InsuranceNewsNet Magazine - August 2014 by InsuranceNewsNet

Life Annuities Health Financial

EXCLUSIVE COVERAGE PAGE 8

August 2014

PLUS SOUND Like a Star to SELL Like One PAGE 14

6 STORIES that will Inspire Your Sales PAGE 24

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AUGUST 2014 » VOLUME 7, NUMBER 8

ANNUITY

42 D ismiss 5 Myths Blocking Annuity Sales By Rich Lane With annuity purchasers getting younger and more affluent at a younger age, it’s important to be armed with accurate information on presenting annuities as a part of a client’s financial plan.

44 INFRONT

COVER STORY

8 S econd Agent Survives California’s Assault on Annuities

FEATURE

24 Get Inspired

44 H ow to Prevent Becoming the Next ‘Annuity Burglar’

LIFE

HEALTH

By Linda Koco Advisors representing different career stages share what has inspired them to persevere in the business, and how that inspiration has impacted their practice.

By Steven A. Morelli After having 29 felony charges against him dismissed, Alan S. Lewis reflects on his ordeal and wonders what’s next.

By Jerry Shafran A legal case suggests that just because a state department of insurance deems a product to be “legal” does not necessarily mean that a judge or jury will see things the same way.

34 Love and Remarriage: How to Avoid Pitfalls By Linda Koco Many couples don’t realize that a second trip to the altar can be filled with financial and estate planning complications. Proper planning with life insurance can help couples and families avoid many of these potential hazards.

INTERVIEW

14 Sound Like a Star to Sell Like One

An interview with Roger Love What goes into making a good impression? It’s not only looking your best, it’s sounding your best as well. Roger Love, “the superstar vocal coach,” has helped the famous and the not-quiteso-famous to speak and sing like stars. In this interview with InsuranceNewsNet Publisher Paul Feldman, Love gives you simple tips for finding your perfect voice and engaging all who hear it.

38 Insurance for Life: the Case for Accelerated Benefit Riders

InsuranceNewsNet Magazine » August 2014

By Val Mikesell Life policies that pay your clients in the event of a sudden illness can help protect their finances while your clients concentrate on recovering their health.

50 H ow to Fill the Gap Between Exchanges and Rising Premiums By Robert Hutt Using gap insurance, employers save significant premium while reducing employee out-of-pocket costs and improving benefits.

FINANCIAL

54 How to Explain Hedge Funds

By Bryce Sanders Many investor assumptions about hedge funds are incorrect. Here is how you can separate the myth from the reality.

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ALSO IN THIS ISSUE AUGUST 2014 » VOLUME 7, NUMBER 8

BUSINESS

56 How to Get Eight or More Referrals Now By Reuven Shuval Every successful advisor needs a strategy for filling the referral pipeline. Here is a guide to starting the conversation.

INSIGHTS

58 S OCIETY OF FSP: Clients Want a ‘Dashboard’ Approach to Retirement Planning By Richard M. Weber Clients need answers to their most pressing retirement questions: “How fast am I progressing toward my goal?” “When can I expect to reach my goal?” and “Will I be safe once I get there?”

60 MDRT: Harnessing the Power of Friendship to Build Client Relationships By Jason J. Dudum Creating a practice built on trust can help you retain clients and generate referrals.

61 NAIFA: Members Voice Concerns About Maintaining Financial Security By Ayo Mseka NAIFA members visited Capitol Hill to present their message about maintaining the tax-favored treatment of life insurance.

62 L IMRA: Asking for Directions: Gender and Retirement Planning By Cecilia Shiner Research shows that women are less prepared for retirement than men, but are open to guidance from a financial professional.

64 The Last Word: Break into the HR Office By Larry Barton A sales manager tells his staff to use their clients’ human resources departments as a way to educate prospects.

Works for me...

EVERY ISSUE 6 Editor’s Letter 22 NewsWires

32 LifeWires 40 AnnuityWires

48 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 PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli ASSISTANT EDITOR Susan Rupe VP FINANCES AND OPERATIONS David Kefford CREATIVE DIRECTOR Jake Haas PRODUCTION EDITOR Natasha Clague SENIOR GRAPHIC DESIGNER Carlos Centeno DIRECTOR OF MARKETING Katie Hyp DIRECTOR OF SALES Anne Groff TECHNOLOGY DIRECTOR Joaquin Tuazon

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14 INN 08.14 August 2014 » InsuranceNewsNet Magazine 5

WELCOME LETTER FROM THE EDITOR

Tell Us Your Story

ho inspired you? Or who inspires you today? We are exploring the subject of inspiration in this edition and we also would like to share your own stories of inspiration. When you were starting out in insurance or financial advising, you had difficult days. Everybody did. You probably thought of quitting. Everybody did. Something got you on track to success. Or, more likely, somebody. We would like you to tell us your story. We will even write it for you. Well, we will select folks who we will interview. Send us an email telling us a little about your story and you may be selected for a half-hour interview, and we’ll turn that into your story. This will start as a quarterly feature and we’ll see where it goes. If you tell us wonderful stories and people love reading them, we’ll keep the feature going and maybe even increase its frequency. It’s all up to you. If you want to pass on the inspiration that someone gave to you, here is your chance. Just thinking about this is an enriching exercise. I thought about who inspired me along the way and I was surprised by all the people who came to mind. In fact, remembering the many people I haven’t thought of for years reminded me of what they taught me. Journalism used to be more religion than profession. Practitioners were believers, driven by the story, fueled by deadlines. Well, we had to have something to drive us because it sure wasn’t money. Quite a motley crew when I look back at them. Newspapers attracted smart, misfit observers who tended to mutter wisecracks in meetings. The chuckle of ridicule, I believe, was the society’s handshake. But they were motley in that they had

their variations. The showboats, the plodders, the prosecutors, the defenders, the lovers, the haters, the crafters, the artists — and then there was Dave Rossie. Dave was a mix of many of those as the columnist for the Press & Sun-Bulletin in Binghamton, N.Y., Dave Rossie where I did 13 years. He had many titles before he retired, but really, he was the voice we all wish we had. He usually spoke for the powerless, giving them the strength of his words. When Dave covered something, it could not be ignored. He won pretty much every journalism award that they gave out. That kind of thing was important to Gannett, the corporation that owns the paper, but it was probably of minor value to Dave. But I heard that he was upset that he did not win the Pulitzer Prize when he was a finalist one year. I had to be told he was not happy about it because, to me, he just looked like Dave doing his job like any other day. That was the thing about him. He came to work and, without complaint or fuss, banged out a column that was great. I don’t remember any bad columns, just some that were not as great as others. I didn’t know he had cancer until his hair started falling out and he lost weight. I don’t think he missed a day of work. In those days, I went into his office to talk to him more often. Even though he wrote brilliantly and wore the customary gruff countenance of a newspaper guy, he was eminently approachable and seemed to love talking to anybody. Well, almost anybody. If he didn’t talk much to someone, it was because he didn’t want to talk to that person. He was too decent to be insulting. Not to the person’s face anyway.

InsuranceNewsNet Magazine » August 2014

But during those low cancer days, I would talk to him more often. I’d ask his advice. I’d solicit his stories from the old days, such as when he was a cops reporter and covered the great Mafia raid in Apalachin. I wanted to absorb as many moments I could have with him without being a pain in his butt. Although I think he liked having company during that period. We never talked about his cancer. Then his hair grew back. All was well. I went into his office less and less frequently. After all, many others wanted their Dave chats. He always seemed to have time even though he banged out several columns a week. One day I went into his office to tell him I took a new job. We shook hands. I stood around long enough to be uncomfortable and then I left his office. I had told him it was great working with him, but I didn’t thank him. I regret that. Even though he would have barked, “For what?” I wish I had said it. That was more than 15 years ago, but in difficult times, I still remember Dave’s aplomb and devotion to his craft. It’s all you really have. So, your turn. Tell us who got you started and helped you along the way. Send an email to editor@insurancenewsnet.com and give us a sense of your story. The door’s open. Steven A. Morelli Editor-in-Chief

Every entrepreneur and expert today has a story. A story of overcoming obstacles, adversity and exhaustion that has led you to triumph, victories and eventual success. These stories make up your brand. When legendary speaker, author and business consultant Brian Tracy was getting started selling soap door-todoor decades ago, he knew it was more than a means to an end. It was a story that he could tell to others as motivation and inspiration to get people to take chances, risks and first steps on their own paths to success. Today, Brian speaks to millions of people every year, all over the world, in private and public events, with products and services and through his 50+ top-selling books. Brian knows the power of a story, and today he is looking to help you tell yours. To do so, he has partnered with Nick Nanton and JW Dicks at the Dicks + Nanton Celebrity Branding® Agency to produce the 5th season of The Brian Tracy Show.

Together, we are looking for 20 experts and entrepreneurs to join us on set in San Diego this September.

At this 2+ day media experience, you will go through a professional photo shoot, gain the media training you need to nail your interview, and then go in front of the cameras on The Brian Tracy Show. Better yet, through our media creation process, we will air portions of your interview on ABC, NBC, CBS and FOX affiliates across the country, giving you the media credibility of a lifetime to use in your direct marketing. These are credentials to share on your website, in your direct mail and marketing. Plus, we use them to gain more media appearances to grow your brand and attract clients and customers. Beyond getting you on TV, we want to help you become the definitive expert in your marketplace. And from our experience, along with Brian’s experience in publishing over 50 books throughout his career, we know that nothing elevates you to an elite expert like a Best-Selling book.

Using our collaborative book publishing process, we are going to place you in Brian Tracy’s next book, along with other top experts from around the world, publish it for you and then GUARANTEE that it hits at least one Best-Seller list. This will forever give you the title of Best-Selling Author and it instantly elevates you to the top of the marketplace. Throughout this entire experience, you will not only receive the GUARANTEED deliverables mentioned above, but you will also receive the coaching, support and training you need to leverage your TV appearance and Best-Selling book and implement them into your marketing, just as we have done for 2,100+ clients from 33 countries. Special INN Reader Bonus: As a bonus for taking action and speaking with one of our Business Agents® today, we are going to throw in 2 live events unlike anything you have ever been part of. Much like the music industry has the Grammy Awards and movie stars have the Oscars, Best-Selling Authors have an awards gala of their own. The event, held in the fall in Hollywood, CA, is put together by the National Academy of Best-Selling Authors®. Through your participation in this program, you will be invited to receive your commemorative Quilly® Award at the 2015 Best-Sellers’ Summit and Golden Gala Awards. You will also be invited to the 2015 EXPY® Awards in New York City to commemorate your media appearances, as recognized by the National Academy of Experts, Writers and Speakers™. To take advantage of this media, marketing and PR opportunity from Brian Tracy and the Dicks + Nanton Celebrity Branding® Agency, we invite you to talk with one of our Business Agents® today. They can answer your questions and get you the pertinent information to apply for this businesschanging package we have put together just for you. Just for doing so, we are going to send you a copy of our new, Wall Street Journal Best-Selling Book, StorySelling, to help you create your own story to connect with your prospects and clients, close more business and continue to be a top producer for a long time to come. Call 888-548-4047 or visit www.BrianTracyAndYou.com to claim your copy today!

Act fast! There are only 20 spots available for experts at the September taping of The Brian Tracy Show.

Visit www.BrianTracyAndYou.com or call 1-888-548-4047 August 2014 » InsuranceNewsNet Magazine

INFRONT TIMELY ISSUES THAT MATTER TO YOU

Second Agent Survives California’s Assault on Annuities A lan Lewis has his freedom now, but others wonder who’s next in the authorities’ sights as a state program still targets life insurance and annuity agents. By Steven A. Morelli

fter more than four months in jail, Alan S. Lewis’ first taste of freedom was an In-N-Out Burger. “Once you’ve had one, it’s just something special,” Lewis said. “While I was in jail, that was exactly what I wanted – an In-N-Out Double-Double Animal Style with an order of fries. So, that’s what I did.” Lewis was appreciating the simple pleasures of life the day after he was released from custody in a Southern California jail on July 10. He was still reeling from months

of living in a primitive, dangerous jail as he faced 29 felony charges for incurring surrender charges while selling annuities. It was not just the number of felonies that baffled him, but also the charges themselves: embezzlement, grand theft and burglary. The first two charges derived from 12 clients who incurred surrender charges when they canceled their annuities to buy new fixed index annuities. The burglary charge was because Lewis visited clients’ homes during the sales process. Although Lewis did not enrich himself beyond the commission he earned, the prosecutor said the $300,000 in surrender charges amounted to theft. This was the key point that made some in the fixed index annuity business anxious. If Lewis were convicted, then any deal that involved a client incurring a surrender charge

Alan S. Lewis enjoys freedom after more than four months in jail. He is the second agent whose life has been upended by criminal prosecution over legal annuity sales.

or early cancellation penalty to buy a new product could lead to charges of embezzlement, grand theft and burglary. It would effectively criminalize surrender charges, which insurance companies rely on to dependably invest the premiums long term in order to cover the guarantees. Kim O’Brien, president and chief executive officer of the National Association of Fixed Annuities (NAFA), said not only are agents at the risk of prison for selling annuities, but the public is at risk of being deprived of products designed to protect retirement. “A determination by the court that selling

UPDATED FROM PREVIOUS ISSUE

LEWIS CASE TIMELINE

OCT. 2013 Lewis begins recovering from depression and moves in with his parents in Houston.

2002

FEB. 2009

Alan S. Lewis starts working with Family First Insurance Services, based in Woodland Hills with 11 regional offices in California. Family First and the company whose fixed index annuities it sold, AmerUs, are eventually subject to a class-action suit over sales practices.

Lewis leaves the annuity business, suffers a severe episode of depression and moves to Spring Hill, Tenn. Lewis estimates he sold approximately $30 million in annuities over six years. He had three official complaints, which he said were settled “without wrongdoing on my part.”

2002

2004

2006

2008

2002-2005

2005

Lewis says the gathering class-action suit rattled some clients, so, among options, he suggests clients can buy Allianz MasterDex 10 fixed index annuities. The prosecutor alleges the surrender charge that the clients incurred constituted embezzlement. Although the clients were promised that the bonus from the new annuity would offset the charge, the prosecutor alleges Lewis should have known it was a “phantom bonus.”

Lewis leaves Family First. Lewis says he recognized in hindsight some shortcomings in the MasterDex 10 and returns to some clients and moves them to a third annuity. The prosecutor says this constitutes “twisting.” Allianz is subject to a large class-action lawsuit over the sales practices involving complicated, two-tier annuities such as the MasterDex 10.

InsuranceNewsNet Magazine » August 2014

2010 2010

2012

Lewis recovers from depression. He begins to receive calls from California Insurance Department investigator June Arago, who asks about his annuity sales.

OCT. 2012 Lewis suffers severe depression and lives on the streets of Nashville for a year. He and his wife divorce.

OCT. 24, 2013

SECOND AGENT SURVIVES CALIFORNIA’S ASSAULT ON ANNUITIES INFRONT an annuity with a surrender charge is tantamount to embezzlement or common theft – and if the sale occurs at the client’s home, with burglary – would have a chilling effect on the ability of consumers to have access to fixed annuities,” O’Brien said in a statement from the association of fixed index annuity companies. Meanwhile, as Lewis adapted to the rough, random justice meted out by gangs in jail, his case wound slowly through a court system that seemed just as capricious and far more punitive. If convicted, he could move on up to a state prison for the next 40 years.

Snatched From his Life

Lewis was hurtling from one crisis when a traffic stop opened the gate to the next. His arrest was the latest setback in years of difficulty since the economy soured in 2009. Since then, Lewis had left the annuity business and Southern California for Tennessee. He later sank into a deep clinical depression that led to living on the streets of Nashville for a year. He and his wife split up, and Lewis moved to Houston. Eventually his 18-year-old son moved there with him and fell deeper into a Xanax addiction. Lewis was speeding to an AlAnon meeting when he was pulled over. (For more background on the case, visit bitly.com/ innlewis and click on Ex-Agent Faced With Burglary Charges for Selling Annuities.) Instead of getting a ticket, Lewis was

MARCH 10, 2014

California’s Life & Annuity Consumer Protection Program pays prosecutors to find “victims” and jail agents. jailed on an outstanding California warrant. Lewis languished for 10 days in a Texas facility awaiting extradition to California, not even knowing what the charges were or why he was being accused of anything. Lewis finally faced his three dozen felony charges when he was arraigned. That was when he learned his alleged “embezzlement” occurred when he was an agent, but not a principal, with Family First Insurance Services, an agency that would eventually be sued by the state and put out of business for predatory practices. The initial 36 felony charges were reduced to 29 felonies and a misdemeanor. No one else from the agency has been charged criminally. While Lewis was going through a fiveday preliminary hearing, he learned that during the state’s Family First probe an investigator had heard that a client of Lewis’

Lewis is extradited to California. He faces arraignment the next day, but when the full scope of the case against him is apparent, the proceeding is postponed until a trial lawyer can be assigned to Lewis.

MARCH 20, 2014 Lewis is arraigned and faces 36 felony counts of embezzlement, grand theft and burglary. The maximum sentence is 40 years in prison.

LATE FEB. 2014 Lewis returns to Houston, where he is pulled over for speeding and arrested on the California warrant.

had dumped his Allianz annuities to buy annuities from another company. Lewis later said that did happen but the client wanted the switch even though Lewis warned him about the surrender charges. “He called me, and he said, ‘I want you to do something with these Allianz annuities. I’m not happy with them,’ ” Lewis said. “I said, ‘Man, you’ve not had them that long. You’re going to take a bath on those surrenders.’ He said, ‘It doesn’t matter, I’m going to do it anyway,’ and he did it himself.” That instance led the investigator to find others who had incurred surrender charges for giving up their annuities for a new annuity. Lewis was sure after the preliminary hearing that the state did not have a case. Later hearings confirmed his suspicions. The prosecutor, Sheronda Edwards, had dumped piles of documents onto Lewis’ court-appointed lawyer, A.C. Jones, on June 23. Not only did the prosecutor ask for more time to prepare, but Lewis’ own lawyer asked him to waive his right to a speedy trial so he could investigate the documents. Lewis said he would think about it. He went back to jail and saw all the people who had waived their rights and have been waiting for their trials, sometimes for years. Lewis thought long and hard before deciding what to do. He returned to court on June 26 and told his lawyer “There was nothing here five years

JUNE 9, 2014 The trial is postponed to June 23 at the request of the prosecutor, Sheronda L. Edwards. The prosecution’s expert witness, Vincent Patrick Gallagher, is in China until June 23, according to a motion. Edwards is still waiting for the alleged victims’ annuity contracts subpoenaed from nine carriers. The prosecutor also says she will submit eight audio CDs of interviews of the alleged victims by June 6, according to the motion filed June 5.

APRIL 3, 2014 Preliminary hearing starts. During the several days of testimony and evidence, the proceedings are postponed for a day so that the prosecutor may attend a class on annuities.

JULY 10, 2014 All charges are dismissed in a court hearing and Lewis is released.

2014 FEB. 2014

APRIL 14, 2014

Lewis has growing success at a sales job outside insurance, but he has to quit in order to help his older son, who had moved to Houston in December. The 18-year-old admits a prescription drug addiction and spirals into self-destructive behavior that compels Lewis to take his son to Tulsa, where his ex-wife lives.

Last day of preliminary hearing. Superior Court Judge Bernard J. Schwartz allows 29 of the felony counts and one misdemeanor to go to trial and dismisses the others for jurisdictional reasons. Lewis is in jail in lieu of $600,000 bail and scheduled to go to trial on June 9 to face 19 felony counts and one misdemeanor of embezzlement, eight felony counts of burglary, and two felony counts of grand theft.

The Riverside County district attorney alleges Lewis induced 12 seniors into surrendering IRAs or annuities for a “less favorable” annuity. Court documents allege Lewis committed “twisting” and caused seniors to lose more than $300,000 in surrender penalties. He is charged with 36 felony counts of willfully embezzling from an elder for an amount exceeding $950, grand theft in excess of $400 and burglary. The prosecutor argues that the surrender penalties constituted embezzlement and theft, and because Lewis did some of the transactions at the clients’ homes, it was also burglary. An arrest warrant is issued.

JUNE 23, 2014 Trial is scheduled to begin but is postponed first to June 26 and then to July 28 because the prosecutor was waiting for three annuity contracts from insurance companies.

