively.

[2] Roth individual retirement account (IRA): Even with a low contribution

limit, a Roth IRA offers 100 percent tax-free growth and distributions. For higher income earners, the availability of a Roth phases out above $112,000 for individuals and $178,000 for joint returns (for 2013). However, I tell my clients that if they qualify for a Roth, to max it out while they can! Don’t forget that after five years, Roth IRA holders, regardless of their age, have penalty-free access to principal. For your 1099 contractor and business owner clients, you effectively can create an account with 401(k) level contribution limits and Roth tax treatment. Talk to a retirement planning professional.

[3] Cash value life insurance: This enjoys taxation almost identical to a Roth IRA but with no specific limit on the amount put in each year. It seems common that in the day-to-day activities of helping our clients with their diverse needs, we unintentionally can leave out some of the key benefits of cash value life insurance. The obvious benefits are tax-deferred growth and income taxfree death benefit. Often not explained to clients are the tax-preferred distributions (effectively tax-free with proper planning and an overloan protection rider), no “contribution” limit and creditor protection when individually owned (varies by state).

InsuranceNewsNet Magazine » August 2013

IULs are still relatively young as far as life insurance products are concerned.

It is vital to choose a carrier with a long-standing reputation of doing well by their insureds and policy owners.

Obviously, with IULs still the newbies of most carriers’ product offerings, it’s not always easy to compare carriers based solely on how long they’ve been in the IUL market. With IUL being primarily a cash value accumulation product, it is prudent to consider the carriers’ history of cash accumulation products in general, whether that is through whole life, current assumption UL or variable life products. If the carrier has a long history of strength in those types of products, even if the carrier may not be offering them today, that is a good indicator it is diligent in designing an IUL product offering.

Ignore for a moment the difference between one IUL product and another.

Think only of the concept of the product. IUL is not a risky product. Downside protection and upside potential is an appealing value proposition. What’s not to like? But with anything that initially sounds attractive, there is a tradeoff. Let’s look objectively at how these products work.

One of the most common questions I’ve heard as IULs have grown in sales and popularity is: “How does an insurance company afford the return potential that it offers?” A common misconception is made when answering that question. Explaining the trade-off of earnings above a cap rate is not an accurate answer. Life insurance companies offering these products are actually buying call options from an investment firm or bank that offers options on the index to which the carrier is linking their indexed crediting, most commonly the S&P 500. Call options, put simply, are the insurance company buying the right to purchase the stocks at a given point in the future, but at today’s price and only up to a specific amount of growth (12 percent for example).

This is a win/win situation for all parties

INDEXED UL IS NOT A FAD because of three potential outcomes. For example, let’s say: Index gains more than call option (+15 percent)

Insurance company gets 12 percent, credits the client 12 percent and the investment bank keeps the extra 3 percent stock earnings and the option fee.

Index gains less than call option (+5 percent)

Insurance company gets 5 percent, credits the client 5 percent, and investment bank breaks even on the stock and keeps the option fee.

Index loses value (-10 percent)

illustrated rate can, in many cases, be quoted up to 8 percent or even 10 percent. Aside from the guarantees of minimum interest and maximum charges of an IUL contract, the only certainty that an advisor can give their clients is that the illustrated rate will be wrong. Inevitably, it will be higher or lower in the long run and will most certainly not be level. Taking a historical view of the S&P 500 (the most commonly used index in IUL crediting methods) can have some eye-opening results for advisors and clients alike. By the numbers:

S&P 500 INDEX STATISTICS (1926-2010) 20-Year Holding Period, Total Return

Insurance company has no earnings, credits the client 0 percent and is only out the option cost. Investment bank keeps the option fee, but doesn’t recognize any loss on the stock because the bank retains ownership to sell it sometime in the future when it may be more profitable.

Number of periods that had a negative return

Who pays for call options? Ultimately, it’s the client, through the internal policy charges and fees assessed by the insurance company. The price of call options, which does fluctuate, can affect a carrier’s cap rate or other indexing strategies. For example, the investment bank has a higher earnings potential on a 9 percent call option compared with a 12 percent call option. Naturally, an insurance company buying a 9 percent option will pay less than one buying a 12 percent option. This means they can have lower internal charges and expenses to cover the cost of their call options.

Any advisor who has been in the business for at least a while has heard of the “Wild West days” of illustrated rates. During the late 1980s and early 1990s, current assumption UL illustrations were paying interest rates as high as 16-18 percent, and advisors would illustrate these rates indefinitely.

Even conservative advisors of the day were illustrating 8-10 percent. Many of these contracts had minimum guaranteed rates of 4 percent, which are virtually non-existent today. Many of those over-illustrated and underfunded contracts are now failing at or very close to their guarantees.

When it comes to today’s IULs, the

Smallest growth of $10,000 over a single period

$11,082

Average growth of $10,000 over a single period

$49,768

0

Return of the worst performing period (1962-1981)

0.52%

Return of the best performing period (1980-1999)

13.72%

Largest growth of $10,000 over a single period

$130,946

Source: Aviva USA’s InFocus Business Development Program, citing www.AllFinancialMatters.com

Most carriers include at least one page of their illustration that is dedicated to a historical look at how their indexed crediting method would have performed had the product been available 10, 20 or 30 years ago. A carrier who has been in the IUL business for most of the product’s history is Indianapolis Life (purchased by AmerUs Group in 2000, Aviva USA in 2006, and Global Atlantic in May). When I first discovered IULs, I learned that Indianapolis Life based their default illustrated rates on how each of their six index crediting methods would have performed over the entire history of the S&P 500. Prior to the Great Recession and using the most common indexed crediting strategy (one-year point-to-point) returned an annual average of 7.65 percent. The average client isn’t investing money in a life insurance contract over that long a

LIFE

duration, but this illustrates the power of a long-term play with an IUL. The past 10-15 years have seen dramatic swings in the S&P 500 and other indices. For example, the S&P 500’s relative high during the dot com bubble exceeded 1400. During both the dot com and real estate bear markets, the S&P fell below 800. And, just in the past couple of months, the S&P has continued to set all-time closing highs north of 1500 and 1600.

Taking all these factors into account, it would behoove those of us actively marketing IULs to illustrate a rate below the historical averages, thereby managing client expectations. I generally recommend 6 percent, down from what I would show prior to the 2008 crash when 7 percent was commonplace. I have colleagues who sometimes show less than 6 percent. There is nothing wrong with conservative assumptions. It is better to exceed expectations than to have to explain why your assumptions were incorrect. Educate your clients and prepare them for multiple outcomes and it won’t come back to haunt you.

Don’t Forget Why You Do This

Product specifics aside, don’t forget why you are selling life insurance in the first place: protection. Life insurance in retirement planning (LIRP) is a great tool when designed properly. The life insurance death benefit can make the plan self-completing through face amount leverage. Inclusion of a Waiver of Specified Premium rider can make it self-completing in the event of a total disability.

Protect your client’s family, business, estate, retirement, etc. Be a hero and be there when your clients need you the most. Providing financial security for the client now and in the future is and always will be a noble profession. Don’t let anyone tell you otherwise.

Michael C. Staeb is an independent insurance wholesaler based in Seattle, Wash.

In addition to his brokerage general agency, 5 Brokerage, he also does consulting for insurance and financial advisors identifying missed client opportunities and helping advisors both inside and outside the insurance industry expand or improve their practices. Contact him at Michael.Staeb@ innfeedback.com.

August 2013 » InsuranceNewsNet Magazine

37

LIFE

Whole Life as Wealth Transfer Plan ingle-premium whole life S insurance can create a wealth transfer strategy to help your clients get the most from their assets.

By Lloyd Lofton

T

he leading edge of the baby boom generation is now celebrating 60th birthdays, wielding trillions of dollars in spending power. Mature consumers represent a great opportunity for advisors.

In 1994, one in eight Americans was over 65; in 2030, one in five will have celebrated that milestone. Estate tax planning is very important to preserve your clients’ wealth for future generations.

Single-premium whole life insurance can create a wealth transfer strategy that may help your client accomplish his goal by maximizing the value of his estate.

This strategy may be best suited for clients who want to leave more wealth to their heirs or favorite charities or for clients who have assets that they do not anticipate using during their lifetime.

The four-pronged philosophy behind this wealth transfer strategy is: preserve your clients’ lifestyle; protect your clients’ hard-earned savings; maximize what your client can leave to their spouse and to heirs; and minimize the tax burden the heirs will face as the wealth transfers to them.

Your clients always have two beneficiaries in their estates: their heirs and the Internal Revenue Service.

Knowing your clients’ potential estate tax liability is a great place to start an estate tax plan. Now that the federal estate tax kicks in at $5.25 million for an individual or $10.5 million for a couple, some clients may believe only the very wealthy need to worry about estate taxes. That doesn’t mean they shouldn’t have an estate plan.

Your clients’ assets fall into one of three asset classes: taxable, tax deferred and income tax free. Taxable assets include certificates of deposit, savings, bonds, mutual funds and rental income. Tax-deferred assets include annuities, individual retirement accounts, 401(k)s and tax-sheltered 38

WL annuity plans. Single-premium whole life is income tax free.

Using single-premium whole life to create a wealth transfer life plan can increase the value of your clients’ assets immediately. Those increased values are fully guaranteed and free from market risk.

Single-premium whole life can provide your clients with available cash to pay for long-term care if needed. The proceeds of the life insurance transfer rapidly. No probate costs are involved and, unlike a will, the beneficiary designations cannot be contested.

