Matt Zagula debunks an industry standard and paves the way for advisors to get more assets under management than ever before.
ADD AUM NOW
HOW TO
Gather Assets Under Management Faster and Easier Than Ever Before Right now, all across the country, advisors are struggling for market share in their local communities. Nationwide, producers are jockeying for position to manage all of their clients’ assets. And in the end, smart advisors who can successfully position themselves to become fully integrated members of their client’s financial futures will WIN BIG. Will YOU become one of them? Hi, I’m Matt Zagula, and I’ve helped advisors increase their production by hundreds of millions of dollars over the past 5 years in the annuity and life insurance space. But it’s only been over the past 6 months that I’ve truly unlocked the code on how smart financial advisors can win the respect of wealthy clients and earn the right to manage all of their assets — annuities, life insurance and their managed money accounts (AUM). I’m offering FREE advanced training unlike anything else that’s ever been available. I’m on a mission to share ALL the proven strategies and tools I’ve developed with — and exclusively for — advisors like you who are looking to add significant re-occurring revenue through AUM to their practice. I have to admit it was a very unlikely discovery for me! Here’s how it all happened: My insurance-oriented firm has a relationship with an investment firm. Years ago, “I used the tools from Producers Club to communicate with a prospect that had fallen off the radar. He had been putting off scheduling his next meeting. I contacted him on Friday evening and received a response within 24 hours!” —Carol S., NJ
I owned both but switched my focus to Thinking I couldn’t have been the first annuities, life insurance, coaching financial person to consider these factors on how advisors and training multi-disciplinary to add a significant AUM component to lawyers. My old investment firm had grown stale, run down and had an old school brokerage mentality until I figured out a way that I could get comfortable “referring” to my old firm again, so I taught my old Find out more at AddAUMNow.com team how I’d approach a prospective client and sent them out to test it. Well, the system an advisor’s business, I looked into the worked so well we were amazed. market at what the FMO/IMO, RIA and industry vendors were offering SPECIFIC In fact, in just the last 90 to adding AUM. And let me tell you what days, over $43,000,000 was I found: the referred money management added to their fee-based options that FMOs/IMOs are recommendasset management platform. ing to “help” advisors in the AUM space are just NOT effective. Then I showed this same method to top safe money advisors and, to my With that discovery, I invested in bringing surprise, we figured out this process is these tools to help advisors learn these totally replicable and 99% different methods. than what marketing organizations were encouraging safe money advisors During the development of this training, my marketing team and I discovered 3 to do to build their AUM business. critical elements that, when implemented I quickly and clearly saw the writing on the in a progressive order, work to add AUM wall: advisors who position themselves 100% of the time. as the most trusted and knowledgeable about financial and risk management Training of this caliber has never before solutions would capture more clients been offered at no charge. and be trusted with their clients’ ENTIRE Advisors across the nation are closing financial futures. their biggest cases and adding significant It was all about having a meaningful and AUM as a direct result of this training by motivating conversation that quickly con- having the conversation their prospective verted the advisor from a product pushing clients actually want to have. financial salesman to a fully integrated member of their client’s entire financial Get this powerful training today for FREE at www.AddAUMNow.com. future!
Free training shows you how to add AUM 100% of the time!
“Using the language and conversations that Matt covers in his free program helped me add over 2 million dollars in AUM in just the last 3 weeks plus we’ll be earning business from our biggest client in our firm’s history, over $2 million, in AUM in the next week! —Brian R., NC
“This training and its unique ideas and authentic process have given me the confidence to go after cases I would not have been comfortable approaching being newer to AUM and a ‘younger’ advisor. These proven methods work and I’m proof that you can learn this method with great results quickly.” —Sam C., PA
Don’t wait! If you’re serious about transforming your practice and adding significant AUM – this is the training you need to be successful.
Sign Up TODAY to Get the Industry’s Most Powerful AUM Training – It’s FREE!
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NOW MORE THAN EVER! Consumers can have their retirement security, if they can get over their control issues.
PAGE 24
A Tale of Three Death Claims PAGE 38
PLUS NFL Pro Bo Eason’s Definitive Storytelling Tools PAGE 12
Conflicting Views on Annuities Spell Opportunity PAGE 48
METLIFE & BRAMCO. TEAMING UP TO HELP YOU REACH NEW HEIGHTS. You don’t have to look far to find the right resources to help you grow your practice. BRAMCO has a long standing relationship with MetLife that enables us to help you fulfill your clients’ needs. Together, we provide access to a full suite of products, advanced markets support, expert case design, streamlined underwriting and seamless processing. The result is a smoother, faster, and better experience for you and your clients. See what BRAMCO is doing with MetLife. Visit bramcofinancial.com to learn more. 1406-1711 © 2014 Metropolitan Life Insurance Company, New York, NY 10166 L0814388479[exp0816][All States] PEANUTS © 2014 Peanuts Worldwide LLC.
The Affluent Prospect Has A Distrust Of You And What You Do Before You Ever Get A Chance To Show Them How You Can Help Them...
Let Me Show You 4 Key Reasons Why Your Clients & Prospects Don't Trust You... And The Solution To Overcome Each Of Them! Over the past few years it has become increasingly harder to gain the attention and establish trust with the affluent clientele you want on your roster. This is especially true when every planner in your backyard is using the same song and dance, the same steak dinner at the same restaurants, trying to impress the same prospects. Ultimately no one is impressed or moved to take action because they don’t know who to trust! Trust is earned. It is built by establishing who you are, telling your personal story through known media you use and building a relationship through a specific system that’s proven to find and create connections. In talking with top producing advisors and high net worth business owners on my radio show, my private clients and our extensive trust based research, I want to share with you four of the most eye-opening reasons that the prospects you are spending money to advertise to, are simply not paying attention to you…because they don’t trust you!
#1 They’ve Been Burned Before
Whether it was the market crash in ‘07 and ‘08, their employer stripping away their benefits or plain bad advice, you are at an immediate disadvantage due to the baggage a prospect carries from advisors who got there before you ever crossed their path. This creates a huge trust barrier that you must overcome. And you won’t overcome it with invitations to dinner seminars, flimsy 4x6 postcards or “me too” marketing and advertising that you saw another advisor use so you copied them. This just makes you look like the guys that steered them wrong in the first place. Read on, because there is an answer for you…
#2 They Don’t Know Or Understand What It Is That You Do
How can someone trust you if they don’t understand what it is that you do? That is the case with most consumers, and especially for buyers of investment products and annuities. They don’t know the things you know. They are good at be-
ing an engineer, an account executive, a realtor or whatever profession they have worked in, in the trenches for their entire lives, but they don’t know what you know and so they are scared and skeptical.
Today, I want to show you how to create Unbreakable Trust in your business, by creating the tools and the system you need at all times if you desire to attract high net worth clients and put more assets under your trusting management.
The general public and even high net worth individuals are unfamiliar with how your charts and graphs work and many see them as sales-y pieces that are used to manipulate them and scare them into using your services. But read on, because there is a solution for you…
My name is Greg Rollett and I am the host of the Rollett Report Radio Show, as well as the co-author of the Best-Selling book, Celebrity Branding You. And today I want to demonstrate to you exactly how to get your market Greg Rollett, Best-Selling to Trust You. Author & Trust Marketing Expert
#3 They Don’t Know You From The Guy Down The Block
You showed up, unannounced in the mailbox, or a radio ad, or in the sports section of their newspaper with an invitation to go out of their home to a workshop with a room full of people they don’t know, to see a person they don’t know try and sell them something. Why should they trust you enough to respond? Your core responsibility needs to be establishing a relationship with the folks you want on your client roster, so they instantly recognize you, and your importance in their life. Do you let your prospects “see” who you are in your marketing in order to make a connection with you, or are you selling the steak, or even worse, the features of your complicated service or product?
#4 No Proof That You Can Do What You Do
There are three ways to try and sell someone something. You can tell them what you do. Someone else can tell them what you do. You can demonstrate what you do.
I’ve just written a brand new report, called The Trust Tools and filmed 3 extensive training videos for you. And I want to give them all to you today, for free. I am doing this to show you exactly how to answer and overcome the four points above. There is no cost to you for any of this content rich, Trust Building information. There is also no order form embedded to buy anything while you are reading or watching. I do know that some of the ambitious and top producing advisors who go through the materials may want to know more about implementing a system like this in their business. However, for most, you can use the information I am giving you to do it all yourself.
When you have a set of Trust Tools working for you in your business, you are able to display your Magic Powers and demonstrate your ability to help your prospect to reach their financial goals. Nothing builds trust faster than demonstration.
I want to use this training to demonstrate how advisors who are even less skilled and knowledgeable than you are using these tools to overcome skepticism and advisor blindness to close new business, move up the chain to higher net worth clients and ultimately have the business and lifestyle you deserve.
Without these Trust Tools working for you, like a machine, you are living in a world of “he said, she said” and you will be on the losing battle more times than not, as you have not established trust, authority or demonstration of your worth.
To claim your free report and 3-part video training series, please call (888) 439-4569 or visit www.thetrusttools.com today.
You can claim your copy of the FREE Trust Tools Report and gain instant online access to the 3-part video training series by calling (888) 439-4569 or by visiting www.thetrusttools.com
» read it
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OCTOBER 2014 » VOLUME 7, NUMBER 10
Scan this QR code with any QR code reader on your smartphone
IN THIS ISSUE
View and share the articles from this month’s issue
48 ANNUITY
48 C onflicting Views on Annuities Spell Opportunity By Linda Koco Advisors have an opportunity to educate consumers on the “multiple layers” of benefits in modern annuities.
52 A nnuities With LTC: 2 Great Things That Go Great Together
INFRONT
10 Why Fixed Annuities Are Smokin’ Hot By Linda Koco Fixed annuities used to make their strongest gains when interest rates were high or rising and variable annuities soared when the stock market was making big gains. Yet that was not the case this year.
12
FEATURE
24 Annuities: Now More Than Ever!
By Steven A. Morelli Some annuities have been breaking sales records, but consumers are still reluctant to invest in annuities. A look at the consumer disconnect with annuities and how to repair it.
LIFE
38 A Tale of Three Death Claims
By Susan Rupe What is it like to be on the receiving end of a death benefit? Three different insurance policies yielded three different claims experiences.
42 12 No Story, No Glory
2
come on, no whammies...
56
HEALTH
56 H ere We Go Again! Getting Ready for the Next Round of ACA Sign-ups By Susan Rupe Advisors are hoping for a smoother sign-up season as they prepare for the next health care enrollment period.
FINANCIAL
62 4 Sales Opportunities With New RMD Rules By David W. Wick By understanding the basic structure of the actuarial tables used to determine required minimum distributions and the benefits of trusts, financial advisors can dispel their clients’ fears and achieve sales.
INTERVIEW
An interview with Bo Eason Since the beginning of time, stories have been used to lead nations, to move armies and to connect with others. Speaker, actor and former NFL standout Bo Eason tells InsuranceNewsNet Publisher Paul Feldman that stories are the connective tissue that bond people together. In this interview, Eason tells the story of his defining moment and gives advice on how to use stories as tools to build relationships with clients.
By Linda Koco Annuities that offer long-term care riders don’t attract a lot of attention: but the product does sell when the fit is right.
42 5 Term Insurance Solutions for Small-Business Clients
InsuranceNewsNet Magazine » October 2014
By Erik Dullenkopf Term insurance can be an economical business solution for anything from credit coverage to estate equalization.
BUSINESS
66 Make Time to Build Business With Social Prospecting By Bryce Sanders The activities that you enjoy outside of work can lead to unexpected business opportunities.
There Are No Baby Steps in Sales.
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Y A W A K A E R B travel wi th ICA ER014 M A S TRAN MBER 19, 2 N OW –
D EC E
ALSO IN THIS ISSUE OCTOBER 2014 » VOLUME 7, NUMBER 10
68 SOCIETY OF FSP: A Do-It-Yourself Approach Can Lead to Spousal Social Insecurity By Richard M. Weber Spousal election options are complex. Here is how an advisor can save the day for clients and their spouses.
70 MDRT: Three Essential Questions to Attract and Retain Clients By Scott D. Sorrell Once you understand what you can offer clients that nobody else can, it’s time to develop a plan of action for your clients.
l l a w e i V ti na ti ons des Destination: Success At Transamerica, we’re working hard to help protect families and their dreams. And we know how hard you work to provide clients with life insurance solutions that can help them meet their planning objectives. Our current Break Away incentive is our way of saying thanks for all you do. Break Away offers the opportunity to earn travel package rewards based on sales—you choose where to go and you can qualify for multiple travel packages! To learn more about Break Away, visit www.engagengo.com/transamerica50758 or call your local General Agent today!
View official Rules and Regulations at www.engagengo.com/ transamerica50758. Contest period includes business submitted on or after 4/1/14 and placed by 12/19/14. Contest available to distributors under the following marketing organizations as independent contractors of Transamerica Life Insurance Company: Transamerica Brokerage, Transamerica Agency Network-Independent Group, Capital Choice, IHC, Alliance, and Transamerica Senior Life. Transamerica Financial Life Insurance Company (TFLIC) business is not eligible. Business written through National or Institutional accounts is not eligible. Sales of annuities and variable products are not eligible. Under current tax laws and regulations, gross income includes amounts received as prizes and awards. Accordingly, the value of your award/trip will be treated as additional compensation for purposes of any applicable tax reporting. All travel awards must be redeemed and travel completed by June 30, 2015. Life insurance products issued by Transamerica Life Insurance Company, Cedar Rapids, IA. The information provided is intended for producer use only. It is not intended, nor appropriate, for customer use. DP 140A 0914
72
INSIGHTS
72 NAIFA: Dealing With Clients Who Are on the Fence By Ayo Mseka An advisor recalls how he won over a reluctant prospect with a sales idea that truly was “outside the box.”
74 L IMRA: ACA Shifts Costs to Retirees By Deb Dupont The Affordable Care Act may have unintended consequences for employers and their workers as they try to balance health care and retirement benefits planning.
76 The Last Word: Stop Treating Financial Institutions Like Petty Thieves By Larry Barton How to take an objective look at your practice and determine how you can maximize every opportunity with clients.
EVERY ISSUE 8 Editor’s Letter 22 NewsWires
36 LifeWires 46 AnnuityWires
54 HealthWires 60 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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At American Equity, honesty, quality and simplicity are at the core of our business practices. With reliable rates, transparent caps and service second-to-none, we are the provider that emphasizes quality above flashy. We are the company that focuses on ensuring the long-haul over promising the short-term. From prospect to product selection and beyond, with American Equity your business is our priority.
The one who works for you. A- (Excellent) rating from A.M. Best.* #3 Producer of Fixed Indexed Annuities.** We answer your calls and your questions. * A.M. Best has assigned American Equity an “A-” (Excellent) rating, reflecting their current opinion of the financial strength and operating performance of American Equity relative to the norms of the life/health insurance industry. A.M. Best utilizes 15 rating categories ranging from A++ to F. An “A-“ rating from A.M. Best is its fourth highest rating. For the latest rating, access www.ambest.com. ** Source: http://www.looktowink.com/2014/04/totalindexedsales/
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ING U.S. is now
U.S. is now Voya Financial™ – and our new look is just the beginning. We’re a new kind of financial company that’s dedicated to redefining what it means to prepare for retirement. We believe everyone is entitled to a secure financial future and we’re committed to making that possible. We’re here, each and every day, to help you and your employees envision the future, get organized and take the steps necessary to pursue financial success together. With 13 million customers, over 220,000 points of distribution and $514 billion in total assets under management and administration, we’re confident that we have what it takes to help you and your employees make the best financial decisions. Rest assured that how you work with us hasn’t changed. You’ll still partner with people you know and trust, and will continue to have access to the innovative products, services and thought leadership you’ve come to expect from us. Have questions? Call 844-226-8692 or visit us at Voya.com to learn more.
October 2014 » InsuranceNewsNet Magazine
7
WELCOME LETTER FROM THE EDITOR
Brutal Truth Tenderly Told
W
e need to tell stories well in order to sell, and the annuity story is not told well. Those are the core messages of our two main features this month, combined into one sentence. The “story” theme came out of Publisher Paul Feldman’s interview with Bo Eason. Bo was redeemed by his own story, and he explains how people can find theirs. Bo had a short, brutal NFL career as a safety with the Houston Oilers for four seasons. Even though at 6 feet, 2 inches and 200 pounds, he was a mere waif in pro football terms, his sheer will was a force to be feared. He wouldn’t tackle; he would spear opponents helmet first, hoping to inflict a career-ending injury. He was one of the reasons the Oilers were known as the bad boys of the NFL in the mid-1980s. I am not a rabid football fan, but I have a deep appreciation for the pain surrounding the sport because of a one-man play, Runt of the Litter, that Bo wrote and starred in. He “plumbed his depths” as a way to propel his acting career after injuries ended his football career, and he ended up redeeming himself. Who would have thought a driven jock could be a serious actor? Probably nobody but Bo. He proved it with his drive, just like his will shaped him from runt to NFL player. Who would have imagined that he could write a moving play about football? Again, he just did it. When he couldn’t find decent parts as an actor, he created his own part. Then he practiced for 18 months with a renowned acting coach in order to perform it. He also uncovered a gift for everyone else. You are engaged in his story when you watch his play, but you’re also watching your own play. Bo learned that is the product of a true story told well. By the way, “true” does not mean absolute accuracy in detail, but true to the message. In fact, his play is a fictionalized version of his story. It might seem ironic, but fiction allowed Bo to be more accurate. The power of the story is also an answer to a question posed by our main feature this month, “Why Are Consumers So Afraid of Annuities?” The question is important because many Americans are frantic about 8
their retirement security and want a dependable income. A survey from The Phoenix Companies showed the gap between need and perception. According to the poll, 71 percent of Americans would buy an annuity to meet certain needs, such as a predictable monthly income, but only 20 percent plan to buy an annuity. That seems pretty goofy. Like the LIMRA research in our feature story, the Phoenix study reveals that people want what annuities do but they do not want annuities. Why? Because people don’t know anything about them. The Phoenix poll showed 53 percent of people were not familiar with the products. Companies do not advertise annuities much. It could be because they have a hard time getting past compliance to get the message out. Or it’s because they don’t have a rich tradition of advertising, beyond getting their name out. Or most likely it’s because companies rely on distributors to get the word out. That’s where agents and advisors step in. Annuities are a personal sale. A client has to release control of a considerable amount of money in exchange for a guarantee. That requires an equally high amount of trust. So that is not a sale. It’s a pact between you and your clients. They give you a sizeable chunk of their life savings, and you give them the security of a guarantee. Not the company and not the government. You. A deal like that requires an an eye-toeye understanding and an inspired level of confidence. Bo’s story shows how “getting personal” builds intimacy, which engenders that kind of trust.
InsuranceNewsNet Magazine » October 2014
The interview featuring Bo shows how to find that story and craft it. He has an effective way of locating a defining moment and elevating it to a promise. It turned into a soul-searching exercise for him. Maybe it will for you as well. Whatever comes out will probably improve your sales, but even more important, it will clarify your purpose. Who can ask for more than that? It is certainly what your clients want. They need to know you are a real person who has made ensuring their safety and security your mission rather than just your job. They want to be able to trust. But here’s the thing: You have to go first. Steven A. Morelli Editor-in-Chief
October 2014 Âť InsuranceNewsNet Magazine
9
INFRONT TIMELY ISSUES THAT MATTER TO YOU
Why Fixed Annuities Are Smokin’ Hot A change in retirement demographics is one factor driving the sizzling annuity sales figures in the second quarter. By Linda Koco
F
ixed annuities were smoking in second quarter. Smoking hot, that is. According to the latest individual annuity sales estimates from LIMRA Secure Retirement Institute (LIMRA SRI), total fixed annuity sales hit $25.2 billion in second quarter, up 34 percent from the same period last year. For the first half, fixed sales totaled $49.1 billion, up 39 percent for the same period last year. Variable annuities did not fare as well in terms of growth. Those sales fell 5 percent in second quarter compared with last year on sales of $36.2 billion. On a first-half basis, they fell 4 percent on sales of $70.4 billion compared with last year, according to LIMRA SRI. The results for both annuity sectors echoed those of first quarter. That’s when fixed sales rose by a stunning 43 percent over the same year earlier quarter on sales of $23.5 billion, while variable annuities fell by 3 percent on sales of $34.2 billion.