August 2014 » InsuranceNewsNet Magazine

INFRONT SECOND AGENT SURVIVES ago; there was nothing here last week; there’s nothing here today; there won’t be anything here five years from now.” Lewis said, “I’m not waiving my right. We’re going to trial.” Then his lawyer told him that the prosecutor offered a deal for time served if he would plead guilty to a couple of the charges. “I said, ‘Well, what would you do?’ He said, ‘Man, I’d take the deal.’ ” Lewis gave his lawyer an answer and they went into the courtroom. Lewis sat secured in what he called his Charlie Manson chains in the prisoners’ section. “Your honor,” Jones said, “My client wants to go to trial.” Later in a holding cell, another inmate confided in Lewis. “Did you see what she did?” the inmate asked in reference to the prosecutor. “She wobbled.” Days later, the prosecutor agreed to a hearing to dismiss the charges.

The State Prosecution Fund

The prosecutor had amassed more than 10,000 pages of documents in the case and dozens of hours of interviews. She was able to do this in part because of a California program designed to help county district attorneys prosecute life insurance and annuity agents. The state’s Life & Annuity Consumer Protection Program collects $1 for every insurance transaction to finance consumer awareness material and county prosecutions. The state collects an average of $871,000 annually but expects to collect more than $1 million a year because of recently enacted changes to the law. Those legislative amendments also made the program permanent rather than its having to be reapproved periodically. Riverside County, where Lewis was prosecuted, had asked the state to finance its prosecution of a complex case that appears to be the Lewis case. The case details were blacked out before the document was released to InsuranceNewsNet. Altogether, the county has received $371,000 from the fund since 2006. Half of the state fund finances prosecution. The other half underwrites outreach material such as videos and pamphlets to teach senior citizens about life insurance and annuity scams. In Riverside County’s case, district attorney staff members and state Insurance Department investigators team up to present programs for seniors, warning them of unscrupulous annuity agents. Riverside authorities showed a video warning of complex annuities and the in10

How to prevent becoming the next ‘annuity burglar’ | page 44

sidious ways they are sold. It features a dramatization that begins in a lunch or dinner seminar where the clearly dastardly agent is fishing for “victims.” (View this video at bitly. com/innlewis. The video is linked in the article “California Program Pays to Prosecute Life and Annuity Agents.”) Much like the meal seminars the video warns about, counties and the state use these seminars to find “victims.” In Riverside County’s 2012 funding request, county Chief Deputy District Attorney Vicki Hightower wrote:

As we do at all outreach sessions with audio/video capability, we were able to show the Annuities – It’s Your Choice video provided to us by CDI [California Department of Insurance] … Through our continued outreach efforts with the Department of Insurance and other agencies, we anticipate additional investigations will be referred to our program during the next fiscal year.”

Watch video: bitly.com/annuityassault That, in essence, erases the statute of limitations on prosecution, said Brad Carr, who used to work as an annuity agent with Lewis at Family First. Carr said he is concerned because in California, the threeyear statute of limitations clock starts when authorities become aware of a complaint, not when the incident occurred. “I know my sales were legal and ethical,” Carr said. “But what happens if someone who was in perfect health when they purchased an annuity but now suffers from dementia goes to one of those seminars and says, ‘I didn’t know what I was buying’ five, 10 or 20 years after the sale?” Even if an investigation or prosecution were eventually dropped, an agent’s life and livelihood would be permanently damaged. Lewis was subjected to more than four months of imprisonment with the threat of 40 more years hanging over his head.

InsuranceNewsNet Magazine » August 2014

In the case of an annuity agent in Northern California, a flimsy case based on whether a client had dementia went all the way to the state Supreme Court before it was judged to be wholly without merit. In the meantime, Glenn Neasham lost his insurance license, business and house. He and his family had to subsist on food stamps. Neasham was convicted, but appellate judges threw out the judgment and expunged the original opinion from the record so that it could not serve as a precedent. (Read more on that case at bitly.com/neashamcase.) Even though the case was discredited, it still serves as a model for district attorneys. In Lake County, where Neasham was prosecuted, an assistant district attorney said the office is talking to other counties and agencies about the case. In a year-end report for the state’s consumer protection program in 2012, the prosecutor wrote, “Throughout the year, the grant prosecutor and investigator spoke to various law enforcement agencies regarding the Neasham case.”

Now What?

The days after Lewis was released, he stayed with a friend’s family in Southern California and enjoyed the simple pleasures of being free to go where he wanted. Sitting outside and enjoying an exquisite California summer evening, Lewis took a few moments to reflect on what happened to him and what to do next. He was planning how he could get back in touch with his troubled son, who has been shielded by Lewis’ wary ex-wife. He was considering the bud of a life he had been growing in Texas before he was whisked away. But that night, he was also thinking about simply being free and how tenuous freedom is. “I’ve been abused in a very powerless position by a government that I thought was moral and just, and I found an environment where it is the exact opposite,” Lewis said. “This is a life changer. This isn’t getting pulled over for a DUI in jail for three nights or whatever. I spent 51 years building a reputation of character and honesty. Where do I go to get that back?” Steven A. Morelli is editor-inchief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@ insurancenewsnet.com.

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Q: Sentinel started as a solution to a certain need. How has the company continued to adapt based on new needs? A: 2006 was the year that I came in as president and Dan Acker came in as vice president. Our previous president and CFO retired, and we had been concerned about the decline of the final expense block because over the years the number of policies coming in weren’t keeping up with the number of policies that were either lapsing or that we were providing funeral funds for. So we had to determine whether or not we were going to continue to grow the final expense block or whether we were going to consider selling the company, and we decided that we wanted to grow. We revised the final expense product to our existing suite of New Vantage products, and we determined that there were other products in the senior space that would be complementary to the final expense insurance. We began offering Medicare supplement products and developed some annuity products that we felt were very unique in the marketplace. In addition to that, we brought out a hospital indemnity product that was designed specifically to fill the holes or the gaps that are in a Medicare Advantage policy. So we stayed in the senior market, and Sentinel Security Life has grown to be very strong and stable. Q: What do you think is next for the final expense industry? A: I see it becoming more and more important. I think that we are beginning to see a number of the larger carriers who have determined that the final expense market appears to be a profitable market and are willing to spend significant resources in developing a final expense product on their own. As we look forward here we have a very significant increase in the number of seniors in the next 20–30 years, and these seniors will need to have the ability to provide for their final expenses. Q: Do you see this generation of seniors as more likely to choose final expense insurance over a pre-need plan? A: That would be my opinion. I think that we’re seeing a lot of seniors who retire and have a very active lifestyle and prefer to move to a warmer climate and leave the home that they had for the last 40 or 50 years and make a new adventure. A very significant advantage of final expense is it’s just a matter of changing their address with the company, and the coverage remains. Q: Sentinel has the culture of being intimately tied to the funeral market, and as you said, many of those with the company feel that it’s a calling. Is there anything else that will always give Sentinel an edge as the major carriers try to get a share of the final expense market? A: Well, I think that the personal service that a small company can provide is always an advantage. We have a very significant commitment to

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our customer service department and to have them be able to interact personally with our policyholders, and I think that the caring shows, compared to a large company with large call centers. Q: Do you have anything that you would say to an agent to encourage them to get involved in this market as far as growing their own business? A: Well, I think that I would say that final expense is a very rewarding type of business to get into because you’re fulfilling a need that the families have had in the back of their mind for many years as they want to make sure they’re not a burden with the cost of their funeral services and burial. Also I would say that with the senior market expanding and growing as rapidly as it is that there’s a significant opportunity there. And it’s just a wonderful opportunity for an agent to get acquainted with the people whom they’re providing the insurance for on an intimate basis, and we at Sentinel would be more than happy for an agent who would want to take the opportunity to try the final expense market and try Sentinel Security Life as a provider. In addition to providing quality service to our policyholders, I think that our other customer, if you will, is just our agents whom we’re providing materials and licensure with, and we appreciate and look forward to working with anyone who’s interested in entering this final expense insurance market.

When you get to work with a smaller company like Sentinel you get what is lacking in the overall marketplace. Sentinel answers the need for responsiveness, accountability and competitiveness of product. That’s grounds for saving time on getting quality business issued faster, for making the business more fun, and for building a profitable relationship.” — Brad Tison of The Achievement Group, Des Moines, IA

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August 2014 » InsuranceNewsNet Magazine

InsuranceNewsNet Magazine Âť August 2014

Visit bitly.com/innlove to read the full version of this article complete with audio tips from Roger himself.

SOUND LIKE A STAR TO SELL LIKE ONE INTERVIEW

ant to inspire more clients and wow audiences? Try working on something that you probably haven’t paid enough attention to – your voice. Your voice is your most powerful sales tool. It is how the world hears you. It starts conversations. It draws interest and attraction. And most important, it tells stories that captivate and motivate people. It’s not the story itself that moves an audience or a prospect, it’s how the story is told. It’s how the words, tempo, pitch, volume and melody all come together. Your voice has the power to turn indifferent prospects into raving fans (or fleeing crowds). So what does your voice say, and how can you make it better? In this month’s issue, we asked one of the world’s most recognized vocal coaches, Roger Love, how to make your “sales voice” sing and rock all of your presentations and seminars. Roger has been a vocal coach for many marquee stars, including the Beach Boys, the Jacksons, Bruce Springsteen, Barbra Streisand, Reese Witherspoon, Jeff Bridges and Colin Farrell. Roger has also coached worldclass speakers like Anthony Robbins, Brendon Burchard and Suze Orman to find their “perfect voice.” In this discussion with InsuranceNewsNet Publisher Paul Feldman, Roger explains how to find the voice that is authentic to you. FELDMAN: Most people don’t associate a vocal coach with what they do, but a person’s voice is an extremely important part of all their communications, whether it’s one-on-one or with a group. How do you make the case for why it’s important for salespeople to train their voices? LOVE: Most people are not thinking that voice is the ultimate communication tool. They’re thinking that if they had the right words to say, they could convince somebody to buy a particular insurance policy or anything they wished to create as the outcome for that communication. But the truth is that although we live in a content-based society, the actual words you use count for less than 7 percent of whether anyone actually believes anything that you have to say. Tonality, or the sound your voice makes, counts for 38 percent. The rest is physiology, which is what you’re doing with your hands, your body

and also internally, such as breathing. They say that it takes less than a second for people to decide whether they like you enough to listen to what you have to say. There was a study just published in New Scientist magazine in which people recorded the same sentence and extracted just one word from the sentence. Then the researchers played that one word for hundreds of people and asked them to attach a trait using only one word: honest,

truthful, angry. They found the sounds of one word were enough to make those participants believe that they thought they either could trust or not trust that person, that they either liked or they didn’t like that person. Here you have legions of insurance agents, salespeople and businesspeople who are communicating all day. They’re on the phone, talking to clients or talking to prospects. They’re in meetings, with one person, families, larger groups, and they are focusing on the content. They’re thinking, “I’m going to tell them about this policy. I’m going to tell them about the changes in the industry.” But the truth is, before people are able to care even the slightest about your content, they must decide they like you enough to listen to you. Even if you have the greatest insurance policy ever created, they’re not going to care. If you can control the way other people perceive you, then you have ultimate influence over those people. You can direct the conversation however you want because you are influencing what they’re thinking. FELDMAN: What are some strategies you can use to improve your voice? LOVE: The first strategy is that when you speak, you must immediately come across as happy. People do not want to speak to anyone who is sad or depressed. They want to be around happy people. You have about a second or two when you start to speak before people start forming impressions about you. Their thought is, “Oh, this is a happy person. I wonder what they’re so happy about.” Then they’ll stay to hear more from you.

Vocal Tip #1: Use melody “Pretend you are singing while you are speaking. Move it around, shake it up, swoop, dive, soar. Let your voice be as interesting as you are.”

August 2014 » InsuranceNewsNet Magazine

INTERVIEW SOUND LIKE A STAR TO SELL LIKE ONE FELDMAN: How do you show “happy” with your voice? LOVE: I add more melody to my voice. We all have a melody, a pattern of notes that we speak that are attached to words. I could go to a piano and I could take the words that you’re speaking and figure out what notes those are on the piano. Most people speak with almost no melody. It’s as if they were just one note on a piano, so they just keep speaking on the same note over and over and over again. That’s called monotone. You say, “I would never do that. How boring.” And the answer is that 95 percent of every communication that people make is monotone. If you’re not doing monotone, you might be doing monotone plus one or plus two. So you have your little note that you’re comfortable on and then when you get really excited you go to this note and then you come back to the safe note. If I’m a really, really excited person, I might have three notes. FELDMAN: How can people train themselves to use more melody? LOVE: When we get to a comma, most of us are taught that we’re supposed to go down. When I say go down I mean I literally go down in melody. That’s a bad melody because would you really buy a song that sounded like this? The hills are alive [pause] with the sound [long pause] of music. FELDMAN: No, I wouldn’t. LOVE: Music has a melody that leads you from these notes to the next notes and then to the next notes and to the next notes, and you are well aware that you are going on a beautiful journey. Speaking has to be the same journey with melody. If you stay on the same note, peo16

Visit bitly.com/innlove to read the full version of this article and also learn how to turn fear into energy.

ple think they know what you’re going to sound like and they think they know what you’re going to say next. Then they stop listening because they realize they’re smarter than you are. Who wants to have a conversation with somebody when you know what they’re going to say all the time? Melody keeps people on their toes. Specifically, going up for commas and

solutely grateful that you have the opportunity to have this communication. So what sounds go along with grateful? For grateful, we need to look at volume because most people speak too softly. They are used to communication that happens all day on the phone and they certainly don’t need to have a lot of volume. When you don’t have a lot of volume, you don’t sound very strong or confident. You sound weak. It’s very easy for someVocal Tip #2: Drop your jaw one to interrupt you because they’re “Most people simply do not louder than you are. open their mouths enough to If you’re selling let the sound come out unobsomething and you structed. I do not mean that you are the expert who should smile and go very wide. is confident that these are the exact policies a client I want you to simply drop your should have, volume jaw down a bit and not keep immediately is peryour teeth so close together. ceived as confidence. This will send more sound into When you’re louder, the cheek area, where it will you sound stronger and more confident. bounce around and come out People buying from more resonant and full.” an agent need to know that agent is periods or staying on the same note and an expert and that expert has provided lots of high melodies. You’re saying, “I’m them with exactly what they need. going to go up. I’m going to pretend it’s a question.” FELDMAN: How do you prevent your volume from being a turnoff? FELDMAN: Isn’t that type of speech “uptalk” that some people criticize? LOVE: Some people are worried about volume. But I say you should be filling up LOVE: Years ago, there were all kinds the room. You should pretend that someof negative feedback that said if you go one is five to 10 feet away from you and up when you get to a comma and make you should speak to that. things sound like a question, it’s someWhen I’m in a room with someone, I’m how bad. But there’s an infinite number not trying to make my voice go only to of new studies that say those old studies that person. I’m trying to fill up the room were baloney. with my voice. I’m trying to make it so If you go up more, you actually are en- that my voice vibrates their whole body, gaging people because they think you’re because sound literally vibrates the peoasking them a question. They respond ple that are in proximity. So I want to fill automatically in the caveman part of up the room with my voice. their brain, “Oh, did he ask me a quesWhen I’m speaking on the phone, I tion? Maybe I better listen because I don’t put the receiver right here really might be called upon for an answer.” close to my mouth. I move the receiver far away from my mouth and I speak in FELDMAN: Once you’ve set the tone, the room. Some of the sound fills up the what comes next? room and some of the sound goes into the handset, so you need to be louder. LOVE: The next emotion that you want Now people say to me, “If I sound louder, to create in the audience is that you’re ab- I’m going to sound like I’m angry.”

InsuranceNewsNet Magazine » August 2014

SOUND LIKE A STAR TO SELL LIKE ONE FEATURE But I say, not when you mix it with melody. When you mix volume with melody, you become a personality. You become a joyful, full-of-life personality, so you overcome people with positive perceptions. How bad is it to overcome people with the fact that you’re happy and you’re happy that they’re here? How bad is it to overwhelm people with confidence because they want you to be confident? I’m not shouting at anyone. People think that if they gave more, then their audience would think this was vaudeville or Broadway or something. But the truth is that people want to be entertained, and you’re either an entertaining speaker or you’re not. You may think that’s a lot of work and you don’t feel like being all that presentational or you don’t feel like being all that happy and charming and fun. I would say, great, then you don’t really feel like selling a lot of insurance policies. You really don’t feel like being the highlight

of that person’s day. You really don’t feel like being the topic of conversation when someone gets home that night and says, “Wow, I really had a great time with Joe today, you know? He was such a nice guy. I didn’t realize I cared about my insurance person. I’m not sure why I care about my insurance person but suddenly I care about my insurance person and I’m looking forward to the next meeting.” FELDMAN: Once you sound “happy” and “grateful,” what’s next? LOVE: Now you can talk about what you want to talk about. You can deliver content. “I’m an expert. Here are the policies. Here’s what I want to talk about in today’s meeting. I want to show you these things that I found for you. I want to make these suggestions.” Now, when you’re going into “expert” voice you keep the volume, you keep the melody, but you slow down your words. We’re dealing with pace, which is the

speed of the words. An expert is delivering new information, so you might know all about your insurance policy, but your audience doesn’t know anything about your insurance policy, so you slow down your words. The whole conversation starts to slow down. The words are a little bit elongated. Now that I’m talking as an expert, I’m holding out some of the vowels. FELDMAN: Does entertainment value equal sales? LOVE: If you’re delivering no entertainment value at all, just content, then there’s no reason for your clients to want to have a relationship with you. They’re just tolerating you in order to get to the information. Just because people don’t have a lot of volume or melody doesn’t mean that they don’t have any personality. But we need to look at what level of personality, pitch, pace, tone, melody, volume youm should be using to accomplish the goal of creating

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INTERVIEW SOUND LIKE A STAR TO SELL LIKE ONE relationships. So, when you get up in front of 10 people or 100 people, they knew that they picked the right man or woman to do it because your passion is evident. Your authenticity is evident. Your knowledge is evident, and they care about you and they’re glad they picked you. But I want to feel that way when I go to the grocery store. I go up to the checker, who is used to dealing with boring people all day. I look at her name tag and say, “Hi, Roberta, how are you?” with lots of melody. And because I was louder than the last 400 customers, she immediately looks up. She heard the melody, and she’s like, “This guy’s happy!” Then she’ll suddenly speak louder. This is mirroring. When you’re walking down the street and someone’s walking toward you and says “Hi,” before you can even think about it you say “Hi.” Now, if he says, “Hey,” you’d say “Hey.” We all do this. FELDMAN: How do you mirror when speaking in front of a group?

Visit bitly.com/innlove to read the full version of this article and learn an exercise to lower your larynx.

LOVE: There’s an energy that comes from the group. They are reacting. They are making noises. They may be laughing, smiling, serious, looking away. You learn to read the group, and that’s how you know to make changes. But you also have practiced your pitch, pace, melody, volumes, and tones of your voice. You’ve practiced in every communication so that when you step on stage, you’re just being yourself. You’re just being the same character. You don’t wait until you get in front of people before you decide “now I should have more melody” and “I wonder how much melody I should have.” You don’t wait until you get in front of people before you say, “Oh, maybe I should be louder.” You learn these things. You learn how to have more volume and more melody. You learn when you should be fast and slow. Why would you do it without thinking? Because you certainly don’t want to have a conversation about selling an in-

Updated for 2014

surance policy while thinking, “I wonder if my melody is good.” It’s got to be the fastest path to unconscious confidence. If you’re thinking about it, you can’t be authentic. FELDMAN: How do you develop the habit of speaking with melody? LOVE: Here’s my first rule: You need to change the way you breathe, because the way that air comes into the body and comes out changes the sounds you make. Most people might go to yoga classes or take some exercise classes and they might hear about diaphragmatic breathing. This is the idea of breathing in through your nose, pretending you have a balloon in your stomach, filling up your stomach with air, and then exhaling and letting your stomach fall in. Now here’s the tip – I only speak while my stomach is coming back in. When I do that, my stomach becomes an accelerator pedal that decides how much air

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SOUND LIKE A STAR TO SELL LIKE ONE INTERVIEW comes out. If you’re speaking by raising your chest and shoulders and your stomach isn’t coming in and out, you are holding your breath the entire time. If you stop your stomach coming in, you’ll sound asphyxiated. More than 90 percent of your readers are holding their breath while they’re speaking. Why would anyone want to hold their breath while they’re speaking? If you breathe through your nose, let your stomach come forward and let your stomach come back in slowly a little bit at a time while speaking; then the words ride out on a beautiful solid stream of air that creates the perfect melody, the perfect volume, the perfect tone and resonance. FELDMAN: You talk a lot about nasal voices being a turnoff for audiences. How do you prevent that? LOVE: The reason it’s nasal is because you’re not breathing correctly. When

there’s insufficient air being pushed out of the mouth, air finds an easier way out and it just goes to the sinuses. So it’s almost impossible to speak nasally when you bring your stomach in because it pushes more air out and then more sound comes out of your mouth instead of trying to get out of your nose. That nasality is the No. 1 thing that drives people crazy. No one wants to kiss a nasal-sounding insurance person on the mouth.

puffy and swollen? You’re going to lose your voice. You’re going to be all scratchy and you’re going to sound less influential. So breathing in through your nose means that you can quadruple the amount that you could speak in a day. Read the longer version online at bitly.com/innlove to learn an exercise to lower your larynx.