Single-premium whole life can give your clients a significant head start on what they will leave to their heirs, compared with keeping these funds in accounts like a safe certificate of deposit, mutual fund or stocks.

A wealth transfer plan using single-pre-

InsuranceNewsNet Magazine » August 2013

mium whole life can help your clients lock in or increase their existing values while eliminating market risk.

As an example, let us use a 65-year-old client, who originally purchased $50,000 in stock. Over the years, the value of the stock grew by $20,000, to $70,000. Your client would like to eliminate market risk but is concerned about the impact of capital gains taxes. Under the wealth transfer strategy, the client would sell the stock and pay $3,000 in capital gains taxes. The remaining value of the stock – $67,000 – would be placed into a single-premium whole life policy. This wealth transfer plan would guarantee a total value of $121,801 (depending on the life insurance plan chosen). This increase in value is locked in immediately and passes income tax free to your client’s heirs, most likely avoiding probate.

WHOLE LIFE AS WEALTH TRANSFER PLAN

Using singlepremium whole life to create a wealth transfer plan can increase the value of your clients’ assets immediately.

Single-premium whole life can make your client’s interest more interesting.

In this example (based on product, carrier and health), let’s look at a 65-year-old woman. She has $178,571, earning 3.5 percent, or $6,250 per year, in interest.

Each year, after her taxes are paid, she uses what is left of her interest income to purchase single-premium whole life. This could amount to as much as an additional $139,000 in her estate, income tax free, raising the total value of her estate to as

LIFE

[2] People deny that the innovation is effective.

much as $317,571. This could represent an increase of up to 78 percent in her estate.

Single-premium whole life can free up valuable dollars while still accomplishing your clients’ goal of leaving assets to their loved ones.

Take, for example, a client who has $100,000 in assets that he has set aside to be left to his heirs. If he transfers $55,250 to a single-premium whole life policy, it frees up $44,750 for the client’s use, while creating an immediate benefit value of $100,000, income tax free.

This wealth transfer plan using single-premium whole life immediately can maximize the value of the assets your clients leave to those they care about most, while avoiding federal income taxes, probate costs, delays and the potential for contest by beneficiaries.

While I agree this method may not be right for all clients, for those clients whose situation may be right for this idea, I offer the following five stages of innovation:

[3] People deny that the innovation is important.

[4] People deny that the innovation will justify the effort required to adopt it.

[5] People accept and adopt the innovation, enjoy its benefits, attribute it to people other than the innovator and deny the existence of stages 1 through 4.

I have always respected the client’s right to buy for his reason rather than mine.

Which of your clients will benefit from this concept?

Lloyd Lofton, CSA, LUTCF, is the chief operating officer of American Eagle Financial Services Inc., Smyrna, Ga. Lloyd can be reached at Lloyd.

Lofton@innfeedback.com.

[ 1] People deny that the innovation is required.

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August 2013 » InsuranceNewsNet Magazine

39

[ANNUITYWIRES] Do We Have Deals for You! “Let’s Make a Deal” seems to be the recurring theme in the world of annuities lately. Here’s the latest on who is acquiring what.

The proposed private equity purchase of Aviva USA is another step closer to reality. The Iowa Insurance Division has posted all 1,400-plus pages of Apollo Global Management LLC’s application to buy the big Iowa annuity carrier on the division’s website.

The division was scheduled to hold a hearing on the sale in July. Among the issues to be discussed is whether Apollo’s plan to acquire control of Aviva USA complies with Iowa Code.

According to the hearing notice, the commissioner will approve the deal if Apollo can meet several conditions.

Two of the conditions address issues that are of keen interest to insurance interests nationwide. These have to do with the impact that Apollo ownership could have on Aviva’s financial strength and on its policyholders, and whether Apollo plans to flip the company within just a few years.

Warren Buffett’s Berkshire Hathaway already owns everything from Dairy Queen to Fruit of the Loom, and now you can add The Hartford’s British variable annuity business to the list.

Hartford Financial Services Group announced that it was exiting the annuity business so that it can focus on its property and casualty insurance, group benefits and mutual funds. The deal is targeted to close by year’s end.

A deal isn’t a deal until all the regulators sign off on it. This is true in the case of the sale of Sun Life Financial’s U.S. annuities business to Delaware Life Holdings. The deal likely will be delayed because it hasn’t yet received regulatory approval. Sun Life agreed to sell the annuities business in December for $1.35 billion.

Sun Life said that the New York Department of Financial Services (NYDFS) is conducting a review of private investor groups as owners of annuity businesses. The deal has already received approval from several regulators, including the Delaware Department of Insurance and the Financial Industry Regulatory Authority.

VA BUYBACKS MAY PLACE ADDED LIABILITY ON BROKER-DEALERS

VA!

As life insurers continue *** to de-risk their volatile * variable annuity businesses, some insurers are offering policyholders cash * * * to give up certain living * * * * ***** ********* benefits in which the companies guarantee them an income in retirement. But these variable annuity buybacks could disrupt relationships with broker-dealers — a primary sales channel for these stock-market-linked retirement-income products.

A variable annuity buyback is an offer

******** *********

BUYK BAC

40

by the insurer to increase the owner’s account value, or cash value, of their variable annuity if they are willing to give up their guaranteed lifetime withdrawal benefit or guaranteed death benefit, said Jeremy Alexander, president and chief executive officer of Beacon Research. The long-term financial benefit is reduction of the amount of guaranteed payments that insurers have to pay to contract owners or their heirs, he added.

Over the past year or so, companies making buyback offers include Hartford Financial Services, Transamerica and Axa Equitable Life Insurance, part of

InsuranceNewsNet Magazine » August 2013

Brought to you by:

Axa Financial. Transamerica and Hartford are telling policyholders that in addition to their current account value, they will give them $20,000, for example, if the policyholder agrees to surrender their contract.

LINCOLN FINANCIAL GROUP TO STUDY ANNUITY POLICYHOLDER BEHAVIOR

Why do policyholders do what they do?

That is one question that Lincoln Financial Group wants to answer as it partners with two global firms to perform an advanced analysis of variable annuity policyholder behavior. Lincoln is teaming up with Towers Watson and Oliver Wyman to implement advanced analytic modeling techniques in the study. The techniques are intended to help guide Lincoln in areas including risk management and new product development.

“These techniques will move our industry forward as they have done in other segments, such as property and casualty, and we believe we are among the first in the variable annuity space to utilize them,” said Mark Konen, president of Lincoln’s Insurance and Retirement Solutions.

Working with Towers Watson, Lincoln has implemented predictive modeling to analyze the link between lapse behavior and variables such as age, gender, and policy size and duration. This modeling has been used to turn data into information on which to take action.

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

A Historical Perspective: Indexed Annuities How is it that indexed annuities have muscled their way into the market and shot to the top of the sales charts?

bitly.com/QRperspective

@Annuity_ News

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August 2013 » InsuranceNewsNet Magazine

41

ANNUITY

For Faster Acceleration, Ditch the GLWB Rider n indexed annuity, without A guaranteed lifetime withdrawal benefits (GLWB), can offer inflation-beating value.

By John Williams

W

hen selling fixed annuities in today’s low-interest-rate environment, it can be difficult to manage client expectations about comparably low returns. Managing expectations is a sales skill many advisors might not have needed much in the past. But, in today’s market, managing client expectations is a must.

Having a conversation with a client in order to set expectations shouldn’t deter advisors from promoting the key points of fixed indexed annuities. If sold through a reputable carrier without an income rider, they offer a strong opportunity to grow the account’s value.

Selling a deferred indexed annuity can help a client’s account beat inflation over the next five to 10 years. Some advisors think indexed annuities offer the best chance to grow a client’s account because of their greater return potential. Think of it as an alternative to the latest trend, which is selling the anticipated future perks of a guaranteed lifetime withdrawal benefit (GLWB) feature added to the base account in the form of a rider. Indexed annuities sold with an eye toward accumulation can be a winning solution.

The True Benefits of an Indexed Annuity

The Employee Benefit Research Institute 42

recently published its 23rd annual Retirement Confidence Survey, which reported that 49 percent of workers are not confident they will be able to afford a comfortable retirement. Twenty-eight percent said they are not at all confident – one of the highest levels recorded in the history of the survey. Everyone’s financial goal and situation is unique, but the survey shows that people who continue working are worrying about earning more on their money. New retirees, another group that may purchase annuities, are likely to feel the same way.

To that end, recommending an indexed annuity can help align your prospects and clients with their goal of accumulating retirement funds without sacrificing principal. All fixed annuities are under the jurisdiction of state insurance regulators and are considered safe-money investments. The insurance company, or product promisor, offers minimum guarantees plus the safety of a client’s principal and earnings. Generally, people may buy indexed annuities not for their flexible income potential but for the chance to earn a little more than other safe-money accounts, while simultaneously protecting their downside.

Indexed annuity customers want more return than what they could get from purchasing a bank certificate of deposit.

Yet, advisors who follow the latest trend of selling today’s indexed annuity with a GLWB add-on run the risk of weighing down future returns that could be matched by a competitive five-year bank CD. Over the life of a policy, rider costs

InsuranceNewsNet Magazine » August 2013

Be aware of the reasonable benefits and considerable drawbacks when adding a cost item to an annuity purchase.

drag on indexed annuity account returns. That drag is heaviest in a low-interest-rate environment.