A New Annuity Dynamic
at the end of second quarter. Similarly, variable annuities declined even though the stock market reached new highs in both quarters. (The Dow closed second quarter at 16,851, yet another new high.) The throng of the eldest baby boomers, now in their late 50s and early- to mid60s, may account for much of the fixed annuity gain this year. Industry research shows that those who are at or near retirement are more interested in financial products with guarantees than with the opportunity to reap big gains in the stock market (absent of guarantees). Other factors were also at work in both sectors. These include the continued downsizing of variable annuity production by some carriers, the debut of new derisked variable annuities by other carriers that some sales agents deemed as unattractive, the proliferation of a wide assortment of fixed products geared for today’s market and a generally more optimistic business environment this year. But those factors are in addition to the impact of rising demand for guarantees among older buyers, especially older boomer buyers. For example, in an Allianz Life survey last year, 87 percent of boomers age 55 to 65 indicated they felt more attracted to a financial product with 4 per-
The performance in both product lines brings to the foreground what may be a leading dynamic in the annuity business – a dynamic forged by retirement demographics. Time was when fixed annuities made their strongest gains when interest rates were high or rising and that variable annuities soared when the stock market was making big gains. Yet that was not the case this year. In both second and first quarter, fixed annuity sales climbed higher and higher even though interest rates did not go up. In fact, interest rates fell. For example, the 10-year bond rate dropped from 3 percent at year-end 2013 to not quite 2.6 percent 10
InsuranceNewsNet Magazine » October 2014
cent guaranteed return than a product offering an 8 percent return that could lose value due to market downturns. On a dollar comparison basis, variable annuities did outperform fixed annuities in second quarter, as per usual. However, the performance gap between variable and fixed has narrowed. For instance, in second quarter 2014, variable policies sold $36.2 billion versus the $25.2 billion sold in fixed policies, according to LIMRA SRI numbers. That made for a gap of $11 billion. By contrast, in second quarter last year, the gap was $19.2 billion ($38 billion for variable versus $18.8 billion for fixed). And in second quarter 2008, before the Great Recession hit its nadir, the gap was $16.4 billion ($42.2 billion for variable versus $25.8 billion for fixed). Many producers have been accustomed to identifying themselves as fixed or variable annuity specialists. But this contraction of the sales gap between fixed and variable may, if it continues, spur identification simply as annuity professionals, especially if dual licensed, without regard to annuity type. Such a shift could minimize old rivalries between the two groups, with neither one claiming to have the best, most flexible, nor most suitable annuity solution for annuity-buying customers. So, what are the totals? According to LIMRA SRI, the total annuity production for second quarter 2014 came to $61.4 billion, up 8 percent from the $58.8 produced in second quarter last year. “This is only the second time we have seen quarterly sales over $60 billion since the third quarter of 2011,” Todd Giesing, LIMRA
39%
percentage change of total fixed annuity sales for the first half of 2014 compared with 2013 Source: LIMRA SRI
WHY FIXED ANNUITIES ARE SMOKIN’ HOT INFRONT
SRI senior analyst, said in a statement. Total annuity sales increased on a year-over-year basis too, by 10 percent to $119.5 billion from the same period last year, according to the report.
Fixed Annuity Insight
The LIMRA SRI data provide plenty of insight into which types of fixed products were top sellers in second quarter. Measured by growth, the big winner was the fixed index annuity (FIA) product line. Those sales jumped 40 percent over the same period last year, set a new quarterly record of $13 billion and won a 52 percent share of total sales, the researcher said. On a first-half basis, the FIA results followed a similar upward trajectory. FIA year-to-date production grew to $24.3 billion, a 41 percent increase over first half last year, according to LIMRA SRI. By way of comparison, in second quarter 2008, FIA sales came to just $6.9 billion, according to LIMRA figures. The starshine in that quarter, on the fixed side of the business, was fixed deferred annuities, which sold $22.3 billion. Now the tables have turned. Fixed-rate deferred annuities (book value and market value adjusted) produced only $7.4 billion second quarter this year – nearly half the $13 billion reported for FIAs in the same quarter. Industry proponents take the steady growth of FIAs as a signal that the policies are attracting buyers who want upside potential with downside guarantees. They have reason – many FIA buyers are boomers. In first quarter 2014, for instance, Wink Inc. reported that the average age of FIA buyers was 64.
-4%
percentage change of total variable sales for the first half of 2014 compared with 2013 Source: LIMRA SRI
Other figures in the LIMRA SRI sales report reinforce the notion that fixed annuity sales are trending toward boomers with an eye on retirement income guarantees. For example: » Deferred income annuity (DIA) sales reached $710 million, up 33 percent from second quarter in the prior year. On a first-half basis, DIA sales hit $1.3 billion, up by 43 percent from last year. » Single-premium immediate annuity sales rose 37 percent to $2.6 billion, and not just from one carrier. On a first-half basis, these sales reached $5.1 billion, up 42 percent year over year. » Guaranteed living benefit features, when available, were elected on 72 percent of FIA sales.
$119.5B total annuity sales 2014 year to date, up 10% from last year
Source: LIMRA SRI
The Top Annuity Carriers
Worth noting is that the carriers taking first place in all three categories in second quarter 2014 outperformed the second-place carriers by substantial sales margins. For example, in the total annuity production category, Jackson National sold nearly $13.5 billion for the quarter, while second-place AIG sold $9.3 billion. In the variable annuity category, Jackson sold $12.7 billion while second-place Lincoln Financial Group sold $6.4 billion. In the fixed annuity category, Allianz Life sold $6.6 billion, while New York Life came in second on sales of $3.5 billion. Wide spreads among annuity-sales leaders have occurred in other quarters, too. However, more often than not, the differential between top sellers and their closest contender has tended to be narrower, somewhere around $2 billion in less competitive eras and even under $1 billion in more competitive environments. Also, when there is a big gap, it’s often in one category and rarely in all three. Whether the current gap in all three categories signals a market dominance that will impact the industry in the months ahead is a story yet to unfold. But producers will surely start looking over the product portfolios of the current leaders to see what ideas or messages they can discern. 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.
October 2014 » InsuranceNewsNet Magazine
11
Photo credit: (AP Photo/Pat Sullivan)
It takes a tough guy to get tender with a personal story, and former NFL player
Bo Eason is just the man to do it.
W
hat’s the greatest story never told? For most advisors, it’s their own. Since the beginning of time, stories have been used to lead nations, to move armies and to connect with others. There is nothing more powerful in a sales presentation than a good story. Countless studies have proved that a human’s recollection and comprehension of information increases greatly when associated with a story. For many of your clients, the stories you tell will be what you are remembered for most. “Story is the connective tissue that bonds people to a leader. Story is what makes people latch on to you, want to follow you and want to do business with you. Your authentic, powerful personal story is what
12
InsuranceNewsNet Magazine » October 2014
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INTERVIEW NO STORY, NO GLORY That personal story is unique to you. The advice your mom gave you, the person who broke your heart at the prom – that’s what people relate to. That’s what buyers and audiences relate to. The problem is that most people who are doing sales start off with the sale. But I want to get some connective tissue down first so that they can relate to me and I can relate to them. That’s the structure that’s making an impact with the people I work with in the financial services world and specifically the insurance world. FELDMAN: What are some of the key elements of a great story? makes people fall in love with you,” says speaker, actor and former NFL standout Bo Eason. Bo Eason has known glory in his football career culminating in four seasons with the Houston Oilers and a brief stint with the San Francisco 49ers. But when he talks about his career, he doesn’t start with those days. He backs it up to when he was 9 years old. Why? Because most of us can’t relate to being a pro football player, but all of us can relate to being a 9-year-old. Once Bo hooks you, he takes you on an emotional ride that ends with you running with him onto a field, under the roar of the crowd and ready for battle. You’re there with him because of how he tells the story. After injuries forced him out of pro football, Bo turned to acting, where he was trained by the best. After starring in a few plays and motion pictures, Bo became frustrated with the roles he was auditioning for, so he decided to write and star in his own play. Runt of the Litter is based on his experience living in the shadow of his more talented and famous brother, Tony Eason, the former quarterback of the New England Patriots. You might not think a former pro football player would be a guy in touch with his feelings. But he is, and he says everybody who wants to be a sales star needs to do the same and express it in story. In Part 1 of a two-part series with Publisher Paul Feldman, Bo tells the importance of the story and how to craft and develop your own captivating story. 14
FELDMAN: You have worked with quite a few insurance and financial advisors. What distinctions have you found in this industry compared with others? EASON: I have had a lot of experience in the insurance and financial services world. I work with advisors so much because they have an athletic mindset. Even if they’re the top in their field, they’re always trying to get better. That’s certainly the mindset of all the great athletes I’ve ever played with and great performers that I’ve ever been around. They’re always battling to get to the next place. FELDMAN: Why are personal stories critical to every salesperson? EASON: I don’t know who said this, but the minute that you start telling a story is the minute that you stop selling a commodity. When I’m making an offer, it’s all story. I’m never selling anything. When the audience locates themselves inside of that story, they say, “Oh, I know this guy. I trust this guy. He’s not so different from me. We can do business together.” That’s why the story’s so key. It also differentiates you from every other salesperson on the face of the earth. Out of 7 billion people on this planet, the one thing that differentiates you is your story because nobody in the history of time has seen what you’ve seen and walked the miles that you’ve walked.
InsuranceNewsNet Magazine » October 2014
EASON: The very first element is that a great story has to be personal. What I mean is that most people distance themselves from their own story as if it didn’t happen to them. You’ll see politicians and people who broadcast the news do this. They’ll talk about themselves, but very generally. They won’t be specific. I’m talking about very specific details of your life. I’ll give you an example. My dad was a cowboy. He roped cattle for a living. Every day as a kid, I watched him rope these cattle. He’s on the back of a horse chasing down a steer and he would rope a steer that weighed a thousand pounds. Well, the steer runs in the opposite direction and my dad has to jump off the horse to hold that steer back. Then the rope slides through his hands. My dad’s hands were scar tissue from being burnt by this rope. So, every summer my dad would get in the pool with me, my brothers and sisters and he would pick us up by our bare bellies with his hands and throw us in the pool. We would scream every time he touched us because his hands were just
Out of 7 billion people on this planet, the one thing that differentiates you is your story... full of scar tissue. We would yell, “Dad, don’t touch me.” That little story takes me 15 seconds to tell, but it’s really specific to Bo. It’s not about anybody else’s dad. It’s about my dad. This is the key. When I speak of my dad’s
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15
INTERVIEW NO STORY, NO GLORY hands, you don’t think of my dad’s hands. You think of your dad’s hands. The more specific you are about your personal story, the more universal impact that it has. Your audience, or the buyer in this case, is listening to the story and they’re not thinking about my dad. They’re not thinking about me; they’re thinking about their own lives. They’re thinking about their dad and what his occupation was. They think about their dad’s hands and how they either miss their dad or they wish their dad threw them in the pool. Now you have your audience exactly where you want them, which is in their own life. The only way to get them into their own life is to talk about your life specifically. I know this sounds like a contradiction. Most salespeople say, “Well, this isn’t about me.” They’ll start asking the client questions. The client now feels like they’re being interrogated by some lawyer on a witness stand and they’re defensive. They’re not going to share the information that you need because they’re going to put up armor. When you share with somebody the story of the girl who broke your heart at the prom, everyone understands that pain. They’re not thinking of your pain. They’re thinking of their own pain. They’re thinking of the girl who dumped them at their prom or the heartbreak that they had when they were 14. That’s where you want your audience because now you have built trust in the first eight seconds of your conversation. You have intimacy that would have taken you five years to build in the old-fashioned way of doing things. And that’s where business is done. FELDMAN: How do you begin developing your own personal story? EASON: We all have probably 30 to 40 really defining moments, and they’re usually painful. There’s always a great defining moment in all of our lives that occurred between the ages of 9 and 12. You may have forgotten it. I think back to Little League. That is a good place for me to start because it was the biggest pain I ever felt, probably to this day, and I’m 53. I was 9 and I wanted to play Little League because my brother was on the team. 16
But I got cut from Little League, and there was so much pain that I decided at the age of 9 that that was never going to happen to me ever again. No one was ever going to cut me from any team or anything else ever again. That was more than 40 years ago, and my life is still based on that painful moment. I played professional football. I played college football. I played high school football. I played in grammar school. I would not let them cut me because of the pain I experienced at 9. All of us have that same moment. It might not be Little League. It could be anything. It could be that a teacher told you that you were stupid or you got up in front of the class and you forgot what to say. It could be that your brother was just better than you at everything. Those are life-defining moments. I always encourage my audience to start there, with the story you’re a little bit embarrassed about. The more embarrassment that you feel, the more connected you are to your audience because I guarantee your audience has been there. If I were selling insurance, I could start with that Little League story, except I would go into more detail. I would tell how my mom got the phone call and ran out to me and my brother and gave us the phone to talk to the coach, who was going to tell us whether we made the team. Then I would tell of the pain that I felt not making the team and not being able to play with my brother. What do you think my clients are going to do? They are going to say, “Oh my gosh, I had something like that happen to me. I tried out for the band and I was the worst musician. I tried to play the trumpet.” They’ll go into their own story, which is where you want them to go. Now you have kinship. You have a trust
InsuranceNewsNet Magazine » October 2014
that would have taken you years to build, but it’s immediate because they know that pain of being rejected and then saying to themselves, “This is never going to happen to me again.” Then they built a whole company, a whole industry based on that pain. FELDMAN: That’s a great point. Everyone has gone through some sort of pain in their life. Every great story has a conflict, and that’s what people connect with and relate to. EASON: It’s true of every elite athlete that you’ve ever heard of. The story that Michael Jordan likes to tell is how he got cut from his high school basketball team twice. That’s what we’re interested in. We’re not interested that he’s the best basketball player of all time. We’re interested in how he was able to be the best even though he wasn’t good enough to play in high school. If I had a story where I climbed Mount Everest, I wouldn’t start that story with, “Hey, I climbed Mount Everest.” I would start at the bottom of the mountain and
Once you have taken your audience through this journey together, you have intimacy. Now you can take that audience anywhere you want to go because they love you.
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17
INTERVIEW NO STORY, NO GLORY start with the struggle of having to climb that mountain. Once I can find that story of struggle where I have to climb and it looks impossible, that’s the story to begin with. So that’s how I orchestrate my story. Once you have taken your audience through this journey together, you have intimacy. Now you can take that audience anywhere you want to go because they love you. They fall in love with you because you have given them the great-
more fake niceties. You’re in the middle of a story. They have to stop and ask you a question right now. “Well, what was it? What was the dream?” Now they’re helping you create your story. Within a sentence, you and your audience are now co-creating a story because they’ve asked. I start a story at a certain age that I am not right now. Or I start it with a family member. “I have a daughter. Her name is Eloise. She’s 10.” If you include an age and a family member, it’s irresistible because all of us humans have family. “When I was 9, I sat on my grandpa’s lap.” We all have moms, dads, sons, daughters, uncles, grandpas. My dad woke me up every morning at 5 a.m. and he would rub my back and tell me I was the best. Right then, people aren’t thinking about my dad. They’re thinking about their dad. That’s where you want them. The connection is made and now it’s the second thing, which is the conversation. They’re overlapping my story with their story. They’re starting to say, “Yeah, my dad said that, too.” Or, “My dad did this.” Or, “When I was 9, I didn’t even have a dream.” They’re interjecting. So, now, you’re having this great conversation. Next, I shift from story to how can I help their lives. What have I dedicated? At the end of my story, I’m usually saying something like, “On that day, I decided to dedicate my life to being the best.” Or, “I dedicated my life to provide the safety and security to all the families that I work with.” “That day, I decided that nobody was going to feel the pain that I felt at 12. Not on my watch.” At the end of the story – which might be three minutes, might be eight – I’ve dedicated my life to something so the audience can put themselves in the position of being one of those families that I’m dedicated to helping.
If you teach me something, I’ll forget it in 24 hours. If you tell me a story, I’ll hold you in my heart forever. est gift that anyone could give another human being. You’ve put them into their own life, into their own dreams as a child, of their pain of trying to achieve those dreams. FELDMAN: That is certainly a more compelling presentation than what most buyers are used to. How does this strategy help with retention? EASON: People don’t do business with somebody who gives them statistics and numbers in columns. For one, your client doesn’t even understand those things. If you think back to our nature, millions of years of design, we are designed for story. So anytime you’re giving statistics and numbers, you had better attach a story to it. There’s a saying that if you teach me something, I’ll forget it in 24 hours. If you tell me a story, I’ll hold you in my heart forever. FELDMAN: Do you have a formula for crafting a story? EASON: There are so many ways to skin a cat. But, if I had to say, the No. 1 way is to start with the defining moment story. The first sentence out of my mouth is not “thank you” and “nice to meet you.” When I greet somebody, it’s always, “When I was 9 years old, I had this dream.” When you say a sentence like that, people have to stop. There are no 18
FELDMAN: You work with a lot of insurance and financial advisors. Is there a common theme around their stories
InsuranceNewsNet Magazine » October 2014
or stories that resonate best with you as a consumer? EASON: Those who are great at managing people’s money all have a similar story. Usually there’s some kind of pain around money as a kid. Like Dad lost all their money or their uncle stole their money or somebody embezzled their money. They were faced with no money. When you’re 10 or 11, that’s so much pain that you decide you are going to find an occupation and a quest that ensures that no 11-year-old is going to feel the pain that you’re feeling right then. You are going to make sure these families hang on to their money. Now, if my financial advisor tells me that story, I’m working with him. I know it’s not a job. It’s an emotional quest. I know their life is dedicated to making sure that my kids go to college and that I can sleep well at night. Once you’re done with that story, then you can move on to your expertise in financial services. FELDMAN: When I heard you tell your story and speak on stage, you did it with such incredible emotion and passion. You’re certainly not afraid to show your emotions. What would you tell someone who doesn’t feel comfortable sharing their personal emotions with prospects? EASON: You have to think back to anybody you’ve ever connected with in your life – like when you fell in love or met your best friend. Why did you connect with that person? Why do you love that person? Why do you have a partnership with that person? Why do you respect them? Think of what it is that makes you feel that way. It’s usually some kind of shared emotion or experience. I don’t want people in the financial services world to be afraid of their own emotions. At the same time, I’m not telling you to go in, spill your guts and cry and break down. But I am telling you to share yourself. If you get emotional, so be it. If they get emotional, better. Emotion is emotion. Emotion is like electricity. If you and I plug something into an outlet, we get electricity. The electricity doesn’t care if it lights a lamp or runs a hair dryer. It’s just providing electricity.
SOUND LIKE A STAR TO SELL LIKE ONE INTERVIEW
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October 2014 » InsuranceNewsNet Magazine
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INTERVIEW NO STORY, NO GLORY Your emotion is the same way. You’re a human being with all kinds of emotions inside of you. You have rage, love, joy, hate. We’re just filled with this stuff. Just plug into it and see what happens. In the middle of your story, you might start to choke up and that’s fine. You don’t have to apologize. You just keep telling the story, and if you have to take a second, clear your throat and take a drink. That’s what you do because emotion is connective tissue. Once you start to share yourself, you’ve got this magical thing called human connection. Now you can do business. Now you could ask them on a date. Now you have something that you just don’t have until you share this thing. The bottom line is this: we fall in love with people who have emotion. I love people who are protecting families. This is what your audience does. Your audience is in the business of ensuring that people will be secure later in life. To me that means I get to sleep well at night knowing that I have this person in my corner toiling away making sure that my kids are going to be secure enough to go to college. FELDMAN: Is it also a matter of perspective for the advisor? EASON: Sure, your readers might not feel heroic, but to us civilians, what you do is a heroic act. If I get to sleep well based on the work you’re doing and you’re providing security so I can risk it all on a stage and do what I do, I want you to do that job. That is heroic. It’s no different from a Navy SEAL charging a beachhead. No different from a firefighter charging into a burning building. That is a heroic act. You have to understand that’s how we civilians see you. You’re responsible for that. I don’t want you to shirk your responsibilities and say, oh, I’m just an insurance man. You can’t do that. To us you’re everything because we want to sleep well at night. I want to be able to travel and risk it all on stage with my performances knowing that you’re back at the home base making sure the finances are working. That makes you feel like you’ve got to do this job and you have a lot of responsibility because you have a family’s security 20 InsuranceNewsNet Magazine » October 2014
If you get emotional, so be it. If they get emotional, better.
on your shoulders. Sometimes, that can get emotional. If it does, let it come. If it doesn’t, it doesn’t matter. FELDMAN: An advisor once told me “if they cry, they’ll buy.” When clients told their stories, the advisors would equal the emotions or maybe even go deeper because they were set on a path of feeling that emotion. Do you find that to be the case? EASON: Definitely. Sometimes when I work with advisors and people in financial services, I’ll ask them who gave them the greatest advice they ever received. They’ll often tell me a story of some great mentor that they had. It could be a grandpa. Could have been a golf coach. It could have been a teacher. I worked with one financial advisor who was moved by Jack Nicklaus. He wanted to golf and be Jack Nicklaus. Well, when he was 18, he caddied for Jack Nicklaus once. He has a picture of it. I asked, “Is that picture up in your office?” He said no. And I said, “Go put that thing up in your office today. Every client who comes in, you point out the picture and tell them
who inspired you the most.” You can relate that inspiration from Jack Nicklaus right to the job that you’re going to do for that client: “Jack Nicklaus told me one thing. He said, ‘Son, if you practice putting more than any other kid in the neighborhood or any other kid in the state or any other kid in the country, guess what you’re going to be? You’re going to be the best putter in the country and you’re going to be on the PGA tour.’ So I took that advice, and I never stopped until I got injured. After that, I turned to the financial services world and applied the same discipline to helping my clients and their families. I putt on that green more than anyone else in the country, and that’s what my clients can depend on because of the advice of that man on the wall.” I guarantee you that when people ask themselves about the best advice that they ever got, there will be a story attached to it. I guarantee that their company and their job are based on that advice, and they carry that through to their clients. They pass on the same kind of dedication to their clients that that mentor passed on to them. That is great connective tissue.