FELDMAN: That is good advice – to speak when you are exhaling. But why breathe through the nose only?

LOVE: You learn to leave silence at the commas so that when you get to a comma, you go up in melody, go silent and you breathe. The problem is that most people are not inserting enough breaths into their conversation. When you get to a comma, you close your mouth because you’re only supposed to breathe in through your nose. You can’t possibly say um when your mouth is closed. The second thing that I teach people is

LOVE: There are filters in the nose called turbinates. When air goes in through the nose, it becomes moist air and it doesn’t dry out your throat. Don’t you have to make calls all day? Don’t you have meetings all day and night? Well, what happens if your throat gets dry and your cords get all red and

FELDMAN: What is your foolproof system for getting rid of uh’s and um’s?

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INTERVIEW SOUND LIKE A STAR TO SELL LIKE ONE to sustain all the words together. In other words, connect all the words together until I get to a comma. If I connect all the words together until I get to a comma, there’s no space in between the words. People tend to chunk words together. Here are a couple of words … then here are a couple more words … and here are a couple more words. They’re not connected together. By connecting all the words together until I take a breath and then closing my mouth before jumping back into the sentence, it’s actually quite easy to lose all uh’s and um’s. FELDMAN: I heard a funny story about how you cured the uh’s and um’s in your household. LOVE: [Laughing] My wife and I told our kids when they were growing up that uh and um were swear words. I started them very early. As soon as they were speaking, if any of them said uh or um, I would say, “That’s a bad word.” Then my older daughter would correct my son. We should teach our kids that. We should teach ourselves that. FELDMAN: Can you give us an example of how deals have gone sour because of vocal quality? LOVE: I was hired by Quicken Home Loans/Rock Financial in Detroit to work with 300 mortgage bankers who were very good on the phone trying to sell refi’s except when it came down to say, “OK, now give me your credit card so that I can charge the 150 bucks to get the loan started.” What would prospects say? “Oh, hey buddy, can I call you back tomorrow?” They weren’t good at closing, and I taught them why. It was because the sounds they were making were “I’m your buddy, I’m your buddy, I’m your buddy,” but there wasn’t enough chest voice when it came time to talk about closing. There wasn’t enough volume when it came time to get the credit cards. 20 InsuranceNewsNet Magazine » August 2014

it into positive energy. Learn an exercise to turn fear into energy in the long version online at bitly.com/innlove. I’d be backstage with Bruce Springsteen and he’d be all nervous and freaked out and he’d want to throw up. Then he would throw up and say, “Now I’m ready for the stage.” You’re backstage with BarVocal Tip #3: bra Streisand during No whispering the heyday of Barbra “When you whisper, Streisand, and she’d you send a tremendous amount of extra air to the be all nervous and cords, which makes them she’d want to throw dry and irritated. This is up and she’d say, actually worse “Uh, I feel like I’m than screaming and going to throw up. I shouting.” can’t sing tonight. I don’t want to do it.” The exact same emotions, but Bruce Roger coaching singer Selena Gomez. realized that in order for him to go out um’s. Learn about chest, middle and head and bt The Boss, he needed that extra envoices. Read more about this in the long ergy. Streisand was like, “Uh, my stomach version online at bitly.com/innlove. hurts. I probably shouldn’t sing.” It’s how we look at it. FELDMAN: You have helped many people get on stage and be their best. FELDMAN: I hear a lot of experienced What are some strategies people can speakers in this business claim that use to get over their fear of speaking they don’t need further training. What in public? would you say to them? There are certain sounds that will help influence others. Singers know this and great speakers know this, so there’s no reason that we can’t put these into easy practice. It’s simple. Talk with more melody. Talk louder. Get rid of the uh’s and

LOVE: First of all, public speaking is the No. 1 fear in America still, and I’m amazed. Don’t we live in a great society where our biggest worry is having to speak in front of other people? But given that, what is this fear based on? Why is your body doing that? It’s all about the autonomic nervous system. When you are in a situation where you perceive danger, your body gives you a huge amount of energy to get out of that danger by either fighting stronger than you normally do or fleeing. There are stories of people who lift cars when there’s someone trapped underneath. How did they lift cars? Of course, they damaged their ligaments and tendons and probably broke bones, but why in that second could they lift a part of a car that they couldn’t before? That’s the autonomic nervous system giving you extra energy. I start with the mindset. First of all, fear is a wonderful thing if you can turn

LOVE: Even the greatest speakers in the world have coaches. The greatest golfers in the world all have coaches because they’re learning the tips and techniques that will not only keep them being great but will take them to the next level. When my people get up on stage or when they’re in a meeting, you don’t know why, but you want to give them the shirt off your back. You just like them. You want to buy something from them. You’re entertained by them. You’re engaged by them. They seem to care about you, and you care about them. Why is that a bad thing?

For more on Roger Love, visit www.theperfectvoice.com. Plus, for a longer version of this article with audio annotations, visit bitly.com/innlove.

SOUND LIKE A STAR TO SELL LIKE ONE INTERVIEW

August 2014 » InsuranceNewsNet Magazine

NEWSWIRES

Mass. Gov. signs law raising state’s minimum wage to highest in nation. bitly.com/qrminwage

Hobby Lobby Decision Might Not Be the Final Word The Supreme Court’s Hobby Lobby decision may not necessarily be the final word on whether employers that oppose contraceptives on religious grounds may opt out of providing coverage for them to their workers. Kaiser Health News reports that more than half Protestors outside of a Hobby Lobby store the states have “contraceptive equity” laws on the in Edmond, Okla. (AP Photo/Sue Ogrocki) books. These laws require most employers with health insurance that covers prescription drugs to cover contraceptives as well. Unlike the Affordable Care Act, those state laws do not require that coverage to be available without deductibles or co-pays. Several analysts say the Hobby Lobby decision does not directly affect those state laws. The Religious Freedom Restoration Act, which the court cited as the basis for its ruling that Hobby Lobby doesn’t have to abide by the federal mandate, “doesn’t supersede state law,” said Marcia Greenberger, co-president of the National Women’s Law Center. “They stand as independent protections.” Firms like Hobby Lobby aren’t subject to state insurance laws, because they self-insure their workers and don’t buy state-regulated insurance. Their plans are subject only to federal regulation. But they are still likely subject to a 2000 ruling issued by the Equal Employment Opportunity Commission that employers that fail to cover contraception as part of their health insurance benefit package are discriminating against women in violation of the 1978 Pregnancy Discrimination Act. That law was itself an amendment to the 1964 Civil Rights Act.

JOB RECOVERY: SOME STATES WIN, SOME LOSE

Even though the nation as a whole has regained all 9 million jobs lost in the Great Recession, most states still haven’t recovered all the jobs they lost. In 32 states, fewer jobs exist than when the recession began in December 2007 – evidence of the unevenness and persistently slow pace of the recovery. Even though economists declared the recession over in June 2009, Illinois is still down 184,000 jobs from pre-recession levels. New Jersey is down 147,000. Both states were hurt by layoffs at factories. Florida is down 170,000 in the aftermath of its real estate market collapse. Nevada, which suffered a spectacular real estate bust and four years of double-digit unemployment – has fared worst. It has 6 percent fewer jobs than it did in December DID YOU

KNOW

2007. Arizona, also slammed by the housing collapse, is 5 percent short. By contrast, an energy boom has lifted several states to the top of job creation rankings. North Dakota is the No. 1 example. “It’s like its own little gold rush,” Moody’s said.

STUDENT LOAN DEBT = $29,000

This summer’s crop of college graduates is carrying more than a diploma into the “real world.” More than 70 percent of them carry student debt with them, according to the Institute for College Access and Success, with the average debt about $29,000. In July, that debt rose even higher when interest rates on student loans were set to rise again. Federal student loan rates are fixed for the life of the loan, but these rates reset for new borrowers every July 1, thanks to legislation that ties the rates to

Utah was rated as the MOST SMALL-BUSINESS-FRIENDLY STATE in the nation in a survey of 12,000 small-business owners. Source: Kauffman Foundation

InsuranceNewsNet Magazine » August 2014

QUOTABLE Insurance is an American product sold to American citizens by American companies. — Darwin Bayston, chief executive officer of the Life Insurance Settlement Association

the performance of the financial markets. The interest rate on federal Stafford loans went from just under 4 percent to 4.66 percent for loans that are distributed between July 1 and June 30, 2015. For graduate students, the rate on Stafford loans rose from just over 5 percent to 6.21 percent. Direct PLUS Loans for graduates and parents are still the most expensive, with rates rising to 7.21 percent. “Federal student loan rates will continue to increase in the next few years and will likely hit the maximum rate caps, which are as high as 10.5 percent for some loans,” predicted Mark Kantrowitz, senior vice president and publisher of Edvisors.com.

SAID THE FED: POP GO THE BUBBLES

That popping sound you may hear soon is the sound of the Federal Reserve popping price bubbles. At a recent meeting of the International Monetary Fund, Fed Chair Janet Yellen said the central bank is prepared to raise interest rates to pop price bubbles in assets such as corporate or junk bonds if financial distress in those sectors developed and standard regulation were insufficient. Yellen emphasized, however, that raising interest rates should be used only if regulatory measures, such as requiring banks to hold more capital, fall short. Yellen’s speech was the most detailed yet from a Fed official on the controversial question of whether the central bank should rely on monetary policy – which is generally used to lower unemployment or head off inflation – to eliminate asset bubbles. The question became hotly debated after low interest rates helped fuel the mid-2000’s housing bubble, which led

[NEWSWIRES] to the 2008 financial crisis and the Great Recession. The Fed chief noted that since the central bank has kept short-term interest rates near zero, investors have piled into higher yielding assets, causing corporate bond yields to fall sharply and bond prices to rise.

DOW CLOSES ABOVE 17,000-POINT BARRIER FOR FIRST TIME

Cue the fireworks. The Dow gave investors an early July 4 gift as the market closed above the 17,000-point barrier for the first time after the government said the unemployment rate dropped to a near six-year low and the economy created many more jobs than expected. The Dow Jones Industrial Average ended unofficially 92 points ahead at 17,068.26, the S&P 500 rose 10 points and the Nasdaq added 28 points. The Labor Department reported that job growth sped up in June as the economy created a much-higher-thanexpected 288,000 jobs and the jobless rate dropped to near a six-year low of 6.1 percent.

HIDDEN COST OF RETIRING EARLY

Those who retire before they are old enough to enroll in Medicare will face an expensive surprise. A couple who chooses to retire at the age of 62 instead of 65 will face $51,000 in additional medical expenses, according to a report by Fidelity Investments. The culprit? Having to pay for private health insurance until Medicare kicks in. “When you decide to retire early, you’re on your own basically,” said Sunit Patel, senior vice president of Fidelity’s benefits consulting. Although the Affordable Care Act ensures that retirees won’t be denied coverage for pre-existing conditions, the couple would still face around $17,000 a year in health care premiums and out-of-pocket expenses if they bought a policy on one of the exchanges, Fidelity estimates. With the help of government subsidies, retirees with moderate incomes would likely be able to lower that bill. But many couples with joint retirement incomes would not qualify, Patel said. That could turn out to be a high price tag for three additional years of retirement.

Data Flaws Vex ACA Sign-Ups Sylvia Mathews Burwell has been secretary of Health and Human Services (HHS) for only a short time and she already has her work cut out for her. The latest ACA flap concerns data discrepancies that could potentially jeopardize coverage for millions. The HHS inspector general said the administration was not able to resolve 2.6 million so-called inconsistencies out of a total of 2.9 million such problems in the federal insurance exchange from October through December 2013. Of the roughly 330,000 cases that could be straightened out, the administration had only actually resolved about 10,000 during the period of the inspector general’s audit. That worked out to less than 1 percent of the total. This festering behind-the-scenes issue could turn into another health law headache for the White House. Several states running their own insurance markets also were having problems clearing up data discrepancies. Most of the issues dealt with citizenship and income information supplied by consumers that conflicted with what the federal government has on record, the report said.

THE AMERICAN DREAM? THAT’LL COST YOU

Just how much does “the American Dream” cost? According to a USA Today report, the annual price tag is around $130,000. An analysis shows that the average American family of four would need that much money to “live the dream.” The U.S. Census Bureau said that only 1 in 8 American households earned that much money in 2013. USA Today said the estimated costs of living the American dream include:

» Home ownership. Take the median

price of a new home ($275,000), subtract a 10 percent down payment, then project the annual cost of a 30-year mortgage at 4 percent interest. Add in annual maintenance costs of 1 percent of the purchase price. Total: $17,062 a year.

» Food. The U.S. Department of Agriculture estimates $12,659 as the cost of a moderate grocery plan for a family of four.

» Wheels. The estimated cost of owning DID YOU

KNOW

a four-wheel-drive sport-utility vehicle is $11,039 a year.

» Health care. The Milliman Medical Index pegged annual health insurance premiums and out-of-pocket medical expenses at $9,144.

» Taxes. Total federal, state and local taxes

were pegged at 30 percent for households at this income level, based on a model developed for Citizens for Tax Justice.

» Education for the children. Educational expenses for two children were estimated at $4,000 a year and college savings at $2,500 per year per child, based on various rules of thumb.

» Retirement for the adults. The maximum annual pretax contribution to a retirement plan for people under 50 is $17,500. Throw in the estimated costs of restaurants and entertainment, one family summer vacation, clothing, utilities, television, cable or satellite, Internet, and cellphone, and you come to a grand total of $130,357.

The federal government made about $100 BILLION IN PAYMENTS last year TO PEOPLE WHO MAY NOT HAVE BEEN ENTITLED to receive them. Source: Associated Press

August 2014 » InsuranceNewsNet Magazine

InsuranceNewsNet Magazine Âť August 2014

yan J. Pinney was in Thailand serving with a team from the United States Marine Corps when he heard gunfire at close range. What happened next has inspired and influenced his life ever since, including his life as an insurance agent. “We were there as advisors, to be observers and guides on a drug interdiction,” recalled Pinney. But suddenly “we were being shot at. The bullets made a visible red beam as they flew right past my head, and I felt rock fragments hitting me. Training took over, and I shot back.” Things went quickly after that, he said, and “no one on our side got hurt.” But he said those life-threatening moments changed his outlook and helped him find a purpose that sustains him even today in his roles as vice president of brokerage sales for Pinney Insurance Center Inc., Roseville, Calif., and Top of the Table (TOT) qualifier at Million Dollar Round Table (MDRT). Pinney is one of several advisors who spoke with InsuranceNewsNet Magazine about inspiration. What got them going?

GET INSPIRED FEATURE strengthens customer relationships based on value, not price.” Jordan travels the globe speaking to advisor groups and visiting offices about this subject. Nearly every place he visits focuses on commissions and assets under management, he said. “The managers don’t talk about the impact the work has on the clients. They never talk about the ‘why’ of the business. They talk only about how to make a sale or how much money they make.” His message: “You have to do both.” If the leadership talks only about money, that’s how the reps will talk to other people, he said. “What’s needed is investment in inspiration. Focus on why they do what they do. The story needs to connect with something of value or it won’t communicate.” Without that sense of purpose and inspiration, advisors are less effective with customers, he warned, and the managers don’t get the numbers they want. Lisa Earle McLeod, founder of McLeod & More, a sales leadership consultancy near Atlanta, says it is common for companies to dangle money to motivate people to sell. “The problem is, that only gets short-term results,” she said.

ers tend to be “the producers who, upon learning of a prospect’s situation, respond with an ‘Oh, my gosh, if that family doesn’t have this insurance, they could be on the street some day,’” she said. These are the producers who bring forward personal stories that pertain to the customer’s life and needs, she continued. “They go the extra mile, they are creative in problem-solving and they don’t quit. They have an inner reserve of intellect and energy that they draw upon to come up with ideas.” The inspired top performers also stand out. In a study her firm did for a pharmaceutical company, for example, five sales reps quickly surfaced as likely top performers because of the reps’ strong sense of purpose and other-directedness. One of the reps appeared to be a sales rock star, she added. When the study was over, the company confirmed those findings. In fact, she said, “the rockstar was the company’s No. 1 sales rep for three years in a row.” The analysis applies to companies, too. “For instance, a study by a former colleague found that companies with a sense of purpose outperformed the market by 400 percent,” she said. Meanwhile, companies that try to motivate by having “rah rah” sessions focused on sales goals “only get mediocrity, because no one gets inspiration for the long term from a number.” Jordan has a story that shows the cost of a focus on money: “One insurance producer said he was making $2 million a year, but he was about to leave the business. He said he was doing it (sales) only for the money, but that it didn’t satisfy. He said he realized that if all his clients died, Philadelphia would get more money than the Super Bowl.” What that producer needed, said Jordan, was balance. “He needed balance between emotion and the numbers.”

“Customers can tell the difference when a sales rep is inspired. Remember, we are always scanning one another and reading each other for authenticity.” — Lisa Earle McLeod, founder of McLeod & More Inc. What keeps them going? How does this impact their success in the business? Does inspiration even matter?

“This Is Not Fluff”

There are people in financial services who don’t think highly of talking about inspiration, acknowledges Joseph Jordan, a New York City behavioral finance expert well known to agents and advisors. “They talk statistics and about things that get done, and they do it without emotion. They say inspiration is fluff. But inspiration is not fluff.” He said it is the direct opposite. “It’s what improves productivity, client retention and product persistency, and it

Her firm’s research has found that an inner sense of purpose was common to all top performers, regardless of industry. Specifically, sales people in the top 10 percent of production are most motivated by making a difference for their customers, she said. “It’s the intangible things – the points of inspiration – that drive them.” In her view, inspiration and a sense of purpose are linked. The inspired person benefits by having an improved life, said McLeod, who describes herself as the creator of the business concept of noble purpose. “That person wants everyone else to have an improved life, too, and that’s what I call a noble purpose.” In insurance sales, the top perform-

How Come?

If inspiration and purpose are so important to individuals and companies, why do so many firms and advisors continue to go after numbers? One reason is complacency. The insurance and financial services industry has become too analytical in its reliance on

August 2014 » InsuranceNewsNet Magazine

FEATURE GET INSPIRED logic and numbers, said Jordan. This business model doesn’t accommodate emotion. That’s a problem, because emotion is what the behavioral/inspirational discussion is about – how people feel. Jordan admitted that he was part of the money culture in his earlier years. “I focused on money,” he said. “But I was wrong.” A series of events and a long period of introspection led him to see that the cul-

As for many reps, they “settle for the numbers and the salary because no one shows them the other,” she said. For some firms, it’s a matter of time pressure. They may understand that inspiration helps increase productivity, but it takes words for companies to identify and communicate this, McLeod said. It also takes time to come up with what to say. The same can be said for reps; it takes time for them to uncover their own inspiration

believed from a spiritual or personal perspective. “How those bullets missed me, I have no clue,” Pinney said. “But with the exchange of gunfire, I realized my mortality. And with the deaths that occurred on the other side, I realized how fragile life is and how important your decisions are and the impact those have on people around you.” This forced him to step back and define what he believes and what he cares about most, he said. “That made life simpler. No longer did I make one-off decisions based on a situation. I started making decisions based on a belief system. I settled down, found a religious institution, got married and had a family. No matter what situation arises, I already know how I will react. I have a can-do attitude versus the attitude of people who let life beat them down because they don’t have a system that supports them. And I want to be an active participant, with my family, at church, at MDRT and in volunteer work. I don’t want to waste moments in life.”