The main anchor on annual returns is the cost of the GLWB rider. This cost, which averages 0.8 percent of the current account value regardless of what the client earns on the account, pays for the right to a future lifetime income he may never use.

For example, a client earning interest on today’s average one-year bank CD would need to save for more than one year to earn enough interest to pay for the cost of a GLWB rider for one year.

This added expense, coupled with low cap rates, puts the client at risk of losing his or her future purchasing power, while earned returns sink toward bank CD returns. Would clients buy the rider if they were aware of this?

Growth Over Flexible Income

If you choose to sell an indexed annuity with a GLWB rider, it is important to emphasize the flexible lifetime income aspect rather than the guaranteed income account growth percentage.

The income account growth only can be accessed if the client requires lifetime income and otherwise is unavailable for the policyholder to access.

For a client to truly understand the implied return of GLWBs, or the value of the guaranteed roll-up rate and withdrawal combination a GLWB rider offers, it first should be converted to a number comparable to bank account interest or returns on a mutual fund. These tend to be num-

FOR FASTER ACCELERATION, DITCH THE GLWB RIDER bers that clients already are familiar with, making it easier for them to compare with other options. For example, a direct comparison of the GLWB annual growth percentage of say 5 percent and the 1.3 percent annual yield of a five-year bank CD is misleading.

The GLWB rider and many of its benefits can be great, as long as brokers have ensured they are selling an income rider to someone who wants and understands it. Clients should know that choosing a rider today means running the risk of losing purchasing power later. There is a price to pay for access to lifetime income they may never use, or worse, regret buying. As a financial advisor, you should be comfortable discussing all possible outcomes regarding their investment.

As an alternative, consider positioning an indexed annuity as an accumulation account that offers the opportunity to earn a little more, beat inflation and, most importantly, stay safe. An indexed annuity potentially can earn inflation-beating returns over the next five to 10 years and offer a free income for life, in the form

of annuitization, should clients request it. Fixed deferred annuities can be converted to a series of payouts that can be structured to last a lifetime. There’s no need to pay extra for this feature.

Working with Reputable and Principled Carriers

To beat inflation in today’s current cap rate environment, renewal rate cap integrity is key; in other words, evaluating how the company might treat the client in future years as it relates to the maximum crediting level to which the account may grow. In any indexed annuity sale, the customer is at the mercy of the product promisor. A company that decides to pad its own future bottom line does so at the expense of its loyal customers by curtailing the maximum renewal cap rate offered.

When offering annually renewable indexed annuities, look for an insurance company/insurer with a published renewal cap rate history for anyone to view.

Fully disclosed indexed annuity renewal rate caps are the only way a prospective

Who benefits

MORE you or your IMO?

ANNUITY

purchaser can check actual return performance of previously sold policies. It’s important to align yourself with an insurer who acts in the same manner as you: with integrity, full disclosure, highly-personalized service and customer satisfaction.

Successful Sales and Satisfied Clients

Frank client discussions reveal genuine intent regarding your clients’ financial goals, and collaboration is essential to see them succeed. Financial advisors and producers should be aware of both the reasonable benefits a GLWB rider provides and the considerable drawbacks when adding a cost item to an annuity purchase in today’s low-interest-rate environment. It’s your job to frame the potential outcomes in terms that clients easily understand to ensure you’re setting them up for the long term.

John Williams, CLU, is a regional sales director of individual annuities for Standard Insurance Co. John can be reached at John.

Williams@innfeedback.com.

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August 2013 » InsuranceNewsNet Magazine

43

ANNUITY

Traditional pensions are required to use gender-neutral annuity rates within their plans, but gender-distinct rates are used in annuities sold outside of those plans.

Why Sex Matters with Annuities hen it comes time to retire, W gender-neutral annuity rates can make a financial difference for the departing worker.

By Linda Koco

S

ex can make a difference in the annuity business. That is, sex in terms of the gender of the buyer. This is a point that agents and advisors need to keep in mind when helping clients decide whether to take the lump sum option offered by their traditional pension plan or to take the in-plan annuity option.

That doesn’t sound very sexy, but it has an eye-catching aspect. It also pres44

ents some possible strategies for annuity experts to serve their clients.

Here’s the skinny: Traditional pensions – the so-called defined benefit (DB) plans, in industry parlance – are required to use gender-neutral annuity rates within their plans, according to a discussion paper from the American Academy of Actuaries. By contrast, gender-distinct rates are used in annuities sold outside of those plans.

That differentiation may not mean much to people while they are in their working years. They may not even be aware of it. But when it comes time to retire, those gender-neutral rates can

InsuranceNewsNet Magazine » August 2013

make a financial difference for the departing worker.

As the academy puts it, “Within DB plans, the gender-neutral rates are relatively favorable to males taking lump sums.”

What’s so eye-catching about that? It sets up a follow-the-money scenario that differs between men and women.

Built-in Incentives

Specifically, it creates an incentive for women to elect in-plan annuities (if available) at actuarially favorable rates, the academy said.

Meanwhile, it creates an incentive for men to elect out-of-plan annuities “at

WHY SEX MATTERS WITH ANNUITIES actuarially fair rates” (i.e., annuities that use sex-distinct rates) or “to elect annuities less frequently because of the need to go outside the plan.”

This gender-neutral impact “could disproportionately lead males to not annuitize,” the academy cautioned. And that “could jeopardize their retirement security as well as that of their spouses.”

If the man is married and uses the plan’s 100 percent joint-and-survivor option, that can eliminate the disincentive for the man to annuitize, the academy experts allowed.

But all is not lost when participants, especially male participants, elect the lump sum option. A man could elect instead to annuitize the lump sum in a rollover qualified deferred annuity sold in the retail market, noted Noel Abkemeier in an interview. He is a consulting actuary and principal at Milliman and co-chaired the team that wrote “Risky Business: Living Longer Without Income for Life,” a 2013 academy paper that comments on gender-based pricing among other retirement issues.

That annuity would have sex-distinct pricing, which tends to produce more favorable rates for men than gender-neutral rates, Abkemeier said.

As a result, “the man could possibly obtain a larger monthly income amount than he would by annuitizing inside the plan, as well as having a plan that pays guaranteed income for life,” Abkemeier said.

The lump sum advantage gets an additional boost if interest rates are low at the time that the person makes the election, Abkemeier added. “It’s like bonds; when interest rates go down, the value goes up.”

But even when interest rates are not low, many people take the lump sum option, Abkemeier noted. “They believe they can do as well or better by taking the money and investing it outside the plan.

“In addition, some people choose the lump sum because they want liquidity, so they can access the funds in case of emergency or special need. That can be an important consideration for people who have modest sums saved up for retirement.”

Some pension plans do keep rollover annuities sitting on the doorstep outside the DB plan, so that people who elect the lump sum will have a readily available retail annuity resource if interested, Abkemeier pointed out.

But even though these out-of-plan guaranteed annuity options typically offer institutional pricing and may eliminate many fees and expenses associated with retail annuities, not many participants elect them, according to the Institutional Retirement Income Council (IRIC). In a 2012 paper, “Retirement Income Products: Which One Is Right for Your Plan?”

The likelihood of encountering clients who want to take the lump sum is not insignificant. More than half (54 percent) of plan sponsors that offer DB or hybrid plans allow full lump sum distributions, and 25 percent of DB plans allow partial lump sum distributions, according to the “Retirement Income Practices Study,” a June 2012 report from MetLife.

The thing to keep in mind is that the person who is making the choice will be in a better position if he or she knows how much income they will get. the IRIC said it has seen “very little usage of these products.”

The reasons for not electing these outof-plan annuity options are very common ones in the annuity world. One is that people find the annuity purchase decision to be “intimidating and irrevocable,” the IRIC report noted. In addition, people are turned off by several factors, including: the inability to pass any residual balance on to heirs upon death, the depressive effect of the low interest rate environment on the annuity payouts and the uncertainty over whether the issuing company will be able to pay the benefit for decades into the future.

Opportunity

These trends and tendencies can present opportunities for annuity professionals. For instance, one way an agent could accommodate a client’s liquidity need is to suggest rolling the lump sum into a retail qualified deferred annuity that has a guaranteed lifetime withdrawal benefit, Abkemeier said.

Also, when clients come asking, “Should I take the lump sum or the inplan annuity?” the advisor can help the person sort out the details.

If a client decides the lump sum option is better, the advisor then could explore various options, including the retail annuity option when appropriate.

ANNUITY

Read the full “Risky Business: Living Longer Without Income for Life” report at bitly.com/ innm-riskybiz

What’s more, 65 percent of participants in plans offering full lump sums do take the full option, and 13 percent of participants in plans offering a partial lump sum option do take the partial option, according to the MetLife study.

The thing to keep in mind is that the person who is making the choice “will be in a better position if he or she knows how much income they will get,” Abkemeier stressed.

In discussing this with clients, agents and advisors will need to stay alert to the psychological effect of seeing that big amount of money in the lump sum offer.

“Some people want to get their hands on it right away,” Abkemeier said. The concern is that they may take the option without understanding the impact of that decision on their retirement future.

His suggestion is for the advisor to help the person see that impact. “For instance, say to the client that, ‘You have X dollars in your plan. It will provide you with a monthly income of Y dollars. But if you take the lump sum option and annuitize it outside the plan, you will get Z dollars.

Let’s see which is more attractive and which is best.’ ” Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning.

Linda can be reached at Linda.Koco@ innfeedback.com.