Now that you know how to shape a story, read Part 2 next month to learn how to tell it.
SOUND LIKE A STAR TO SELL LIKE ONE INTERVIEW
October 2014 » InsuranceNewsNet Magazine
21
NEWSWIRES
Millions qualify for ACA exemptions bitly.com/qrexempt
ACA Back in Court … Again Will it or won’t it go before the Supreme Court again? The answer to the question of whether the Affordable Care Act (ACA) will again be the subject of a Supreme Court review appears to be no – at least not in the near term. A federal appeals court in Washington threw out a ruling that called into question the subsidies that help millions of low- and middle-income people afford their premiums under the law. The U.S. Circuit Court of Appeals for the District of Columbia said that its full complement of judges will rehear a challenge to Obama administration regulations that allow health insurance tax credits under the ACA for consumers in all 50 states. At issue is whether the tax credits are legal for all those who purchased coverage on the federal exchanges or whether they are legal only in those states that established their own exchanges.
THAT’S A LOT OF RETIREES!
We’ve been hearing a lot about the wave of people heading into retirement. But just how many people are we talking about? Imagine the city of Philadelphia, with its population of 1.5 million. Now imagine that an entire Philadelphia will retire every year from now until 2025. Or to put it in a different perspective, the population of Hartford, Conn., is about 123,000. Imagine that every month from now until 2025, an entire Hartford will retire. That’s how many people the LIMRA Secure Retirement Institute estimates will age out of the workforce in the next decade, according to its 2014 Fact Book on Retirement Income. More significant than the numbers of people is the confidence level they have for achieving their desired retirement lifestyle. LIMRA SRI finds that more than half of pre-retirees age 55 and older say they are not confident they will be able to afford the retirement lifestyle they envision. For those who work with an advisor, the picture looks much better; 79 percent of pre-retirees who work with an advisor say they are well or moderately prepared DID YOU
KNOW
?
22
The majority of Generation X workers have an average of
for retirement. Among those who do not work with an advisor, 34 percent say they are poorly prepared and 16 percent not prepared at all.
S&P 500 MAKES HISTORY
The powerful bull market that began in March 2009 hit a new level when the Standard & Poor’s 500-stock index crossed the 2000 mark for the first time. It took just 94 days to climb from 1,900 to 2,000, putting an exclamation point on a bullish 12-month period for the S&P 500 in which it plowed through 1,700, 1,800 and 1,900 on its way to its maiden voyage above 2,000, according to data from S&P Dow Jones Indices. Since the bull market began on March 9, 2009, the S&P 500 has almost tripled in value, rising nearly 196 percent. It is up nearly 8 percent for the year. It took the S&P 500 more than 16 years to double in value from 1,000 to 2,000. It first crossed the 1,000 level on Feb. 2, 1998.
ING NAME VANISHES FROM U.S.
Add ING to the list of brand names that no longer are seen in the U.S. After nearly 40 years of serving the U.S. financial services industry, the remaining retirement, insurance and broker/dealer divisions of
$70,000
Source: Transamerica Center for Retirement Studies
InsuranceNewsNet Magazine » October 2014
IN RETIREMENT SAVINGS for their household
QUOTABLE We’re hearing more people signing up for high-deductible health plans and then being surprised that they have to pay the deductible. — Sharon Long, the Urban Institute
the company’s U.S. operations re-branded to the Voya name. Amsterdam-based ING Group has slowly been divesting its global assets, including its U.S. financial services arm ING U.S., which went public last year. While the holding company ING U.S. rebranded in May, the insurance company, retirement business and broker-dealer, ING Financial Partners, did not formally change their brands until Sept. 1. The name change from ING to Voya was mandated as part of ING Group’s deconsolidation program, said Ann Glover, chief marketing officer for Voya. “The story of the name is it’s your voyage or journey to and through retirement,” Glover said. The firm looked at and tested a number of options before going with Voya Financial, she added.
44%
MEDICAL DEBT TRUMPS EMERGENCY SAVINGS FOR MANY
A quarter of Americans report that their medical debt is higher than the said they had MORE amount of money they MEDICAL DEBT than have stashed away for an emergency savings emergency. This shortfall is particularly acute for lower-income consumers, a Bankrate.com study shows. The Bankrate study said that, among those earning less than $30,000 a year, 44 percent said they had more medical debt than emergency savings. Many others are worried about finding themselves in such a fix. The majority of Americans were either “very worried” or “somewhat worried” that they might find themselves overwhelmed by medical debt.
[NEWSWIRES]
HEALTH INSURANCE IN 15 MINUTES
The ubiquitous commercials about taking 15 minutes to save money on car insurance are reflecting another trend. It seems that 15 minutes is also the amount of time that many people spent researching their health insurance plan options during the 2013 open enrollment period. An Aflac survey showed that 41 percent spent a quarter-hour or less on their health insurance. That 15 minutes is far less time than they take to decide on other major purchases. Other data show that people spend an average of 10 hours researching a new car purchase, five hours planning a vacation, four hours shopping for a new computer and two hours buying a TV. Health insurance is “a significant portion of people’s budget, but they don’t spend a whole lot of time looking into it,” says Matthew Owenby, vice president of human resources for Aflac. Other research shows they pay an average of $4,500 a year on premiums for employer-sponsored plans. One reason for this may be that most people (90 percent) keep the same benefits year after year, and many people don’t realize how much their insurance costs them over the course of the year, Owenby said.
GETTING A HANDLE ON MIDDLE MARKET DEBT
Debt threatens to strangle the retirement planning of middle market 40-somethings, according to LIMRA. In terms of financial assets, households in the 41-45 age group have $158,887 on average. Those ages 46-49 average $167,556 in financial assets. But debt levels for those two age groups show a different picture. Among the 4145 age group, 97 percent have a mortgage and an average mortgage debt of $166,921. Beyond mortgage and credit card debt, 65 percent have on average $26,384 of other types of debt, such as car loans, student
HealthCare.Gov Has New Leader There weren’t many success stories among the states that operated their own health insurance exchanges. But one state that did an exceptional job in getting its residents signed up for coverage – Connecticut – saw one of its own promoted to lead the federal health care website. Kevin Counihan led his state’s health insurance marketplace, Access Health CT, which was seen as a national model. Now he has been named chief execKevin Counihan utive officer of the federal exchange, HealthCare.gov. Connecticut enrolled about 80,000 people, which is only about one-sixtieth of those who signed up for coverage in the 36 states served by the federal marketplace. The role of federal CEO is new, created by Health and Human Services secretary Sylvia Mathews Burwell to avoid a repeat of last year’s technical meltdown. Burwell also named Lori Lodes of the Center for American Progress as communications director. loans and personal loans. In the 46-49 age group, 84 percent have a mortgage with an average mortgage debt of $209,342, and 71 percent have on average $50,654 of other debt, as described previously. What does this quick analysis reveal? For advisors with clients in their 40s, it’s important to know what kind of debt load they are carrying. If these key saving years are dedicated to managing high debt, clients will lose a big opportunity for long-term growth in their retirement accounts.
MILLENNIALS JUST SAY NO TO CREDIT CARDS
“What’s in your wallet?” If you’re a millennial, “a credit card” probably is not the answer to that question. Almost two-thirds of millennials (63 percent) say they don’t own any credit cards. This compares with 30 percent of the 30-and-older crowd who have no credit cards, according to a Bankrate.com survey. Not only are they the least likely generation to own credit cards, but millennials who do own credit cards are the least likely to pay their balance in full each month among all age groups, the Bankrate survey also found. About 40 percent of millennials pay their balances in full DID YOU
KNOW
?
Almost
That compared with 43 percent who said they weren’t too worried or not worried at all. “These results show that more than half the population feels financially insecure when it comes to health care,” Bankrate.com insurance analyst Doug Whiteman said.
each month, compared with 53 percent of their 30-and-older counterparts. Recent polls suggest that more Americans, not just millennials, are relying less on credit cards since the Great Recession. But millennials in particular may have a greater aversion to debt since they grew up witnessing its effects on the economy. Many millennials are juggling a load of student loan debt and this may make them cautious about entering into more debt.
THE TACTICAL COACH SLAIN
Mark Sheer, known to many in the financial services industry as “The Tactical Coach,” was the Mark Sheer victim of an apparent murder-suicide. Sheer’s 21-year-old son allegedly shot Sheer and Sheer’s wife before turning the gun on himself at their Mission Viejo, Calif., home. Over the past 20 years, Sheer coached thousands of financial wholesalers, recruiters, brokerage specialists and financial professionals. He also spoke before a number of industry groups, including the Million Dollar Round Table.
$1 in every $5
of the nation’s economy will be devoted to health care spending by 2023
Source: Centers for Medicare & Medicaid Services
October 2014 » InsuranceNewsNet Magazine
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NOW MORE THAN EVER! Consumers can have their retirement security, if they can get over their control issues.
24
InsuranceNewsNet Magazine Âť October 2014
ANNUITIES: NOW MORE THAN EVER! FEATURE
C
onsumers want what annuities deliver, but they are still not sure they want the annuities themselves. That is the essential contradiction a LIMRA survey uncovered. The poll also uncovered why some annuities have been breaking sales records lately. An overall key finding is that although annuities have come a long way in consumer acceptance, they are still far from being perceived as safe an investment as a bank product, said Matthew Drinkwater, associate managing director, LIMRA Secure Retirement Institute. “This study shows that there’s this discrepancy between wanting lifetime guarantees and not really accepting annuities,” Drinkwater said. LIMRA analysts and other observers have differing ideas about the disconnect and how to repair it. But what needs no argument is consumers’ anxiety about their retirement income.
High Anxiety
LIMRA’s study, “Finding the Right Mix: Retirement Income Attitudes and Preferences,” found a theme in the two top goals named by respondents. Those goals are: “have enough income to last a lifetime” and “remain financially independent.” Of the “have enough income” goal, 71 percent named it one of their top three concerns, and of “remain financially independent,” 69 percent identified it as one of their top three. These two goals far outpaced the third-highest goal, which was “stay and live in your own home,” at 39 percent. The survey also found that only 20 percent are very confident that they will be able to live their desired retirement lifestyle. Nearly the same proportion, 19 percent, felt that they were not very or not at all confident. In between, 61 percent were somewhat confident – not exactly a ringing sense of security. Among the nervous 19 percent, the leading concern was the overall state of the U.S. economy, at 74 percent. Agents and advisors cannot do much about that, but they can address the next three concerns: “have not saved enough for retirement,” 64 percent; “will not receive sufficient or any pension income,” 43
Most Important Retirement Goals Most Important Have enough money to last your lifetime
Spend time with family or friends Have enough money to pay for medical/prescription expenses Pursue your interests and/or hobbies
Have enough money for emergencies
Maintain control of assets Leave money for heirs or charities Spend most or all money during lifetime
Third Most Important
18%
12% 71%
41% 25%
Remain financially independent Stay and live in own home
Second Most Important
22%
14%
12%
17%
64%
13% 39%
8% 6% 7% 21% 12%
12% 28%
10% 11% 24% 10%
13%
25%
6% 12% 6% 11% 5%
Source: LIMRA SRI Based on 2,000 retirees and pre-retirees
percent; and “will not receive sufficient Social Security income,” 42 percent. In fact, agents can assist with all of the remaining concerns, which are displayed in an accompanying chart. People know they need a dependable stream of income to sustain their retirement lifestyle – as they revealed with their top goals. They also know what they want in their investments. But these goals and desires might not be so compatible. They want an income amount that has “the potential for investment growth,” at 60 percent. But they also want an amount that can be changed as their needs change (55 percent), income guaranteed for life (52 percent), the ability to occasionally withdraw more than the regular payment (51 percent) and the income to adjust for inflation (50 percent). These results might be expected from an older population that has had some wild rides over the past half century. There was the inflation mountain of the late 1970s that followed the economic tumult earlier in that decade,
and then fiery explosions emitted by the equity bubbles that seem to pop every 10 years or so. Top that off with the spectacle of the shooting star-like stock market and you have a bulky package of high expectations and deep anxiety. LIMRA chief executive officer Robert Kerzner said those dynamics have been evident and growing for the past several years. “It’s consistent with research we did as far back as six and eight years ago,” Kerzner said. “On the one hand, people want control of their dollars. They want that flexibility in case things change. But now, especially with the stock market rising, they also want that upside and they’re afraid of losing out. And then they read stories that tell them with interest rates low, now’s not the time to lock in.” But interest rates have been low for sev-
October 2014 » InsuranceNewsNet Magazine
25
FEATURE ANNUITIES: NOW MORE THAN EVER!
Find out how conflicting views on annuities can mean opportunity » PAGE 48
Confident Able to Live Desired Retirement Lifestyle Very confident
Somewhat confident
Not very confident
Not at all confident
20%
61%
16%
3%
Top 10 Factors Contributing to Lack of Confidence 74%
Overall state of U.S. economy
64%
Have not saved enough money for retirement
43% 42%
Will not receive sufficient or any pension income Will not receive sufficient or any Social Security income
35%
Will not have sufficient health care insurance coverage in retirement Have not done enough planning for retirement Cannot live modestly enough in retirement Do not own products or investments that will generate guaranteed income in retirement Will not have support from family (financial or non-financial) Amount of money allocated in safe or conservative investments
eral years and will flat-line for as long as prognosticators’ eyes can see. Consumers are only now fully appreciating that the economy has fundamentally changed and that low interest rates are not temporary. Long after the phrase “the new normal” came and went, we are living in that reality. Five years after the official end of The Great Recession, Americans are becoming more convinced of the new normal, according to a study conducted by The John J. Heldrich Center for Workforce Development at Rutgers University. The Rutgers study found that 71 percent of Americans polled in August believed the recession left the economy permanently changed, compared with 49 percent in November 2009 – six months after the recession ended. That survey also found that 70 percent are insecure in their jobs and 68 percent are highly stressed. They also have lost confidence that the government is coming to the rescue, with 78 percent in August expressing little or no confidence that government can help. That is up significantly from 49 percent in January 2013. Financial pundits have been sounding the alarm about two of the three legs holding up the retirement planning stool. Americans are hearing them. The 26
23% 22% 20% 18% 17%
Rutgers poll now shows that most people have little confidence in their employers – who support the pension leg – and their government, provider of the Social Security leg. The wobbly retirement planning stool calls for Americans to do it themselves. After all, ours is a nation of Home Depots and Lowe’s Home Improvement stores. But, in a sense, Americans tried to do it themselves with real estate and the stock market. And we know how that ended up. Kerzner said that experience formed another feature to the new normal landscape. “People remember the downturns when they saw 20 to 60 percent of their assets disappear. So, they also said, ‘Wait, I want that guaranteed income,’ ” Kerzner said, explaining LIMRA’s survey results. “Pre-downturn, it was all about building the pile of money. Now, they’re also worried about the check in the mailbox. But ‘I want both’ is making decisions really difficult for them.”
Clarion Call for Annuities?
As Americans awake in the new normal, they see a stock market that seems endless, but they also have the scar tissue from falling off one or more of those previous “never-ending” climbs.
InsuranceNewsNet Magazine » October 2014
Source: LIMRA SRI
So, where can consumers put their money for safety and upside potential? Annuities are an obvious answer, but it’s not so apparent to the general public, Drinkwater said of his study. “A lot of that has to do, frankly, with ignorance,” Drinkwater said of consumer perception of annuities. “They hear conflicting things about what annuities are, what they do and their cost.” They also worry about control. In fact, that concern over control appears to be the first major hurdle that a salesperson or process would need to overcome. Drinkwater suggested turning the negative perception of control into a positive. “One approach is the concept that it [loss of control] is actually kind of a good thing in the long run,” Drinkwater said. “You have professional management of your money, so that’s not going to be something that you’re going to be wrestling with when you’re 85. You don’t have to have your no-good daughter-in-law or someone else manage your finances. It’s professionally managed. You will always get that check. Don’t worry about that aspect of it.” When clients say they are worried about being able to control their finances if “something happens,” then that’s an
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*Terms and conditions apply. Life insurance is issued by The Prudential Insurance Company of America, Pruco Life Insurance Company (except in NY and/or NJ) and Pruco Life Insurance Company of New Jersey (in NY and/or NJ). All are Prudential Financial companies located in Newark, NJ. All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing insurance company. Policy guarantees and benefits are not backed by the broker/dealer and/or insurance agency selling the policy, nor by any of their affiliates, and none of them makes any representations or guarantees regarding the claims-paying ability of the issuing insurance company. Each is solely responsible for its own financial condition and contractual obligations. The BenefitAccess Rider is available for an extra premium. Additional underwriting requirements and limits may also apply. Obtaining benefits under the terms of the rider will reduce and may eliminate the death benefit. Benefits paid under the BenefitAccess Rider are intended to be treated for federal tax purposes as accelerated life insurance death benefits under IRC §101(g)(1)(b). Tax laws related to the receipt of accelerated death benefits are complex and benefits may be taxable in certain circumstances. Receipt of benefits may affect eligibility for public assistance programs such as Medicaid. Accelerated benefits paid under the terms of the Terminal Illness portion of the rider are subject to a $150 processing fee ($100 in Florida). Clients should consult tax and legal advisors prior to initiating any claim. A licensed health care practitioner must certify that the insured is chronically or terminally ill to qualify for benefits. Chronic illness claims will require recertification by a licensed health care practitioner. Other terms and conditions may apply. This rider is not Long-Term Care (LTC) insurance and it is not intended to replace LTC. The rider may not cover all of the costs associated with chronic or terminal illness. The rider is a life insurance accelerated death benefit product, is generally not subject to health insurance requirements, and may not be available in all states. Accelerating the death benefit will reduce the death benefit on a dollar-for-dollar basis. Full acceleration will eliminate the death benefit and the policy will terminate. © 2014 Prudential Financial, Inc. and its related entities. FOR THE EDUCATION OF PRODUCERS/BROKERS ONLY. NOT FOR USE WITH THE PUBLIC. 0266198-00001-00 October 2014 » InsuranceNewsNet Magazine
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FEATURE ANNUITIES: NOW MORE THAN EVER! opening to discuss other products and strategies. “If someone asks, ‘What about health care and things like that?’ then that becomes an opening for a more comprehensive discussion like, ‘Well, there are some income streams that we will align with certain needs – basic living expenses perhaps or other nondiscretionary needs.’ Then we can set up some funds that are in reserve and other funds that are for discretionary needs.” That is a general approach that two financial and insurance professionals said they favor. They agreed on the holistic approach and starting with the control concern. But their tactics differed on addressing it. John Olsen sold annuities as a financial advisor for decades until he started consulting and writing about the products and sales practices. Among his many endeavors, he co-wrote The Advisor’s Guide to Annuities. He favors a direct approach to realigning a client’s perception of control. “It’s a control issue, because annuitization is the forfeiture of almost all control over the lump sum,” Olsen said. “So, that’s not attractive. Most annuitization is irrevocable and that tends to be something that almost everybody hates. It is basically a mindset problem.” Clients approach the need for retirement income as retaining a lump sum and spinning an income from that, in Olsen’s observation. They do not see it as buying an income stream. Identifying that mindset is a challenge for advisors. Olsen recognized that line of thinking when clients started asking about return. “The idea of purchasing the income directly just doesn’t seem to get into the consciousness of most people, and that’s the problem,” Olsen said. “It is just swapping a capital sum for a guarantee of income, and the problem is that you have people asking, ‘What’s the internal rate of return [IRR] on that?’ And that’s the wrong question to be asking.” What should clients be asking? Or, more precisely, what should advisors be asking clients at that point? “Do you want an income?” According to Olsen, if clients say they want an income at 95 years old, that should be the goal of the conversation: 28
Important Product/Investment Features 60%
Income amount has the potential for investment growth
55%
Income amount can be changed as needs change
52%
Income is guaranteed for life
Percent Selected in Top 5
Ability to make occasional withdrawals in excess of regular payment
51%
Income adjusted for inflation
50% 46%
Control over how investments are managed and/or allocated Initial investment amount is preserved
43%
Income will continue after I [or my spouse] die
42%
Returns on investment are guaranteed
42% 25%
Income amount will remain the same throughout retirement
23%
Heirs or charities will receive money when I die Income can be converted into a lump sum
“Then, what the heck difference does it make what the internal rate of return is?” The advisor can then remind the client of the real objective. “If you want an income, I’m here to secure you an income, but you have to stop thinking that you don’t want to give up the cost of the income,” Olsen said. “If you buy a car, you don’t get to keep the money you use to buy the car. But people want to say, ‘I’m buying an income stream, and I want to retain control over the money I use to buy the income stream.’ That’s the problem.” Curtis Cloke, a financial advisor focusing on retirement income, has a term of endearment for those clients: asset-hugger. “What’s an asset hugger? ‘I love to pet, smell and taste my money every day of the week,’” said Cloke, who is well-known for speaking on advisor strategies. “The problem is, when I need to control my money
InsuranceNewsNet Magazine » October 2014
10%
Source: LIMRA SRI
emotionally, I’ll have to hold that money hostage to a very low yield. In a situation where I’ve got a million dollars and I need $30,000 of income with my Social Security, technically I have control but I really don’t because I can’t disturb my $30,000 of income.” That scenario illustrates why control is an illusion for many retirees. They cannot touch the money in order to get the most return from meager interest rates. Consequently, Cloke sees that clients come to him with control issues of a different sort: they are leashed by fear. “These clients walk in with many fears, but there’s one fear that’s No. 1 and it really doesn’t matter if they’ve got a half a million dollars or $10 million – it is universal,” Cloke said in describing many of his first meetings. “And that is, ‘Do I have enough?’” Clients often go to Cloke when they have accumulated most of what they can expect and now want to know if reality matches their dreams. “‘Do I have enough to sustain the movie of my retirement that I’ve been playing in my mind now for years?’” Cloke said,
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I-25726 03/20/14 October 2014 » InsuranceNewsNet Magazine 29
FEATURE ANNUITIES: NOW MORE THAN EVER! describing his clients’ fear. “They don’t know. Nobody’s ever mapped that number out.” The answer to their situation might be an annuity, but Cloke does not reveal that option at that point. Just as the LIMRA study pointed out, clients need to buy into the benefits of an income stream before even considering purchasing an annuity. “I’ve said, ‘Here’s Plan A and it’s assuming all the risk of a traditional retirement strategy,’” Cloke said, describing what he calls the SWIP strategy – systematic withdrawal income plan. That’s consuming the asset and hoping market performance cooperates. “And then here’s Plan B, which is a secure income solution where you basically buy the income, invest the difference,” Cloke said, describing an asset mix that includes annuities. “We take a lot of risk away, eliminate a lot of fee drag and create a lot of tax efficiency. I actually contractually provide the cash flow that meets the movie in the mind. I also show them that they don’t give up performance, and their legacy balance is no more and maybe no less. And I still haven’t mentioned product.” Clients are often relieved about the clarity and security of Plan B. They finally see a dependable way to ensure that their dream retirement can come true or what they need to adjust for reality. Now they know – and they want. Then comes the next question: “How safe is Plan B?”