“Companies that are developing purpose and fostering inspiration are doing it enthusiastically, not grudgingly. They know that if they don’t, they will make less money.” — Lisa Earle McLeod, founder of McLeod & More Inc. ture in financial services “is more inward, and the talk is about benefit to ‘it,’ not to the client.” He found that the business did not spend enough time “celebrating the impact it has on clients,” such as how it helps people maintain independence and dignity. As a result, agents and advisors often lack the inspiration that evolves from understanding their purpose, and they’re not passionate about their work or connecting with clients. Out of his personal reawakening came Jordan’s own inspiration and drive. He said his purpose is to help others in the business connect with their emotions and to see the significant purpose of their profession. Another impediment to getting the business to focus on inspiration and purpose is low self-esteem. A lot of reps fear rejection, Jordan said. To deal with that, the reps don’t make calls. But that doesn’t help sales, and in a numbers-oriented culture, things only get worse. “Agents and advisors need help dealing with this,” Jordan said. “They need help with focusing on the impact they have on other people and how they are doing something significant and worthy.” A related issue is that executives at many companies don’t understand rejection, he said. So if they don’t understand it, they don’t deal with it. Similarly, many leaders are uncomfortable with emotion, said McLeod “It’s easier to default to the numbers,” she said. 26

and purpose and to learn how to communicate that to clients. ”You need to plan to allow time for this,” she said. “You can’t do it on a spreadsheet.” That can be a problem at firms that believe the expenditure of time is too costly. Realistically, though, “it doesn’t take huge amounts of time,” McLeod added. “And since you will make more money if you have something to care about other than the numbers, the time invested will pay off.” In their meetings, firms should definitely measure the numbers, she said. “But they should also say, ‘Tell us a story of someone you sold and why this will make a difference. How will the lives of other people be improved?’” How insurance professionals find their inspiration is as varied as human beings themselves. Some find it in the words of other people. Some find it when facing life-threatening events or illnesses. Some find it hard-wired into their psyches. But once found, it abides and sustains and helps support productive lives and businesses. It fuels success. Here are some examples.

Ryan Pinney: Realized his mortality

Ryan Pinney, whom we met earlier, wasn’t always an inspired person. As he tells it, before the gunfire episode in the Marines, he wasn’t sure about what he wanted to be, where he wanted to go, or what he

InsuranceNewsNet Magazine » August 2014

The impact on Pinney’s business: “I

decided to work with my father, mother and sister in the agency. That family connection and environment are very important. It’s a support network that I value. Also, when people make mistakes at work or bad things happen, I remember that you decide how to respond. I use my past experience to inspire me to understand and find a better solution, not to chastise. I know that when people are tested, they rise to the occasion or they are defeated by it. There is no middle ground. I choose to rise to the occasion. Finally, what I learned that day is not to be complacent. As the Marine Corp teaches, ‘complacency kills.’”

William Magnusson: Independence, family and needs

There was no one event or person that inspired William A. Magnusson. Rather, s a i d t he a s s o c iate at Berskhire Advisor Resource Inc.,

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The impact on Magnusson’s business: “I

don’t try to influence people to adopt my views on money, independence or planning when they come to me for advice. Instead, I work with people who already find those ideas to be reasonable. When I help clients with family financials, I approach this in the context of the ongoing family. I believe that macroeconomic factors are such that life will be harder in the future than it is now and that the costof-living will be huge. It’s already hard for young people to get started on living independently. So, we plan around how the next generation and multiple generations to come will need wisdom, courage – and money. (In the case of my own family, I want to start a family bank, so each generation doesn’t start from scratch.) Finally, I focus on providing the competent, professional help that clients need. It’s not just about me and my family.

Greenwood Village, Colo., it was a combination of three themes. One is a “deepseated fear of running out of money” that he has had since he was a small child. The second is a strong drive to provide for his family in the present and the future. The third is the need he sees in other people for competent, professional help. About his fear of running out of money, Magnusson said it was always there. For instance, he started saving for college in his piggy bank, at age 5. This goes with his self-described “independent streak” and his drive to be self-sufficient, not relying on anybody. “I’m a born planner, too. I want to be prepared for what is to come.” Regarding providing for family, Magnusson said he has always held the conviction that “we all stand on shoulders of giants.” Knowing that drives him. “I’ve been fortunate,” he added. “My grandpa was a schoolteacher, engineer and professional. He was not rich, but he had enough. My father went a step higher, through hard work and sacrifice. And I’ve been able to build on that. Now, I want my children and grandchildren to have a strong fallback position. And I want to provide a legacy for future generations, too.” That carries over to his concern for clients. He said he sees their needs for information and guidance, and this motivates him to be there for them.

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August 2014 » InsuranceNewsNet Magazine

FEATURE GET INSPIRED It’s about providing service to others. It’s what I came to this planet to do.”

James Durkin: Stopped working for money

For James Durkin, the chance to work in a field where he would be responsible for his own compensation is what drew him into the business. “I wanted my compensation to reflect my work and effort,” recalled the financial planner with Lincoln Financial Advisors Corp., Vienna, Va. But he said he pretty much failed for the first 1.5 years, and although he did enjoy “a little bit of success” later on, something wasn’t right. “I stopped caring whether people bought from me or not. I just gave my advice. I told them ‘This is what I think you should do,’ and then I’d let go.” It was when “the stench of commission breath left me” that Durkin said he began to make headway. “I wasn’t motivated by money anymore. The greatest payoff for me was when someone took my advice.”

And people did take his advice, he said. He said this inspired him and kept him interested.

The impact on Durkin’s business:

Durkin stayed in the business. He went on to qualify for MDRT in 1983. He attended seminars, such as one featuring the late Thomas J. Wolff, the famed creator of Capital and Financial Need Analysis, who urged agents to “fake it until you make it” and to radiate enthusiasm rather than pessimism. He became friends with a powerful networker at MDRT, started giving money to the MDRT Foundation and then got more involved, currently as Foundation secretary. He took it in stride when the beneficiary from his first death claim – for $100,000 – just said, “Gimme the check,” and slammed the door. And although a 2012 diagnosis of cancer, surgery and repeated hospitalizations “rocked my world,” he said, he looked forward to MDRT. In June 2014, he made the annual meeting in Toronto and found it to be

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particularly inspirational. “I was slowing down, but now I feel the need to work harder than before.” He said he needed “the inspiration, the motivation, the affirmation of the good that we do, and how insurance makes a difference in the lives of other people.”

Bill Upson: His dying mother’s questions

For Bill Upson, a major inspirational turning point in his life started with two simple questions that his dying mother had asked in 1991. The first was “What are you going to do about what that man said?” Upson had no recollection of the man or of what he said, so his mother prodded him. “What are you going to do to make the world better?” Now president of Strategic Asset Management Group, Walnut Creek, Calif., and a TOT qualifier at MDRT for 18 years in a row, Upson said he did think about the questions for the next 100 days that his mother lived. However, nothing

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InsuranceNewsNet Magazine » August 2014

GET INSPIRED FEATURE gelled until he received a $10,000 check from the estate six months after her death. At first, he considered using the money to help pay for the college educations of his children. But then he remembered his mother’s questions and also the man to whom she was referring. Upson said he had encountered the man briefly at a ceremony in 1962 when Upson was awarded a $200 scholarship by his dad’s American Legion Post. “The man leaned over to me and said, ‘Go and do likewise’ and moved on,” said Upson. “I didn’t know what he meant, and eventually forgot about it.” Three decades later, as Upson fingered the check in his hands, it all came together – the man, his words, his mother’s questions, and the money. He was being nudged to give back. And he did. He used the check to set up a scholarship fund for college-bound Eagle Scouts, a fund that has now given away over $100,000 and that is funded for the future with a life insurance policy written on Upson.

Although he already was a proponent of charitable pursuits, this new initiative brought his $200 scholarship full circle.

The impact on Upson’s business: The

Scouts’ scholarship program is not tied to Upson’s business, but it has brought him into touch with people whom he otherwise might never have met – including people who later became clients. For example, at a luncheon where Upson had given a talk about financial planning opportunities, a friend and business client of Upson’s was in the audience. The friend was the father of a young man who had received an Eagle scholarship two years before. As the event unfolded, the friend introduced Upson to another man in the audience who, as it turned out, shared Upson’s passion for charity. Two weeks later, Upson said, the new acquaintance and his wife were in Upson’s office, talking investments and charity. Today, Upson is chairman of the 2014-2015 Fund Development Committee for the

MDRT Foundation. He attributes much of his personal and business success to the inspiration nurtured long ago by his mother and “that man” who urged him to “go and do likewise.”

Jason Smith: An inspirational health scare

At age 29, Jason Smith thought he had it made. He had a new wife, a daughter, good health and a regular spot in a local basketball league. He made $500,000 a year in commissions, mostly from life insurance, annuities and long-term care, and he was moving into investment solutions, too. Then the cloud burst. He was diagnosed with an aneurysm and a leaky heart valve requiring open-heart surgery. Now the CEO of The JL Smith Group Tax & Wealth Advisors of Avon, Ohio,

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August 2014 » InsuranceNewsNet Magazine

FEATURE GET INSPIRED

aren’t sure Want to become inspired? Some financial service professionals say they do, but they of New Jordan Joseph how to get there. Behavioral finance expert and former insurance executive York City has a lot of hands-on tips. Here are just a few. » Remind yourself that what you do is help other people achieve in-

dependence and dignity. This purpose is what gives financial service professionals the courage to make the call. » Put yourself in contact with others who remind you of why you are in the business. For instance, go to the Million Dollar Round Table, if you qualify, and other industry association meetings.

» Put purpose first,

before commissions.

That’s how you make money.

Joe Jordan, Ambassador of Significance

» Learn the stories published by Life Happens (formerly LIFE

Foundation). The stories demonstrate the impact that insurance agents have on the lives of other people. » If nothing happened to you personally to trigger your inspiration, then borrow a story from someone else. » Learn from the millennial generation. Many of today’s young people believe in the pragmatic, but they also have idealism. For instance, a young political activist named David Burstein arranged to attend his college classes on only one day of each week. On the other four days, he worked on youth voter registration. » Did you make seven calls and get seven No’s? You had a successful day because you faced the fear of rejection. That’s important, because if you stop prospecting, you will fail. » When the purpose is to help other people, it works for the agents—and for the corporation, too. » At the company level, develop a culture that nurtures inspiration and a sense of purpose. This should be a culture, not a strategy. Culture manages things when management is not there.

» Advertise your business in a way that shows that helping others is what drives you.

Smith recalls that those medical events led him to a scary realization. If he were to die then, he said, “my income would die with me, and my wife and daughter would not be in the financial position I want them to be in.” Smith said he realized that he didn’t have a business or, if he did, the business was worth next to nothing. He said he had been a purely transactional salesman from whom no one would or could pick up if need be. As dark as those thoughts sound, they ignited in Smith a strong desire to change. Upon recovery, he said he made it his mission to learn how to build his business so it would function successfully and profitably with or without him.

Impact on Smith’s business: Smith

joined financial organizations; he picked the brains of leading advisors at industry 30

events; and he collected ideas on management, marketing, fees and more. Then he forged a set of processes and systems for his practice that anyone can pick up any time, with or without him. Now the TOT qualifier for MDRT gives back to the industry by sharing some of his proprietary processes and systems with other financial professionals.

The Value

The brilliant scientist of the 20th century, Albert Einstein, is credited with saying that people should “Strive not to be a success, but rather to be of value.” That seems to be the mental and emotional place where inspiration has led the advisors cited in this article. Once inspired to serve and provide value to others, they say they have derived greater satisfaction and more success from their personal and

InsuranceNewsNet Magazine » August 2014

professional lives. That fits with Jordan’s view of what happens. Inspiration has two components, he said. One is a sense of purpose, and the other is commitment to that purpose. Financial advisors who believe their purpose is to live a significant life in the service of others know why they practice their profession, he said. “The why, in my judgment, needs to transcend your own personal needs.” The more global this recognition of why is, the more it “leads to greater inspiration,” he said. And that “gives you the courage to practice the how of daily commitment.” Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at linda.koco@ innfeedback.com.

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August 2014 » InsuranceNewsNet Magazine

LIFEWIRES

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May Life Insurance Activity Down

1.3

Individual life applications dipped by 1.3 percent in May as compared with the previous year, according to the MIB Life Index. Despite the May decline, the 2014 trend shows that the individual life market is slowly recovering. May application activity was off 8 percent from that of the previous April, consistent with seasonal averages. U.S. application activity in May was lower in the two youngest age groups, with the 60+ age group rising slightly. Ages 0-44 were off 2.1 percent, ages 45-59 were off 1 percent, and ages 60+ were up slightly at 0.5 percent, year-over-year. With the exception of April 2014’s positive activity, ages 0-44 and 45-59 have lost ground each month consecutively since April 2013. Ages 60+ have seen more moderate declines, with positive application activity in two of the five months in 2014 and four of the 12 months in 2013, year-over-year.

LIFE INSURANCE COVERAGE GAP WIDENS AGAIN

The insurance coverage gap widened by more than $30,000 in the five-year period ending in 2013, a study finds. The gap is the difference between the median amount of life insurance coverage in place compared with the amount required to cover family needs. Previous studies had found the gap to be growing, but the latest findings still came as a surprise, said Chris Blunt, co-president of the Insurance and Agency Group of New York Life, which commissioned the Life Insurance Gap survey. The coverage gap in 2013 was measured at $320,000, an increase of $30,622 compared with the gap that existed in 2008, the survey found. In 2013, the amount of coverage families said they needed was $540,000, but the median amount of life insurance coverage in place came to only $222,000, a gap of $320,000. In 2008, the amount of coverage families said they needed was $589,378, but the median amount of life insurance coverage in place was $300,000, a gap of $289,378. Survey respondents located in the West reported the highest coverage gap: $457,000. They were followed by families in the Northeast with a gap of $334,000, in the South with a gap of $302,000 and in the Midwest with a gap of $229,000. DID YOU

KNOW

52%

OHIO NATIONAL EXPANDS INTO BRAZIL

Ohio National Financial Services, looking to tap into the burgeoning Latin American middle class, has bought a 50 percent stake in the Brazilian life insurance company Centauro Vida e Previdencia. The deal is the third overseas expansion in the last 14 years for Ohio National, which has $38 billion in assets. Gary T. “Doc” Huffman, Ohio National chairman, president and chief executive officer, said the Brazilian joint venture would offer Ohio National the “opportunity for even faster growth.” “There has been double-digit life insurance premium growth in every major Latin American market over the past five years,” Huffman said in a news release.

LIFE INSURERS FACING EARNINGS PRESSURE FROM LOW YIELDS

Life insurers continue to face low bond yields and are likely to see earnings growth pressured over the next two years as a result, according to Fitch Ratings. A sustained low-yield environment extending from today’s levels to beyond yearend 2015 would result in an increase in negative rating actions for firms exhibiting weaker earnings profiles and diminished reserve adequacy. Prolonged low interest rates result in poor reinvestment options and an excess of low-coupon bonds for life insurers, who

PERCENT of baby boomers report owning individual life insurance. Source: LIMRA

InsuranceNewsNet Magazine » August 2014

QUOTABLE

It’s no surprise that Americans are underinsured. What did surprise us was the magnitude of the gap and the fact that it has grown so dramatically since 2008, putting families at even greater financial risk. — Chris Blunt, co-president of the Insurance and Agency Group of New York Life, which commissioned the Life Insurance Gap survey

tend to invest in long-duration assets. Insurers focusing on fixed- and variable-annuity products, long-term care and universal life tend to be more sensitive to interest rate risk. Spreads between investment returns and minimum rate guarantees (on products such as fixed annuities) will compress over time, and the statutory reserve margin will deteriorate. Further, sustained low interest rates increase concern about insurers overreaching for yield to mitigate spread compression. Fitch notes growing complacency in the bond market, which may lead to heightened investment losses in an adverse scenario.

U.S. TURNAROUND, CHINA TO SPUR LIFE INSURANCE

And now for some life insurance news on a more positive note. Swiss Re reports that life insurance sales in the U.S. will reverse their downward trend and life sales in advanced economies will return to growth this year. Life policy premiums in developed economies fell 0.2 percent to $2.2 trillion in 2013, led by a 7.7 percent slide in the U.S. That crimped growth in the wider insurance industry to 1.4 percent from 2.5 percent in 2012, Swiss Re reported. Insurance premiums in emerging markets climbed 7.4 percent to $788 billion last year, with life policies increasing at a slower 6.4 percent pace to $408 billion, according to the report. “China and India in particular should see a return to higher growth rates” in life insurance, Swiss Re said.

August 2014 Âť InsuranceNewsNet Magazine

LIFE

Love and Remarriage: How to Avoid Pitfalls

Ed O’Neill enjoyed (or endured) two rounds of TV marriages. First to Peg Bundy, played by Katey Sagal, in Married With Children, and more recently to Gloria Pritchett, Sophia Vergara’s role in Modern Family.

L ife insurance can help your clients avoid financial and estate planning pitfalls that may be lurking as they walk down the aisle again. By Linda Koco

efore entering a second marriage for both of them, Shawn Britt and her fiancé talked about money. That’s money as in not only how to pay household expenses but also how to pay for potential long-term care expenses, as well as how to handle estate and legacy issues. It may not sound very romantic, but Britt said they hashed things out this way because they love one another. Many of the solutions, by the way, came from life insurance. Also, “We knew what to do,” she said in an interview. She is director of advanced sales with a specialty in life insurance and life/long-term care insurance at Nationwide Financial, she explained, and her husband is a retirement planner focusing on insurance, annuities and securities. “Too many people don’t think of the ramifications of a second marriage,” she contended, citing examples gleaned from work as well as from her personal connections. What’s more, she added, many don’t know what to do. That combination can zap even the most promising of second unions. Britt said there’s another way. 34

Taboo?

Many who plan to remarry don’t even talk about the financial aspects involved. “They assume that everything will work out fine, they have stars in their eyes or they think their spouse will save them from any financial problems,” Britt said. “Some even feel insulted if the other person brings up the topic.” The no-talk approach might work for a while. The couple might buy a home together, establish a two-income lifestyle and maybe split the household expenses 50/50, she said. The spouses may even retire together with a nice retirement income from their respective Social Security checks and earnings from their respective assets. But later on, one of the spouses may be-

come seriously ill or die. That’s when the earlier failure to address financial issues can create some nasty surprises. Often, the husband dies first, Britt said. If he has left his assets to his children from a prior marriage, and if there has been no planning around that, the new widow suddenly finds she no longer has her husband’s assets or his income. Or if the wife does get the assets, the husband’s children may get no inheritance. Either way, someone is left hurting from financial woe as well as from grief. The issue can affect a large number of Americans. According to 2009 Census data estimates, 11.9 percent of nearly 116.8 million people ages 15 and older had married twice and only 9 percent were still married that year. Researchers point out that while remarriage rates have declined in the last two decades, cohabitation rates have increased. For example, the remarriage rate per 1,000 previously marrieds declined by roughly 40 percent from 1990

Too many people don’t think of the ramifications of a second marriage ... many don’t know what to do. That combination can zap even the most promising of second unions.

InsuranceNewsNet Magazine » August 2014

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LIFE LOVE AND REMARRIAGE: HOW TO AVOID PITFALLS to 2011, according to Susan L. Brown and I-Fen Lin at the National Center for Family & Marriage Research at Bowling Green State University. However, at least some of the formerly married have elected to cohabit. As Brown and Fen put it, much of the drop in remarriage rates is due to the rise of cohabitation as well as the older ages at first marriage. The data do not show the formerly married who have elected to co-

wife will have an income if he should die first, “a trust can be set up to provide income to the wife while she lives and to pass the assets on to his children when she dies.” This is particularly important to women, she said, because women are twice as likely as men to be widowed by age 75. If the man is much older than the woman, that could pose problems for the children, though. As Britt put it, “They would have to wait forever to get the money.” In

Many couples don’t realize that a second trip to the altar can be filled with financial and estate planning pitfalls. Proper planning with life insurance can help couples and families avoid many of these potential hazards. habit post-divorce, but a 2011 analysis of government data by Pew Research confirms that national cohabitation rates are up. Specifically, the share of opposite-sex 30- to 44-year-olds living as unmarried couples more than doubled from 1995 to 2010, according to Pew researchers Richard Fry and D’Vera Cohn. “Not being married doesn’t solve the problem,” Britt commented. “For instance, one man who had been cohabiting with his love ended up developing Alzheimer’s disease. The man’s son removed the man from the couple’s home, put him in an Alzheimer’s unit and wouldn’t let the woman (the father’s companion) get near him.”