August 2013 » InsuranceNewsNet Magazine

45

[HEALTHWIRES]

Health Insurance costs set for a jolt. bitly.com/QRcostsjolt

Obesity Now Classified As a Disease Popular opinion used to be that people suffering from obesity simply had trouble with motivation or self-control. Now the medical community has upgraded obesity to “disease” status, and that raises the question: What does that mean for health insurance?

In June, members of the American Medical Association (AMA) declared that obesity is a disease, giving it a place alongside ailments such as asthma and diabetes. The medical group has no official say on what insurance companies cover, but the group’s announcement put the spotlight back on the debate on how insurance companies can help fight the obesity epidemic.

Some insurance companies have helped obese patients fight fat for years. They’ve offered weight-loss and wellness programs at businesses, schools and in communities. Some have paid for prescription obesity medications and even covered expensive bariatric surgeries, including gastric bypass.

“This will make a difference” in the treatment that obese patients get, said Dr. Rexford Ahima of University of Pennsylvania’s Institute for Diabetes, Obesity and Metabolism. “I would imagine it would cause the insurance companies to think again” about paying for weight-loss treatments, just as they do for smoking-cessation programs, Ahima said.

43% OF AMERICANS LIKE ACA

Over the past three years, AmerIcans public opinion regarding the Affordable Care Act (ACA) has shifted. A recent CNN/ORC International poll showed that as of May, 43 percent of Americans favor the ACA. And, ACA 35 percent oppose it as too liberal. But, another 16 percent oppose it because it is not liberal enough.

However, when you take the percentage of the “too liberals” and add them to the “not liberal enoughs,” what you get is a majority of Americans who still don’t like the health care law. The poll numbers show that the 59 percent of people are either in favor of the ACA or want it to be more liberal, compared to only 52 percent who felt that way in 2010.

Who knows what those percentages will be once the law goes into effect in a few short months?

DID YOU

KNOW

?

10 MEDS COST MEDICARE PART B BIG BUCKS

In 2010, Medicare Part B spent beaucoup bucks – $16.9 billion in all – on 55 drugs.

Of those 55 drugs, 10 medications alone accounted for 45 percent of all Part B drug spending, according to the Government Accountability Office (GAO).

Part B expenditures for Epogen/Procrit used to fight anemia in end-stage renal disease patients came to $2 billion. Part B also spent $1.3 billion on Rituxan, used to combat cancer and rheumatoid arthritis, the report found. That was followed by the $1.13 billion in spending on Lucentis, a drug used to fight age-related vision loss, $1.11 billion on the cancer-fighting drug Avastin, and $900 million on Remicade, a drug used to fight autoimmune disorders, the GAO found.

In 2010, Medicare spent about a total of $19.5 billion on Part B drugs, which represented about 9 percent of total Part B expenditures. Of the 55 highest-expenditure drugs, cancer was treated by more drugs than any other disease.

NEARLY 15.5 MILLION AMERICANS are covered by Health Savings Account (HSA)-eligible insurance plans, an increase of nearly 15 percent since last year.

Source: America’s Health Insurance Plans

46 InsuranceNewsNet Magazine » August 2013

QUOTABLE Basically, it was their judgment that it was causing too many logistical and political headaches and it wasn’t that essential to the law, so they decided to just delay it a year and live with the revenue loss.

— Jon Gruber , Massachusetts Institute of Technology economist, on the delay of implementing the ACA employer mandate

MOST AMERICANS CHOOSE HEALTH INSURANCE BY BRAND

82

%

Branding is a crucial element that consumers consider when choosing a health insurance plan, and most find that choosing a health plan has left them singing of Americans say the blues – Blue Cross and health insurer brand is important Blue Shield, that is.

For the fourth consecutive year, Blue Cross and Blue Shield is the 2013 Harris Poll EquiTrend Health Plan Brand of the Year. EquiTrend is an annual brand equity study that measures the perceptions of consumers and is comprised of three key factors: familiarity, quality and purchase consideration.

A recent Harris poll showed that more than eight in ten (82 percent) Americans say the brand of a health insurer is somewhat or very important when deciding on a health insurance plan. While these findings are similar among men (80 percent) and women (84 percent), those 55 years of age and older (88 percent) are significantly more likely to think of the brand first.

When asked which factors are among the most important when selecting a health insurance plan, Americans are most likely to select overall plan price (including premiums, deductibles, copays, etc.) and benefits included in the plan (66 percent and 64 percent, respectively), followed by which doctors are included in the plan’s network (35 percent), the reputation of the insurer (30 percent) and which hospitals are included in the plan’s network (24 percent). Women are more likely than men to feel that overall plan price, benefits included in the plan and doctors in the plan’s network are important.

insuranceproducts.We w w.piu.org • piu@piu.org ( 8 0 ) 3 4 5 8 1 6 wil whenotherswon’t.

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HEALTH

Consumers Need to Learn How to Drive Health Care Decisions Employees place a high value on workplace benefits, and they depend on professional advice to get the most from those benefits.

By Ron Fields

T

he American workforce is about to gain more control over its health insurance. Unfortunately, more control is exactly what most Americans don’t want.

To help stem rising health care costs, employers have embraced the idea of consumer-driven health care more 48 InsuranceNewsNet Magazine » August 2013

quickly than their workforce has. The “2013 Aflac WorkForces Report” (AWR) found that 72 percent of workers have not even heard of the phrase “consumer-driven health care.” Of those who had heard the phrase, 38 percent said they either don’t understand it very well or don’t understand it at all. And more than half (54 percent) of workers surveyed said they would prefer not to have more control over their health insurance expenses and options “because I will not have the time or knowledge to effectively manage it.”

When it comes to matters of financial

security or health care, it’s fair to say that many consumers would prefer for someone else to take care of it for them, while another segment simply is not equipped to take ownership. However, the same Aflac study reported that only 13 percent of employers said educating their employees about health care reform was important to their organization, even though 75 percent of consumers expect their employer to educate them about this issue. This lack of communication not only exacerbates an already-dangerous information gap, but also forgoes opportunities to communicate benefits

CONSUMERS NEED DRIVING LESSONS ON HEALTH CARE that can both satisfy worker demand and improve key aspects of the workplace.

In the midst of this confusion is an opportunity. Rising health care costs and the move toward consumer-driven plans are leading to a growing need for voluntary insurance products employees can purchase with their defined contribution dollars. Voluntary insurance plans can provide a much-needed resource in the face of a high-deductible health plan. The cash benefits these policies offer can provide additional safety and stability when workers and their families are shouldering an increasing amount of health care costs.

Consumer Unpreparedness

According to the AWR, more than half (53 percent) of employers have implemented a high-deductible health care plan (HDHP) in the past three years.

Many experts characterize these as “entry-level” versions of the consumerism that defined contribution plans or state and private insurance exchanges will offer – meaning that instead of simply providing consumers with money to purchase health care services, they give them money to buy insurance altogether.

A “2012 Employer Health Plan Study”

by J.D. Power and Associates found that 47 percent of employers say they “definitely will” or “probably will” switch to a defined contribution health care plan.

As the remaining health care legislation is implemented, more employers will adopt consumer-driven health plans or shift completely to this model. This shift requires an entirely new degree of decision-making for consumers.

Meanwhile, the potential for increased medical expenses due to lack of understanding or mismanagement already

CORPORATE DISENGAGEMENT FROM BENEFITS INITIATES CYCLE OF DIFFICULTIES Workers, unequipped with knowledge, desire to make sole decisions on complex health care decisions

Higher costs to employer due to absenteeism, turnover, loss of productivity, inability to recruit top talent

Not feeling taken care of by employer leads to low morale, lack of loyalty

Higher risk of mismanaged health insurance allocation, poor choices when it comes to health care services

Financial stress impacts ability to focus, remain productive at work

Choices to skip medical procedures or preventative care can lead to greater absenteeism, medical events

Source: Aflac

HEALTH

is high. For example, according to the “2012 Aflac Open Enrollment” survey, only 30 percent of workers said that they always have a full understanding of the deductible costs when they select an insurance product. Another 15 percent did not check to see whether their coverage deductibles were correct or whether their preferred medical professional was in their network.

Workers have little understanding of how the new legislation might impact their lives and they have not prepared for such changes. According to the AWR, 62 percent of workers believed the medical costs for which they will be responsible will increase, while only 23 percent said they are saving money for potential increases. Only 24 percent of workers completely agreed or strongly agreed they will be prepared financially in the event of an unexpected emergency or serious illness.

The U.S. government predicts that household out-of-pocket health care expenses will reach an average of $3,301 per year by 2014. This does not include any other costs associated with taking time off work due to illness or injury.

These predicted expenses can intensify the challenges of an already financially-vulnerable segment of consumers.

So why should this matter to employers? The costs of these issues can seriously impact a company’s bottom line.

Employees’ financial difficulties translate to decreased job performance, absenteeism and dissatisfaction on the job. Nearly four out of 10 workers (37 percent) said they have experienced distraction and/ or lost productivity at work because of financial or health problems. Consider that the Centers for Disease Control and Prevention states that the indirect productivity losses related to personal and family health problems cost U.S. employers $1,685 per employee per year, or $225.8 billion annually.

Voluntary policies – including critical illness, short-term disability, accident, dental, life and more – pay the policyholder directly for unexpected costs associated with serious illness, injury or loss. Since many of these costs are not covered by major medical insurance and families may not have extra cash for emergencies, voluntary insurance plans help provide a safety net to protect the policyholder’s assets.