The Annuity Plan
That question leads to laying out the plans, products and implications. Cloke might first clarify Plan A to compare it with Plan B. “Most of these clients today in a high tax bracket are predominantly in municipal bonds,” Cloke said. “Those highernet-worth clients are getting an income stream based on the average coupon rate of three percent or below. For every million dollars in that portfolio, they’re getting an income of $30,000 a year.” Then comes Plan B: “But I can turn that three percent distribution rate into six-and-a-half percent – which I can do today, every day, all day long. Suddenly, I don’t need a million dollars held hostage to finance the $30,000 of income anymore. It’s less than a half million. As a 65-year-old, I can invest the rest over 30
Widespread Perceptions of Permanent Economic Change
The Great Recession has left us with:
80% 70%
71%
60%
60%
56%
50%
41%
40% 30%
43%
56%
46%
29%
20% 10% 0% Aug. 2014
Jan. 2013 Permanent change
Sept. 2010
Nov. 2009
Temporary change
Source: Rutgers, Unhappy, Worried, and Pessimistic: Americans in the Aftermath of the Great Recession
Mark Szeltner, Carl Van Horn, and Cliff Zukin, Diminished Lives and Futures: A Portrait of America in the Great- Recession Era, January 2013. Jessica Godofsky, Carl Van Horn, and Cliff Zukin, American Workers Assess an Economic Disaster, September 2010. Carl Van Horn and Cliff Zukin, The No Confidence Economy, November 2009 (New Brunswick, NJ: Heldrich Center for Workforce Development, Rutgers University).
my entire 30-year retirement period and end up with more than a million dollars left to my legacy. I create a deficiency, but I’ve preserved enough assets young enough in their life that I can preserve great legacy at the same time.” That’s when the discussion about annuities and the safety aspect of the different products occurs. Even though annuities are all about safety in the need they serve, along with how they are built and maintained, consumers perceive otherwise. Many consumers recoil at the word “annuity.” They also don’t trust companies to deliver the guarantee, according to the LIMRA survey. Cloke said advisors can reposition annuities and allay clients’ fears. He uses “pension envy.” “We have a long way to go to get the word ‘annuity’ out of the gutter,” Cloke said of advisors’ difficulty of talking about the products straight on. “But people have what I call pension envy. They liked it when they worked a job for 30 years and walked out with a guaranteed income they couldn’t destroy or outlive.” Cloke noted that compliance officers and at least one state, Colorado, do not
InsuranceNewsNet Magazine » October 2014
allow annuities to be called private pensions. Regulators don’t seem to understand that when people leave a company and collect a pension, most companies find commercial insurers, off-load the responsibility and annuitize the lump sum. “They have no problem calling that a pension,” Cloke said, adding that advisors can describe the pension-like attributes of an annuity. “You can talk about how a particular investment allocation meets the goals that the client has. We do not sell products of any nature saying what the product is, because people don’t care. When you go in for surgery, you don’t care about the technical names of the instruments on the tray. You care about what the instrument does.” Cloke said one way to approach the conversation is to say, “If I can build an income stream for you that you cannot destroy, and if you buy it in a way that you don’t lose the principal whether you or your spouse lives or dies, would you want that?” He said that describes installment cash refunds and period-certain options. “Those are all true things. Depending on the response of the client, that’s how I structure a particular contract.”
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www.SpeakWithPeak.com October 2014 » InsuranceNewsNet Magazine
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FEATURE ANNUITIES: NOW MORE THAN EVER!
Find out how conflicting views on annuities can mean opportunity » PAGE 48
Inflation vs. Longevity
Inflation and longevity are two other aspects of the new normal that consumers don’t seem to have come to terms with, according to the LIMRA survey. LIMRA CEO Kerzner said the imbalance is becoming critical to consumers’ well-being. “Inflation takes a much bigger slice of mind share in people’s planning than it should,” Kerzner said. “In fact, in several different studies, inflation came out No. 1 or No. 2 in top concerns on what could mess up a retirement.” If inflation is at all a concern, it is certainly not expected in the next couple of years. And even then, there are few predictions calling for the wild days of hyperinflation to return in the next several years, if not decades. The real threat of outliving money is disconcertingly low in the consumer surveys, by Kerzner’s reckoning. “Only 27 percent of retirees consider longevity a top concern, and I think any-
14-076-NAILBACentricAd-8x5.5.indd 1
32
Prudential’s TV spot, “Age Stickers”
body that really knows the numbers puts it No. 1,” Kerzner said of the consumer sentiment survey. Advisors know the risk. They placed it No. 1 in another LIMRA study. Companies are aware, too, and some are trying to ring the alarm bell.
InsuranceNewsNet Magazine » October 2014
Prudential launched an ad campaign that tried a few creative ways of conveying the risks. Some TV commercials featured behavioral expert and professor, Dan Gilbert. One in particular is called “Age Stickers,” designed to illustrate longevity.
9/4/14 9:14 AM
ANNUITIES: NOW MORE THAN EVER! FEATURE
People are anxious about losing principal, but the other eye is on the ever-climbing stock market. People in the commercial were asked to think of the age of the oldest person they have ever known and place a colored, round sticker at that year on a wall depicting an age range beginning at 61. That was the average life expectancy when Social Security was enacted to start at age 65. When they were finished, the wall looked like a technicolor wave cresting in the 90s. What the commercial did not feature was a speed-reading litany of disclaimers because it did not discuss products. That is up to agents and advisors. Kerzner said the best way for advisors and companies to convey the message is to break it down in real income planning,
echoing what Olsen and Cloke said. “If you think about benefit statements, they’re showing how much a plan participant will receive each month,” Kerzner said. “Those will really help a lot because people might think $200,000 or $400,000 is a lot of money. But they don’t necessarily see what that’s going to generate in monthly income.” That is the primary value that an agent or advisor serves for a client. “As more people work with advisors and see how much money they’re really going to have in the mailbox versus what they have in expenses, that’s going to help us get more people to annuitize.”
Annuities’ Time?
Despite the need for them, annuity sales overall have been slow to accelerate. But this year’s first half was promising for fixed annuities. One product line in particular has been strong since the crash – fixed index annuities (FIAs), which has galloped in most quarters since 2008, even as the rest of the industry sagged. FIA sales leapt 39 percent in the first half of this year, compared with the same period last year. FIAs’ essential message of a minimum guarantee and upside potential resonates with consumers. As LIMRA’s survey showed, people are anxious about losing principal while the other eye is on the ever-climbing stock market. Another strategy fitting into consumers’ concerns is laddering annuities, according to Drinkwater of LIMRA. “You’re dollar-cost averaging,” Drinkwater said. “Your entire retirement income is not determined based on last week’s interest rate. Over time there are
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FEATURE ANNUITIES: NOW MORE THAN EVER! fluctuations, and you’re capturing that variability by multiple purchases.” Drinkwater also pointed to deferred income annuities (DIAs), which are small in sales but growing at double-digit rates. That happens to also be a product that Cloke champions as a savior of retirements. Cloke advocates them not only for the peace of mind that the guaranteed monthly income brings, but also for their unique tax treatment. A common criticism of annuities is that they are LIFO – last in, first out when it comes to taxing. But DIAs are LIBO – last in, blend out, according to Cloke. Cloke said deferred income annuities
get pro-rational tax treatment, where 50 percent is taxable – which is why he calls it a “blend out.” Cloke said the distinction is significant for high-net-worth clients.
Advisors Key to Right Choices
The issues laid out in this article go beyond improving individual sales, although the data and experts point to strategy and thinking that can help convert prospects into clients. But in the larger sense, the insurance industry has been accused for some time of tending to only the highestnet-worth population for the big cases. Annuities are built for individuals and families who have been able to accumulate respectable assets but are not rich.
American Workers Are Seen as Unhappy or Insecure at Their Jobs
Here are some words and phrases that could be used to describe the typical American worker. Please just check off each one you think describes them very well. Happy at work Well paid Highly educated Innovative Lazy
14% 18% 21% 22% 23%
Ambitious Better than workers in other countries Highly skilled Productive Take pride in work
31% 32% 33% 43% 45% 68% 70%
Highly stressed Not secure in their jobs
Source: Rutgers, Unhappy, Worried, and Pessimistic: Americans in the Aftermath of the Great Recession
Limited or No Confidence the Government Can Help
Some / A lot Not much / None at all
100% 80% 60%
78%
59%
40% 20% 0%
34
22% Aug. 2014
InsuranceNewsNet Magazine » October 2014
42% Jan. 2013
They worked hard for a rewarding retirement and are looking to secure that lifestyle. The demographic group that is most interested in and can most benefit from annuities is the “mass affluent” with $500,000 to $1 million in investable assets, according to Kerzner. And as he and others explained, although people can be proud of amassing that nest egg, it might not yield the monthly income that they had expected. In a previous study, LIMRA looked at people who would have retired in 1970 and lived to 1995. When the analysts ran different traditional investing strategies and models, the result was jarring. “In all of the scenarios that we ran,” Kerzner said, “they ran out of money by 1993 under any set of circumstances.” The question is, will people realize this in the last few years of their lives when it is too late to do anything, or will they realize this while sitting in an office across the desk from an advisor? Drinkwater, who led that earlier research along with the more recent consumer sentiment study, said the keys to rescuing Americans from retirement disaster are to convey the risk of longevity first and then explain the security of annuity guarantees. “One conclusion from this research is that it will lead to greater acceptance in the long run,” Drinkwater said. Along with consumers, agents and advisors have a New Normal to acknowledge. Clients, particularly baby boomers, are not fixated on leaving a legacy. They want peace of mind. “Generally they’re sold on the concept of ‘This is part of my retirement that I do not have to worry about. I can enjoy myself and not worry about the money running out because it never will during my life,’” Drinkwater said of boomers. “The ideal retirement for them is they spend their last dollar on the last day they are alive.” Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve may be reached at smorelli@ insurancenewsnet.com.
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Whole Life Pushes 2Q Sales
6%
Whole life is what kept overall life insurance sales afloat in a relatively ho-hum second quarter. Individual whole life new annualized premium increased 6 percent in the second quarter, and that was the main factor pushing overall individual life insurance premium to improve 1 percent for the second quarter, according to LIMRA. For the first six months of 2014, total individual new annualized premium dropped 4 percent, compared with the same period in 2013. Overall individual life insurance policy count improved 4 percent for the quarter, which is the first positive quarterly growth in policy count for six quarters. Year to date, policy count is 3 percent lower than the prior year. Universal life (UL) new annualized premium fell 8 percent in the second quarter and 13 percent after the first half of the year. A 33 percent decline in guaranteed UL in the second quarter contributed substantially to the overall performance of UL in the second quarter. Indexed universal life (IUL) premium improved 14 percent in the second quarter, resulting in a 13 percent increase in the first half of 2014. Almost three-fourths of IUL carriers reported increased sales compared with the first half of 2013. IUL represented 42 percent of total UL premium, and 17 percent of overall individual life premium in the second quarter. Variable universal life (VUL) sales rose 30 percent in the second quarter, growing 23 percent year to date. This is the seventh consecutive quarter of positive growth for VUL. Through the first half of 2014, all the top 10 carriers have experienced positive growth. VUL represents 7 percent of total life insurance sales. Term life insurance premium was flat in the second quarter, resulting in a 3 percent decline year to date. Term market share remained steady at 23 percent in the second quarter.
LESS THAN HALF OF MIDDLE MARKET OWNS LIFE INSURANCE
25%
One reason for lackluster second quarter sales? Blame the middle market. A LIMRA study found of middle market that only 46 percent in this group has NO LIFE INSURANCE owns individual life insurance, revealing a critical gap in protection. While 60 percent owns group life, the coverage often is less than individual policies and is only in place while the person is employed. One in four consumers in the study said they have no life insurance at all. Middle-market consumers also said they were not financially prepared for the death of a family member, with the majority (51 percent) indicating they would need to make a drastic or significant financial change if a death occurred. But there’s some good news for advisors who want to reach that market. Half of middle-market consumers told LIMRA that DID YOU
KNOW
?
36
they prefer to buy life insurance face-to-face with a financial professional. LIMRA’s study revealed that consumers want an advisor who can educate, listen and develop trust. In addition, six in 10 consumers said it is very important that their advisor represent a respected brand.
NEW PRODUCT ROUNDUP
AIG has introduced a universal life insurance policy with living benefit riders that the company says will appeal to a broader range of consumers by offering policyholders more flexibility. The product, branded as QoL Performer Plus, is the latest to join the company’s portfolio of Quality of Life … Insurance products, the company said. AIG is positioning Performer Plus to appeal to young consumers who need flexibility in
MAPFRE USA, THE PARENT COMPANY OF COMMERCE INSURANCE, has begun selling life insurance policies in Massachusetts and will expand into other states later this year.
InsuranceNewsNet Magazine » October 2014
QUOTABLE Over the past six years, whole life has demonstrated strong, consistent growth, which has buoyed overall insurance sales. — Benjamin Baldwin, associate analyst, LIMRA
an insurance policy to adapt to their mobile, fluid professional lives. The product is also geared to middle-age customers who are more interested in life insurance products that offer guarantees and protection in case of catastrophic illness. Manulife launched the ManuFlex Protector, an RMB-denominated universal life insurance plan, for customers looking for a single financial solution that combines life protection with savings features. ManuFlex Protector is designed to help address changes in each customer’s financial status. As long as the policy’s surrender value remains positive, customers can reduce, temporarily suspend and then resume premium payments at any time. They can also take withdrawals from the policy’s current surrender value any time after the first policy year, enabling customers to better manage their liquidity needs. The plan provides customers with whole life protection, plus interest accrued and earned daily. A loyalty bonus will be paid into the policy at the end of every five policy years, starting from the 15th policy anniversary, helping customers to grow their savings. ManuFlex Protector also offers two death benefit options. John Hancock has announced a streamlined variable universal life insurance product that the company says will be a “quick and easy” way for advisors and the insured to obtain coverage. Advisors can access marketing materials as well as run through the easy three-step sales process available at jhsimplifiedlife.com. Branded as Simplified Life, the streamlined underwriting processes mean that applicants don’t have to undergo medical exams or tests, and most policies will be issued in eight days or less, the company added.
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Ex t e n s i o2014 n 8120 October » InsuranceNewsNet Magazine
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LIFE
A Tale of Three Death Claims M y family’s experience with three insurance policies after my father died showed a vast difference in the claims process. By Susan Rupe
A
fternoon faded into evening as the line of people queueing up to pay their respects continued through the funeral home. I had been standing by the casket for hours on a 95-degree July day. Although I was tired, the sight of everyone who had come to pay their respects to my 38
father kept me going. I was especially surprised at how many people whom I had never met before took the time to introduce themselves and say a few kind words about my dad. One of those unfamiliar people came up to me, quietly shook my hand and told me his name. Then he said that he had been my father’s life insurance agent and discreetly handed me his business card. “When you’re ready, please call me and I will help you with filing a claim and answer any questions you have,” he told me. We chatted briefly about my father and then he left.
InsuranceNewsNet Magazine » October 2014
So began my experience as the beneficiary of a life insurance policy. In all the years that I worked among life insurance agents, I had heard so many of them say they rediscovered their purpose for being in the business every time they had to deliver a death benefit to a grieving family member. Now I was about to find out what it was like to be on the receiving end of that delivery. As each person’s life is unique, so is each person’s death. Also unique is each beneficiary’s need for money after a family member’s death. For some beneficiaries,
A TALE OF THREE DEATH CLAIMS LIFE the need for the funds provided by life insurance is a matter of survival. For others, the need is not as critical, but still important. At the time of his death, my father had been widowed for a number of years and his children were grown. So although nobody needed money to pay for daily living expenses, that life insurance money came in handy for a number of purposes – some we had anticipated and others we had not. In the weeks that followed my father’s death, I discovered that he actually owned three life insurance policies. One had been purchased through the agent who introduced himself at the funeral home. Another had been purchased decades earlier through a fraternal organization to which my parents had belonged for much of their lives. The third had been bought in the course of some retirement planning and investing done through a bank-based financial advisory firm. Each of the three life policies brought a different claims experience as well – some aspects satisfying and others downright irritating. I first called the agent who came to the
Settling an estate can cost money. It was nice to know that we had a source of cash to rely on during that time. funeral home. He carefully outlined all the steps I would have to take to file for the death benefit, making sure I understood everything. He promised to get the application paperwork sent to me (and my co-beneficiary sister) as quickly as possible, and he promised to oversee the entire claim procedure. He reassured me that he would take a personal interest in getting our claim processed. We received the paperwork shortly thereafter. We completed it and returned it along with a death certificate. A few days later, I received a call from the agent. He had our check. This is where things became irritating. I wanted him to mail the check so that
I could pay the funeral bill. He insisted that he wanted to meet with my sister and me to give us our checks personally. That was all well and good, but my sister and I both live more than a twohour drive from him, and we did not want to miss a day of work and drive four hours round trip to pick up checks. Not to mention that we suspected he might also want to use that meeting to advise us to invest some of the proceeds with him. I nicely but firmly replied that I needed the funds to pay bills and that I already had been working with my own financial advisor for years. So please just put the check in the mail. He did and we received the check in time to cover the funeral home bill. I realize many beneficiaries have never handled a large sum of money before, and they might be overwhelmed with what to do with a check for thousands of dollars. They need an advisor to sit down with them and map out a plan so they don’t burn through all that cash. But other beneficiaries might already have an advisor and
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October 2014 » InsuranceNewsNet Magazine
39
LIFE A TALE OF THREE DEATH CLAIMS might already have a clear plan for the funds. Implying that you don’t think they’re capable of managing those funds doesn’t do you any favors in the long run. Also, beneficiaries who live a distance away are already run ragged with all the things they need to do relating to the funeral and estate-settling activities. Don’t attempt to force them into a trip and a meeting they don’t want. My point is, it doesn’t hurt to ask the beneficiary a few questions about what is going on with them and find out how they really want to receive their funds. And then listen to what they tell you. “Frustrating” is how I would describe the experience filing a claim for the insurance purchased through the bank-based advisory firm. To begin with, nobody from that firm ever reached out to us. I found out about the policy when a bill for the premium arrived in my dad’s mail (which had been forwarded to me following his death). Even more frustrating – there was no telephone number or contact information anywhere on this bill. I did an online search and found a toll-free number for the bank’s main office. It took several attempts before I was able to speak to an actual human being on the phone. And then she had to refer me to another office. And the person in that office had to refer me to yet another office. The paperwork was sent, filled out, sent back. But instead of receiving an actual check in the mail, I received one of those “checkbooks” that allow you to keep the funds in a money market account
As each person’s life is unique, so is each person’s death. Also unique is each beneficiary’s need for money after a family member’s death. and write “checks” to pay bills. I hated this. Why not just give me a check and let me decide how or where to deposit the funds? I can understand if a beneficiary isn’t comfortable handling a large sum of money, doesn’t have their own bank account or needs some time to decide how or where to spend the funds. But again, each beneficiary has a different level of financial literacy and a different plan for using the money. Don’t treat them like you think they’re financial idiots. Give them a choice of how they want to receive their funds. The easiest and most satisfying claim experience was when I called the fraternal organization. The sweet-voiced woman on the other end of the line expressed her condolences and asked me how my family and I were doing. She noted that my dad had been a long-time member of the group and that she appreciated his membership. She instructed me to mail in a death certificate, and I received a check the following week. Throughout this experience, I was grateful for the professionals who advised my dad to buy the life insurance and keep the policies in force over the years. Your older clients who are single and no longer have dependent children might be tempted to give up their coverage in an attempt to save money. They may believe that leaving their heirs a house or some stocks and bonds or some money in the bank is just as good as leaving them life insurance. But investments can go bad. Unplanned expenses can deplete a bank account. It can take months or years to liquidate real estate. Taxes can take a bite out of all these. What remains constant and readily accessible? Life insurance. Settling an estate can cost money. In addition to paying for funeral expenses, we had a lot of unexpected expenses related to my dad’s house. It took more than a year before the house was sold. In the meantime, we had to replace the roof, repair the furnace, get the interior painted and cleaned in preparation for the sale, maintain the yard, arrange for snow and garbage removal, and keep the heat on and utilities connected. Not to mention that we made countless 300-mile round trips in the process of cleaning out the house and settling the estate. Gas, tolls, meals – they added up. It was nice to know that we had a source of cash to rely on during that time. Selling insurance defies a one-size-fits-all approach. Each client has a different need and a different sales approach that works for them. Each beneficiary has a different need as well. A one-sizefits-all approach to paying their claim can impose a layer of frustration on an already stressful situation – and possibly cost you a future client. Susan Rupe is assistant editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Susan may be reached at srupe@insurancenewsnet.com.