Do the Planning

People who remarry or cohabit need to put their financial issues out in the open and do some planning, preferably even before the wedding takes place, she concluded. Five of her suggestions follow. [1] Discuss financial realities that the first death will bring. By the time the remarried spouses are in their mid-70s, a surviving spouse is not going to be in the position to go back to work to make up for any income shortfalls created by the spouse’s death, Britt said. If the husband is the breadwinner and the couple has been married to each other for 10 years, and if he wants to be sure his 36

that case, life insurance can be structured to solve the problem, “and for pennies on the dollar.” [2] Change the beneficiary designations. Many times, people forget to change the beneficiary designations on their financial documents after they marry. “I see this often, and in first marriages too,” Britt said. For example, one couple decided to live off the husband’s salary and save the wife’s salary and retirement plan money for their retirement years, she said. However, the wife died in her late 50s, and all the money ($1 million) went to her sister, who had been named the beneficiary during the deceased wife’s single years. “The sister would not disclaim the inheritance, so the husband got nothing. It was very sad,” Britt said. A related point is to be sure to rethink the assets held at each spouse’s place of employment, such as for the 401(k) and group life plan. Each spouse needs to decide to whom that money should go, and then follow through on signing the necessary documents, Britt said. Depending on the situation, the spouses might benefit from obtaining guidance from an advisor on this. [3] Plan for loss of Social Security payments. If both spouses are receiving

InsuranceNewsNet Magazine » August 2014

Social Security and then one spouse dies, the surviving spouse will experience the loss of one of those monthly checks. Even if the surviving spouse gets the higher of the two amounts, the monthly income still will not equal the amount that had previously come into the household, Britt said. “This cuts into the lifestyle of the survivor, and it can be a serious problem if the deceased spouse left a boatload of assets to kids from a prior marriage but did not provide for the surviving spouse.” [4] Realize you can’t work forever. Some people who remarry may be earning high incomes, and they “spend, spend, spend” because they think they’ll work forever or even live forever, Britt said. The living is so good that they just don’t think there is any need to plan – not for premature death, not for job loss, not for serious illness requiring long-term care and not for divorce. Britt’s suggestion is for the advisor to affirm the spouses’ mutual trust but also to keep asking, “What could go wrong?” That could open the door to talking about insurance solutions like life insurance, long-term care insurance and hybrid life/ long-term care insurance. [5] Provide for the blended family. There are numerous trusts than can help remarried couples with planning for the needs of children (his, hers and theirs), parents and others in the now-combined families, Britt said. “The advisor could refer such couples to an attorney who specializes in financial and trust matters.”

It’s Complicated

Many of these points apply to people entering first marriages too, Britt said. But couples who remarry often enter the union with children, bank accounts, houses, businesses, debts and more, so the planning can be more complicated. There are many ways to set things up to make it work, she said. “That’s why seeing an advisor is so important. You feel so much better when you do that, and you won’t have the worry at the back of your mind about how it’s all going to work.” Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at linda.koco@ innfeedback.com.

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August 2014 Âť InsuranceNewsNet Magazine

LIFE

Insurance for Life: the Case for Accelerated Benefit Riders A brush with death causes an advisor to take a look at the financial burden that can come with surviving a sudden illness. By Val Mikesell

he honest truth is that there is no one reading this article who hasn’t had a heart attack, stroke or cancer, or known someone close to them who recently had to deal with one of these illnesses. The good news is that more and more people are winning the battle to live longer, although they are likely to be financially devastated. It is a sad fact indeed that when we know someone who is going through these major storms, we also hear about the financial havoc wreaked upon their retirement savings. It wasn’t that long ago that I had my own brush with death after experiencing my own heart attack at a young age of 54. I had been an avid basketball player nearly all my life and thought myself to be in pretty decent shape. But familial history sometimes has a way of ignoring those things and comes visiting your door anyway, bringing your mom and dad’s genes along with it. That period of time was difficult, to say the least, as we were still paying for our youngest daughter’s last year of school and I was suddenly out of work for nearly five months. You agents reading this article understand that being a sole proprietor insurance agent means that if you aren’t out there selling, you are unemployed, and being unemployed means no money. Get the picture? Such is the case for millions of Americans across the country. The biggest threat to our ability to earn an income is sickness. And for the purposes of this article, I’m focusing on sudden illness through heart attack, stroke and cancer. They are at the leading edge of maladies that can impact us in such a manner. Today a whopping 58 percent of all deaths 38

of those between the ages of 45 and 64 are a result of these diseases, according to the Centers for Disease Control. This is not taking into account those who will get sick and still live. These are the people I am talking about. More than 140,000 people in the U.S. die each year from stroke. It is the leading cause of serious, long-term disability, according to the Centers for Disease Control. Nearly one-quarter of those afflicted with stroke suffer it prior to age 65, while the stroke death rate fell by 30

50% OF BANKRUPTCIES ARE DUE

TO MEDICAL EXPENSES

InsuranceNewsNet Magazine » August 2014

percent during the 10 years from 1995 to 2005. This means that even though the stroke sufferers survived, they now have to deal with the financial fallout. And today, heart disease is the No. 1 cause of death for both men and women in the U.S., claiming approximately 1 million lives annually. This year more than 920,000 Americans will have a heart attack, and 250,000 of them will die from it. That means 670,000 will live to tell about it. To add further insult, one in two men and one in three women will be diagnosed with cancer in their lifetimes, and one cancer diagnosis will be made every eight minutes. The chance that you will know a person with cancer during your lifetime is nearly 100 percent. If you are a man, there is a 50 percent chance it will be you, and for women, there is a 33 percent chance it will be you. Now, I know all this sounds very bad – and it is. But it is critically important that we as life insurance underwriters understand this. Because we know that

INSURANCE FOR LIFE: THE CASE FOR ACCELERATED BENEFIT RIDERS LIFE roughly 50 percent of all bankruptcies are due to medical expenses. Life insurance agents have the ability to influence and maybe even change the financial picture for those afflicted through the use of life insurance with accelerated benefit riders (ABRs) for critical, chronic and terminal illnesses. Because ABRs have been relatively new on the marketplace for the past four years, some insurance companies have incorporated these riders into the plans being sold today for both permanent and term insurance policies. There are roughly 160 companies in the market today that offer some form of accelerated benefits on their plans, but it’s still a relatively small number of insurance companies that offer all three – critical, chronic and terminal accelerated – benefits. These provisions in life insurance policies will allow the insured to apply for a settlement to have a portion of the life insurance coverage be paid out. At this point, the amount paid is still considered nontaxable. The companies will collect medical documentation to determine the severity of the claim in order to make a settlement offer. Depending upon the carrier, the settlement offer can be either an all-or-none deal or the insured can take a portion of the offer and have an adjustment made on the remaining life insurance benefit. Up to as many as 17 major illnesses can be covered under the critical illness provision, depending on the carrier. For example, Jim Smith (the insured) owns a $500,000 life policy with the three ABRs; he has a heart attack and survives. Jim contacts his agent and starts the

STROKE No.1 140,000 PEOPLE IN THE U.S. DIE

EACH YEAR FROM IT Source: Centers for Disease Control

PEOPLE HAD IT BEFORE AGE 65

claims process under the critical illness provision. After gathering statements and records related to the event, the insurance company determines that Jim had a moderate heart attack and makes an offer of $200,000 to settle it. If available, Jim elects to take $50,000 to cover his income loss and has an adjustment made on the remaining benefit. To Jim, the $50,000 tax-free settlement is a godsend. He can now focus on being able to stay at home and recover. He and his family do not have to worry about which bills to pay and can avoid those harassing collection calls. They now have the ability to handle all of that. In a second example, we have Nancy, who has a $750,000 permanent policy with the same three ABRs. Nancy suffers a stroke and is admitted as a patient in a nursing home. Under the chronic illness

HEART DISEASE

No.1920,000

HEART ATTACKS IN 2014

CAUSE OF DEATH FOR BOTH MEN & WOMEN IN THE U.S.

250,000

WILL SUFFER FROM THEM WILL DIE FROM THEM

CAUSE OF SERIOUS LONG-TERM DISABILITY

1/4

provision, Nancy meets the requirement of not being able to do two of the six activities of daily living, which is the same number that would apply under a longterm care policy. Again, depending on the company insuring her, she will receive either a monthly payout or a lump sum settlement. Policies and guidelines vary greatly from one company to the next, so it’s best to speak in generalities on payouts. It also is important to note that these plans are not meant to be replacements for long-term care plans. You as an agent can make a huge difference in your clients’ lives when these plans are in place and your clients are faced with health-related earthquakes. You give them the opportunity to stabilize their income and avoid going through their savings, potentially taking early withdrawals from their retirement accounts, facing tax penalties and perhaps even declaring bankruptcy. By implementing this strategy, you provide your clients with a crucial service and further validate your position as trusted insurance advisors. And in the end, isn’t that why we are here in the first place? We are here to serve, and these plans give us a wonderful way in which to do that. Val Mikesell is 34-year veteran in financial services and is currently recruiting and instructing agents on how to build their agencies. Val may be contacted at val.mikesell@ innfeedback.com.

August 2014 » InsuranceNewsNet Magazine

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ANNUITYWIRES

1Q Annuity Sales Up 13% Over 2013

$56.1

Fixed annuity sales fueled the surge in first-quarter industrywide annuity sales, according to data from Beacon Research and Morningstar. Industry-wide annuity sales during the first quarter reached $56.1 billion, up 13.1 percent compared with the first quarter of 2013, when sales totaled $49.6 billion. The year-over-year sales growth was supported by continued high levels of fixed annuity sales, which totaled $22.6 billion during the first quarter, according to Beacon Research. This was a 50.7 percent increase from nearly $15 billion in first-quarter 2013 and was down just 4.1 percent from $23.5 billion in the previous quarter. Meanwhile, according to Morningstar, variable annuity total sales came in at $33.5 billion in the first quarter, down 3.2 percent compared with first-quarter 2013 total sales of $34.6 billion and down 6.4 percent from $35.8 billion during the fourth quarter of 2013. According to Beacon Research, strong fixed annuity sales during the first quarter were sustained by the second-highest quarterly sales of indexed annuities on record. Indexed annuity sales reached $11.2 billion during the quarter, a 44.3 percent increase from nearly $7.8 billion during first-quarter 2013 but a 4.4 percent decline from the record high of nearly $11.8 billion set during fourth-quarter 2013. Market value adjusted (MVA) annuity sales continued to grow, reaching $2.48 billion in the first quarter. This was a 26 percent increase compared with sales of $1.96 billion during the previous quarter and a 154.6 percent increase from MVA annuity sales of $972 million during first-quarter 2013. For the fixed annuity market, there were approximately $11.1 billion in qualified sales and $11.5 billion in nonqualified sales during first-quarter 2014.

BILLION

LIMRA SRI STUDY: ANNUITY OWNERSHIP BOOSTS RETIREMENT CONFIDENCE

Nothing boosts retirement confidence like an annuity. That’s the word from LIMRA Secure Retirement Institute (SRI). When LIMRA SRI asked retirees and pre-retirees about their confidence in living their desired retirement lifestyle, 47 percent of those who own anof retirees/preretirees said annuity nuities said annuity ownership ownership made contributed to their feeling of them confident. confidence. When asked about their most important goals for retirement, 71 percent of the respondents said they want to have enough money to last their lifetime and 64 percent said they want to remain financially independent. Stocks and bonds are the traditional investments for growth and security, but LIMRA SRI reports that consumers fear a big drop in the stock market at the time of retirement could decimate their savings. With prolonged low interest returns on bonds, that option becomes

less attractive even as a conservative investment. Annuities are seen as providing growth and security for retirement income.

NEW TAX RULES BOOST DIAs FOR RETIREMENT

Sometimes it seems as if the list of retirement planning products and related tax rules is longer than a Las Vegas all-you-caneat buffet. Now something new has been added to the menu. The U.S. Treasury Department announced that workers can use a portion of their retirement money to buy a type of annuity often called longevity insurance inside their retirement plans. Longevity insurance is actually a deferred-income annuity. Until now, these annuities could not be widely used in 401(k) retirement plans and individual retirement accounts because those plans require account holders to begin required minimum distributions at age 70½. But now, the Treasury Department has announced that workers can satisfy those tax rules if they use a portion of their retirement money to buy the annuities and begin collecting the income by age 85. The move is

InsuranceNewsNet Magazine » August 2014

part of the Obama administration’s broader effort to develop ways to provide Americans with more security in retirement. To avoid the distribution rules, however, retirement plan participants can use no more than 25 percent of their account balance or $125,000 (whichever is less) to buy the annuity.

RISING RATES BENEFIT NEW ANNUITY PLAYERS

Some noninsurers have crashed the annuity party over the past few years. And rising interest rates combined with sharp asset management skills make it more likely that these noninsurers aren’t likely to leave. That’s according to an analysis by Conning & Co. Two factors have created an opening for this group, which has muscled its way into annuities from outside the traditional life insurance market: the retreat by insurance carriers from variable annuities (VAs), and the changing spreads that favor fixed and indexed annuities, said Scott Hawkins, an analyst with Conning. Four companies have made 19 acquisitions of life and annuity companies in the past five years, according to the Conning report. They are: Apollo Global Management, majority owners of Athene Holding; Goldman Sachs Group, a minority owner of Global Atlantic Financial Group; Guggenheim Partners, majority owner of Guggenheim Life, Security Benefit and Delaware Life; and Harbinger Group, majority owner of Fidelity & Guaranty Life. Assets under management exceed $146 billion. The new entrants, the analysts also said, have approached the annuity market from the perspective of asset managers. In that context, they are not unlike the asset management subsidiaries of life insurance carriers such as MetLife and Prudential.

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Study Finds Substantial Change in Retirement On the Horizon Significant differences exist between the attitudes and expectations of Americans who are currently working versus those who are already retired, according to the most recent findings from a Northwestern Mutual study. bitly.com/qrhorizon

@Annuity_ News

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August 2014 » InsuranceNewsNet Magazine

ANNUITY

Dismiss 5 Myths Blocking Annuity Sales U nderstanding the changing demographics of annuity purchasers can increase your sales. By Rich Lane

ood advisors provide insights that have a positive effect on their clients’ financial paths. Smart advisors know they can help clients reach their financial goals. Some advisors think fixed annuity sales aren’t a good fit for clients who have more than 20 years remaining before retirement. Advisors also may think annuities are hard to sell and to administer. Both of these assumptions are false. Annuities can help clients invest in the future and provide peace of mind as retirement nears. Perhaps annuities are right for your client base. And the target market for purchasing annuities is younger than you might think. So here are five common myths debunked.

Myth No. 1

ANNUITIES ARE ONLY FOR RETIREES

Myth No. 1: Annuities are only for retirees.

Debunked: One truth in this myth is that annuities are a practical option for fiscally conservative baby boomers. The guaranteed stream of income that annuities can provide is certainly a comfort to someone who is transitioning out of – or has recently left – the workforce. Although baby boomers may still be an advisor’s bread and butter, it’s time to start thinking about younger, more affluent consumers as a secondary selling stream. According to a recent survey conducted by Gallup and the Committee of Annuity Insurers, nonqualified annuity owners are, on average, 51 years old at the time of first purchase. Even more surprising, nearly 40 percent of these purchasers were under age 50 at the time they purchased their annuities, according to the LIMRA Secure Retirement Institute (SRI). Half of all annuity purchasers were under the age of 60, according to a LIMRA SRI study published in 2012. This presents 42

a huge window of opportunity for annuity sales. These younger consumers saw their parents’ retirement incomes take a hit during the recent recession. As a result, younger prospects are now looking at fixed annuities as a viable part of their own retirement planning mix. Many younger purchasers have come to the conclusion that risk tolerance in a retirement portfolio may not be all it’s cracked up to be.

Myth No. 2: My clients don’t have enough extra income to put into an annuity.

Debunked: Some advisors may not consider even discussing the subject of annuities with certain clients. Advisors mistakenly think that, with funds tied up in other investment vehicles such as 401(k)s, clients wouldn’t be interested in adding additional vehicles to their investment portfolios.

InsuranceNewsNet Magazine » August 2014

However, the reality is that clients are looking for a mix of investment options in their portfolios. According to the Gallup and Committee of Annuity Insurers survey, 80 percent of annuity purchasers have total annual household incomes under $100,000. These middle-market clients are considering annuities to be a conservative place to keep retirement funds and, therefore, a valuable portfolio component that helps ensure they’re on the path to meeting their retirement goals. Middle-market clients also may be open to considering an annuity purchase after they know about the continuous post-retirement income stream that fixed annuities can provide.

Myth No. 3: Annuities aren’t attractive to clients who want higher interest rates.

Debunked: Even with today’s low interest rates, a fixed annuity’s compound growth

DISMISS 5 MYTHS BLOCKING ANNUITY SALES ANNUITY and tax-deferral status can grow retirement savings faster than a purchaser might think. If a client puts $50,000 into a fiveyear guaranteed annuity paying 2 percent interest, he or she would be guaranteed $55,204 at the end of five years – provided there are no early withdrawals. What if a client isn’t ready to jump in and wants to wait a year? That same $50,000 would have to earn 2.51 percent interest annually for four years to catch up to an annuity purchased now. Waiting two years means having to earn 3.36 percent interest over three years to earn the same amount.

Myth No. 4: Clients choose the stock market over annuities.

Debunked: Even though the stock market has improved, some investors are still gunshy. Investors nearing retirement learned about market volatility the hard way, leading to a lower risk tolerance. Due to increased life expectancies, most baby boomers will

live longer than their parents. This means they need more money for more time. It’s important to listen to clients and be able to identify customers who would benefit most from an annuity. It’s as easy as focusing on what purchasers want from their investments – protecting money and funding them for their retirement years.

Myth No. 5: A fixed annuity makes it difficult to control how money is distributed.

Debunked: Consider an annuity carrier that offers restrictive endorsements. This allows the annuity owner to decide how the proceeds are disbursed. It also can take the decision-making process out of the hands of a beneficiary who might not be ready for the responsibility. Fixed annuities provide another option for clients who are already planning for retirement. With annuity purchasers getting younger and, in some cases, more affluent at a younger age, it’s important to

Although baby boomers may still be an advisor’s bread and butter, it’s time to start thinking about younger, more affluent consumers. be armed with accurate information that can help smart advisors distinguish themselves from good ones. Rich Lane is the director of individual annuity sales and marketing for Standard Insurance Co. He has been in the fixed annuities industry for more than 17 years, with an emphasis on product and distribution development for brokerages, banks and broker/dealers. Rich may be contacted at rich.lane@innfeedback.com.

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August 2014 » InsuranceNewsNet Magazine

See the full update on the Alan Lewis Case on page 8.

ANNUITY

How to Prevent Becoming the Next ‘Annuity Burglar’ A dvisors can head off potential problems by integrating compliance-related activities into their business routines. By Jerry Shafran

oday’s business environment requires more than high sales to be a top producer. In addition to working persistently to grow their books of business, agents must make certain they are always in compliance with applicable laws and regulations. By integrating compliance-related activities with their business routines, producers can strengthen relationships with their clients and the carriers they represent. Most important, they can avoid the fate of Alan S. Lewis, a former life and annuity agent in Riverside County, Calif., who transferred more than $30 million into annuities over a six-year period through February 2009. Lewis has been charged with 29 felony counts related to alleged “twisting” of annuities, which prosecutors say caused seniors to lose more than $300,000 in surrender penalties. Burglary is among the charges because some of the transactions occurred in clients’ homes. A succession of unfortunate circumstances (business reversal when the financial crisis hit, son with an addiction problem, race to an Al-Anon meeting to cope with son’s problem and speeding violation committed en route to meeting) led to Lewis’ arrest in Houston, where he had relocated, and extradition to California. Since late February, Lewis had been awaiting a trial in jail because he was unable to post $600,000 bail. Although one could argue that Lewis is the victim of hard luck, ignorance among lawyers and judges about how annuities work, and a district attorney’s aggressive attempt to win re-election by making “elder abuse” a focus of his campaign, producers are more vulnerable to 44

this kind of scenario than they may want to believe. When selling annuities and all other insurance products, it is imperative that producers have a thorough understanding of the laws and regulations governing requirements related to fees and commissions, disclosures, electronic funds transfers, referral fees, rebates and inducements, recordkeeping, communications, suitability, and verification. In Lewis’ case, he admits that he did not understand the complexities of a two-tiered annuity that is at the root of the charges against him. He thought the bonus would work as it did in a sin-

InsuranceNewsNet Magazine » August 2014

gle-tiered annuity. But that turned out not to be the case, and he is being made an example by the California criminal justice system.