August 2013 » InsuranceNewsNet Magazine

49

HEALTH

CONSUMERS NEED DRIVING LESSONS ON HEALTH CARE

COMPANIES WITH SUPPLEM 201

2011

67% 51%

46%

Voluntary Life Insurance

Engagement Gives the Edge

Helping workers learn to manage their health care choices effectively presents an opportunity for employers to demonstrate that they care about their employees and to curb potential absenteeism, low morale and low productivity. Workers may well be the ones responsible for their health care decisions, but the wrong choices can affect their performance and state of mind in the workplace.

Adopting a communication strategy that includes multiple options is critical to reaching employees and their dependents. Some of the best practices for companies include:

64%

53% 37%

Long-term Disability Insurance

Simplifying the language of benefit communications, including clear explanations of health care jargon. Often, employees are embarrassed to admit they don’t understand concepts such as deductibles or copayments.

SEA OF CONFUSION

Hosting multiple in-person meetings throughout the year.

Workers who are not knowledgeable about

Using social and mobile media such as texts, Twitter and Facebook to communicate key messages and to remind workers of upcoming open enrollment deadlines.

Federal & State Exchanges Health Reimbursement Accounts Health Savings Accounts High Deductible Health Plans

InsuranceNewsNet Magazine » August 2013

76% 49% 32% 31%

47% 27%

Short-term Disability Insurance

Diversifying materials to encompass print, web, e-mail and face-to-face meetings.

50

61%

52%

Source: Aflac

51%

65%

Voluntary Dental Insurance

Providing an online benefits portal or platform where employees can have immediate access to their benefits plan.

Surveying the workforce to determine specific benefit needs and desires among employees.

Brokers also can help keep the lines of communication open by helping employers understand the degree to which employees want guidance – without which they may be inadequately protected. The current economic landscape, combined with a lack of basic knowledge about financial principles, has left many American workers financially insecure and with high debt. Companies must view their workers’ physical and financial well-being holistically and understand the costs of not protecting their overall health.

The Voluntary Opportunity

Rising health care costs, the connection between offering voluntary insurance and employee satisfaction, and the move toward consumer-driven plans all

CONSUMERS NEED DRIVING LESSONS ON HEALTH CARE

HEALTH

ENTAL POLICIES 2011-2013 2

2013

58%

26%

34%

45%

Long-term Care Insurance

44% 31%

24%

40%

20%

Voluntary Vision Insurance

14%

Accident Insurance

21%

27%

Cancer Source: Aflac

place additional financial burden on consumers. Voluntary insurance plans can provide a much-needed resource in the face of HDHPs. Now is the time to remind human resource professiona ls and decision-makers that voluntary options soften the impact of inevitable cost shifting and rising out-of-pocket expenses on today’s workforce. Additionally, supplemental insurance enables employers to offer a broader benefits package to employees without adding to their own existing benefits costs.

The AWR found that benefits play a larger role in retention and recruitment than many employers may realize. In many cases, benefits may be the primary factor pertaining to employment decisions. Workers overwhelmingly agree that benefits influence job satisfaction, employer loyalty, work productivity and the decision to leave a company. In fact, 61 percent of workers surveyed in the AWR believe they’d be at least somewhat likely to accept a job with a more robust benefits package but slightly lower compensation.

The report also found that benefits play a role in keeping workers from leaving in the first place. Those who described themselves as “extremely satisfied” or “very satisfied” with their benefits program said they are three times more likely to stay with their employer, compared to those workers who said they are dissatisfied with their benefits program. Moreover, 69 percent of workers who said they are not satisfied with their current benefits package indicated that by improving their benefits package, their employer could entice them to stay, and 60 percent of employees say they would be at least somewhat likely to purchase voluntary insurance plans if their employer offered them.

According to the “2013 Aflac WorkForces Report,” nearly all voluntary insurance products on the market today have grown in popularity over the past three years. In fact, several of these voluntary products have doubled in popularity from 2011 to 2013. Findings from LIMRA show nearly 750,000 of the 1.3 million private U.S. employers offer voluntary options, making them available to more than 90 million full-time workers.

The LIMRA study also indicated that approximately 400,000 businesses are considering adding a new voluntary plan and another 120,000 are very much interested.

Finally, 30 percent of employers said they are considering voluntary benefits as a replacement to employer-paid and contributory benefits within the next two years.

Amid massive changes in health care, what remains unchanged is the unequivocal role that benefits satisfaction plays in the welfare of the workforce, as well as the importance of voluntary products in a consumer-driven health care environment characterized by a financially fragile population. Increased need for supplemental insurance generated by consumer-driven health plans, along with a lucrative commission structure, ultimately will mean more financial opportunities for those who sell these products.

Ron Fields is vice president, broker sales and training at Aflac. Ron can be contacted at ron.fields@innfeedback.com.

August 2013 » InsuranceNewsNet Magazine

51

[FINANCIALWIRES]

Americans in their 30s are the only age group in the country worse off than their peers from three decades ago. bitly.com/QRunderfunded

Bernanke’s Bad News Relieves Investors Last month, we found investors running for the exits as if starving orangutans were chasBen Bernanke ing them. Why? Because the Federal Reserve indicated that the economy was looking pretty good and it may ease off the bond-buying, a policy known as quantitative easing (QE).

Never mind that the Fed started QE because the economy was so sick that the usual remedies didn’t work. Fed Chairman Ben Bernanke said on June 19 that the central bank might “taper” QE later in the year if the economy continues to improve.

That seemed to have been a good indication that the worst financial crisis since the Great Depression was fading and that we can all breathe just a little easier.

But no. Markets fainted like antebellum belles and indexes plummeted to their steepest loss since 2011. So, by July 17, Bernanke showed us he learned that bad news is good when he said the economy still faced “strong headwinds.” He added that the Fed did not have “triggers” for tapering QE but merely “thresholds” that might make the central bankers entertain the idea of buying slightly less than $85 billion worth of bonds a month.

With Bernanke’s exuberance extinguished, investors greeted the day by sending indexes marching upward. So, relax, all is not well.

ALTERNATIVES MOVING INTO THE MAINSTREAM

Although some investors seem squeamish that the Fed might ease off its economic meltdown policies, others are partying like it’s 2007.

Assets managed by the Top 100 alternative investment managers globally reached $3.1 trillion in 2012,

according to a Towers Watson report. Not only that, but more institutional investors are getting into the alternatives market.

“Pension funds have always been and will remain a very large investor group for top alternatives managers, but the demand from nonpension fund investors, such as insurers, endowments and foundations, and sovereign wealth funds, will only increase in the future,” said Zainul Ali of Towers Watson Investment Services.

Pension fund assets represent 36 percent of the Top 100 alternative investment managers’ assets, followed by wealth

DID YOU

KNOW

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52

managers (19 percent), insurance companies (9 percent), sovereign wealth funds (6 percent), banks (5 percent), funds of funds (FoFs) (3 percent), and endowments and foundations (2 percent). Leading the Top 100 alternative investment managers were real estate managers (34 percent), direct private equity fund managers (23 percent) and direct hedge funds (20 percent).

TOO BIG TO FAIL INAUGURATION

Federal regulators have named their first Too Big to Fail companies and they are American International Group and General Electric Co.’s finance arm.

The Financial Stability Oversight Council announced in July that these two companies would be the first to be designated “systemically important” and must increase their cushion against losses, limit their use of borrowed money and submit to inspections by examiners, under the supervision of the Federal Reserve. The

THE DOW JONES AVERAGE bottomed out at 6,547.05, on March 9, 2009, for a total loss of 54 percent in 17 months. It has since soared and occasionally stumbled to an all-time high of 15,484.26 on July 15.

Source: Dow Jones

InsuranceNewsNet Magazine » August 2013

QUOTABLE The message that the tapering of [QE] is not set in stone and that the end of the asset purchases won’t be immediately followed by higher interest rates is increasingly getting through to the markets.

— Paul Dales, Capital Economics

companies did not challenge the designation, which was established to help prevent another financial meltdown.

BOSSES, WORKERS HAPPY TOGETHER

In the next 12 months, 60 percent of employers plan to hire new full-time employees, according to the Littler Mendelson 2013 Executive Employer Survey.

“As the economy continues to recover, our findings suggest that employers are eager to expand their workforce and are starting to see a decline in the impact of some of the key obstacles facing workers,” said Thomas Bender, co-managing director of Littler.

That warm feeling appears to be radiating out of the corner office nicely, because another survey shows that workers are feeling a little more optimistic. Employees are reporting some of the highest levels of confidence seen since the recession,

so said a Harris Interactive survey in June. The Randstad Employee Confidence Index showed that employees’ attitude toward the economy, their employers and even their ability to find a new job rose to 56.8 points in June, a 2-point uptick in overall confidence among U.S. workers since May. “Our index figures align with the June Consumer Confidence Index, which saw the most promising signs in five years,” said Jim Link of Randstad. “Our index also found over a third of employees are likely to seek a new job in the next 12 months – a sign that the economy has better opportunities available in the eyes of job seekers.”

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August 2013 Âť InsuranceNewsNet Magazine

53

FINANCIAL

Despite their rising workforce participation and escalating income, it appears that American women still have major gaps and unmet needs when it comes to achieving comfort and confidence with money.

The Rise of the Household CFO A recent survey found that although women control a large portion of the country’s wealth, they have unmet needs when it comes to achieving comfort and confidence with money.