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InsuranceNewsNet Magazine » October 2014
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1
Agreements may not be available in all states and may exist under a different name in various states. The Income Protection Agreement (IPA) is an optional agreement in the state of Nebraska. The IPA provides for an irrevocable settlement for all or a portion of the policy death proceeds. Changes to this election will not be allowed while the policy is in force and the insured is alive. The beneficiary of the policy will not be able to change the manner in which the death proceeds are paid out upon the death of the insured. The IPA installment payment could be payable for a period up to 30 years. The installment payment and the interest rate used to calculate that payment will be shown in the policy illustration that you provide to clients either prior to or upon receipt of the policy. The Settlement Option Guaranteed Interest Rate used in the calculation of the installment payment is set at the time of policy issue and is shown on the policy data pages.
2
50/male/standard/opt A DB with a 7-pay illustrated at 7% illustrated rate (6% VLR) with max income age 65-100 that scenario increases income by 29.7% and reduces COIs by 59% through age 90. The Company may reduce the cost of insurance charges in the policy which may result in higher accumulation values.
3
Index crediting bonus is not available in New York, is not guaranteed and may be distributed by Minnesota Life.
4
Indexed loans are only available with the Indexed Loan Agreement. This agreement may be added to in-force Omega Builder IUL policies for no charge.
Omega Builder Indexed Universal Life is not available in the state of New York, Utah or Indiana. The Indexed Universal Life Series is designed fi rst and foremost to provide life insurance protection. While the interest crediting options are attractive for cash accumulation, the product should always be promoted to fi rst meet the death benefit needs of families and businesses with cash accumulation as a secondary benefit. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender charges. One could lose money in this product. Policy loans and withdrawals may create an adverse tax result in the event of a lapse or policy surrender, and will reduce both the cash value and death benefit. Guarantees are based on the claimspaying ability of the issuing insurance company. Please keep in mind that the primary reason to purchase a life insurance product is the death benefit.
Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2014 Securian Financial Group, Inc. All rights reserved. F78045-25 7-2014 DOFU 7-2014 A03787-0714
For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public. October 2014 » InsuranceNewsNet Magazine
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LIFE
5 Term Insurance Solutions for Small-Business Clients W hether it’s funding a buysell agreement or rewarding key employees, term life can provide economical solutions to your small-business clients’ needs. By Erik Dullenkopf
M
y father was a small-business owner, a sole proprietor. When he died unexpectedly, there was no one who could step into his shoes as owner, president, top salesman and dayto-day manager. Luckily for my family, he had purchased two term life insurance policies years earlier. My mom used the money from those two policies to pay off the business loans and gradually close the business. Without the policies, my family would have suffered extreme financial hardship. At the time, I was too young to understand what it meant, but now that I’m a financial professional, I’m passionate about using 42
inexpensive term life insurance to help small-business owners. Whether it’s working with a business owner on strategies for using key person insurance or providing group benefits to workers, financial professionals should never underestimate the potential benefits that term insurance holds for small businesses. While working with small-business owners, I’ve discovered five ways in which term insurance can be an economical business solution.
Buy-Sell Agreements
Most small businesses with multiple owners need a buy-sell agreement to cover situations in which one or more of the owners dies, retires, leaves the business or sells their portion of the business. These agreements normally are funded with a cash value life insurance policy. In some cases, however, a small business cannot afford whole life premiums, and that’s when I recommend term life
InsuranceNewsNet Magazine » October 2014
insurance. Even though the term life policy does not fund the agreement if an owner leaves the business, it can provide needed funds to help keep the business operating if one of the owners dies. When there are only two or three owners, I suggest a cross-purchase arrangement in which the business owners hold term policies on each other. When there are more than three owners, it is usually simpler to use an entity purchase in which the business owns the term policies; otherwise, there would be too many individual policies to purchase.
Key Person Insurance
I see fewer circumstances for key person insurance than for buy-sell agreements, but key person insurance is important to small businesses in many of the same ways. It provides funds to help the business keep operating if one of the principals dies. The delicate part is determining who
HOW TO PREVENT LIFE INSURANCE BUYER AMNESIA LIFE
October 2014 » InsuranceNewsNet Magazine
43
LIFE 5 TERM INSURANCE SOLUTIONS FOR SMALL-BUSINESS CLIENTS the “key people” are. Would there be a risk to the business if one of the owners passed away? Does an owner have skills or knowledge that are vital to the success of the company and cannot be replaced? And don’t overlook employees who are key to the success of the company but aren’t owners, such as a craftsperson or an expert in a particular field. Also note that not all owners require key person insurance; some owners may be silent partners or simply not involved in day-to-day operations. While key person insurance cannot replace the owner or key person, it can provide enough funds to help the business “get over the hump” until a replacement can be found and trained. If the business has to close, the funds can help ensure a smooth transition for the remaining owners and employees. I recommend term life insurance for key person coverage for the same reasons as buy-sell agreements: Term life is short term and less expensive, and there’s no need for cash accumulation.
Credit Coverage
Your small-business clients already have discovered that lending institutions often require life insurance coverage on the principal as a condition of obtaining a loan. Again, most business owners prefer term life insurance in these cases because it is less expensive and needed for a short term, which is the life of the loan. We call this “pure insurance” because the insurance doesn’t build equity; its main purpose is to protect against risk, in addition to keeping the cost as low as possible. One-year term policies are the most popular for credit coverage. Business owners view insurance as an expense to the company – they don’t want to commit to a long-term expense and they want to reduce costs. With one-year policies, they can review their credit coverage insurance every year, determine if it is still needed and drop the expense as soon as it is no longer required. This also presents an opportunity for you to meet with your clients at least once a year to help them re-evaluate their protection needs. With the costs of term life policies going up and down, you may be able to recommend another product with the same coverage at a lower cost. And if you can recommend ways for your clients 44
TERM LIFE INSURANCE has many uses for smallbusiness owners. It provides needed protection but at a lower cost to a business than many other products.
to save money, then your clients will treat you as a financial planning partner, not a salesperson.
Estate Equalization
Term insurance also can be used as an estate equalization tool when assets aren’t going to be distributed equally. Let’s say a business owner has three children, and one has chosen to make the business his career. The other two don’t work in the business and have no interest in owning it. Like most parents, the owner wants to divide the estate equally among the kids, but how can he do that without dismantling the business? With term life insurance policies, the business owner can leave the business to the child who works for it and name the other two children as the beneficiaries of the insurance policies. Upon the owner’s passing, the children receive an inheritance of approximately equal value, the business does not have to be sold to divide the inheritance, and no one is forced into – or out of – a family business. Consulting the business owner’s accountant can help you determine the amount of term life insurance needed to equalize the estate. You may want to coordinate with an estate planning attorney as well.
Retain and Reward Key Employees
Finally, term life insurance can be used to retain and reward key employees. Maybe your client’s start-up business has a key
InsuranceNewsNet Magazine » October 2014
engineer, programmer or artist who is central to the success of the business – and whose services are in demand by larger, better-funded operations. How can this small business afford to offer comparable benefits? The small-business owner can purchase a term life insurance policy to provide the employee and his or her beneficiaries with the protection of a whole life policy, but at a much lower cost to the business. I usually recommend a product with a conversion option. As the business grows and more funds are available, we can later convert the term insurance to a protection product that also accumulates cash value. The long-term employee then can own the policy and become vested in the cash value as well. Term life insurance has many uses for small-business owners. It provides needed protection, but at a lower cost to a business than many other products. For business owners, it usually comes down to price. By recommending solutions that address price concerns and provide short-term protection, you can establish yourself as a long-term partner. Erik Dullenkopf, CFP, is a financial services representative with MetLife Premier Client Group in Ventura, Calif. Erik may be contacted at erik. dullenkopf@innfeedback.com.
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Allianz Life Tops Company Rankings Allianz Life topped the list of carriers selling fixed annuities Top Fixed Annuity in the first half of 2014, according to LIMRA. Allianz’s year- Carriers 1st half 2014 to-date sales of $6.63 billion easily outpaced the No. 2 carrier Allianz Life $6.6B on the list, New York Life, with $3.51 billion. New York Life $3.5B Next on the list are AIG ($3.16 billion) and Security Benefit ($2.74 billion). From there, the next carriers on the Top 10 AIG $3.1B list are close together in sales. They are American Equity In- Security Benefit $2.7B vestment Life ($1.96 billion), Great American ($1.87 billion), American Equity $1.9B Symetra ($1.46 billion), Lincoln Financial ($1.45 billion), Pa- Investment Life cific Life ($1.43 billion) and MetLife ($1.31 billion). Overall individual fixed annuity sales were $49.12 billion for the time period, with 71 percent of those sales coming from carriers in the Top 20 list.
‘DATELINE’ EPISODE IS SUBJECT OF LAWSUIT
Dateline, the NBC television show, angered many annuity sellers in a 2008 episode that claimed to expose what it called misleading annuity sales practices aimed at senior citizens. Now the tables are turned and the show is a defendant in a defamation lawsuit. A U.S. circuit court has handed down a ruling that could result in Dateline and NBC having to make original, unedited video involving annuities available to court proceedings. This is footage the producers obtained with hidden cameras and that was later used in creating Dateline’s now-controversial segment on annuity sales practices. The court decision represents a break for Tyrone M. Clark and his company, Broker’s Choice of America (BCA). A lower court had ruled against Clark and BCA when they requested access to the unedited footage for use in its lawsuit against NBC and Dateline employees. The annuity firm had sued the mega-media company for defamation stemming from its Dateline show on annuities. The case will be closely followed not only by the insurance industry but also by the news media. In its suit, Clark and BCA contend that “Tricks of the Trade,” a Dateline segment aired in April 2008, used innuendo, as well as very selective editing and commentary to present Clark’s statements out of context in order to purposely create a false impression, thereby defaming him. Snippets were filmed via hidden cameras brought in by two producers using false insurance licenses obtained from Alabama officials, 46
according to the circuit court. The snippets depict Clark as teaching misleading sales tactics to agents, but quoting a “mere 112” of Clark’s own words.
A PLAN TO SAVE RETIREMENT
Two retirement plan experts have proposed that the nation embark on a new age of reconstruction – retirement plan reconstruction, that is. The plan, put forth by Russell L. Olson and Douglas W. Phillips, calls for the creation of a single, private, defined contribution pension system called trusteed retirement funds (TRFs). This proposed system would cover every American and would be governed by a single set of rules. In the paper, titled “Let’s Save Retirement,” Olson and Phillips write that their proposal is designed as a near-term solution to the underfunding of retirement accounts. According to the authors, to provide a sound retirement system the nation needs to meet three conditions: 1) People need to contribute a lot more to their retirement accounts, 2) the funds in those accounts need to be managed more efficiently, and 3) retirement accounts need to be structured in such a way as to minimize the range of risks investors face after they leave the workforce.
WOMEN SHOWING GREATER COMMITMENT TO SAVING
Women are closing the retirement savings gap with men. That’s according to MassMutual Retirement Services. MassMutual reports that women – particularly women ages 18-34 – are responding more favorably than men to initiatives encouraging retirement savings.
InsuranceNewsNet Magazine » October 2014
“The longer-term trends show women are taking retirement savings more seriously and, in some instances, are now eclipsing men,” said Elaine Sarsynski, executive vice president, MassMutual Retirement Services. “We’re now finding that women’s retirement savings account balances in defined contribution plans such as 401(k)s are climbing faster than men’s.” MassMutual, in analyzing its data on retirement plan participants, found that the average retirement savings balance for women was up 17 percent from a year ago, and 71 percent from 2009. The gap between the average balance between women and men narrowed to 37.8 percent in the second quarter, down from 40.5 percent in 2010.
GEN X AND GEN Y SHOW LACK OF DIRECTION IN RETIREMENT SAVING
Two-thirds (66 percent) of Generations X and Y have not calculated how much they need to save for retirement, reveals a study sponsored by Security Benefit. It’s more than a lack of direction that is hurting Americans born between 1965 and 1992. A significant percentage of this group believes saving for retirement is becoming more difficult, with two-thirds (65 percent) saying it’s harder for their generation to save for retirement than it was for previous generations. Additionally, half (48 percent) of respondents believe they are behind on saving for retirement, while just 43 percent said they were satisfied with their current financial situation. The survey found that Generations X and Y place a premium on securing their financial futures. Nearly three-quarters (73 percent) said that a guaranteed stream of income in retirement is an important reason to purchase a financial product, while more than half (55 percent) said that it’s important for a financial product to protect their assets from losses in the stock market.
Go to AnnuityNews.com for exclusive sales ideas and more!
One-Third Have Never Increased Their Retirement Plan Contribution Rate A survey reveals that more than one-third of Americans who contribute to an employer-sponsored retirement plan (36 percent) have never increased the percentage of their salary they contribute to their company’s plan. bitly.com/qronethird
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SecureLiving® Index Annuities — Prepare for the unpredictable Issued by Genworth Life and Annuity Insurance Company, Richmond, VA SecureLiving® Index Annuities, Individual Single Premium Deferred Annuities with market value adjustment and optional indexed interest crediting, policy form series GA3005-1113, GA3003-0711, GA3006-1113, GA3004-0711, GA303R-1113, ICC14GA303R, GA301R-0312, ICC14GA3005, ICC11GA3001, ICC14GA3006, ICC11GA3002, and ICC12GA301R, et al. In Illinois the products are known as Individual Modified Guaranteed Equity Index Single Premium Deferred Annuities. Products and/or riders may not be available in all states or markets. Features and benefits may also vary by state or market. The contract terms and provisions will prevail. • Although the contract value may be affected by the performance of an index, the contract does not directly or indirectly participate in any stock or equity investment including but not limited to, any dividend payment attributable to any such stock or equity investment. • All guarantees are based on the claims paying ability of the issuing company. • Withdrawals/surrenders have the effect of reducing the contract value and death benefit. Withdrawals/surrenders of taxable amounts are subject to ordinary income tax and if taken prior to age 59½ an additional 10% federal penalty tax. The optional Income Protection rider benefit base equals the initial premium multiplied by the 108% benefit base percentage enhancement. • During the roll-up period the benefit base will be increased by the roll-up credit and may be stepped up if your contract value is higher than the benefit base at a contract anniversary or when income withdrawals begin. • The benefit base is used only to calculate the rider income withdrawals and is not a representation of the contract value or surrender value. • Prior to taking income withdrawals, any withdrawal will reduce the benefit base and roll-up base proportionally by the percentage that the withdrawal decreases the contract value. After starting income withdrawals, any excess income withdrawal will decrease the benefit base by the same proportion that the excess amount reduces the contract value. A new withdrawal limit will be calculated on the next contract anniversary. • An annual rider cost of 0.95% of the benefit base is deducted annually in arrears from the contract value and the Minimum Guaranteed Surrender Value. 157435AD FOR PRODUCER USE ONLY. NOT TO BE REPRODUCED OR SHOWN TO THE PUBLIC.
©2014 Genworth Financial, Inc. All rights reserved.
October 2014 » InsuranceNewsNet Magazine
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Find out why annuities are more important to consumers now than ever before » PAGE 24
ANNUITY
Conflicting Views on Annuities Spell Opportunity S urvey shows that consumers need to make a better connection between need and annuities. By Linda Koco
S
ometimes consumers seem to live in the Land of Oxymoron where annuities are concerned. That is, they give voice to seemingly contradictory views about annuity products. That can explain the gulfs in understanding that sometimes emerge when consumers speak with advisors. Consumers might be of two minds about annuities, and that can interfere with decision making. A new survey from The Phoenix Companies provides a window into this annuity-buying duality. Although contradictory, this dynamic can open up opportunities for annuity professionals who wish to grow market share, Ed Friderici told InsuranceNewsNet. Friderici is managing director at Saybrus Partners, a subsidiary of The Phoenix Companies and an insurance agency affiliate of Saybrus Equity Services.
Some Disconnects
The disconnects have to do with receptivity to annuity benefits, ideas on creating a predictable retirement income and the use of advisors for retirement planning. Benefits. In the survey, 1,000 American consumers, 676 nonretired and 328 retired, reacted favorably upon learning about the multiple benefits that are available in modern annuity contracts, Friderici said. In fact, nearly three-fourths (71 percent) said they would consider purchasing an annuity for at least one of the following reasons: the ability to obtain a predictable source of monthly retirement income (49 percent), to leave money for a spouse or heirs (41 percent), or to provide money for chronic health care expenses (36 percent). 48
But although they like the features available in annuities, a lot of those folks are clueless about annuities themselves. For example, over half (53 percent) said they are not familiar with annuities and 32 percent described themselves as only “somewhat familiar” with annuities. Also, 25 percent said they would not consider purchasing an annuity, a finding that sets them apart from the majority who said they would consider such a purchase. So, no overwhelming group-think here. Income stream. Another dichotomy occurred when the consumers were asked how they will convert (or are currently converting) their retirement savings into an income stream. As might be expected from the above, annuities did not head the list. Fifty-five percent said they plan to use their savings to supplement their pension and/ or Social Security only as needed, and 50 percent plan to make fixed monthly or yearly withdrawals from an individual retirement account, 401(k) or other retirement account. Those methods entail some risk and are often inadequate, the researchers pointed out. For instance, the savings may not be sufficient, and the withdrawal plan may hinge on funds that are subject to market volatility and are not guaranteed. Meanwhile, only 20 percent said they are planning to use an annuity for in-
InsuranceNewsNet Magazine » October 2014
come. This is even though the annuity is “a primary vehicle for producing a guaranteed income stream,” the researchers said, and even though more than twice as many (49 percent) had said they would consider purchasing an annuity to secure a predictable source of monthly retirement income. These findings are clearly at odds with themselves. Advice. Consulting with a financial professional about converting retirement savings into a predictable source of monthly income is not big on the to-do list for nonretirees in the Phoenix survey. For example, only 36 percent of nonretirees said they either currently work with a professional on this issue or have done so in the past. That leaves over 60 percent who simply aren’t talking about retirement with financial professionals. Yet among those who do talk with professionals, 85 percent report feeling confident about converting their retirement savings into a predictable source of monthly income. Only 62 percent of the never-used-a-professional group said they feel the same.