Help Is Near

To avoid Lewis’ fate, producers should tap into the knowledge of the compliance departments of the carriers they represent. The professionals who staff these departments are ready and willing to help agents in the field adhere to the letter and spirit of applicable regulations and laws. Given compliance professionals’ many responsibilities, however, producers should take the initiative to inquire

chairman, u.s. securities and exchange commission (2009-2012) The first woman to serve as Security and Exchange Commission’s Chair, Mary L. Schapiro, Power Producers who has dedicated her nearly three-decade career to regulatory strategy and enforcement, Conference and service on major corporate boards, provides audiences astute insight and analysis of On The MOney (ONE DAY EVENT • 9/27/2014) theWatch most pressi ng economic issues of our time. 2004 SSMP Hall of Fame Inductee and Series 65 Licensed Investment Advisor do a oliVe focusing on Prior Representative to her role at the SEC, Anil she servedVAzirAni as head of regulati n at theconsumer National AssociaseminAr tion & of Securities DealersMoney (NASD), where she oversawManageMent its merger with the regulatory body of new generation annuity the New York Stock Exchange (NYSE), forming the Financial Industry Regulatory Authori ty (FINRA), where she served as CEO. Top Producers The only person to have lead all three major national overseers of Wall Street—the SEC, FINRA, and the Trip to Rome Italy. Commodity Futures Trading Commission—Schapiro was named to Forbe’s Most Powerful Women of 2012 list. Anil VAzirAni is a Multi Million Dollar Producer who has mentored hundreds of advisors nationwide. Anil has been in the financial services industry since 1994. • 7 consecutive years qualified for Top of The Table with MDRT • Host of On The Money Radio Show in AZ AT THis evenT Anil will sHow you How To: • Position the seminar as your first appointment • Pre-qualify attendees for the workshop • Use the Risk Profile Questionnaire at the seminar • Mary Schapiro will be talking about source-of-fund issues and the pitfalls of giving investment advice without an investment licence

Impact of Source Of Funds & Giving Investment Advice Without An Investment License

Learn why the Principal Protected Low-Cost New Generation Annuity concept may be superior to the high-risk, high-fee variable annuity and the obsolete hybrid income annuity.

MARy l. scHApiRo chairman, u.s. securities and exchange commission (2009-2012) The first woman to serve as Security and Exchange Commission’s Chair, Mary L. Schapiro, who has dedicated her nearly three-decade career to regulatory strategy and enforcement, and service on major corporate boards, provides audiences astute insight and analysis of the most pressing economic issues of our time. Prior to her role at the SEC, she served as head of regulation at the National Association of Securities Dealers (NASD), where she oversaw its merger with the regulatory body of the New York Stock Exchange (NYSE), forming the Financial Industry Regulatory Authority (FINRA), where she served as CEO. The only person to have lead all three major national overseers of Wall Street—the SEC, FINRA, and the Commodity Futures Trading Commission—Schapiro was named to Forbe’s Most Powerful Women of 2012 list.

Impact of Fiduciary Standard on Annuities? Suitability v/s Fiduciary?

To learn more about how to qualify to attend this event, please call Jon Armstrong 800-957-5604, ext. 207

Impact of Source Of Funds & Giving Investment Advice Without An Investment License Impact of Fiduciary Standard on Annuities? Suitability v/s Fiduciary?

attend event, Only call if you To are wrilearn ting $1Mmore or more iabout n annuity/lihow fe premitoum.qualify We will requitore contracti ng withis th at least 3 insurance carriers. please call Jon Armstrong 800-957-5604, ext. 207

Only call if you are writing $1M or more in annuity/life premium. We will require contracting with at least 3 insurance carriers. August 2014 » InsuranceNewsNet Magazine

ANNUITY HOW TO PREVENT BECOMING THE NEXT ‘ANNUITY BURGLAR’ about laws and regulations on a regular basis (e.g., monthly, every other month, quarterly). When dealing with compliance professionals, producers should ask specific questions about legal requirements pertaining to the products they represent. If inquiries become too numerous and compliance departments find themselves overwhelmed with questions from producers, carriers can consider adding or expanding the FAQ pages on their websites. Carriers also can hold webinars to allow producers to interact with the moderator as well as with one another to gain insights to best practices. Some carriers have portals on their compliance software that are accessible to “external” employees and third parties, giving producers yet another way to acquire vital information easily. Producers also may take advantage of continuing educa-

Read more about the Alan Lewis case and trial and see a full timeline of events at bitly.com/innlewis the National Association of Professional Agents, one in seven insurance professionals will be named in an E&O claim at some point during their careers. The average claim is in excess of $22,000, plus legal fees that can total additional tens of thousands of dollars. While Lewis remains behind bars as an apparent victim of political grandstanding – and of the judge’s, prosecuting attorney’s and court-appointed defense attorney’s ignorance of how annuities work – he serves as a reminder of how important it is for producers to protect their livelihoods with E&O policies. Regardless of the verdict in Lewis’ trial, he will likely have a difficult time re-establishing himself professional-

Today’s producers must make sure they are always operating within the letter and spirit of applicable laws and regulations. tion courses, which are often available through carriers or state departments of insurance. For protection in civil matters, producers should consider purchasing an errors and omissions (E&O) policy from a professional association such as Independent Insurance Agents & Brokers of America, the National Association of Professional Insurance Agents or the National Association of Insurance and Financial Advisors. According to a recent survey, more than 86 percent of agencies have E&O policies in place. Unfortunately, in Lewis’ case, an E&O policy might not have helped, because they typically do not cover criminal charges. Nevertheless, E&O policies are highly beneficial to most agents. According to 46

ly. As Lewis put it in a recent article by InsuranceNewsNet’s Steve Morelli, “When you’re stuck in these situations and you can’t get out of jail, people assume you’re guilty, period.”

Lessons to Be Learned

To avoid Lewis’ fate, it is imperative that all producers have a thorough understanding of the products they are selling. As investor and philanthropist Warren Buffett said, “Never invest in a business you can’t understand.” From the perspective of a producer, if an annuity or life insurance policy is too complex for a producer to understand, he or she should “walk away” and promote intelligible alternatives instead. Given the vast number of options within and across carriers, there are always favorable choices

InsuranceNewsNet Magazine » August 2014

available. It may take some extra work to find them, but the effort will be worthwhile in the long run. When producers have a thorough understanding of the annuities and policies they are selling, they stand to strengthen their relationships with the carriers they represent and with clients. A producer, whether captive or independent, who gets into legal jeopardy becomes a liability instead of an asset to the business. That’s because his or her predicament results in the business incurring legal fees and experiencing reduced productivity and lower morale among colleagues. Producers’ legal troubles can also increase the difficulty of retaining and attracting clients due to distractions that result in less time being devoted to business development and account service and in damage to one’s reputation based largely or exclusively on rumor and opinion. As the old saying goes, “Perception is reality.” Gone are the days when producers could thrive solely on their personalities and connections. In addition to being likable and presentable, today’s producers must be smart and aggressive to make sure they are always operating within the letter and spirit of applicable laws and regulations. Producers should regard Lewis as an object lesson for the importance of knowing the features of the products they sell inside and out, forward and backward. His experience also suggests that just because a state department of insurance deems a product to be “legal” does not necessarily mean that a judge or jury will see things the same way. While caveat emptor (let the buyer beware) is a well-known term among clients, caveat vendit (let the seller beware) should become ingrained in the routines of producers who seek to grow their books of business while preserving their good names and peace of mind. Jerry Shafran is founder and chief executive officer of Compliance Assurance Corp. The Pittsburgh-based company delivers highly integrated solutions that automate and simplify tasks related to compliance in the insurance industry. Jerry may be contacted at jerry.shafran@innfeedback.com.

AND WHAT I DID NEXT THAT TRIPLED MY COMMISSIONS What if I told you there was an easier product to sell that truly benefits your clients and provides you with 3x the commission of an annuity per case?

Let’s face it. It’s not getting any easier to sell annuities. NEGATIVE ANNUITY TRENDS: • Reduced Commissions • Decreasing Caps Due to Interest Rates • The Income Rider Trap • Financial Risk of Chargebacks

IF YOU’RE LIKE ME AND HAVE SEEN THE WRITING ON THE WALL, I urge you to download my report and hear my firsthand account of how I was able to increase my income by 50% with less effort. In my report, I will tell you exactly how to triple your commissions on each case with a product and a process that you can be proud of.

My name is J.F. Ranhofer and I was a $25M annuity producer when I first noticed a negative trend that threatened my livelihood. I was faced with either a large reduction of my income or being forced to write more to remain at the same income level. SOUND FAMILIAR?

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Don’t wait – you owe it to yourself and the future of your practice to find out more.

DOWNLOAD MY FREE REPORT Why I Stopped Selling Annuities and How I Tripled my Commissions at:

www.StopSellingAnnuities.com PEAK PRO FINANCIAL IS NOT AN ANNUITY FMO. We’re a Producer Development Company. We have changed the business plans » InsuranceNewsNet Magazine and lives of agents that write $500K a year and even $20 million a year of annuities.August There is2014 no agent too big or too small.

HEALTHWIRES

Diabetes Cases Trigger $245B in Medical Costs bitly.com/qrdiabetes

No sooner did everyone finish enrolling in a new health care plan than the time came to start thinking about re-enrolling. And the new Health and Human Services (HHS) Secretary Sylvia Mathews Burwell said she wants to make it easy for the 8 million Americans signed up under the Affordable Care Act (ACA) to renew their insurance next year. HHS outlined a plan that allows people to automatically keep their current insurance, if it’s available. And for most consumers, the government will re-estimate the amount of subsidies that reduce their premiums. That’s if they checked a box on their original application allowing HealthCare.gov to access their latest tax data. Making it easier to re-enroll would cut the workload for the federal insurance website, making it less likely to crash again. But premiums are also changing, and an independent market analysis firm says most consumers should shop around to get the best deals.

N.J. RANKS HIGHEST IN ACA PLAN COSTS

New Jerseyans who bought health insurance through the ACA federal exchange paid some of the highest prices nationwide, according to a federal government report. The high rates are the result of the state’s high cost of living and its relatively few insurance providers. Consumers in the Garden State had average premiums of $465 a month if they did not qualify for tax credits – tops in the nation among the 36 states using the federal exchange – and $148 a month if they qualified for tax credits, second only to Alaska. By comparison, consumers nationwide had average premiums of $346 a month before tax credits and $82 a month after tax credits, according to HHS. Mississippi had the lowest average monthly premium after tax credits – $23. Mississippians had the largest percentage of the tab covered through tax credits, with an average of 95 percent of monthly premium offset through tax credits. Arizona’s percentage of the cost covered through tax credits was the smallest, at 58 percent. DID YOU

KNOW

MANY STILL STRUGGLE TO PAY HEALTH CARE PREMIUMS

Most people who signed up for coverage under ACA are happy with their new insurance, but a large number are struggling with the cost, according to a Kaiser Family Foundation survey. The poll found that ACA is achieving one of its main goals by covering the uninsured. Fifty-seven percent of the 8 million people who bought a plan through the new insurance exchanges were previously uninsured. But greater access to coverage has come at a price that’s uncomfortably steep for many. Despite the availability of generous subsidies, four in 10 of those who bought a plan that meets the law’s specifications said they had difficulty paying their monthly premiums. Overall, employer coverage got much better ratings in the poll than did health-law plans, which are meant for self-employed people and workers without access through their jobs.

CDC: 180 MILLION LACK DENTAL COVERAGE

HHS officials announced that more than 1.12 million who enrolled in health care through the federally facilitated marketplaces also

The number of persons in the United States with a

HISTORY OF CANCER has increased from 3 MILLION in 1971 to approximately 13.4 MILLION in 2012,

representing 4.6 percent Source: Centers for Disease Control of the population. Source: National Cancer Institute

InsuranceNewsNet Magazine » August 2014

QUOTABLE

It would be great if these programs do work. But they are kind of untested right now. — Frank Pasquale, a professor in health care regulation at the Seton Hall University School of Law, on the use of predictive health analytics by insurers.

purchased stand-alone dental insurance. That leaves 86 percent of exchange enrollees opting not to purchase dental coverage through the exchange. The Centers for Disease Control and Prevention (CDC) estimates that 180 million are without dental health coverage. Federal research shows that people who earn less than 200 percent of the poverty level (that’s about $22,000/year for an individual) are significantly less likely to see a dentist. One in five low-income Americans hasn’t had a teeth cleaning in five or more years. Tooth loss is especially prevalent among low-income seniors: 44 percent of seniors living below the poverty line have no natural teeth. According to research firm Empirica, the two biggest barriers to dental care among the uninsured were worry about out-of-pocket cost and the difficulty of tracking down prices in the first place.

MORE AMERICANS CHOOSING DOCTOR BASED ON INSURANCE

What do you look for THE NUMBER OF when you choose a docPEOPLE SELECT tor? Qualifications, perDOCTOR BASED sonality, location of ON INSURANCE office, hospital affiliaTHIS YEAR tion? For more Americans, choosing a doctor comes down to one big issue: insurance. According to new data released from the Vitals Index, more than four times the number of people are basing their doctor decision on insurance this year compared with last year. “The changes happening in health care are affecting the shopping behaviors of consumers,” said Mitch Rothschild, Vitals chief executive officer. “Because of high-deductible plans and people paying more for each doctor visit, there’s an increased focus on not only finding quality doctors, but doctors who are in-network.” MOR E TH AN

HHS Chief Plans to Streamline Re-Enrollment

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HEALTH

How to Fill the Gap Between Exchanges and Rising Premiums T his strategy can keep employees and employers happy by saving 10 to 20 percent in costs. By Robert Hutt

he Kaiser Family Foundation reports that by the year 2021, health care spending is projected to be one-fifth of the gross domestic product (GDP). As a result of these increases in costs and spending, more than 50 percent of employers have stated that they will be shifting their premium increases to their employees. 50

Under the Affordable Care Act (ACA), individual out-of-pocket caps are $6,350 and family out-of-pocket caps are $12,700. In addition, Kaiser reports that consumer groups warn there is the possibility that employer plans may be permitted to have even higher out-of-pocket cost limits. We know that medical insurance premiums and out-of-pocket costs are going up, so what options do your group health clients have? The first option is to do nothing. Your employer clients’ insurance costs will

InsuranceNewsNet Magazine » August 2014

continue to go up, and they may be forced to direct their employees into an exchange. Your clients’ employees will not appreciate this, as more than likely their benefits will be decreased and they would be forced to cover the entire premium with no employer contribution. The second option is a rather popular one. Brokers search high and low within an ever-shrinking carrier marketplace, trying to find a lower-cost health plan. Most of the time, the employers either stay put and absorb the cost increase or

HOW TO FILL THE GAP BETWEEN EXCHANGES AND RISING PREMIUMS HEALTH else they raise deductibles, out-of-pocket costs and employee premium contributions to try to offset the increases. The third option is becoming increasingly popular. Employers are implementing a strategy that is safe, can guarantee savings and can even enhance benefits for the employees. This concept is called gap insurance, and it is completely compliant with health care reform. The “gap” concept combines the use of a supplemental insurance plan with a high-deductible major medical plan. Together, they create a new and improved plan that can do some incredible things. You might think of the gap concept as a fully insured Section 105 health reimbursement account (HRA). Let’s learn a little more about this concept. First, you modify your employer client’s current health insurance plan to a highdeductible version. In order to make the strategy work, you need to use at least a $3,000 to $5,000 deductible in order to see a drop in premiums. You can even use a gap with deductibles as high as $7,000 to $10,000. After you have modified the existing group health plan, you add a secondary plan, which is the gap insurance. The gap plan pays first dollar and helps cover all the increased deductibles, coinsurances and out-of-pocket expenses so that the plan looks and feels the same (or better) to your client’s employees. In fact, in most cases, the plan can actually improve the employees’ benefits. Again, gap insurance is completely compliant with health care reform, and, interestingly enough, gap insurance is not a new concept. However, modern-day gap insurance is much superior to similar plans in the past, with only a handful of carriers offering best-in-class coverage. We all know people covered by Medicare who purchase “Medigap” insurance to help fill the gaps of Medicare Parts A and B. Seniors tend to use their plans more than most people. But the combination of Medicare and Medigap gives them a phenomenal health plan that has real value and provides significant benefits. Employers can benefit greatly from a similar concept by implementing gap insurance as an integral part of their group health plan offering. So how does it work? Each employee receives two identification cards. The first is their standard major

medical card, and the second is their gap insurance card. The employee gives both cards to their health care provider every time they visit the provider. The provider has the ability to file the claim electronically. The gap insurance carrier processes the claims and will pay the provider directly if instructed to do so. Now you probably are asking what the actual benefits look like. Let’s build a sample plan and find out. The first step is to increase the group health plan’s deductible to $5,000, or higher if available, to lower the premium as much as possible. This is similar to what happens to a personal auto policy when the physical damage deductibles are increased. Next, we will install a gap plan. This is where the employees can really benefit. The gap plan can generally provide up to $10,000 of first-dollar benefit coverage for

The “gap” concept combines the use of a supplemental insurance plan with a high-deductible major medical plan. inpatient services per person per year. This benefit can be used to pay for any eligible inpatient deductible and/or out-of-pocket expense. So, for this example we will assume a group major medical plan with a $5,000 deductible and 100 percent coinsurance. The employer purchases $5,000 of gap coverage, which gives each employee enough coverage to satisfy the entire deductible if the employee or dependent is admitted to the hospital. Next, for the outpatient benefit limit, up to 70 percent of the gap inpatient benefit can be offered. Purchased in this example was $5,000 of inpatient benefits, so employees receive $3,500 of first-dollar outpatient benefits. As a result, employees receive a $5,000 upfront zero-deductible 100 percent inpatient benefit, and receive a $3,500 up-front zerodeductible 100 percent outpatient benefit. Gap insurance helps eliminate a large part of the medical burden that employees have today with their standard deductible coinsurance plans. In addition, deductibles can be added to gap insurance if the employer

wants to further lower costs and have the employees share these lowered costs. Now, it is important to acknowledge certain exclusions that protect the pricing integrity of gap insurance. It will NOT pay for medical costs incurred during a criminal activity, attempted suicide, or the voluntary abortion for a dependent child or mental illness and substance abuse claims (mental and substance abuse coverage can be opted out of or opted into). By excluding these “lifestyle” claims, gap insurance can reasonably cover the majority of all insurance claims for your employees and their dependents. Well, let’s paint that picture a little more clearly. For inpatient expenses, gap insurance will cover up to $10,000 per year per person of the inpatient out-of-pocket expenses (deductible and coinsurance). The group health plan is modified to pay for out-of-pocket amounts over $10,000 (per individual). For outpatient services, including X-rays, labs, surgery, etc., gap insurance pays up to 70 percent of the inpatient benefit amount ($7,000), leaving the group health plan to pay for amounts over $7,000 per year per person. Again the concept is very simple. We are giving employees coverage where they need it most – up front. Two plans can be better than one. The combined cost of gap insurance and a high-out-of-pocket group health plan, can be 10 to 20 percent less than the cost of the existing low-to-medium out-ofpocket group plan. Take a second to let this soak in. Upfront savings and enhanced benefits. Every company’s benefit plan is unique to the employees and their families. Using gap insurance, employers save significant premium while reducing employee out-ofpocket costs and improving benefits. The employer can simply add gap insurance as another option to look at during renewal. If gap insurance does work, it jumps off the page with significant savings. If gap insurance doesn’t work, it jumps off the page illustrating that point, too. Robert Hutt, LUTC, CGI, GBA, has 25 years’ experience as a multiline independent agent and benefits consultant in Indianapolis, Ind., with an emphasis on group insurance and workforce management systems. He can be reached at robert.hutt@ innfeedback.com.

August 2014 » InsuranceNewsNet Magazine

FINANCIALWIRES

Keep things straightforward in advising Gen X women bitly.com/qrgenxwomen

Feds Warn Retirement Plans for 1.5 Million at Risk More bad news on the retirement front: Retirement plans that cover about 1.5 million workers are severely underfunded, threatening benefit cuts for current and future retirees, the Pension Benefit Guaranty Corp. (PBGC) warned. PBGC said the plans that are most at risk are multi-employer plans, which are collectively bargained retirement plans maintained by more than one employer. At the same time, the agency said single-employer pension plans — covering just over 30 million participants — are on firmer financial footing and are likely to remain so at least over the next 10 years. The agency concluded that, as shaky as the situation is for the underfunded multi-employer plans, the outlook is slightly better than it was just a year ago as the nation’s economy gradually improves from the severe 2007-2009 recession. But it added that research over the past year had made clear that for some multi-employer plans “even the improving economy will not be sufficient to maintain their solvency.”

RETIRING BOOMERS AFFECT IRAs

Retiring baby boomers are adding to individual retirement accounts (IRAs) to the tune of $6.5 trillion, according to Cerulli Associates. Rollovers added $324 billion to total IRA assets last year alone. “IRAs remain the primary vehicle for retirement dollars as assets grew by over 17 percent last year,” said Chris Nadai, senior analyst at Cerulli Associates. “This increase is largely due to rollovers from retiring baby boomers and a highly favorable stock market.” Cerulli analysts predict that IRA asset growth will continue through the remainder of the decade as defined contribution assets continue to roll into individual accounts.