By Katie Libbe

A

ccording to the U.S. Census Bureau, more than half (50.8 percent) of the estimated 314 million people living in this nation are female.

decisions and retirement planning.”

Yet, despite their rising workforce participation and escalating income, it appears that American women still have major gaps and unmet needs when it comes to achieving comfort and confidence with money.

Changing family dynamics are adding to this burden as nontraditional family structures – blended families, same-sex couples, aging parents moving in – have altered the “traditional female role” with respect to money and financial planning strategies.

Women are earning more and are increasingly responsible for financial decisions across all family types.

For financial professionals, the fact that women make up the majority of the U.S. population definitely is worth noting, but other data trends regarding women in America should be even more compelling.

U.S. Census data indicates the number of households led by women is rising. The 2000 census counted 12.9 million female heads of household with no spouse present, while the 2010 census showed 15.3 million.

Perhaps even more significant, women are earning more and are increasingly responsible for financial decisions across all family types. In the “Allianz Life 2013 Women, Money & Power Study,” 57 percent of all women surveyed said they both “have more earning power than ever before” and also “handle major investment 54

Whether by circumstance or by choice, women are finding themselves in roles in which they must be responsible for longterm financial needs and security. Several insights from the study shed light on new attitudes and behavior women have concerning money, and can assist financial professionals in making better connections with female clients – connections that can help to generate results for the customers.

Insight 1 – Women as the chief financial officer of their households

As women have become more empowered in the workplace, they also have become more empowered in handling

InsuranceNewsNet Magazine » August 2013

financial matters. Among all women who responded, half (49 percent) said they had a great deal of responsibility for major financial decisions. More than half said they are the primary decision-makers.

In fact, more than half of married women see themselves as the chief financial officer of their households, implying that husbands and partners are not as exclusively in control of financial matters as they used to be. Two thirds of women agree that women in general cannot place all the responsibility of handling the investing on a spouse. Almost as many women say they have not learned a lot about financial matters from their husband or partner.

Insight 2 – The rise of the Woman of Influence

An important part of the Women, Money & Power Study gave evidence to the rise of a more empowered, informed and financially active woman as identified by her responses to a selection of questions that were good indicators of her financial savvy and empowerment.

The study found that this “Woman of Influence” segment represents a considerable portion (20 percent) of women and is an enormous opportunity for both financial professionals and the financial industry.

Women of Influence are distinguished by their higher incomes (an average of $57,000, which is 19 percent higher than the norm for women), and higher incidence of post-graduate education. They also tend to be more successful in the workplace, being 50 percent more likely to have their own business, and 80 percent

THE RISE OF THE HOUSEHOLD CFO

FINANCIAL

more likely to have achieved a position as director or vice president.

However, it’s important to note that a Woman of Influence is not only defined by her job or education, but by her financial savvy and empowerment. As such, they report more confidence when it comes to saving, spending and investing money wisely. In fact, compared to women in general, Women of Influence are 27 percent more likely to feel financially secure.

Insight 3 – The modern family has put more demands on women

Today, the majority of households surveyed included at least one nontraditional element (i.e., single mother, samesex couple, parent or adult children in the home), creating new demands and new roles for women.

Among those women who currently are married, 33 percent already have been through a divorce. But an even greater number of divorced women – 42 percent – have not remarried or partnered since their divorce. The number of women today who are married is smaller than the combined number of women who are single or divorced.

Among women in same-sex households, 22 percent have children under 18 living at home. Fully 80 percent of these same-sex couples say that their nontraditional family structure creates a whole new level of need for financial awareness.

This view toward financial preparedness is shared by 92 percent of single mothers.

similar impact on women in general, spurring more than 68 percent to become more active and involved in financial planning, retirement and investment decisions.

The No. 1 topic that women want to learn about is how to maintain their preferred lifestyle in retirement (chosen by 85 percent of all women). Still, about 12 percent of all women say they have not yet begun saving for retirement – a lack of action with potentially huge implications for the future.

Insight 5 – “Bag lady” fears persist among even the most successful women

One of the most stunning outcomes of this survey was the discovery of an irrational fear that extends to women across all corners of life and affluence.

Almost half of all women who responded say they “often” or “sometimes” fear losing all their money and becoming homeless. And this is not just found in lower income levels. A third of the highest

Insight 4 – Women are hungry for knowledge about retirement planning

Across the board, clear majorities of women understand that greater financial knowledge can help create more security in life.

For women who have divorced or lost a spouse, this was a particularly powerful realization. Forty-eight percent of women say that their divorce created a financial crisis, and about two thirds say that their divorce made them realize how important it is to be financially aware and independent. These findings are even more dramatic for those who are widowed, who said that losing their spouse was “a real wake-up call for me, financially” (61 percent).

The financial crisis of 2008 had a August 2013 » InsuranceNewsNet Magazine

55

FINANCIAL

THE RISE OF THE HOUSEHOLD CFO and influence, women continue to be poorly served by the financial industry which, as a whole, still is perceived as being oriented more toward serving men.

income-earners ($200,000+) say they worry about becoming a “bag lady.” Even 46 percent of Women of Influence, who generally are less worried about their retirement savings, can’t shake this fear.

In fact, after the fear of losing a spouse, the thought of running out of money in retirement is what 57 percent of women

say keeps them up at night. Lack of adequate retirement savings is the No. 1 issue affecting women’s outlook on retirement.

Insight 6 – Women are being underserved by the financial industry

Despite their growing economic power

Virtually all groups of women who responded said they feel alienated by financial services providers. This was especially true for divorced women, women in samesex relationships and Women of Influence.

Another major problem is that women largely believe financial advice and materials are geared only toward the wealthy.

Approximately one in five women – and almost a third of divorced women – say their belief that “financial planning is for people who have more money than me” is a major barrier to becoming more involved.

Even among those who work with a financial professional, more than 69 percent do not view their financial professional as a go-to source for information on how to spend, save and invest. Financial professionals placed a distant second to the Internet as a source for financial information.

Insight into action

To make better connections with women, financial professionals need to understand that for many women, service-related issues are as important as concerns about returns on investments. Women place a high value on interpersonal skills and feeling personally cared about. They are put off by a lack of responsiveness and the sense that they’re simply getting cookie-cutter solutions.

Using these insights can be helpful in opening up new opportunities. More important, these insights can assist you in appearing responsive with current clients, particularly couples. If you neglect the woman in the relationship now, you do so at your own peril since more than a third of women (34 percent) said they obtained a new financial professional after becoming a widow.

Clearly, financial professionals who can better understand and better respond to the financial needs of women today will have a better chance for success tomorrow.

Katie Libbe is vice president of consumer marketing and solutions for Allianz Life Insurance Co. of North America. She is responsible for leading retirement income strategy and consumer education efforts for Allianz Life. Contact Katie at Katie.Libbe@innfeedback.com.

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InsuranceNewsNet Magazine » August 2013

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BUSINESS

Why Your Sales Training Needs a CAT Scan The first part to get right in your sales training is the content.

By Dan Seidman

P

ain is popular. But relying on just pain to motivate buyers is hurting your sales.

There are also plenty of new things you could be using to coach your sales force.

We now know exactly when to use benefits and when to use pain to motivate buyers.

That is an important distinction to make.

Only 40 percent of the U.S. population makes decisions based on solving problems – perfect for pain. Another 40 percent is motivated to decide based on goals and good things – perfect for benefits.

And you could easily identify which buyer is which, if you knew the right question to ask. So the oldest argument in modern sell58

ing, gain versus pain, has a solution. That’s something you want to have built into your training content.

Here’s how you can get help in figuring out what to do about your training.

The CAT Scan Diagnostic Tool was created to give focus to sales executives, managers and trainers in defining the three key training-related elements that improve a sales representative’s performance.

The structure covers the following:

CONTENT: Will you include the most

critical components to help your sales team increase earnings? Should certain content be given less initial attention because it’s not as useful now as it was in the past? Are you aligning your sales reps’ approaches with their buyers’ purchasing processes?

InsuranceNewsNet Magazine » August 2013

PART 1

of a 3-Part Series

ARCHITECTURE: Is your training pro-

gram crafted to enhance learning and acquiring skills and behavior? Does it include the latest techniques based on what we know now about adult learning skills?

T

RAINER SKILLS: Do your trainers have dynamic delivery skills that engage learners to increase their adoption and application of the content?

Let’s look in detail at each of these components.

In this first installment of a three-part series, we will examine Content, the first piece of the CAT Scan Diagnostic Tool.

This was developed and introduced to the American Society for Training and Development (ASTD), which has 74,000 members worldwide. I’ve designed both

WHY YOUR SALES TRAINING NEEDS A CAT SCAN their global sales training program and their Ultimate Selling Skills training design program. Some good people are using this tool to analyze their existing training and to figure out the best way to re-design it. After Content, we’ll look at Architecture (your program design), then Trainer skills.

The Content

Here are the 10 basic elements of great sales training. World-class sales professionals excel in most of these. Mediocre sellers struggle in most of them.

[1] Rapport [2] Prospecting [3] Opening the first meeting [4] Qualifying and disqualifying prospects [5] Questioning [6] Listening (yes, it belongs in your sales training) [7] Objection-handling [8] “Gain versus pain” selling [9] Closing [10] Debriefing the call This list is essentially chronological, in the way that the seller experiences the interactions with the buyer. However, I do not recommend covering all the items on this list at one time because it’s way too much. Sadly, most organizations dump a whole system on their learners at one time and hope they come away with a few good ideas.