Opportunities
The numbers may suggest that a challenged future lies ahead for annuity professionals. After all, the survey is showing that consumers like annuity benefits
When it comes to retirement, a little stability goes a long way. We We are are Athene. Athene. Our Our reputation reputation of of doing doing more more for for clients clients has has made made us us a a leader leader in in xed xed annuities annuities with with over over $58 $58 billion billion in in assets, assets, 595,000 595,000 policyholders policyholders and and the the second-largest second-largest portfolio portfolio of of xed-indexed xed-indexed annuity annuity reserves reserves in in the the U.S. U.S. Together Together with with our our acquired acquired companies, companies, we we have have been been advising advising customers customers for for more more than We’re driven driven to to help help you you achieve achieve more. more. Visit Visit Athene.com Athene.com or or call call 1-866-838-6153. 1-866-838-6153. than 117 117 years years..** We’re Athene Athene © © 2014 2014
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* “Athene” refers to Athene Holding Ltd. together with its subsidiaries. Asset and policyholder information is stated on a consolidated basis for such entities, and total assets of $58.5 *billion “Athene” refers to Athene together with its subsidiaries. Asset and policyholder information stated on aset consolidated for suchAssets, entities, total assets of $58.5 billion is is management’s viewHolding for totalLtd. assets; see reconciliation to 1Q Athene Holding Ltd. GAAP Financial is Statements, forth by APbasis Alternative L.Pand . at www.apolloalternativeassets. management’s foryear-end total assets; see reconciliation to 1Q Holding Ltd. Information GAAP Financial Statements, set forth by as APthe Alternative Assets,portfolio L.P. at www.apolloalternativeassets.com. com. The most view recent audited nancial reports areAthene also available there. relating to Athene’s ranking second-largest of xed-index annuity reserves inThe themost U.S. recent year-end audited are alsoAnnuity availableYearbook, there. Information relating Athene’s ranking second-largest of xed-index annuity reserves in Annuity the U.S. Company was taken (now from was taken from the 2012nancial LIMRA reports U.S. Individual and includes suchtoinformation relatingastothe Athene Annuity &portfolio Life Assurance Company, Aviva Life and the 2012 LIMRA U.S. Individual Annuity Yearbook, and includes such information relating to Athene Annuity & Life Assurance Company, Aviva Life and Annuity Company (now known as Athene known as Athene Annuity and Life Company), Athene Annuity & Life Assurance Company of New York, and Aviva Life and Annuity Company of New York (now known as Athene Life Insurance Annuity and Company), Company ofLife New York). Athene Annuity & Life Assurance Company of New York, and Aviva Life and Annuity Company of New York (now known as Athene Life Insurance Company of New York). 1000889_182404
October 2014 » InsuranceNewsNet Magazine
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ANNUITY CONFLICTING VIEWS ON ANNUITIES SPELL OPPORTUNITY but they lack product awareness. Consumers may have ideas about creating retirement income but they might not include annuities in that strategy. They may know about retirement planning advice, but many don’t use it. Friderici sees all this as opportunity for advisors. For instance, since many consumers are not well-aware of annuities, this provides the annuity professional with an opportunity to provide education about how modern annuities work, he said. “They can point out that ‘you don’t have to annuitize to get benefits anymore.’” They can point out that the whole product line has been “revolutionized” to offer benefits that people need, he said, pointing to accumulation, asset protection, retirement income, personal care and death benefits. By talking with consumers about what’s most important to them, the agent can then look for annuities that meet the need, he added. Now is the time to do this, Friderici maintained. People today may be pleased with the value of their non-annuity as-
sets, which have reached new highs when invested in the stock market. But many may have forgotten that market lows can occur too, he said. Agents who are licensed to sell insurance “can talk about taking risk off the table without talking about the stock market. Make this a generic discussion about lowering risk.” As for advisors who have both insurance and securities licenses, “you have carte blanche to talk about annuities in comparison to securities like managed money, stocks, mutual funds and exchange-traded funds.” Friderici is concerned about a survey finding that nearly one-fourth of nonretirees feel confident they will be able to convert their retirement savings into a predictable source of monthly income. A lot of those savings are likely invested in securities, he said, pointing to a 2012 LIMRA finding that 78 percent of pre-retiree assets were invested in securities. But that can lead to a false sense of security, with people thinking they can take out as much as 9 percent of their money from invested assets every year
and use it for income. They don’t know that much smaller withdrawal rates – for example, of 4 percent a year – are coming under fire for potentially not being sustainable, he said. But this too is an opportunity for agents to provide education, he said. They can educate on the “multiple layers” of benefits in modern annuities. This includes educating people in the middle market, or those with $75,000 or less in household income, Friderici said. Only one-fourth (26 percent) of consumers in this category have ever worked with a financial professional, the survey found. That compares with over half (53 percent) of those with a higher household income. Agents can help clear up the retirement issues for the middle market and help consumers see what they should do so that they will be in a better position to retire, he said. Linda Koco 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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InsuranceNewsNet Magazine » October 2014
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ANNUITY
Annuities With LTC: 2 Great Things That Go Great Together A nnuities with long-term care riders are still relatively new, but they can be a good choice for the right customer. By Linda Koco
A
nnuities that offer long-term care riders don’t get a lot of attention in industry news. But brokerage general agent Michael Smith said clients definitely are interested, and the product does sell when the fit is right. For example, one client had more than $200,000 sitting in a money market account “doing nothing.” This was not money the client needed for income purposes, Smith said, so the recommendation was to leverage a portion of the funds by putting it into an annuity with a longterm care rider. This way, if the policyowner ever needs long-term care, the policy will pay out the annuity benefits for care-related services free of federal taxes, he said. Once that money is exhausted, the rider’s pool of LTC benefits will start making the longterm care payments, also tax-free. The pool of long-term care benefits in these policies can be substantial. “Depending on the contract selected, it can be double or triple the account value,” said Smith, who is president of Milwaukee-based CPS Horizon Financial Group. The payout period for the care benefits can vary. Depending on what the client wants, a policy can be set up to pay longterm care benefits over several years or even for the client’s lifetime. However, he said, the pool value is available only for care-related payouts. “If the policyholder never uses the annuity’s long-term care benefits, the annuity functions like, and is taxed like, a traditional fixed annuity.” Smith credits the Pension Protection Act (PPA) of 2006 with breathing life into these products. In 2010, a provision of the act took effect that makes the LTC benefits in what are now called PPA-friendly 52
annuities payable on a federal tax-free basis. PPA-friendly annuities are ones that are specifically designed to meet the requirements of the law. Smith’s brokerage represents three or four fixed annuity carriers that currently offer PPA-friendly fixed annuities. (He does not work with variable annuities.) Now, owners of older annuities can, and do, make 1035 exchanges into these
InsuranceNewsNet Magazine » October 2014
products in order to get tax-free longterm care benefits.
Some Considerations
Customers should know that these contracts don’t provide much growth, Smith emphasized. For example, at one company, a contract opened with an initial account value of $100,000 may grow only to an accumulation value of $106,000 at the end of
policy year five on a non-guaranteed basis (nearly $102,000 on a guaranteed basis). The modest growth reflects the fact that the cost of the rider’s coverage is factored right into the annuity’s pricing. That is a function of the product being designed for long-term care, Smith said. So, if a client is looking primarily for growth, this is not the right product. It’s also not the right product if the person cannot qualify for the long-term care underwriting. “Applicants can, and have been, denied,” Smith said. For instance, for one product, reasons for declination include confinement to a bed, diagnosis with a disease like dementia or Parkinson’s disease, or use of certain medications such as Aricept or Exelon. Annuity producers who typically work with traditional fixed annuities, which are not underwritten, will therefore need to recalibrate their presentations when selling the PPA-friendly annuities. How-
be paid is 60 months. By comparison, if the same woman deposits only $43,000 at age 60, her longterm care balance would come only to about $134,000 at age 70, and her monthly benefit at that age would be about $2,200. The above values are rounded and shown on a non-guaranteed basis. The guaranteed values in both instances would be lower, but the same pattern would occur. Another consideration: Determine what types of claims will qualify for benefits. In general, a person must be cognitively impaired or be unable to perform two or more activities of daily living (ADLs) – bathing, dressing, etc. – to qualify, Smith said. “But under the definition of a chronic care rider, it is possible to be unable to perform two ADLs and still not qualify for benefits.” For example, assume that a man falls from a ladder while hanging holiday lights. He breaks some bones and that puts him into casts. “He is laid up and unable to per-
The pool of long-term care benefits in these policies can be substantial. “Depending on the contract selected, it can be double or triple the account value.” — Michael Smith, CPS Horizon Financial Group ever, the process may be simplified if the carrier uses tele-underwriters to ask the underwriting questions. Another consideration is the money the client has available. First, the available funds should not be money the person needs for everyday living, Smith said. Even then, he recommends putting only a portion of the funds into the annuity. “It is my opinion that clients are best off if they have $70,000 or more to deposit,” he added. It’s not required, he said, but a larger initial deposit creates a much larger long-term care benefit down the road when it’s needed. For example, he pointed to an illustration for a 60-year-old woman who deposits $100,000 into a PPA-friendly annuity. “By age 70, her total amount of tax-free long-term care benefit will be $310,000 – not bad for a $100,000 deposit,” he said. Her monthly long-term care benefit at that age would be nearly $5,200. The minimum length of time the claim would
form two or more ADLs, but under a chronic care rider, the man would not qualify for benefits because he is expected to recover when the bones heal,” Smith said. “The man’s expected recovery will prevent the condition from being classified as chronic. “By contrast, under a true long-term care rider, the claim would likely qualify, due to the definitions in the rider, assuming any elimination period is met.” Both types of riders are good, he added, but the producer needs to know the difference, and how the particular rider fits with the client’s needs. PPA-friendly annuities are still relatively new, but Smith considers them to be a very good choice for the right customer. “Some policyowners have already gone on claim, and one is doing so right now,” he said. 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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l Viewti naalti ons des Where Can Transamerica Take You? Experience a Broadway show in New York City. Be a winemaker for a day in Napa Valley. Relax on the beach in Mexico. Transamerica’s Break Away promotion is your pass to a variety of destinations! Break Away is designed to reward you for placing business with Transamerica Life Insurance Company, by offering the opportunity to earn travel packages based on sales. You will have your choice from a range of personal vacation packages—YOU choose where and when. The more you sell, the further you go! To learn more about Break Away, visit www.engagengo.com/transamerica50758 or call your local General Agent today!
View official Rules and Regulations at www.engagengo.com/ transamerica50758. Contest period includes business submitted on or after 4/1/14 and placed by 12/19/14. Contest available to distributors under the following marketing organizations as independent contractors of Transamerica Life Insurance Company: Transamerica Brokerage, Transamerica Agency Network-Independent Group, Capital Choice, IHC, Alliance, and Transamerica Senior Life. Transamerica Financial Life Insurance Company (TFLIC) business is not eligible. Business written through National or Institutional accounts is not eligible. Sales of annuities and variable products are not eligible. Under current tax laws and regulations, gross income includes amounts received as prizes and awards. Accordingly, the value of your award/trip will be treated as additional compensation for purposes of any applicable tax reporting. All travel awards must be redeemed and travel completed by June 30, 2015. Life insurance products issued by Transamerica Life Insurance Company, Cedar Rapids, IA. The information provided is intended for producer use only. It is not intended, nor appropriate, for customer use. DP 140B 0914
HEALTHWIRES
ER Visits Jump Under ACA bitly.com/qrjump
Immigrants Could Lose ACA Coverage Another day, another snag with the Affordable Care Act (ACA). This time it concerns more than 300,000 immigrants around the country who bought health insurance through the ACA. These immigrants are faced with losing their coverage if they don’t send in proof they are in the U.S. legally. Immigration advocates say many haven’t responded to government notices about it because of language barriers and computer glitches. Health care advocates fear many immigrants don’t understand that they could lose their coverage. Florida and Texas have the largest numbers of immigrants whose immigration and citizenship information on file with the government conflicts with what they wrote on their health insurance applications. Additionally, many consumers said they still receive requests for documents even though they’ve sent them multiple times.
NEW CHALLENGE FOR HEALTHCARE.GOV: TAX FORMS
Few people want to start
FOR TAX thinking about tax season SEASON
now, but income taxes and the ACA are about to intersect in a big way. The U.S. Department of Health and Human Services (HHS) must send millions of people who received health insurance tax credits this year a new tax form that’s like a W-2 for health care. It’s called a 1095A. If HHS runs into trouble with the initial release of the form, it could delay tax refunds for many folks. If the forms are delayed beyond Jan. 31, people who obtained coverage through the new insurance exchanges may have to wait to file their taxes – and collect their refunds.
2015!
WAYS INSURERS CAN STILL AVOID COVERING THE SICK
Although insurers can no longer reject customers with preexisting medical conditions, they can still discourage the sickest and costliest patients from enrolling. The Associated Press reports that insurance companies can exclude some wellknown cancer hospitals or certain individual specialists who treat pricey conditions DID YOU
KNOW
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from the list of providers they cover under a plan. They can dissuade HIV patients from signing up for coverage by requiring heavy initial payments for their prescriptions. They also might simply wait for competitors to jump into a market first, and let them take all the risky patients who are hungry for coverage. Consumer advocates and industry insiders warn that insurers are using tactics like these to limit their coverage of the sick, which can make it difficult for the people who need insurance the most to find the right plan. Narrow provider networks, in particular, have become more common, especially in coverages sold on new public health insurance exchanges created by the overhaul. Insurers acknowledge that people may see changes in their plans. But they say prudent business practices, not discrimination against the sick, are the key factors behind the concerning trends. They also point out that if customers can’t find a plan they like, they generally have plenty of additional options to choose from both on and off the exchanges. On the other hand, insurers also note that the overhaul takes several steps to discourage them from avoiding costly patients. The law prevents them from
of large employers will OFFER ONLY HIGH-DEDUCTIBLE PLANS – up from 22 percent in 2014 and 10 percent in 2010.
Source: Centers for Disease Control Source: National Business Group on Health
InsuranceNewsNet Magazine » October 2014
QUOTABLE We need another major initiative, like a war on poverty. Perhaps a war on obesity. — Michael Karpf, executive vice president for health affairs at the University of Kentucky
marketing or designing a plan that would discourage someone from applying based on their health. It also calls for insurers to chip into a pool that compensates competitors who wind up with a more expensive patient population. That lowers their incentive for discouraging the sick from enrolling.
ONE IN FOUR MILLENNIALS LACKS HEALTH INSURANCE
The so-called “young invincibles” who decide to forgo health insurance coverage amount to nearly a quarter of the population between the ages of 18 and 29. An InsuranceQuotes.com report found that not only is 24 percent of that age group without coverage, 16 percent of all adults do not have health insurance. Millennials are 10 percentage points more likely to lack health insurance than people 30 and older. The report also found that the 18-29 age group is less likely than all other age groups to have health insurance.
WELLPOINT CHANGES NAME TO ANTHEM
The nation’s second-biggest health insurer, Wellpoint, said that it will change its name to Anthem, the brand associated with most of the company’s best-known health plans. The name change comes as consumers increasingly shop for their own health benefits, in part due to the health care overhaul. The Indianapolis-based company operates plans in 14 states and primarily does business as Anthem Blue Cross and Anthem Blue Cross and Blue Shield. Anthem merged with WellPoint Health Networks in 2004, and the combined company took the name Wellpoint Inc.
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HEALTH
Here We Go Again! Getting Ready For Next Round of ACA Sign-ups H ealth insurance advisors are gearing up for another busy enrollment season, hoping for the best but bracing themselves for some of the same snags they hit during the last enrollment period. By Susan Rupe
S
teve Fisher is in the midst of giving his group health clients bad news about rate hikes. He also is spending time cleaning up after bad advice given to individual health care purchasers by 56
over-the-phone navigators and assisters during the most recent enrollment season. “It’s been crazy here,” he said from his office in Meadville, Pa. And the second open enrollment season under the Affordable Care Act (ACA) hasn’t even started yet. Nov. 15 marks the beginning of the next enrollment period. Memories of the glitch-plagued initial enrollment period are still fresh in everyone’s minds as they prepare to get clients re-enrolled in coverage while hoping for a smoother ride this time around. Compounding the anxiety
InsuranceNewsNet Magazine » October 2014
is that this next enrollment period is only three months long – half as much time as was allotted for open enrollment in the initial signup period. But concerns about how well the HealthCare.gov website will behave are only a part of the unease surrounding the upcoming enrollment period. The coming year also brings the following: » In addition to enrolling new participants, those who bought individual coverage last year but want to change their coverage will need to be re-enrolled.
HERE WE GO AGAIN! GETTING READY FOR NEXT ROUND OF ACA SIGN-UPS » The online Small Business Health Options Program (SHOP) Marketplace will be open for employers with 50 or fewer full-time-equivalent employees. » Tax penalties for those who were required to obtain coverage but didn’t do so will go into effect with the federal income tax filing season in early 2015. Not to mention that some states are seeing additional insurers enter their marketplaces, other states are seeing carriers exit their marketplaces and premium rates are going up almost everywhere. In the middle of all this – the health insurance advisor. “We are so far ahead of where we were last year,” said Ed Anderson, financial services manager at Hawkins Insurance Group, Edina, Mo. “We’re still dealing with some issues but at least the system is up and running.” Anderson said he enrolled 150 people in coverage the last time around and “we have continued to get calls ever since enrollment closed.” How many people who currently have
HEALTH
15 Million people are expected to enroll or re-enroll in Obamacare over a 3-month period.
coverage will want or need to re-enroll? That will be a big question to be answered when Nov. 15 hits. Two states whose online systems had problems – Maryland and Massachusetts – are requiring all their enrollees to sign up for coverage again this time. For others, re-enrollment in their current plan will be automatic. But those who wish to change their level of coverage
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(platinum, gold, silver or bronze), to select a different carrier or to report a change in income level since their previous sign-up will need to go through the process again. Washington and Lee University law professor and health care expert Timothy Jost estimates that between 6 million and 8 million re-enrollments will take place during the upcoming sign-up season, with
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October 2014 » InsuranceNewsNet Magazine
57
HEALTH
HERE WE GO AGAIN! GETTING READY FOR NEXT ROUND OF ACA SIGN-UPS
a projected 6 million to 7 million new enrollees on top of that. “So that’s up to 15 million people who will be re-enrolling or enrolling over a period of three months rather than the six months that we had last time,” he said. “We will have a more concentrated period of time to get this done than we had before and that could bring challenges.” Although individuals who don’t want to make changes to their coverage can be automatically re-enrolled, Jost said that it is in most consumers’ best interests to review their coverage and make sure that what they originally signed up for still is the best plan for them. “People who enrolled in coverage should receive a notice from their insurer before Nov. 15, telling them that they can opt out of their coverage if they wish to make a change,” he said. “And then people also will get a notice from the Centers for Medicare & Medicaid Services saying that ‘this is the information we have on your current household income and the number of people in your household for your tax credit.’ If people don’t respond, they will be given the same tax credit as before. What consumers may not understand is that premiums are age-based and now everyone is a year older than they were when they first signed up, so premiums likely will be going up.” Jost said that consumers “need to be active shoppers” where health coverage is concerned. He advised them to consult an advisor to find out whether their current plan is really a good deal for them when compared with other plans available. The best news regarding the new enrollment season, Jost said, is that the federal HealthCare.gov site and most of the state websites that had problems last time should be corrected in time to handle the surge that will hit come Nov. 15. The National Association of Health Underwriters (NAHU) has been spending the summer helping get its health advisor members ready to assist people in obtaining coverage. A major part of the change that the advisor is dealing with in the upcoming signup period relates to getting recertified to enroll consumers, said Marcy Buckner, NAHU senior director of state affairs. Advisors who previously had completed Part 1 of their original certification had to repeat it for the new sign-up period. Those who had completed Part 2 of their original certification did not have to repeat the process 58
Carlos Tapia, a certified application counselor at a Single Stop USA site in New York City, helps Natalia Pollack sign up for health insurance. Pollack, 54, has been uninsured since 1999. Photo credit: Reuters/Mike Segar unless they wanted to be certified to enroll customers in SHOP coverage. Buckner said interest in enrolling people in coverage remains strong among NAHU members despite challenges encountered the last time around. “Most of the groups we worked with last year to get certified are getting recertified this time,” she said. “In fact, we had 800 members come back and do the Part 1 recertification the first day it was offered.” The biggest changes in this enrollment period will occur not in the individual market but on the SHOP exchange. SHOP originally had been scheduled to open for small employers on Oct. 1, 2013, but was delayed until the next open enrollment season. The online small business insurance marketplace was delayed for a year while the Obama administration focused its attention on fixing the individual health exchange website. Small businesses had the option to purchase SHOP health insurance plans through an agent, filing a paper application. The SHOP exchange was meant to give small businesses a way to compare health plans they can offer employees. Beginning in 2014, companies will need to buy through the marketplace to continue receiving a health law tax credit available to employers with fewer than 25 employees. Buckner said that employers who wish to use an advisor to purchase coverage through SHOP can indicate they wish to do so online, and search for an agent by name or ZIP code. As the clock ticks toward another en-
InsuranceNewsNet Magazine » October 2014
rollment period, advisors are a bit more optimistic for a successful season than they were last year. “We won’t know for sure about what will happen until [the exchange] opens,” Anderson said. “But we know we’re not under the same gun as last year.” Fisher said his biggest challenges are delivering bad news about rate hikes to his group health clients and dealing with bad advice given by navigators and facilitators. “My big concern is that navigators, facilitators, people who answer those toll-free numbers are not always explaining the full picture to people who need help with insurance,” he said. “They are not supposed to be giving advice or selling. I’ve had a number of people who have come to me saying that a navigator gave them some advice on their coverage and that advice turned out to be incorrect.” At NAHU, Buckner said the mood of the members seems to be a bit more positive going into this enrollment period. “We haven’t heard the outcry that we did last year,” she said. “Last year was a huge learning process for everyone.” Susan Rupe is assistant editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Susan may be reached at srupe@insurancenewsnet.com.