SAVING SOCIALLY

Spend any time on Facebook and it seems as though every post you see is about someone else’s spending: new cars and homes, designer clothes, exotic vacations, dinners at fancy restaurants. Hardly anyone goes online to brag about how much money they are setting aside for the future. Some investment companies want to change all that. Putnam Investments has DID YOU

KNOW

added a new tool to its online retirement account statements that allows users to see exactly how their savings rank against those of other Putnam account holders who are similar in age, income and gender. Then it uses projections to model how their numbers would change if they set more money aside from their paycheck – and allows them to make the change with a few clicks. Putnam refers to it as its ‘’Joneses Tool’’ (as in ‘’keeping up with’’). Five years ago, ING introduced its ING Compare Me site, which is now used by 2 million customers of its spinoff, Voya Financial. At Compare Me, people can see how their spending, credit card debt and savings habits measure up to those of others like them.

INCOME INTERRUPTION TROUBLES YOUNG ADULTS

An accident or illness has many adverse effects on a young adult’s life. But the resulting loss of income could have a drastic impact on their families’ financial well-being. That’s the finding of a LIMRA study that found that 6 out of 10 Generation X and Y Americans say losing their income for six months due to accident or illness would have a significant impact on their families’ finances.

NEWRETURN YORK STATE ATTORNEY GENERAL ERIC SCHNEIDERMAN THE AVERAGE ON AN INITIAL PUBLIC OFFERING was 20 percent filed a lawsuit against the international bank arising from this year. The average increase in the first day (or “pop”)Barclays, is 13 percent. the operation of Barclays’ dark pool and other aspects of its electronic trading division. Source: Minneapolis Star Tribune

Source: Renaissance Capital

InsuranceNewsNet Magazine » August 2014

QUOTABLE It is surprising to find that so many people consider themselves struggling. — Katie Libbe, Allianz Life vice president of consumer insights, regarding a survey on the financial state of families.

The study, “U.S. Consumers: The Generations,” examines the current financial situation of baby boomers and Generations X and Y, focusing on their financial concerns, goals, attitudes and behaviors. The study found that about half of Gen X and Y consumers believe their need for professional advice has increased over the past few years. In particular, more than 7 in 10 Gen X and Y consumers expressed an interest in learning about savings options and strategies. “Fewer than 1 in 5 Gen X and Y Americans has a defined benefit plan, meaning most will be solely responsible for funding their retirement,” noted Nilufer Ahmed of LIMRA. “This study makes it clear that younger consumers recognize this and are interested in getting professional advice, which could help them with their top financial concern of saving enough for retirement.”

ADVISORS MAY BE MISSING GEN Y OPPORTUNITIES

Speaking of Gen Y, they may not have much in the way of assets right now, but they are ripe for help. Recent Northwestern Mutual research confirms that members of Gen Y care deeply about their finances. And the best advisors for this age group are other Gen Yers. “Who better to advise us than those with firsthand knowledge of our generation’s challenges and priorities combined with an intuitive understanding of how to communicate with us?” asked Chantal Bonneau of Northwestern Mutual. Bonneau, who launched her career after graduating from the University of California at Los Angeles, believes financial advising will continue to grow in prominence as a career path. Attributes of financial advising reflect what many Gen Yers value in a professional experience, she said: opportunity, flexibility and entrepreneurship.

If You Have More Than 60 Clients Right Now and are Not Talking to Them Each and Every Single Month…YOUR BUSINESS IS IN JEOPARDY! Discover the secret tool that has been used for over 43 years to build, retain and refer more clients than any fancy or elaborate marketing strategy that has come along since. You might think everything is fine right now. You have great clients. They love you and what you have done for them. But, their attention is no stronger than anyone else’s, and if you are not paying attention to them, someone else is. It is your responsibility to develop a close-knit relationship with your clients, as well as your top prospects, akin to a steel fortress. You cannot leave this up to chance and you cannot leave it up to them to contact you. And it is not just competitors that you should be worried about. It is the never-ending chain of referrals that you are missing by not being a part of their lives.

FREE REPORT

In order for referrals to take place, you must become the center of attention when the social environment appears. When a friend of a client asks about their retirement, the only way your name comes up is if your name is in the conscious mind of your client. If they remember you, who you are and what you do. Thus you must implant yourself into those conversations deliberately. Many agents and advisors want to be remarkable. Well, in order to be remarkable, you must do something worth being remarked upon. It is my assumption that you live a remarkable life and do remarkable things for your clients. But if no one knows you do these things, no one knows that you are, in fact, remarkable. Hi, my name is JW Dicks and for the past 43+ years I have been able to engineer this kind of relationship with my clients in multiple fields, using one single tool above all others. I’ve used this tool in real estate, in my financial practice, in a legal firm, when I built a financial software company and now with a branding agency representing over 2,200 clients from 33 different countries. This secret weapon is the first tool I would rely on in any business venture to solidify my position in the market and ensure that my clients and prospects know what I’m up to, how I’m helping clients and also what’s going on in my personal life.

You might wonder why you need to share the details of your personal life in your firm marketing. It’s quite simple. People buy people. And they buy from people that they know, like and trust. In order to get people to know you, like you and trust you, you have to let them in. You have to connect with them on a deeper level than just the X’s and the O’s. Now, there is a formula and a system to using this marketing tool in your business. And it’s the same formula that I’ve used in these 43+ years. And now I have passed these secrets down to a marketing expert who has harnessed the power of this tool in his own business and has joined with me to replicate it for clients across the country. And today, we want to reveal it all to you, in a very special report – The Trust Tool: How to Build and Maintain Your Practice Using a 43-Year Multi-Million-Dollar Marketing System. In this report, my partner, Greg Rollett and I reveal: • The secret to getting complete attention from your marketplace, without the distractions of the Internet, email and social media • How to stay front of mind with your top clients and prospects every single month and have them singing your praises to everyone in their social circle • The secret to generating “never-ending referrals” so that your best clients become your best marketing weapons, looking out for you and sharing your story with their network • How to ascend your clients into more clients and services, simply by telling them in a medium that they love holding on to, reading and sharing • The method of empowering your clients by telling their stories in your marketing so that they share your marketing, are forever indebted to you and stick with you for just as long

To claim your copy of “The Trust Tool” simply visit www.TheTrustTool.com or call (888) 568-272 and we will rush your copy to you right away! If you plan on being in business for the long haul, have existing clients that you want to become “lifers” and understand the value of building a real relationship with them, you need to get your hands on this report right away! Get it now at www.TheTrustTool.com or call (888) 568-2721.

FINANCIAL

How to Explain Hedge Funds H edge funds have a mystical quality to some investors. Here is the reality that you need to tell your clients. By Bryce Sanders

veryone wants an edge, some extra advantage to help win the game. Like high-tech swimsuits that give competitive swimmers an edge or certain types of golf clubs that give players a longer drive, investors see hedge funds as that extra advantage. One day your client says, “Maybe I should own a hedge fund.” Here’s what you need to know.

What Your Clients Think

Television, movies and sensational news stories form the image of hedge funds in your client’s mind. Because Hollywood loves villains, hedge fund managers are usually cast in a bad light. They are portrayed as rich, evil and believing they are above the law. Hollywood typecasts corporate executives the same way. In reality, many American companies are innovative and well-led. By recommending investing in stocks, advisors avoid Hollywood stereotypes about corporations. Do the same with hedge funds and reach your own conclusions.

The Facts

Hedge funds are complicated. Like mutual funds, hedge funds are an investment vehicle. Hedge funds are a container for investments. Mutual funds are very liquid. Investors can get in or cash out daily. This requires the funds to invest in securities that can be turned into cash with the same speed. One of the many reasons for the stock market decline of 2008-2009 was that investors, alarmed by the market decline, chose to sell their equity mutual funds. This required the funds to liquidate stocks they held in order to satisfy redemptions, further fueling the decline. Hedge funds, on the other hand, are illiquid. Investors can sell part of their position but only at set intervals such as quarterly redemptions. The primary reason for this is to allow the hedge fund managers to take the long view and buy assets that might not have a ready market if they 54

need to be sold. Investors are trading liquidity for the potential of long-term gain. Unlike mutual funds, hedge funds operate under a different set of rules. They can make extensive use of margin, using leverage while trading with borrowed money. They can use short-selling to profit from market declines. They can invest in options. Using movie analogies, the police cannot shoot a person dead in the street. James Bond can. He has a license to kill. Investors often consider the entire category of hedge funds as one sort of magic investment. In reality, there are at least four categories of hedge funds, with further subcategories: » Global Macro – These hedge fund managers are looking at the big picture. They predict something big is going to happen in the world, such as the economic troubles recently faced by Portugal, Italy, Greece and Spain. They can invest in multiple stock markets around the world. They might choose to focus on currencies. They might make major bets on oil. The adage “Buy on anticipation, sell on realization” describes the strategy. » Directional – Another set of hedge fund managers is betting on the direction of the stock market. Computer modeling plays a starring role. Managers might believe the market will rise and the advance will be led by the energy sector. They focus their investments accordingly. If they predict a decline, they are shorting the market. This isn’t limited to the U.S. stock market. Some hedge fund managers might look to emerging markets where the average investor doesn’t have the knowledge to evaluate the situation properly. » Event-Driven – These hedge fund managers focus on specific companies. An acquisition might be rumored. Another company might be emerging from bankruptcy – bad news for the stockholders, but the bondholders might fare better. For example, when AMR Corp. filed for Chapter 11 bankruptcy in 2011, the company had $4 billion in cash. The bondholders and other creditors had a significant voice in the shape of

InsuranceNewsNet Magazine » August 2014

the future company. Sometimes distressed securities don’t stay that way for long. » Relative Value – The stock market isn’t perfect. It’s rare for everything to trade at the right price simultaneously. Arbitrage is the strategy used for making money when the market misprices securities. A company might be involved in a takeover but the stock is trading at a discount to the buyout value, representing the risk the deal won’t go through. Enter the arbitrager. Lots of math is involved. More computers too. » Other Strategies – Some managers might combine a couple of strategies versus specializing. Others might buy on margin in anticipation of a market rise while also shorting a sector because of an expected decline.

The Myths

Hedge funds have a mystical quality that attracts investors. But many of their assumptions are incorrect. » Myth: Only a few hedge funds are out there. Fact: There are approximately 10,000 hedge funds in operation, with approximately $2.7 trillion in assets. » Myth: Hedge funds are run by a few really smart people. Fact: Morningstar reports on 3,700 hedge fund managers.

HOW TO EXPLAIN HEDGE FUNDS FINANCIAL Bloomberg estimates there are 10,000 managers. These aren’t a few. » Myth: Hedge funds don’t fail. Fact: An estimated 117 hedge funds have failed since 2006. » Myth: Hedge funds are unregulated. Fact: At least six statutes or federal agencies require hedge funds to be registered and file reports. » Myth: Hedge funds consistently beat the market. Fact: Bloomberg reported in 2013 that the average hedge fund returned 7.1 percent (through November), which was about 22 points below the S&P 500. The Motley Fool notes the overall hedge fund average has underperformed the same index for five years. Your hope is they will be noncorrelating when the market takes a major tumble. » Myth: Hedge funds earn a profit regardless of market conditions. Fact: They try and intend to achieve this aim. Riskbased return is the new buzzword. » Myth: Hedge funds trade on inside information. Fact: The majority of hedge fund managers are law-abiding. They are overseen by multiple regulatory agencies. On a more practical level, how can every one of 10,000 hedge fund managers each know something the others don’t? » Myth: Hedge funds are for only the super-rich. Fact: Suitability plays a major role. Investors in hedge funds and other alternative investments must meet certain minimum asset standards to establish that liquidity isn’t a problem (they don’t need to touch the money soon) or they can afford to lose the money. They are risky investments. However, once the public gets interested, major firms find a way to bring hedge funds to them.

The Advantages

Despite the myths, there are compelling reasons alternative investments, hedge funds in particular, should be part of a sophisticated investor’s portfolio. » Noncorrelating assets (1) – Hedge funds can bet against the direction of the market. Peter Lynch, the famous mutual fund manager of Fidelity’s Magellan Fund, has long been a great believer in remaining

fully invested, because you don’t know when a declining market will turn around. Using this strategy, long market equity investors ride the market down. Owning an asset that should move in the other direction provides an offsetting advantage. » Noncorrelating assets (2) – The Credit/ Suisse Tremont Hedge Fund Index reported a decline of 19 percent for 2008. Meanwhile, the S&P 500 declined by about 37 percent. The top performing hedge fund in 2008 returned a positive 37 percent. » Illiquidity has advantages – The ability to get out on short notice requires mutual funds to avoid certain investments. The ability of hedge funds and private equity investments (that’s another story) allows them to focus on realization of a strategy over the long term. » There really are smart people – The hedge fund index might have lagged the stock market in 2013, but you aren’t buying the index. You are buying into a certain fund. According to zerohedge.com, measuring into October 2013, several funds posted returns in the 40 to 50 percent range or above. As with mutual funds, you need to find the right ones. » Diversification is prudent – You diversify across stocks, bonds and cash. You invest internationally. Why stop there?

The Drawbacks

Hedge funds have that mystical quality. Here are some other factors to consider: » Fees – They are famous for “pay for performance” pricing. The industry standard is a 2 percent fee on assets plus 20 percent of the profits. If the hedge fund is imbedded in a packaged product, expect additional fees. » Liquidity – Invest money you won’t need for a long time. You’ve heard the saying “Don’t wait to buy real estate. Buy real estate and wait.” Use the same logic. » You need diversification – You wouldn’t buy one stock or one mutual fund. Why? Because they represent a single industry or style of investing. If possible, spread the risk by buying multiple styles. » You must be alert – If you buy through your advisor, it’s likely your hedge fund

Don’t stop with hedge funds. Check out last month’s article “HOW TO EXPLAIN BONDS.” bitly.com/innbonds

position is listed on your statement with an estimated value. Is it performing as advertised? If not, ask questions. » Tax reporting – Hedge funds often issue separate, specialized tax reports. These need to get to your client’s accountant before a tax return is filed.

They Really Want One – How Can They Buy One?

If your client wants a hedge fund and it’s a suitable investment, ideally you want to provide it through your firm. Look for the following: » Individual hedge funds – Does your firm offer the ability to invest with one specific manager through a product that has lower minimums than the product bought by an institution? How have those managers performed? » Fund of funds – Perhaps your firm has established a position with 50 to 100 hedge funds and packaged a product for sale to retail investors. Now you have diversification. However, you stand a good chance of getting an average return with that many participants. » Mutual funds – “Hedgelike” mutual funds exist. Does your firm provide access to them? Are the funds any good? » Hedge fund within a variable annuity – Annuities are often considered longterm investments. Some variable annuities offer hedge fund participation as an investment choice. Do you have a similar offering? Hedge funds have a mystical quality for investors. They have a place in the experienced investor’s portfolio, but you and your clients approach them with eyes wide open. Bryce Sanders is president of Perceptive Business Solutions in New Hope, Pa. He provides high-net-worth client acquisition training for the financial services industry. He is the author of Captivating the Wealthy Investor. Bryce may be contacted at bryce.sanders@ innfeedback.com.

August 2014 » InsuranceNewsNet Magazine

BUSINESS

How to Get Eight or More Referrals Now H ere is an action plan to obtain a list of referrals from every prospect or client. By Reuven Shuval

ou have just read the title of this article and you are wondering: Could this really be possible and doable? The answer is absolutely yes. But it definitely will not work if you follow the acceptable and traditional ways of getting referrals. As most of you know, referrals are the Holy Grail of marketing. Nothing beats them. Nothing! So first, let’s go over some of the tremendous benefits you and your practice will receive by implementing a referral strategy: »R eferrals cost you almost nothing to acquire. » Your sales frequently will be larger and easier. » Price will be less of an issue. » Your entire sales process will move faster, and your closing ratio will be much higher. » You will stop getting only a few referrals that are based on luck or hit-andmiss requests. » You will have a systematic strategy to get referrals continuously. » A workable strategy will substantially lower your fear of asking for referrals. (You might even start enjoying it.) »Y ou will have peace of mind in knowing you have a steady flow of new prospects. » You will be able to build and expand your practice much faster. A paradigm shift is the first thing that 56

must happen in order for you to obtain eight or more referrals consistently from most of your prospects or clients. What is a paradigm shift? In a general sense, it’s the way you perceive and interpret the world. It is a breakthrough from tradition – old ways of thinking and old paradigms. In this case, it is a shift of how you view the transaction as a whole. You also will need a different understanding of your main goal or objective when you interact with the prospect or client. If this paradigm shift does not happen and become internalized, you will continue to get referrals in a very random way or not at all. So what is your new No. 1 objective? It is to obtain referrals – not to make the sale, get the check, build trust and friendship, get a second appointment, gather financial data and personal information, or any other objective. The reason referrals are so important and crucial is that if for some reason you do not finalize the transaction or make the sale – at least you have new people to contact. Also, who doesn’t want to obtain eight or more referrals almost every time they meet a prospect or client? Another old paradigm that must be changed or eliminated is the idea that you must build trust or friendship, usually over a long period of time, to obtain referrals. You also need, according to the so-called referral experts, to spend a lot of time, energy and money developing that trust. And then maybe you will get referrals. Does it really have to take that long? Do you really have to spend that much money and time? In his books, seminars and speeches, Tony Robbins repeats the idea that chang-

InsuranceNewsNet Magazine » August 2014

ing your beliefs can happen in a moment. It can happen now, or it can happen 10 years from now. You control when it will happen. The same is true for acquiring eight or more referrals. If you think it is a long, frustrating, uncomfortable and expensive process, you are right. If you think it is easy, fun and can be done with almost every prospect or client, you are right about that too. The last idea that goes against conventional wisdom and must change is the idea that you need to qualify the referrals. The question that comes up here is this: Do you or the client know which referral will end up doing business with you? The answer is no. If that is the case, then referral gathering is really a random process. More about this later. The action plan to get eight or more referrals is a conversation you have with your prospect or client. Most prospects and clients want to help you succeed but do not know how and why. That is the purpose of the conversation. Master it and you will get the referrals, most of the time, from every prospect or client. The first brief conversation will always take place during your first meeting – the sooner the better. This conversation is about the way you are compensated. Why is this conversation so important? Because here you will introduce and plant the seed of how important referrals are to your business. Referrals, remember, are your No. 1 objective. First, explain to your clients how you get paid. Is it by commission, hourly rate, flat fee, percentage of assets under management or some other method? And you continue by saying that your

HOW TO GET EIGHT OR MORE REFERRALS NOW BUSINESS long-term goal and your purpose are to provide exceptional service. In order to achieve this, your business must grow. From all the methods that are available to you to grow your business and give your clients the future service they deserve, none of them can rival growing your business through referrals. None of them! At this point, if there are no questions, you say you will come back to the subject of referrals later. Continue with your presentation, data gathering or whatever is on your agenda for the first meeting. The second conversation always takes place after you make the sale, or even if you did not make the sale. This conversation is an absolute must if you want to get the referral results you deserve. This conversation will be very challenging. If you have just made the sale, you are now on a high. Your tendency and impulse, at this moment, are to run for the door, go to the next appointment or do any other activity. Now, instead of rushing to finish the

meeting and disengaging as you have always done after the sale, you know that your moment of truth has arrived. You have to muster all the courage and strength that you have at this moment. You become very calm and totally relaxed, with a big smile on your face. You remember with clarity and passion that your main objective is getting eight or more referrals. Now is just the beginning of the most exciting and challenging part of the meeting. You take out your printed referrals sheet and lay it on the table so the client can see it. On both sides is written eight times “Referred Name(s)” and below that is written “Phone Number,” with a long line to the right. The second conversation starts with telling the client why you are asking for eight or more referrals. Do not continue until he agrees that it makes sense to him. Then you explain why you are asking for a random eight or more names. The reason is that the client does not know which

referral will end up doing business with you. The second reason is that if you start qualifying the referrals you want, most of the time your client will reply with those dreaded words “Let me think about it and get back to you with the names and phone numbers.” If you have been in sales for any length of time, you know that “getting back to you” will rarely happen. The third conversation centers on who contacts the client first after you receive the names. You absolutely want to control this situation, if it is possible, because it will result in more appointments for you. When you master these conversations, the result will be a tremendous benefit to your bottom line. Reuven Shuval is a 30-year veteran of the financial services business and the owner of RS Financial Services, Hillsboro, Ore. He is the author of Get Eight Referrals or More Now. Reuven may be contacted at reuven.shuval@innfeedback.com.

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August 2014 » InsuranceNewsNet Magazine

For more than 80 years, the Society of Financial Service Professionals has been helping individuals, families and businesses achieve financial security.