I always start first with what I call The Ultimate Objection-Handling Tool. Why discuss objection first? Because objection is the biggest choke point in selling. You begin to eliminate resistance and you move further down the path toward the close.

Here, you create a book of top objections, with 20, 30, 40 different responses to each.

Why so many? Each of your team members must “find their voice” and use the kind of language that reflects their personality, approach and word choices. The tool also doubles quite effectively as a monster

coaching workbook for rookie hires. No surprises from buyers – that’s nice.

So you teach only one of the 10 elements at a time. Get your people to be great at eliminating resistance, and then move on.

Next, I like to spend time discussing qualifying and disqualifying buyers. You all kill yourselves chasing poor prospects every day. One company really put time into this approach. Their top salesperson was spending 37 minutes with each buyer before he decided either to pursue them or say goodbye. No more holding three or four meetings, conducting deep financial analyses, spending time, energy and time (not listed twice by mistake). Thirty-seven minutes.

This is training that frees you up, reduces stomach acid and makes you money.

The third training subject is how to open a sales call. We’ll call this module “One

The Ultimate Objection-Handling Tool is the most critical element of your sales training as it can eliminate the biggest choke point in the sales process – buyer resistance.

Great Opening Is Worth 10,000 Closes.”

Because if you don’t open well, you’ll never get close to the close.

Everyone who sells anything should have a distinct opening to every dialogue, whether that dialogue takes place by telephone or face-to-face. You begin by setting an outcome for the conversation, gaining prospect agreement, and you are overjoyed at the way you reach real next steps at the end of the meeting.

Pause here for a teaching moment: a trick question about next steps.

Is “Call me next Thursday” a next step?

No, it’s not.

“Next Thursday afternoon?” Still no.

“Next Thursday at 2 p.m.?” Yes, but …

Have you ever had a prospect no-show or not take your call on the appointment?

BUSINESS

Shame on us if that happens. Because you should have a strategy to prevent that from happening again. Try this: “Mr./Mrs. Buyer, when I call you at home next Thursday, if you’re not able to answer the phone, what should I do? Call your cell? Come by? Try at a specific time in the evening?”

You get the idea. Your training content should teach your salespeople to teach your buyers how serious, how professional you are and that your time is as precious as theirs. Good training reduces surprises.

Those are the three most important things your sales professionals need to do spectacularly: eliminate objections, qualify quickly and open strong.

The rest is up to you. Although you should know that No. 10, “Debriefing the Call,” will help people improve on the fly, because a simple document can help your salespeople to coach themselves after each prospect interaction, just as if a sales manager were with them.

Aside from the top 10, there are plenty of other important things you might want to employ to improve sales team performance. This includes things like budget (If your salespeople’s cash flow fluctuates as wildly as John Travolta’s acting career, why not help them better manage their cash flow during dips in income?), storytelling skills, Neuroeconomics (new research on buyer motivation and decision making), how to evoke emotion, mental health for sales professionals (all that rejection, how to manage it), humor skills, daily performance improvement tips and more.

Coming in Part 2

Next, we’ll address Architecture and you’ll learn how bad most training is, since it’s based on our experience with teaching and preaching. You’ll learn how great it can be, when it’s based on adopting adult learning principles that help your people change their behavior and make more money for both of you.

Dan Seidman is the 2013 International Sales Training Leader of the Year (Stevie Awards) and designer of the global sales training program for ASTD, the largest training organization on the planet with 74,000 members. He is the author of The Ultimate Guide to Sales Training. To reach Dan, write to dan.seidman@innfeedback.com.

August 2013 » InsuranceNewsNet Magazine

59

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

MDRT INSIGHTS

Retirement Planning for the ‘New Economy’ he market offers attractive T alternatives for baby boomers facing retirement in a low interest rate environment.

By Philip A. Rousseaux

I

f retirement planning falls under your practice specialty, chances are you’re familiar with the systematic withdrawal rate model used for retirement income planning.

This model advises clients to withdraw only a fixed percentage from their assets so they can leave a sizable inheritance to their loved ones and enjoy a worry-free retirement. It recommends using a mix of bonds and equities – typically 70 percent equities and 30 percent bonds. Then, clients use the dividends and systematic selling of securities to meet their income needs. The catch, however, is that the systematic withdrawal rate model allows for only a 30-year retirement before a person outlives their assets.

While a 30-year retirement may have been sufficient in the past, it is no longer realistic in today’s society. Statistics show that more than 53 percent of advisors still use the systematic withdrawal rate model to advise baby boomers about retirement. This is startling; as it shows just how much trouble will be caused if boomers are relying on this model to fund retirement.

Most of the figures used to support this model’s so-called “safe retirement withdrawal rate” are based on historical data. Does anyone remember the last time the 10-year Treasury rate was at 2 percent? Take a look at the rates on corporate bonds, certificates of deposit, Treasury bills and other instruments commonly used to derive retirement dividends and income, and then compare them to the data that is used to support this “safe withdrawal rate.”

The problem with all the software and simulations is that the historical data being used is not a reflection of 60

today’s economic environment. Testing retirement today with such low interest rates and high volatility for a 30-year time frame has not happened because, quite frankly, these circumstances never have existed before. If you are helping clients retire today and you want them to stay retired, then it is imperative that you adjust to the “new normal” and change the way you think about retirement planning.

Because interest rates on most products are low, annuities that offer living benefit riders are a popular way to help baby boomers retire. Annuities are the only investments in the world that can guarantee lifetime income, and offer the possibility for that income to increase once you retire. If a retiree today is seeking guaranteed income and principal protection with the ability to have double-digit returns, fixed indexed annuities may be worth considering.

Indexed annuities not only offer principal protection along with guaranteed growth for your client’s income in the future, they are also the only product that offers the potential for rising income with a depreciating asset. That’s right – an indexed annuity offers increasing income with a decreasing account value.

No stock, bond, mutual fund or variable annuity currently on the market offers a consumer that type of security during their retirement years.

Instead of placing all the risk on the client during the “decumulation” years, why not use a combination of the systematic withdrawal rate model for discretionary spending and vacationing, and a fixed indexed annuity for non-discretionary needs? By using a fixed in-

InsuranceNewsNet Magazine » August 2013

Indexed annuities are the only products that offer the potential for rising income with a depreciating asset.

dexed annuity with guaranteed roll-up rates and lifetime returns for the income your clients must have, you can provide a plan that will help baby boomers and take the worry out of planning for their retirement. Aside from a high withdrawal rate, these products offer roll-up rates of 5 to 7 percent during the accumulation phase that cannot be beat in today’s market. With interest rates at historic lows, it is comforting to know the market still has attractive alternatives.

Philip A. Rousseaux, RICP, CLTC CMFC, is a 10-year MDRT member with two Court of the Table and eight Top of the Table honors. He is founder and president of Everest Wealth Management and Everest Investment Advisors, a money management firm, in Towson, Md. Rousseaux is the co-author of Climbing the Mountain to Financial Success and co-hosts “The Money Guys” show on CBS radio and television in various cities. Contact him at Philip.Rousseaux@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.

Steps to a Successful Close otivate your prospect to buy M by creating emotion in your interviews.

By Ray Vendetti

C

losing is to life insurance sales what putting is to professional golf. Hundreds, even thousands, of golfers can hit the ball from tee to green as well as anyone on the PGA tour. However, putting is where the top golf professionals separate themselves from everyone else. Becoming an effective closer can transform a mediocre life insurance professional into an extraordinary one.

Effective closing requires two essential ingredients: emotion and motivation.

A multiplier relationship exists between these two components. Here are some suggestions for making sure you are adding these ingredients to your sales interviews.

Making the Close

First, what are you doing to create emotion in your prospect interviews? The answer I hear most frequently is: “I tell a good story.” Yes, that can create emotion but, unfortunately, it often creates emotion in you, and it seldom creates emotion in your prospect. Imagine telling a prospect about a client who suffered a heart attack or stroke, or who died and left his family struggling. The prospect does not know who you’re talking about and he is not connecting to the emotion you’re attempting to generate. You, however, become fully engaged in your story and you believe that this emotion also is flowing through your prospect. However, this is not happening.

Everyone knows someone who is struggling financially in retirement or a family who is struggling with a loved one in a care facility or someone who had cancer or who is recovering from a critical illness. Get your prospect to tell his story and you have created his emotion. You also have created step one toward a successful closing.

Next, you need to get your prospect to act on your recommendations. The motivation for him to act lies in your asking some open-ended “feeling” questions about the story he just told you. For in-

stance, if he told you about a family who is having financial difficulty because of the death of a spouse, ask him what would happen to him and his family if they were in a similar situation, how they would handle it, and how it would make them feel.

The answer to this is essentially the pain that the prospect would like to avoid. Remember his exact words – they are critical to the closing process.

The last step is in the way you present the benefits of your product as the solution to the prospect’s problem. I’ve always heard that you should sell the benefits.

While this is true, it’s in how you present them that makes the difference.

For instance, if you’re presenting a product that provides family protection such as covering the mortgage on the house, ask him how he would enjoy having these benefits. You can say something like this: “‘So, Mr. Prospect, how would you and your spouse feel knowing that if anything were to happen to you, your home would be paid off for your family?”

His answer most surely will be an emotional answer. He would be relieved, secure, confident, etc. Here is your final piece of a successful closing strategy. He will purchase the product to avoid what happened to the people in his story, to avoid that pain and to gain whatever peace or security your product will provide.