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59
FINANCIALWIRES
Why do Americans find it so difficult to talk about money? bitly.com/qrwhy
QUOTABLE
The Cost of Having Kids Keeps Climbing Who knew that having a baby was so expensive? A baby born in 2013 will cost a middle-income American family an average of $245,340 until he or she reaches adulthood. That’s a lot of diapers, cereal, sneakers and juice boxes! The U.S. Department of Agriculture’s new “Expenditures on Children and Families” report compiled the costs of food, housing, childcare, and education, and found that those expenses rose 1.8 percent over 2012. Families in the urban Northeast will spend more than families in the urban South and rural parts of the U.S., or roughly $282,480. When adjusted for projected inflation, the report found that a child born last year could cost a middle-income family an average of about $304,480. And that doesn’t take the costs of pregnancy, childbirth and college into account!
WHAT KEEPS ADVISORS AWAKE AT NIGHT?
Market declines, a shaky economy and regulatory issues are the top three worries keeping financial advisors up at night, according to a recent survey. Advisors are also concerned about misinformation, client fears and emotions, and not having enough time to get work done. Those findings are contained in the Principal Financial Well-Being Index, which surveyed 614 advisors. The survey found that 57 percent of advisors fear market declines will have a negative impact on their business, 51 percent fear those negative impacts will come from a worsening economy and 46 percent consider regulatory issues their greatest “pain point.” The survey found that 61 percent of advisors considered their clients to be in good shape in the area of financial planning, but only 21 percent were confident their clients could deal with a disability or an event that would prevent the clients from going to work. “One of the biggest challenges advisors face is helping clients try to catch up when they didn’t start saving for retirement in the early years of their careers,” said Tim
Minard, senior vice president of distribution for The Principal. The advisors also listed their clients’ top blunders as living beyond their means, not saving enough or not starting early enough to save for retirement.
25% ‘JUST GETTING BY,’ FED SURVEY SAYS
The Federal Reserve conducted a study of how well American households are faring financially, and the news wasn’t good. A quarter of U.S. households reported they’re “just getting by” financially. The Fed issued the first-ever snapshot of how Americans perceive their financial and economic well-being. Thirteen percent said they were struggling to get by, and 34 percent reported they were somewhat worse off or much worse off than before the Great Recession hit in 2008. Other findings: a third of those who had applied for credit in the previous 12 months said they were turned down or given less than they requested, and 24 percent had some type of education debt. Thirty-one percent of people who aren’t retired said they had no retirement savings or pension, including 19 percent of those aged 55 to 64. Nearly half of adults weren’t actively thinking about financial planning
43% ?
DID YOU
KNOW 60
of employees that they would take A LOWER SALARY THE AVERAGE RETURN ON ANsay INITIAL PUBLIC OFFERING was 20 percent this year. The average in theafirst day (or “pop”) is CONTRIBUTION 13 percent. if theyincrease were offered BIGGER EMPLOYER Source: Renaissance Capital to their 401(k) retirement plan.
InsuranceNewsNet Magazine » October 2014
Source: Fidelity Investments
For every graduate of a financial planning college program who enters the industry, there are two advisors who just became eligible for Social Security benefits. — Marcelo Fava, Ernst & Young
for retirement, with 25 percent saying they had done no planning at all. Twenty-six percent of homeowners said they expected prices in their neighborhood to increase by as much as 5 percent in the 12 months following the survey period.
WANTED: FINANCIAL ADVISORS FOR GENERATION X
Generation X will face Total Advisor Population retirement before they know it, and they will need someone to guide them on that journey. But who will be around to do it? The average financial advisor is in his 50s and that average age is rising. Only 22 percent of financial advisors are under 40, and 5 percent are younger than 30, according to a report published by Ernst & Young (EY). The total financial advisor population has dropped by 4.3 percent in the last decade, yet by the beginning of the next decade the number of jobs for personal financial advisors is expected to grow by 66,400, according to the EY report. Independent advisor channels are most at risk because they tend to have the oldest advisors, according to a report on advisor metrics published earlier this year by Cerulli Associates. Catherine Collinson, president of the Transamerica Center for Retirement Studies and Transamerica Institute, said there’s a big disconnect between what Generation Xers aspire to save and what they have actually saved for retirement. “Gen Xers estimate they’ll need to save about a million to retire comfortably, yet as of 2014 the median retirement savings in household retirement accounts is only $70,000,” Collinson said in an interview with National Public Radio earlier this year.
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ANNUITIES | LIFE INSURANCE | RETIREMENT PLANS | MUTUAL FUNDS
Guarantees and protections are subject to the claims-paying ability of Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company. 1
Five- and 10-year premium schedules have a waiting period of five and 10 years respectively, even if premiums are paid in advance.
2
Health care practitioner must state informal care is appropriate in the plan of care.
Keep in mind that as an acceleration of the death benefit, the payment will also reduce the long-term care benefits, cash value and the death benefit and cash surrender value of the policy. Additionally, loans and withdrawals will also reduce both the cash values and the death benefit. Care should be taken to make sure that your clients’ life insurance needs continue to be met even if the rider pays out in full, or after money is taken from their policies. There is no guarantee that the rider will cover the entire cost for all of the insured’s long-term care, as this may vary with the needs of each insured. A portion of the benefits paid may be taxable, depending on your specific circumstances. As with all tax matters, clients should consult their personal tax advisor to assess the impact of this benefit. Life and annuities are issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Company, Columbus, OH. The general distributor is Nationwide Investment Services Corporation, member FINRA. In MI only: Nationwide Investment Svcs. Corporation. Nationwide Funds distributed by Nationwide Fund Distributors LLC, Member FINRA. Nationwide Life Insurance Company, Nationwide Life and Annuity Company, Nationwide Investment Services Corporation, and Nationwide Fund Distributors are separate but affiliated companies. Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. Let's Face It Together and Nationwide YourLife CareMatters are service marks of Nationwide Life Insurance Company. © 2014 NFV-0770AO.2 (9/14)
FINANCIAL
4 Sales Opportunities With New RMD Rules By David W. Wick
R
etirement is one of the most important phases of our clients’ lives. Insurance and investment advisors have an extraordinary opportunity to help clients enjoy their retirement the way they desire. Many clients fear outliving their retirement funds. Much has been written in the popular press about designing a savings plan to attract investments, but little is written about the important tax consequences involving retirement plans and Individual Retirement Accounts (which also are referred to as qualified retirement plans, or QRPs). Although factors such as a client’s age, acceptance of risk, etc., are critically important when designing your client’s retirement plan, it is equally important to consider the tax consequences of distributions when attempting to ensure that clients do not outlive their QRP. If financial advisors understand basic rules concerning the taxation of retirement distributions, they can put their clients at ease and take advantage of many sales opportunities. Upon retirement (usually age 70½) and after death, the tax laws require taxpayers or their beneficiaries to withdraw a minimum amount (known as the required minimum distribution, or RMD) from QRPs each year. The RMD is determined on an annual basis by multiplying the prior year-end value of the QRP by a life expectancy factor supplied by Internal Revenue Service actuarial tables. During life, most people use the IRS Uniform Lifetime Table, while after death the IRS Single Life Expectancy Table is used to determine the life expectancy of a designated beneficiary. The IRS Uniform Lifetime Table permits maximum tax deferral during a client’s life because 62
it uses a joint life expectancy factor for determining an individual’s life expectancy. The IRS Single Life Expectancy Table uses the life expectancy of a single person, but permits stretching out the required distributions for long periods when young beneficiaries are named. When designing the actuarial tables, Congress attempted to assure that the funds would outlast the average single retiree. By explaining this basic structure to clients, a financial advisor can dispel their fears of outliving their retirement assets. Both tables also provide the financial advisor with a hurdle rate that can be used to test the QRP investments. By comparing the hurdle rate with the investments’
Cross-Over of Income Earned and RMD Withdrawn
Income Earned RMD Withdrawn
30,000
InsuranceNewsNet Magazine » October 2014
25,000
20,000
15,000
10,000
5,000 DOLLARS
H elp your clients avoid a tax surprise while they enjoy an income stream that lasts throughout their retirement.
actual return, the investment advisor can invest the client’s funds to do better than the hurdle rate, thereby increasing the QRP’s longevity. For example, if the client takes only the RMD starting at age 70½, and the account has a steady 6 percent annual return, the account will have more dollars in it at the client’s death than it did when the client started taking RMDs, if the client dies prior to age 89. After the client’s death, as long as the beneficiary’s remaining life expectancy is greater than 100 divided by the plan’s annual growth rate, the plan balance will grow faster than the beneficiary’s required distribution amount. For example, if the plan is growing at 8 percent per year, and the beneficiary’s remaining life expectancy is 20 years, the first year’s RMD (one-twentieth or 5 percent) is less than the plan’s earnings for the year (8 percent). Eventually, the beneficiary’s life expectancy is reduced to the point where he is withdrawing more than the year’s investment return. If the plan grew at 8 percent, the crossover point would
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FINANCIAL 4 SALES OPPORTUNITIES WITH NEW RMD RULES be reached 12½ years before the end of the payout period. Advisors usually will have substantial QRP assets to manage for a long period of time, due in part to the RMD rules. There are at least four sales opportunities for financial advisors to assist clients in meeting their post-death distribution goals. One of those opportunities is a relatively recent development. Here is a rundown of all four.
Balance in Account After RMDs 150,000
100,000
Sales Opportunity 1
Sales Opportunity 2
Add value to your relationship with your client by recognizing the superior asset protection of trusts. Financial advisors often steer clients away from naming trusts as beneficiaries of their QRPs. Yet trusts offer superior asset protection for clients. Trusts can provide a continuing lifestyle for a client’s surviving spouse, while simultaneously protecting the assets from second (or third) spouses. Trusts also can provide protected receptacles to hold assets and RMDs when desired beneficiaries have creditor problems, are spendthrifts, or are engaged in professions such as medicine, engineering or law in which they are at risk for losing assets in a lawsuit. Finally, special needs trusts are appropriate for disabled children or grandchildren who receive means-tested government benefits. In order not to jeopardize the superior asset protection available with trusts, financial advisors should urge clients to have such trusts be the designated beneficiary of a QRP. Unless they dismiss the use of such trusts as beneficiaries of QRPs, advisors can help clients achieve their estate planning goals and also help 64
BALANCE AT YEAR END 50,000 DOLLARS
Provide adequately for a client’s surviving spouse. By naming the surviving spouse as the beneficiary of a QRP, a client clearly informs you of the desire to provide for the spouse’s continuing lifestyle following the client’s death. The RMD rules are especially favorable to surviving spouses because they permit maximum tax deferral opportunities for a spouse. Due to the extended period of permitted tax deferral, the investments and the investment strategy inside the QRP may need adjustment to adequately provide for the spouse.
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reach those goals by appropriately investing the trust assets.
Sales Opportunity 3
Expand the stretch-out capability of the RMD rules to the actual lifetime (not merely the life expectancy) of beneficiaries. Your client can name a charitable remainder trust (CRT) as the beneficiary. Even with the potential for long stretchout periods permitted by the RMD rules, they still limit tax deferral to a life expectancy. This period may be shorter or longer than the beneficiary’s actual life. Should clients truly desire to have their QRPs last their entire lifetime and their beneficiary’s full lifetime, they should consider a CRT. A CRT can provide annuity distributions of at least 5 percent each year to the client, then to the surviving spouse for his or her lifetime and then continue the same 5 percent annuity distributions for the remaining lifetime of subsequent beneficiaries (usually the children). Not only can the CRT provide the asset protection available with trusts, but it can further prolong distributions for an actual lifetime or lifetimes and offer investment opportunities inside the trust for the surviving spouse’s life and the actual lives of the children.
InsuranceNewsNet Magazine » October 2014
Sales Opportunity 4
New longevity annuities. In recognition of the reality of our increasing life expectancies, on July 1 the IRS issued final regulations that modify the RMD rules to permit the use of “longevity annuities” inside QRPs. These annuities are ignored for purposes of determining the RMD. They permit annuitization no later than age 85, which would be the required beginning date for such longevity annuities. They also pay for the remaining length of the beneficiary’s life. Check with your annuity providers about new products designed to satisfy this new regulation. Such annuities could help clients provide for the surviving spouse and and prevent the spouse from outliving the retirement income. By understanding the basic structure of the actuarial tables used to determine RMDs and the benefits of trusts, financial advisors can dispel their clients’ fears and achieve sales while helping clients meet their goals for retirement, for providing for their spouses and for passing assets to the next generation. David W. Wick is an attorney with Wick Law Group, Edina, Minn. He has focused his law practice in tax, retirement, estate and business tax, and succession planning. David may be contacted at david.wick@innfeedback.com.
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freeadvisorseminars.com October 2014 » InsuranceNewsNet Magazine
65
BUSINESS
Make Time to Build Business with Social Prospecting S ure, your time is limited, but you can make valuable connections while doing what you love. By Bryce Sanders
F
ree time? What free time? “Social prospecting” is absolutely perfect for the single agent, advisor or manager who has recently relocated to a new city. The reason why it’s perfect for these single individuals is because they have no time commitments. But that’s not you. Your young children keep you busy attending soccer games and school plays. You attend religious services, and this also involves extra activities. You attend community association meetings regularly because you’re afraid if you relax your guard, someone will build a strip mall next door to your house.
The Case for ‘Why?’
Social prospecting makes sense even if you are busy. You know firsthand how much hard work goes into getting a new client. Suppose the clients came to you instead? Most advisors have no free time – their schedules are programmed. They have to attend meetings and go places. I surveyed advisors and asked: “Have you ever gained clients through community involvement?” Of those who replied, 71 percent said “yes.” I asked: “Did you approach the clients or vice versa?” Of those who responded, 65 percent said the other person approached the advisor. Do the math. You have an almost 50 percent chance of getting new clients just by showing up and doing what you are already doing. The key is raising your visibility.
Seven Opportunities
Regardless of the activity you choose, you have plenty of opportunities to raise your visibility. [1] Do You Know Everyone? – It’s a small organization, such as your homeowners association. You should know 66
If you already belong to a group, get out of the audience and move out front by offering yourself as a speaker.
most of the people in the organization: who they are, where they work and what they do. You want them to know who you are, what you do and why you are good. In a country club, it’s almost impossible to know everyone. Do you know the major players? They are the officers and established members. With school sports, it’s much easier to know people. Of course you know the parents, because if your child is playing at a teammate’s house, you checked out the adults beforehand. [2] Attend Meetings – Some think joining is everything. Like in the movie Airplane where the flight attendant asks the passengers, “Is there anyone on board who knows how to fly a plane?” – they assume business finds you. But you need to be involved and raise your visibility. Visibility equals credibility. Advisors are busy people, often arriving after the meeting starts and leaving
InsuranceNewsNet Magazine » October 2014
before it’s over. Why? We’re busy! We have places to be! News flash: the rest of the world sees that as self-absorbed and rude. Arrive at meetings early. Stay afterwards. Chat with people over the coffee and doughnuts. Ask them what issues are important to them. Ask them why they attend the meetings. Stand up and ask questions. State your name and pertinent information. Get the audience to connect a name with a face. Ask articulate questions so the other attendees conclude, “She’s smart!” If the issue under discussion involves finance and you are offering your opinion, inserting your business credentials adds credibility. [3] Speaking – A New York advisor called speaking the future of prospecting. Think outside the box. Speaking equals investment related topics. That’s thinking in the box. It’s useful when the group has speakers at every meeting and they need
MAKE TIME TO BUILD BUSINESS WITH SOCIAL PROSPECTING BUSINESS content. Hint: If you live in an area where the weather can turn nasty, offer yourself as a backup speaker. Sometimes the scheduled speaker can’t make it, but the audience still expects to hear a program. Aren’t you proud of what you do? Of course you are! You aren’t wearing it on your sleeve because talking about your field comes across like selling, which can be seen as self-serving and predatory. It takes a long time to undo that perception. Consider speaking about a noninvestment-related topic. You restored a 1967 Ford Mustang. Have pictures? That’s a great subject for a twenty-minute talk. Full disclosure is a two-way street. The host of the event will introduce you as a financial advisor because it’s imperative that the audience understands you don’t run an auto body shop. Do a good job and you will be “passed around” – referred to other organizations. Why does this work? According to the New York advisor, it works because audience members bond with you. They like you and assume, “If she is this good at an outside interest, she must be great at her chosen profession.” [4] Publications – It’s likely the organization has a newsletter. Publications need content. Does your firm produce ghostwritten financial articles, allowing you to attach your name? Check it out. OK, you did and they don’t. Can you write a nonfinancial column with a byline highlighting your profession? You have hobbies, those activities consuming your free time. Maybe you bike, travel, run or dine out. That could be your topic. Opportunities three and four raise the word “compliance” in your mind. Here are two solutions. First solution: emphasize the nonbusiness nature of the article. Write the articles in batches ahead of time. Submit them for approval. Second solution: find someone else in your firm who has done this previously. Put your compliance person in touch with theirs. [5] Identify and Address the Critical Issue – Members distribute across four tiers: organization member, committee member, board member and executive committee member. Most organizations share three common activities: membership, event planning and fundraising. One of those ac-
tivities is usually in crisis. If you can get involved and be part of the solution, you are on your way to becoming indispensable. Another New York advisor offers this tip: “Get close to the money.” Be identified with investments. You want them to connect the dots: He’s a financial advisor – he also handles money for the church –
way of doing the job, but they are masters at freezing out someone they don’t like. [2] Don’t join with the sole aim of getting business – The members can smell that. You aren’t the first one to try it. It ended badly when they accepted your predecessor. They won’t make the same mistake twice. Earn their acceptance.
Do the math. You have an almost 50 percent chance of getting new clients just by showing up and doing what you are already doing. The key is raising your visibility. he must be good – he must be honest. This moves you to the top of their “go to” list. The message to communicate is: “He handles money.” [6] Advertise in Publications – Many groups have small business card ads in their bulletin or newsletter. The ads are usually inexpensive. Readers see your ad in the same place every issue. It reinforces your connection as a member of the group. Often people like to do business with others who share the same interests or values. [7] Sponsorship – Involved with school sports? Sponsor a trophy. You are visible and photographed at the annual awards ceremony. Two people stand on stage. One took on all the other challengers and emerged victorious. The other sponsored the trophy. Which role sounds easier? Your name gets connected to the award. You get into the local paper. What if it’s not school sports? How about the awards dinner? What about partial sponsorship of a larger event?
Pitfalls to Avoid
It’s easy to make mistakes. Sometimes it can be impossible to recover. Tread carefully. [1] Don’t join and try to run the show – Maybe you could do it better. The current members might not know the best
[3] Don’t act like you need the business – Desperate people don’t get dates. Consider successful as the opposite of desperate. Successful people like to do business with other successful people. [4] Don’t introduce “What do you do?” into conversations – Let them ask you first. It’s not that hard to prompt them. [5] Don’t say: “I’d like to go over your personal finances sometime” – You will discover exactly how fast a negative reputation is established. [6] Don’t talk about yourself – People like to talk about themselves. If you take an interest in others, people will like you. [7] Don’t only talk about the market or investing – You are reinforcing a negative stereotype. You are busy. You have no free time. But by implementing a few strategic ideas, you can raise your visibility and increase the probability that business will to come to you. 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. His is the author of Captivating the Wealthy Investor. Bryce may be contacted at bryce.sanders@ innfeedback.com.