SOCIETY OF FSP INSIGHTS

Clients Want a ‘Dashboard’ Approach to Retirement Planning I nstead of constantly reacting to the financial news of the day, advisors and clients need to focus on two factors: projected retirement date and projected retirement income. By Richard M. Weber

t’s too hot. It’s too cold. Our politics are turning too conservative; our political situation today is way too liberal. But – compared to what? What’s the standard by which we should measure such subjective observations? Many of our sensitivities – whether to temperature or political rhetoric – are relative rather than absolute. I enjoy a much cooler environment than my wife does – and one man’s political passion is another’s rant! Also, because information travels so freely and quickly today, our subjective inclination is to react to the immediate rather than the longer term. One of the areas in which such subjectivities are obvious in my business life can be seen in clients’ and friends’ reaction to “the Dow” or “the S&P” or – you choose the index to follow. And depending on the direction of the tweets and twits of the day, we may be driven to irrational exuberance (or abject desolation). If the Dow is up 100 points, our economic spirits are lifted; conversely, if the Dow is down 2 percent (a really bad day), we despair. Yet those indices probably have nothing to do with our retirement prospects or other long-term goals. To test the relevance of market indices on my own retirement portfolio, I occasionally will go to my online brokerage account to measure the degree to which the broad index has anything to do with the specific deployment of my investments, based on my investment policy statement and the asset allocation and risk tolerance it describes. And you know what? Most of the time, the change in the index is larger than the change in my portfolio. So how can we help our clients get their focus away from indices and on to something 58

that’s more relevant? My initial thought was to attempt to put together a customized index – I’ll call it the “Weber 23” for the number of fund accounts we typically have in our portfolio. But because of the way the funds are managed, sometimes values aren’t “marked to market” on a daily basis – and besides, it’s too much trouble; I can just look up the value in my account. But there is a broader issue here in terms of being driven by indices instead of what’s really important to me and my clients. So I’ve started to ask clients: What’s the most important thing about retirement? Is it retiring on a specific date or retiring with a specific minimum amount of reasonably assured income? Some clients are very focused on a date. The client says, “I will retire on my 66th birthday, and I’ll just have to hope that my retirement nest egg and its growth will be adequate to keep me and my spouse in the style to which we’d like to become accustomed.” I can then say in response, “Great! Let’s manage to that objective! So every quarter, in addition to the normal reports you receive from the custodian, we’ll send our own simple report. It will say: ‘Last quarter we projected that when you retire on your 66th birthday, you could begin living on an income from your retirement resources of $8,950 per month with a 95 percent probability those resources will support you to age 95. This quarter there has been some softening in the sectors in which you’re invested, and the number now projects to $8,875 per month with a similar probability of success.’” The other scenario is one in which the client is focused on a specific amount of retirement income. He says, “I’m willing to work until my income needs are assured. I want no less than $15,000 a month – and

InsuranceNewsNet Magazine » August 2014

I’d like you to tell me when you think I can stop working and begin living in the style to which I’d like to become accustomed!” And once again, I get to say, “Great! Let’s manage to that objective! We’ll send our own simple report. It will say: ‘Last quarter we projected that to reach your objective of $15,000 a month, you would need to work until you are 68 1/4 years old to have a 95 percent probability that your resources will support you to age 95. This quarter your investments have been doing reasonably well. Based on that kind of calculation – which, of course, will change modestly from quarter to quarter – you may get to enjoy retirement one month earlier than was projected in the last quarterly report, with that same probability of success.’” By contextualizing the natural ebb and flow of account values to a retirement goal, we have enhanced the client’s overall perspective and amplified the value of the advisor-to-client relationship. At the same time, we’ve desensitized the client to the impact of ongoing swings in major indices that might otherwise give the client good or bad “vibes” regarding prospective retirement. We can provide the client with a reporting approach that produces a sense of “How am I doing?” And it beats Xanax! It sounds logical, but when I mention it to advisors, their initial reaction is, “It’s too simple!” My response: “Exactly!” Sometimes we advisors fall into the trap of providing more and more elaborate reports, in part to provide information, but perhaps also to justify the value we add in our own minds. I find that when it is offered, clients do want just a “dashboard” approach: How fast is my progress to my destination, when can I reasonably expect to get there and will I be safe? That’s what we call “client focus.” Richard M. Weber, MBA, CLU, AEP, is immediate past president of the Society of Financial Service Professionals. He may be contacted at richard.weber@ innfeedback.com.

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NAIFA ClientCast® by RealWealth® These professionally produced podcasts are yours to forward to clients and prospects each month, and feature a variety of topics including life, health, long term care, disability and critical illness insurance. College for Financial Planning NAIFA’s partnership with the College for Financial Planning includes a 15% discount for NAIFA members. Founded in 1972, The College created the Certified Financial Planner™ (CFP®) certification and is the exclusive provider of 8 additional industry benchmark designations, Series Exam Prep courses, and 3 Master of Science degrees. NAIFA’s Advisor Today Magazine Advisor Today is the premier source for practice management content and industry news.

Errors & Omissions Coverage Calsurance for NAIFA members includes multiple coverage benefits and customizable coverage options for individuals and agencies. The NAIFA/ CalSurance Risk Management/Loss Control Seminar can save you up to 10% on your policy for the next three policy terms. NAIFA SmartBrief All the insurance and financial news you need, every day, in a two-minute read. NAIFA’s LUTCF Successful insurance and financial services careers are deeply rooted in product knowledge and effective sales skills. The new NAIFA LUTCF curriculum will combine product-focused education with hands-on sales training to help newer advisors thrive in a competitive industry.

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August 2014 » InsuranceNewsNet Magazine

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

MDRT INSIGHTS

Harnessing the Power of Friendship to Build Client Relationships A little patience can lead to big rewards as you develop prospects into clients. By Jason J. Dudum

oday’s top-performing advisors have learned that it takes more than sales skills and top-notch marketing techniques to build a long-term practice. You must understand a client’s mindset and goals to be successful. The best way I have found to develop a relationship is to treat clients not just as “clients,” but instead as friends. If you want to influence your clients’ decisions, you need to give them the same advice and counsel you would give to your best friend. Developing professional relationships on this level creates trust and openness, which can help you retain clients and generate referrals. To help you on your way to developing long-term relationships, try this easy-to-use, two-appointment sales strategy. The first appointment with the prospect is an introductory meeting and features only the use of a pad of paper and some general information about your company. The appointment is typically an hour, and only 10 minutes of it is business-oriented. It’s important to keep the business portion of the discussion very simple and brief, if you lose the prospect with technical information, the sale is lost. The rest of the hour is spent discussing the prospect’s interests, dreams, goals, etc., as well as sharing what you bring to the table to meet this prospect’s specific financial needs. Make sure you do not bring anything product- or sales-focused into the conversation. Your goal at this meeting is just to get to know each other – similar to how friendships are built. After that hour, you will be one step closer to establishing a level of trust, and the next time you meet, it will be to 60

find the right product for the needs you discussed. Although the second appointment is generally considered to be the closing appointment, the sale is still not the main focus. Making sales is a vital part of our business, but the nature of the financial industry allows us to keep our clients’ best interests in mind and the sales will naturally follow throughout the development of the relationship. During this meeting, re-establish the lines of communication and catch up on current events and any personal issues that might have been disclosed during the first meeting. Review your specific proposals, and make sure to get forms signed and help the client understand what the underwriting process entails. Again, try to keep the information very simple. After everything is signed, explain to the client who from your office will contact them to follow up on items and expectations. My staff and I follow up at least once per week by email or phone so our clients know we are taking care of their concerns. Treating our clients as friends is a simple tried-and-true principle that makes the two-appointment sales strategy a success. I have found that a “friendship first” principle will result in repeat business across all sectors of a practice. Usually clients will have you solve one need first, but as they gain trust in you, the additional business keeps building. For example,

InsuranceNewsNet Magazine » August 2014

I have one client who calls us every few months to give us referrals. These referrals happen over time, but when they come up, they are usually effective because the trust is already established with the referral from the original client. Creating a practice based on trust can help you retain clients and generate referrals that will continue taking your practice to new heights. Often as the relationship deepens, clients will look to you for more financial needs and even call upon you socially. Many of my clients invite me to attend sporting events, industry conventions and their company holiday parties. In a business that often can be ultra-competitive and frantic, the ultimate reward is helping your clients achieve their financial goals while continuing to develop the success of your own personal business. This is not something that happens quickly. It takes time, but if you are patient, the rewards are endless. Jason J. Dudum, LUTCF, chief executive officer of Dudum Financial in Lafayette, Calif., has more than 10 years of experience in advanced estate planning and asset management. He is a nine-time qualifier for the Million Dollar Round Table’s (MDRT) distinguished Top of the Table and serves as a Top of the Table Board Advisory member. Jason may be contacted at jason. dudum@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.

Members Voice Concerns About Maintaining Financial Security N AIFA members asked lawmakers to consider the negative effects of the Camp tax reform draft.

By Ayo Mseka

n May, more than 700 NAIFA members attended the association’s Congressional Conference in Washington. During the conference, members visited their senators and representatives on Capitol Hill to ask them to carefully consider the negative effects the Camp tax reform draft would have, because its proposals would make it more difficult and more expensive for Americans and businesses to achieve financial security. The tax regime outlined in the draft by House Committee on Ways and Means Chairman Rep. Dave Camp, R-Mich., extracts more than a half-trillion dollars from revenue sources that include the life insurance industry and would threaten the financial and retirement security of millions of Americans. This was the message NAIFA President John Nichols gave the attendees before they left for the Capitol. Nichols thanked the members for coming to Washington and assured them that they are the best in sharing their client stories and showing how decisions made on Capitol Hill affect regular people back home. Nichols said: “We have information (that our elected officials) need to hear. We have stories about their constituents back home that they want to hear. The Congressional Conference is our big chance to tell them these things. Together we can and will make a difference.” Joining Nichols on the podium was NAIFA Chief Executive Officer Dr. Susan Waters, who pointed out the importance of NAIFA members’ visits to Capitol Hill. “You help shape policy,” she said. “At last year’s Congressional Conference, you came to Washington and told your senators and representatives how the current tax treatment of life insurance is crucial to your clients. Our leaders listened. This year, the

Camp proposal includes a comprehensive tax-reform plan, and President Obama, as he does each year, proposed a federal budget. However, neither of these proposals includes new taxes on the inside buildup or death benefits of life insurance or annuities. You can thank yourselves for that. Grassroots advocacy works!” But there is an urgent need to educate Congress because the industry is not yet out of the woods. As Waters pointed out, the Camp draft does include $583 billion worth of changes to the tax code that would directly or indirectly impact the insurance industry – and not in a favorable way.

Kempthorne Addresses Conference

The timing of the NAIFA members’ visits to Capitol Hill was perfect, added former Idaho Gov. Dirk Kempthorne, who also addressed the attendees. Although the Camp proposal does not tax the inside buildup in financial products, it does contain new taxes on the life insurance industry and on retirement savings, added Kempthorne, who is president and CEO of the American Council of Life Insurers. Using government numbers,Kempthorne noted that the Camp proposal would lower corporate taxes to 25 percent, which would save the life insurance industry as much as $20 billion over 10 years. But it could add $50 billion to life insurers’ tax bills – a net negative of $30 billion. Although these proposals will not become law this year, Camp’s ideas have now been made public and will be used as a guide for future tax proposals. These new taxes on companies will lead to higher prices for clients and make it more difficult for Americans to prepare for a financially secure future. Lawmakers will know this, Kempthorne said, and will be impressed by hearing from them. The Camp draft proposal is not the first tax proposal the industry has faced, Kempthorne pointed out. In fact, the principles of life insurance taxation were established during the Civil War.

NAIFA President John Nichols

When a tax on life insurance premiums was considered to fund the Civil War, Sen. Charles Sumner, R-Mass., said, “Here, you are proposing to tax those who have taxed themselves … that the nation might not have to support them.” His argument carried the day. And in 1866, the Treasury Department reaffirmed the importance of life insurance by ruling that life insurance death benefits are not subject to taxation. Over a century later, this remains a fundamental principle of tax policy, and it should never change, Kempthorne added. “Society benefits when people are encouraged to take personal responsibility and save.”

The Power of Life Insurance

To illustrate this point, Kempthorne described how, during the American Revolution, the king of France was not eager to let the renowned sculptor Jean-Antoine Houdon sail the Atlantic to visit America to create a likeness of Gen. George Washington. As a condition for Houdon going to America, the king demanded that a life insurance policy be purchased. The policy was secured and Houdon sculpted Washington’s bust. Houdon could travel to America because of the power of life insurance, Kempthorne said. “Life insurance is a true and noble calling, deeply embedded in our nation’s history and absolutely essential for America’s future,” he said. Ayo Mseka is editor-in-chief of Advisor Today, the official publication of the National Association of Insurance and Financial Advisors. Ayo may be reached at ayo.mseka@innfeedback.com.

August 2014 » InsuranceNewsNet Magazine

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

LIMRA INSIGHTS

Asking for Directions: Gender and Retirement Planning A n advisor can serve as a GPS in guiding clients toward a secure retirement. By Cecilia Shiner

he time between beginning to save for retirement and actually retiring is often described as a journey along a path or road. Appropriately, we refer to the steps involved in retirement planning and consulting financial professionals as “asking for directions.” Yet, unlike a car trip where the consequences might only be a few minutes or hours added on to your trip, poor retirement planning can have much more serious long-term consequences. Therefore, it is important to understand gender differences with regard to household decision-making, how people have prepared and planned for retirement, and to what degree they are using professional financial advice.

Who is driving?

LIMRA Secure Retirement Institute (SRI) recently surveyed Americans aged 50 to 75, involved in household financial decisions and with $100,000 or more in household assets, on their retirement preparedness, planning and use of advisors. Despite three-quarters of respondents being married, a lower proportion of men than women report that they share financial decision-making with others in the household: 30 percent versus 47 percent. Instead, men are more likely than women to describe themselves as the primary decision-maker: 70 percent of men compared with 47 percent of women describe their role that way.

Have they mapped their route?

LIMRA SRI found that women are more likely than men to be concerned about running out of money in retirement: 46 percent versus 35 percent, respectively. This survey also found that although around one in five men and women have a formal written plan to manage their income, assets 62

Attitudes Toward Advisors and Advice Financial advisors provide value beyond what I could achieve on my own I trust the advice of a broker, financial planner or advisor Professional financial advice is worth the money paid for it

PERCENT AGREE

67% 52% 64%

56% 43% WOMEN MEN

and expenses during retirement, women are less likely to report the presence of several key plan components in those plans. Specifically, women’s plans are less likely than men’s to include a plan for generating retirement income (64 percent versus 74 percent) and a strategy for claiming Social Security (38 percent versus 49 percent). Retirement planning activities vary in terms of how long they take to complete as well as in the complexity and expertise required to complete them. Three in five men and women have a plan for managing income, assets and expenses during retirement. Respondents not yet retired were asked which of a list of seven specific tasks they have completed. They are: » Determined what Social Security benefits would be at different retirement ages » Calculated the amount of assets and investments they will have available to spend in retirement » Determined what income will be in retirement » Determined what expenses will be in retirement » Estimated how many years assets and investments will last in retirement

InsuranceNewsNet Magazine » August 2014

»D eveloped a specific plan or strategy for generating income from retirement savings

Are they asking for directions?

51%

Source: LIMRA SR Retirement Income Attitudes and Preferences, 2014, based on 1,047 men and 953 women ages 50–75, involved in household financial decisions and with $100,000 or more in household assets.

»D etermined health care coverage in retirement

On a positive note, among those surveyed, more women than men work with paid professionals to make at least some investment decisions (63 percent versus 54 percent). Furthermore, approximately one in five women and men have consulted an advisor to a “considerable” extent regarding retirement planning needs. Therefore, there is likely to be room for advisors to grow existing relationships with households through more in-depth discussions about retirement planning needs. Advisor relationships are critical to completing more complex planning tasks, and women are more likely than men to appreciate the value financial advisors provide.

Becoming a financial advice GPS

Advisors should build on existing relationships with this market segment through discussing their retirement planning needs and assisting with more complicated elements of their retirement plans. Based on these results, it appears women are slightly less prepared than their male counterparts, especially with regard to deploying assets in retirement. Luckily, since women do perceive greater value in using and paying for professional financial advice, they could be more amenable to advisors who offer directions. Cecilia Shiner is the assistant research director for LIMRA Secure Retirement Institute and has responsibility for conducting major primary research projects related to retirement. Cecilia may be reached at cecilia. shiner@innfeedback.com.

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August 2014 » InsuranceNewsNet Magazine

THE LAST WORD WITH LARRY BARTON

Break into the HR Office SUMMA AGENCY

This month’s Last Word is “guest written” by Monty Smith, who may sound familiar.

PLANNING FOR LIFE Monty Smith \\ Sales Manager 100 E. Pine Street Galveston, VA 11800 800.456.1234

Dear Sales Team: We are having a relatively strong 2014, but our performance are can and should be better. Sales of individual life insurance flat, while our retireme nt product line is sizzling. Our annuity our products, which are delivering notably lower results for clients due to the low market rate environment, are still sell-

ing strong because clients want guarantees. You get all of this. But in a belief that “this is varsity” and the competit ion is gaining on us, we need to ramp up individthe ual and group efforts. In that regard, I have come up with following plan of action for your review. Many of us have learned what happened in the wake of the got Watergate break-in . Docume nts were stolen, and things of messy. President Nixon had to resign, and somehow a few the perpetrators ended up as radio talk show hosts. Anyway, that got me thinking … When was the last time you broke into the human resources department at any client company? I’m not talking about breaking the law and using a crowbar, but what about creating and a presentation that you can offer on “Financial Planning Protecting Your Assets”? Some people within our firm think this is above them. cliThat’s nonsense. I want to encourage you to call your best and ents, ask to speak with the top dog in human resources explain that as a public service you’ll offer a 50-minute semi-

nar on the title above – and not change a word. Why am I being so dictatorial? First, it’s my nature — you work for me. Second, notice that the title of the seminar use doesn’t mention life insurance. People won’t show up if we to that phrase. You know better than I do that no one wants everygets Assets” Your ng face their mortalit y. But “Protecti one curious. Are you talking about those supersec ret offshore An bank accounts? Starting a limited liability corporat ion? umbrella policy in case someone drowns in my pool? Intrigue disyour audience and then follow the obligation we have to we cuss those subjects, closing with the most important gift bring to others: protecting families. Now, you’re saying, “Boss, this isn’t new or dramatic. People have done this for decades.” True. But I’m not talking about hosting this at a country club — break into HR, have the seminar at the work site and skip the sandwic hes. Remove the sales tag. Make it informat ional and inspirational. Tell them “Here’s what smart people are doing today to protect their future.”

InsuranceNewsNet Magazine » August 2014

At Watergate, no one left a business card behind. So, guess what — I don’t think you should bring a single business card. Have your phone number appear on the last of your PowerPoint slides and be sure everyone has paper and pens before you you begin. Watch to see how many write it down. Explain didn’t bring cards because you respect the audience. Watch the reaction . a Finally, a thought about your presentation. I’ve shadowed few of you on recent sales calls. It’s embarrassing to see what some of you are using. So, I want you to buy a book called Presentation Zen by Garr Reynolds. That book is being used by our competitors because it explains how with a few modest but powerfu l changes in design you can take a sales presenta tion from boring to sizzling. Carlos, our sales lead in the northwest territory, took his The traditional sales deck of 40 slides down to eight — eight! on deck has photos with few words, so the audience focuses listening rather than looking for typos. Our compliance folks figalmost called for the death sentence because they couldn’t ure out what he was presenti ng. Good work, Carlos — you’re my Agent of the Month. So, here are your marching orders. First, remember that Nixon was a crook but he was also one savvy dude. Don’t break in — just lean in — get to know HR and make them a partner at your client’s workplace. Redesign your message with simplicit y and powerfu l graphics. Be elusive and forget

the hard sell — become an informat ion expert. We have a noble calling. We help people buy products that fiwe know for a fact cannot replace a life, but they can ensure can nancial stability for a family who suffers a major loss. You read this memo and forget it, or you can make this an action plan and reaffirm why I hired you in the first place. Regards, Monty Smith Sales Manager

-M. Smith

and P.S. One of Nixon’s favorite movies was “Butch Cassidy the Sundance Kid.” I think I know why. Remember the scene are where Paul Newman keeps asking Robert Redford “Who the those guys?” That’s what I want to happen when you leave presentation without handing out a single business card.

Larry Barton, (aka Monty Smith) Ph.D., CAP, is Chancellor of The American College. Larry may be contacted at larry.barton@innfeedback.com.

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