Here are your steps for a successful closing: Repeat the story your prospect told you and his exact words about what would happen to his family if that were to happen to him, and repeat what he said he would feel knowing that he had a plan in place that would help prevent him from going through that kind of pain. Present the benefits by asking him how he would feel having the exact benefit your plan provides.

Even with this process, many folks will stall. They will say they want to think about it, talk it over with their friends and family, etc. Once your interview ends, their feelings will fade quickly. Before you begin to restate all the benefits of the policy you proposed, ask them what they liked about your proposal, and how it would help them and their family if they had it in place.

This step is critical when you call your prospects back because you’ll need to repeat their words to them in order to rekindle the emotion that existed when you were face to face. There is nothing more powerful in recreating emotion than hearing our own words repeated to us.

Good luck and great closing!

Ray Vendetti, CLU, ChFC, of Vendetti Insurance Services, Escondido, Calif., is a NAIFA member. Contact Ray at Ray.Vendetti@ innfeedback.com.

August 2013 » InsuranceNewsNet Magazine

61

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

LIMRA INSIGHTS

Demand for Guaranteed Lifetime Income Continues to Grow dvisors play a key role in A educating their clients about the benefits of an annuity as a source of guaranteed lifetime income in retirement.

By Jafor Iqbal and Joseph E. Montminy

I

n 2012, roughly $115 billion of annuity sales were associated with guaranteed lifetime income products, and the market for these types of products could reach $650 billion in the next 5-10 years. With pension plans disappearing, future retirees are more likely to be inclined to purchase guaranteed lifetime income products in order to meet their living expenses.

LIMRA estimates that individuals age 45 and older, representing 7.9 million households, are interested in converting approximately $650 billion of their assets into annuities with guaranteed lifetime income features. The market opportunity can be separated into two markets: individuals who want income now and those who want income later.

The “income now” market primarily is comprised of current retirees who are buying immediate annuities. LIMRA calculates this market to be about $170 billion. The “income later” market includes the 40 percent of pre-retirees and trailing edge boomers who were studied by LIMRA and who expressed interest in converting a portion of their assets into an annuity with guaranteed lifetime income.

This group holds an estimated $474 billion. These individuals are likely to purchase variable and indexed annuities with guaranteed lifetime income riders, as well as deferred income annuities.

Guaranteed living benefits (GLB), particularly guaranteed lifetime withdrawal benefit (GLWB) and guaranteed minimum income benefit (GMIB) riders, have transformed the variable and indexed annuity markets. In 2012, annuity buyers elected a GLB rider on nearly $8 out of every $10 of variable annuity purchases ($83 billion) and $3 out of every $4 of indexed 62

annuity purchases ($23 billion), when a GLB was offered. Sales of income annuities (immediate and deferred) reached $8.7 billion in 2012 despite a very low interest rate environment.

Understanding the underlying dynamics of this market can create huge opportunities for advisors and insurance companies. First, while pre-retirees (age 55 or above) and late boomers (ages between 47 and 54) are interested in converting a portion of their assets into income, these two groups also represent the largest percentage of buyers. In 2011, nearly 70 percent of variable annuity GLWB buyers were baby boomers.

Second, a LIMRA advisor study found that, on average, advisors believe around 25 percent of their typical client’s portfolio should be invested in guaranteed income products.

Third, interest in converting an additional portion of assets into lifetime income is high among those who already own an annuity. A LIMRA study found that the most popular reason for buying an annuity was to supplement Social Security and/or pension income.

Finally, almost half of annuity buyers under age 60 in the study reported they initiated the annuity discussion with their advisors.

Advisors play a key role in educating their clients about the benefits of an annuity as a source of guaranteed lifetime income in retirement. Whether it’s faceto-face meetings or web and social media tools, every interaction with clients that improves their financial knowledge means everyone wins. LIMRA’s annuity buyer study showed that understanding the benefits of annuities more than doubled for recent buyers. In addition, 75 percent of these annuity owners were satisfied with their purchase and five out of six were willing to recommend an annuity to their family and friends.

Advisors should note that high satisfaction levels result in referrals, additional buying opportunities and the chance to

InsuranceNewsNet Magazine » August 2013

expand their base of existing clients.

The financial crisis of 2008-2009 shook the confidence of many Americans. A LIMRA study shows that two thirds of pre-retirees (age 55+) and three fourths of not-retired households (age 45-54) are unsure whether Social Security and pensions will cover their basic expenses in retirement.

The demand for guaranteed lifetime income will only grow larger as pre-retirees learn more about retirement risk.

The need also increases with the growing uncertainty around once guaranteed income sources like Social Security and defined benefit pension plans, as well as social programs like Medicare and Medicaid. Because a growing share of income will come from the retirees’ own assets, advisors who help their clients develop and implement a solid retirement income plan stand to capture, manage and retain those assets for a long time.

Jafor Iqbal, is associate managing director, retirement research, for LIMRA. In this role, he is responsible for managing retirement income research projects that deliver retirement-related information and solutions to LIMRA’s membership.

Contact him at Jafor.Iqbal@innfeedback.com.

Joseph E. Montminy, ASA, MAAA, is assistant vice president, retirement research, for LIMRA. He is responsible for LIMRA’s individual annuity research program. He manages the annuity benchmarking studies and various research studies relating to the annuity market and supervises the online services that provide participating companies with access to annuity product materials and interest rates. Contact Joseph at Joseph.Montminy@innfeedback.com.

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Download today at bitly.com/innapps August 2013 » InsuranceNewsNet Magazine

63

THE LAST WORD

WITH LARRY BARTON

Make Your Team Aware of Threats Against Your Practice Take one hour to begin protecting your clients and your employees from potential harm posed by those with a mental health disorder.

By Larry Barton

W

e don’t often have a chance to discuss one of the “taboo” subjects of managing a practice, but here goes. According to the American Psychological Association, about 11 percent of working professionals have a mental health disorder.

Those include our advisors. And the vast majority of those 11 percent have disorders that are not serious and are easily treated, ranging from depression to substance abuse issues.

But as a leader, what would you do if one of your colleagues had a situation that escalated – what if that person began to stalk a client, for example, or sought retribution because the client complained to a regulator? Such cases are rare, but let’s remember the case of Mark O. Barton (no relation), the Atlanta day trader who returned to murder his advisor and others after a series of massive market losses.

Think about your call centers and the irate customers who may be waiting for a claim to be processed. When they become irritated, that’s one thing. But when they personalize their anger, will that call center notify you? You may be surprised at how few companies connect the dots on threat management. Independent advisors have even fewer resources to count upon.

So, your solution may be: if anyone threatens me or my practice, I’ll call the police. That may be the right answer, but when a squad car pulls up in front of a home to pursue that threat – your employee or a client – remember that the situation has escalated into a neighborhood and possibly a community embarrassment for a person already on the edge.

What is needed is one hour – just to begin – where you ask your team:

64

What would we do if a client made a threat?

Do we have experts who know how to identify and assess a situation?

Do we have a policy regarding weapons on site, including weapons carried by clients, especially in states that allow a concealed weapons permit?

Who within our organization has experience in managing volatile people?

Do our receptionists have a panic button in which to alert police if they see a possibly violent person approach our agency?

How are we training our call centers to alert us if someone makes a direct threat?

Earlier this year, the American Psychiatric Association issued the fifth version of its Diagnostic and Statistical Manual of Mental Disorders (DSM). Many of the world’s leading specialists in mental health spent six years, virtually full time, writing this update.

We have a daunting responsibility. As I wrote in my book, Crisis Leadership Now, an insurance agent has several responsibilities: Duty to Care: It is not enough to tell employees, “We care about your safety and well-being.” If you are not offering training on the signals of a potentially disruptive customer or employee and communicating known or suspected threats in a timely manner (someone informs you of a potential suicide because of a comment on a blog, for instance), the employer could be found culpable of failing to care, as required by statute.

Duty to Warn: Once you are aware that a person at risk has made a threat – whether in a staff meeting or parking lot – if they work for you (including a con-

InsuranceNewsNet Magazine » August 2013

tractor in many jurisdictions), you may have a responsibility to intervene. This includes warning co-workers if the threat mentions direct harm. How you communicate a threat to co-workers in this arena is an art. It must be done with speed without being alarmist. It often requires the engagement of legal counsel and a communications specialist.

Duty to Act: An employee informs you that her ex-husband has threatened to come to work and kill her; she presents you with her personal restraining order (PRO) but says, “Please don’t do anything – I just wanted you to have this for the records. I’m afraid he may actually do it if you tape a poster and photo at the door.”

The employer is in a no-win position, and this is a common quagmire. Determining what can be done, and when, merits serious evaluation.

Duty to Supervise: Several years ago, we rarely heard used this term. Today, unfortunately, litigators are aiming at your agency with this mantra. In essence, this phrase encompasses a broad array of statutes and requirements. It means that legitimate disputes and claims should be reviewed in a timely manner. It also means that when a person begins to act strangely or talks about self-harm, that the supervisors who work in your company simply cannot look the other way.

Threat assessment is thus a legal duty as well as an affirmatively smart thing to pursue. Putting clients first is why you are a great insurance agent. That includes keeping them, and your team, aware of the dynamics in a new world.

Larry Barton, Ph.D., CAP, is president, CEO of The American College and holder of the O. Alfred Granum Chair in Management at The American College, based in Bryn Mawr, PA. Contact Larry Barton at Larry.Barton@innfeedback.com.

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