October 2014 » InsuranceNewsNet Magazine
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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
A Do-It-Yourself Approach Can Lead to Spousal Social Insecurity A financial advisor can help save a client’s retirement by guiding them toward the right Social Security claiming strategy that also takes a spousal benefit into consideration. By Richard M. Weber
I
t wasn’t until the middle of the 20th century that “retirement” was much of an issue for the masses. Up to that point, few people lived long enough to retire! For those who were approaching age 65, retirement was the way an employer moved “used up” workers out of the way to make room for those who were younger and more able-bodied. Advances in medicine and technology mean that most baby boomers will not only live well past age 65, but a significant number may find themselves living well into their 90s. If we project the current optimism about gene therapy and other medical miracles that may turn cancer and heart disease into conditions we can live with (and not die from), it’s not inconceivable that our grandchildren will experience life expectancies nearly twice as long as ours. Retirement income planning is a growth industry – and perhaps the next big thing! The almost 80-year-old Social Security program now provides benefits to 59 million workers. The Social Security program pays those workers more than $2.3 billion dollars a day in benefits. Social Security benefits are based on covered wages, election age and, for some, marital status. From the beginning, the Social Security Administration encouraged a retirement income strategy with the analogy of a three-legged stool: we should plan on retiring with resources from our company pension, income from personal savings and income from Social Security. Yet with the demise of the traditional pension plan, as well as a mostly negative savings rate among Americans, it’s not surprising that more 68
than 50 percent of Americans consider Social Security their primary source of retirement income, and that only 23 percent of those ages 55 and older report having retirement savings greater than $250,000. Election options under Social Security can be tricky. Should I elect at the earliest possible moment – age 62 – in spite of the fact my benefit will be 25 percent less than if I wait to a “leading edge” baby boomer’s full retirement age (FRA) of 66? Indeed, more than 50 percent of all Social Security beneficiaries have historically elected to take benefits before reaching their FRA. But it could be argued that anyone with adequate resources would be better off waiting until age 70, since the total benefit difference is 76 percent between these “early” and “late” options. Also, the longer you wait to elect, the higher the survivor’s benefit among married couples. Some will suggest that one’s sense of life expectancy should play into the decision-making process, since the mathematical “crossover” between early and late election may not occur until age 82 or later. But election timing decisions also should include factors such as the extent of savings and investments, current and future earnings, taxable income, and family circumstances. Still, one of the biggest questions is: What is the appropriate election strategy when considering a spouse’s benefit? An example may serve to highlight the complexity of spousal elections. “John,” age 67, is 18 months older than “Martha,” his wife of more than 40 years. He has always earned the maximum for purposes of determining Social Security income benefits. Because he continues to work full time, he has not had a need for additional income. As a result, John has decided to hold off on receiving benefits and to wait until age 70 in order to receive a benefit that will be 32 percent higher than the benefit he would have received
InsuranceNewsNet Magazine » October 2014
at age 66. Martha has reached her FRA and has an earnings record allowing for a benefit of $1,000 a month. However, she sees that her $1,200 spouse’s benefit (50 percent of her husband’s full retirement benefit of approximately $2,400) is greater than her own earnings record benefit. So she urges John to “file and suspend” on his own record so she can begin receiving the larger spouse’s benefit now. And in many cases, this is how the benefit election would proceed. Here’s where an appropriately knowledgeable financial advisor can seem to “leap tall buildings in a single bound!” By reviewing the client’s situation with the appropriate software tools, the advisor points out a completely different option in which Martha elects her own earnings record benefit while at the same time John elects his spouse’s benefit on her record! This results in an initial monthly benefit that is $300 a month more than would have been the “obvious” choice. When John turns 70, he files against his earnings record and is rewarded with “delayed retirement credits.” Also because John – now age 70 – is collecting benefits based on his record, Martha picks up a “spousal benefit” of another $200 a month. This new cash flow will supplement their income needs in retirement. There are scenarios that can make a lifetime difference of $50,000 to more than $150,000 in total Social Security income benefit payments. Many of those opportunities would not be obvious to the uninformed retiree. “Kids, don’t try this at home” is a sensible caution, and ample justification to work with a knowledgeable financial advisor. 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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69
MDRT INSIGHTS
The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.
Three Essential Questions to Attract and Retain Clients S uccessful advisors ask the right questions to help them build positive client relationships. By Scott D. Sorrell
W
hen advisors launch their careers, they all have a passion to become the best in the industry. However, it’s important to recognize that in order to be successful you must nurture each relationship you have. While most advisors have similar educational backgrounds, intelligence and resources, some thrive more than others. The ones who are successful address three essential questions that help them build positive client relationships.
The Essential Questions: [1] Why would someone work with me? [2] What is the most important reason why someone would take action? [3] How do I empower someone to commit to their plan? Answering these essential questions and evaluating yourself may prove challenging, but a good way to solidify your responses is to have a mentor guide you. One of my personal mentors and fellow Million Dollar Round Table (MDRT) member Lou Cassara helped me develop my answers to these essential questions. Lou, president and chief executive officer of The Cassara Clinic, has not only guided me to answer questions about my own business practices, but his philosophy, practice processes and coaching programs have helped me grow my business even more.
Attracting the Right Clients
Once an advisor understands what they can offer clients that no other advisor can, they can use the following approach 70
to develop a plan of action for their clients. The first step is to identify clients who complement your business values and can benefit from your specific experience. For me, the values that I build upon when developing any client relationship are honesty, integrity and passion. When working in an industry where you help others plan their financial lives, it’s important to uphold such standards in order to build trust between the client and the advisor. This first step allows each person to evaluate the nature of the business relationship and decide if they are a mutual fit to work together. Potential clients must be clear about the values, qualities and expectations of the professional relationship you hope to build. This can be done by sharing a value statement during your first meeting. The value statement I share with each of my clients shows a genuine interest in helping them protect, preserve and grow what they’ve built to give each client the confidence, clarity and peace of mind to honor the agreements that they’ve made with their loved ones and their business partners.
The Trust Question
After finding that a potential client aligns with your values, it’s important to connect with them in a meaningful way to discuss what they are seeking, instead of simply presenting to them. To do this, an advisor must open up the discussion to discover the client’s life intention. Begin by clarifying to clients that an intention is to be something, such as being a great parent, being a good steward of one’s assets or being a world-class entrepreneur who cares about their employees. Focusing on intentions will help guide the process. Clients do not mind obtaining insurance or executing estate planning documents if it moves them closer to their end goal. To evoke a client’s intention, I use Lou’s Trust Question: “What can I help you focus on and accomplish in the next
InsuranceNewsNet Magazine » October 2014
12 months that would make y ou feel satisfied with your progress?” Clients respond openly to this question because it is genuine, nonleading and one that completely frames the discussion around the intentions they have for their lives.
Developing a Plan
With a clear direction, it’s time to put together a recommended plan of action centered on the client’s priorities as aligned with their intentions. When providing a recommendation, identify whether implementing it will move the client closer to their intended goal. This ultimately helps them to honor the commitment they made earlier in the process. My conviction in using this process was solidified when I delivered my first death benefit. The benefit paid to the family was $925,000, and every dollar was needed to sustain this family’s well-being. Since I started in the business, I have handled 13 death claims, totaling more than $5 million in benefits. Each experience has helped me realize that every dollar matters to these families. While we cannot bring back a loved one, we can help ensure that the people closest to them are properly protected and honor the commitment of the insured. There is a direct correlation between what clients are seeking and the advisor with whom they choose to work. Attracting the right clients and then nurturing those relationships will lead to a successful business model and a thriving business. Scott D. Sorrell, CLU, ChFC, AIF, RICP, CASL, CLTC, is an investment advisor representative at Capitol Financial Solutions, Raleigh, N.C. He is an eight-year member of the Million Dollar Round Table with two Court of the Table honors. Scott may be contacted at scott. sorrell@innfeedback.com.
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October 2014 » InsuranceNewsNet Magazine
71
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.
Dealing With Clients Who Are On the Fence A child’s toy leads a reluctant prospect to make a decision after more than two years of procrastinating. By Ayo Mseka
I
f you are looking for a source of ideas for boosting your production numbers, you might want to take a look at Buy Your Tomorrows Today, a book by NAIFA member David Appel. In the book, Appel, who is with Appel Insurance Advisors, shares some gripping stories about his personal life, as well as strategies you can use to attract and serve your clients. As noted by Katy Baxter in her endorsement of the book, “If you need inspiration and ideas for building a successful, protection-oriented business, look no further than Buy Your Tomorrows Today.” A great idea for building a successful practice can be found in Chapter 6 of the book, where Appel describes how to think outside the box. As an advisor, he writes, your job begins as soon as you are introduced to a new prospect. You should assess and evaluate what he needs and what it will take for him to want to work with you. If the prospect continues to procrastinate, you sometimes need to go outside the box, Appel writes. At the end of the day, you cannot accomplish the client’s mission if he won’t implement your professional recommendations. A decade into his career, Appel was working with a large real estate developer who would not make a final decision about implementing Appel’s recommendations. The developer’s team of professional advisors, including Appel, had been discussing the developer’s life insurance planning for over two years. He had been examined, underwritten and approved twice, but he was still dragging his feet about buying. So Appel decided that the prospect needed something more “dramatic” to jolt him into deciding. 72
So he bought a giant Tonka toy truck. On the outside of the box in which the truck was packaged, Appel pasted pictures of $1 million bills, commercial buildings and other assets the prospect owned. Appel also attached two checks to the box – one for $50,000 made payable to an insurer and the other made payable to the government to cover the taxes on the $30 million estate that the developer would leave upon his death. Appel then enclosed a note that read: “Bill, you have spent a lifetime building, growing and accumulating a very large estate and I want to help you secure this wealth for your family. There is still time to decide which of these checks is going to be signed.” Appel had no idea how this prospect would react to his package, but after two and a half years, he figured he had nothing to lose. He soon received a call from the prospect, who had opened the box in front of his entire family and realized at that moment that he had to buy the life insurance. A child’s simple toy truck, Appel writes, made this prospect re-evaluate his decision-making process and helped him place $30 million worth of life insurance. The lesson behind this? As professional advisors, Appel writes, “we need to sometimes do things other advisors won’t do. I could have easily walked away from this prospect after two and one-half years of frustration, but I was convinced his family needed my help. I tell you this story because, sometimes, it is easier to walk, but walking away is often the worst move you could make.”
InsuranceNewsNet Magazine » October 2014
The ‘I Surrender Letter’
In the same chapter, Appel shares another idea for getting a prospect to make you an essential item on his to-do list: Send him an “I Surrender Letter,” such as the following: Dear Mr. Prospect: I surrender. I am writing this letter simply because I do not know how to handle this situation. I can honestly say that in the 20-plus years I’ve been in the business of providing clients with valuable life insurance, I have never encountered a situation in which I do not know what the client wants the end game to be – having life insurance or not having life insurance. Please give me a call first thing next week so we can discuss the next steps. If I don’t hear from you by Tuesday, I will give you a call to go over this.” Once the prospect receives this type of letter, Appel writes, it is amazing how many times you will receive a call from them, wanting to implement a plan you thought would never be finalized. Ayo Mseka is editorin-chief of NAIFA’s Advisor Today magazine. Ayo may be contacted at ayo.mseka @innfeedback.com.
THEY WILL NEVER INVEST WITH YOU UNTIL THEY...
KNOW YOU, LIKE YOU AND TRUST YOU! Free WSJ Best-Selling book reveals the truth behind turning your personal story into a Blockbuster that instantly melts the hearts, souls and desires of clients who had never even heard of you yesterday. Hi, my name is Nick Nanton, a 3-time Emmy Award Winning Director and Producer and the co-author of StorySelling™, which I wrote with my partner and mentor JW Dicks. Way back 43 years ago, JW stumbled onto a concept that would not only change my life, but the lives of more than 2,200 clients that have worked with us in our Agency. The concept is People Buy People. It seems simple enough. But advertising agencies and socalled marketing gurus have written textbook after textbook that tells you to lead with features and benefits. While you have to get your market to understand how your process works, that is actually the second step in the equation. Why? Because they won’t even listen to you, or give you the time of day until they know you, like you and start to trust you. Only then can you introduce how your process works, the features of your planning system and the benefits. If you do this too early, you will turn HOT PROSPECTS away before you break out the pie chart. We all want to do business with people. People we can trust and depend on to help us make better decisions for our lives, our families and our future. When I went and bought my last car, a Porsche 911, I found the “guy.” He took care of me. And he took care of me before, during and after the sale. I know who he is, his story and ultimately bonded with him before we ever talked about the MPGs or the 0-60 time. None of that would have mattered if we never got to know each other. And if I didn’t like him, I would have darted to the door and moved on to the next dealership.
Are you unknowingly making people uncomfortable with your offers so they head to the guy down the street who understands the trust building formula? Whether you think you are, or you think you aren’t I want to help you to tell your story in a way that you never have before. I want you to tell your story much like Steven Spielberg or Martin Scorsese tells a story on the big screen. I want to help you create an emotional story that ties into the heartstrings of your market. I want you to lead a charge like Mel Gibson did in Braveheart every time you open your mouth and converse with a HOT PROSPECT. But it goes much deeper than this. Telling your true story of who you are and why you do what you do is the powerful magnitude you have been missing. Use your real story to attract and hand-deliver qualified prospects right into the palm of your hand. And that is exactly what our new book, StorySelling™, is all about. JW and I wrote StorySelling™ to help you to tell your story and then to use that story to help you sell without selling. Without having to resort to the same pie charts and diagrams all of your competitors are using that are making their prospects run for the life rafts as if they were abandoned on the Titanic. To claim your FREE copy of StorySelling™, along with our Ultimate StorySelling™ Kit, I urge you to visit www.CoreStorySelling.com or call one of my Business Agents at (888) 781-3442 and request your free Ultimate StorySelling™ Kit, a $39 value but yours FREE with no obligation. Then a few days later, right on your doorstep, you will receive a package that will contain your blueprint to the heartstrings of your market. You will have the treasure map which will unlock the code to connecting with the elusive high net worth market.
To have this special package arrive at your doorstep, simply call (888) 781-3442 or visit www.CoreStorySelling.com October 2014 » InsuranceNewsNet Magazine
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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
ACA Shifts Costs to Retirees T he effects of the Affordable Care Act on employers and their workers have not helped gain attention or funding for retirement benefits.
The ACA has affected/will affect my company’s retirement benefits strategy
(by # of full-time employees) 57% 50%
By Deb Dupont
W
hatever your opinion about the Affordable Care Act (ACA), there’s no denying it has dramatically changed the benefits landscape. About a year ago, the first health care exchanges opened to much fanfare and consternation. As we look at decisions for the 2015 enrollment season, it’s time to review what we have learned. One question that emerges is: Are there unintended consequences for employers (and employees) as they try to balance health care and retirement benefits planning, strategy, investment and engagement? The ACA, with its individual mandate, shifts responsibility for health insurance to many individuals similar to the way the Employee Retirement Investment Security Act (ERISA) began a shift to individual responsibility for retirement four decades ago. This is particularly true for individuals who are not eligible for employer-sponsored health care and who are now guaranteed – but also mandated to purchase – health insurance. For many smaller employers, the question has been whether to offer health insurance themselves or to examine the possibility and repercussions of terminating an existing plan in favor of the exchanges. The impact of these decisions is not limited to health care. LIMRA Secure Retirement Institute research finds that nearly half of defined contribution (DC) retirement plan sponsors say the ACA has affected their company’s retirement benefits strategy in 2014. Roughly the same percentage predicts that it will continue to affect strategies and planning throughout 2015. These findings are most pronounced among midsized employers, particularly those with 100 to 999 employees. While a number of employers defined as “very large” (1,000+ employees) say the ACA has affected (or will affect) their benefits strategy, these employers tend to have 74
53%
Has Affected
53%
Will Affect
50%
45% 39%
39%
41%
36%
1-99
100-249
250-499
500-999
1000+
1,516 DC plan sponsors. Multiple responses allowed. Source: LIMRA Secure Retirement Institute DC Plan Sponsor Perspectives Study, 2014
fully staffed benefits resources and robust, strategic benefits programs. For many, the impact of the ACA on retirement benefits and strategies has not been positive. More than half of all affected DC plan sponsors (54 percent) say that they spent less money on their retirement benefits in 2014 and/or shifted more retirement benefit costs to their employees (55 percent). The smallest plan sponsors, with fewer than 100 employees, were most likely to say that they spent less money on retirement benefits and least likely to say that they had shifted more retirement costs to their employees. The effect continues and persists more strongly with smaller employers. Twothirds of all DC plan sponsors who indicated they were affected by the ACA now say they plan to spend less on retirement benefits in 2015 – this percentage jumps to 70 percent of plan sponsors in organizations with fewer than 1,000 employees. Compared with 2014, 40 percent said that they will spend less time in 2015 on retirement benefits while 60 percent said they would shift retirement benefit costs to employees. This paradigm shift in health benefits could be as significant as the transition in retirement savings from defined benefit to defined contribution. It’s still too early to know if employers will continue to shift additional retirement costs onto employees. Balancing health and wealth planning, strategy, and investments is a key concern
InsuranceNewsNet Magazine » October 2014
at both the employer and individual levels. Employers are challenged by changing regulatory and legislative environments in their quest to offer meaningful benefits to their employees. The effects of the ACA, however well-intentioned from a coverage and access perspective, have not helped retirement benefits gain attention or funding for many employers and, by direct extension, their employees. At the same time, employees and individuals are being asked to shoulder more responsibility for funding both their health insurance and their longer-term retirement income. At both levels, advisors can add real value by helping employers and individuals stay focused on and balance immediate priorities and longer-term planning needs. LIMRA studies have consistently reflected the value an advisor can bring to individual financial situations. At the employer level, advisors can play a pivotal role in helping plan sponsors overcome the effects of the ACA and design and maintain retirement programs for this new benefits landscape. Deb Dupont is the associate managing director of institutional retirement research for LIMRA Secure Retirement Institute, and manages research related to workplace retirement plans and planning. Deb may be contacted at deb.dupont@innfeedback.com.
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Sentinel Security Life
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THE LAST WORD WITH LARRY BARTON
Stop Treating Financial Institutions Like Petty Thieves T he language and complexity of the financial services industry continue to intimidate consumers and prevent them from taking action. By Larry Barton
B
efore I tell you about what may be the best read you will encounter this year, here are two questions for you to consider. 1. In August, Bank of America (BOA) agreed to a $17 billion settlement of a serious claim from the feds that it had engaged in widespread shoddy mortgage practices. But did you read the fine print of the settlement? BOA is not cutting a check for $17 billion to the Treasury Department. BOA is receiving “soft credit” for about $7 billion in new terms to existing mortgage holders, and other credit for mortgages it already sold to investment firms that still have to bear the burden of the lousy underwriting that was in place for years. Some analysts lifted their ratings on BOA because the hit to the institution is “only” about $10 billion in hard cash. Is it me, or do you think we need some diligent prosecutors to stop treating financial institutions like petty thieves? I understand that some criminal judges will allow a convicted robber three months toward a 10-year prison sentence, but a convicted felon is not regulated. That felon doesn’t receive subsidies from the Fed to operate and receive loans at unheard of interest rates. That criminal doesn’t receive additional subsidies for a dazzling array of operations. If we are serious about penalizing financial institutions that break the public trust, no more soft credit should be provided. Agree or disagree? 2. I decided to conduct an informal but pretty accurate inventory at a bookstore at Los Angeles Interna76
tional Airport recently. Specifically, I wanted to look at what the public is buying to help guide them through the maze of financial and insurance questions they face daily. Obviously, the title of the book says a lot about how agents and advisors are, or are not, meeting their obligations. The “For Dummies” guides to investment, retirement, insurance and annuities continue to sell very well. The Wall Street Journal series on investment has a more Brooks Brothers-type cover, but the data inside seemed painfully entry-level. The Rich Dad Poor Dad series is tired but still selling, and the Suze Orman machine of dumbed-down financial advice is on steroids again. My takeaway conclusion is that the high-net-worth clients avoid Jim Cramer and Money magazine because their agents are providing sound ongoing insight on insurance and other products. Meanwhile, the vast majority of consumers remain intimidated by the language and complexity of what you do every day. We need to find a way to break through compliance and offer sound advice so that we have Life Insurance Awareness Month every day of the year. You can help accomplish that by including a clear tagline at the end of every email you send that reminds clients about the opportunities available with products such as A, B or C. This isn’t rocket science, but it’s a daily pushback against the “one size fits all” pundits. Agree or disagree? Now on to how you may take an objective look at your practice and ascertain how you can maximize every opportunity with clients. Various advisors send me books to read and, candidly, most of them are junk. They’re self-serving, filled with personal stories about how the authors grew up in their hometowns and littered with dozens of senseless and poorly written references to clients and situations.
InsuranceNewsNet Magazine » October 2014
Here’s an exception. Practice on Purpose by Phil Richards, Gary Schwartz and Ed Deutschlander is the book of the year on my list. Just published, the work offers practical and candid insight on how to acquire clients instead of prospecting for clients. It outlines, in a very creative manner, the five traits that mark the most successful agents. Best of all, the book ends with a series of insights about how North Star Resource Group, based in Minneapolis, became one of the most formidable insurance and financial planning firms in the country. The authors share some of the tools they leverage daily to acquire talent as well as new clients. But the most insightful part of the book is an admission by the authors, who all grew up in a commission-only environment, that there is a place and a proper appreciation for the fee-only model. They acknowledge the strengths and weaknesses of both approaches and remain agnostic but informed. They admonish us to understand that if we refuse to acknowledge what is happening in the global markets, we do so at our own peril. I don’t receive anything for mentioning this wonderful book, but I’d urge you to read it and then purchase a copy for everyone in your practice. Keep motivating your team and remind them that when they deliver a death benefit to a client, they represent the one industry that delivers what is promised with no qualms or delays. It is, ultimately, one of the most honorable aspects of an industry that must continue to do the right thing for clients every day. Larry Barton, Ph.D., CAP, is Chancellor of The American College of Financial Services. In December, he will receive the college’s highest honor, the 2014 Huebner Gold Medal. Larry may be contacted at larry.barton@innfeedback.com.
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