November 2016
Armor Yourself With Technology
For The New World
PAGE 20
ORED SPONISON SECT
30> <PAGE
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NOVEMBER 2016 » VOLUME 9, NUMBER 11
FEATURE 20 DOL Ready? Armor Yourself With Technology for the New World By Steven A. Morelli
A look at how technology might save advisors in the post-fiduciary rule world.
30 The 2016 Tech Guide
Future-forward digital inventions that give consumers unprecedented access to products, services and information.
INFRONT
54 W hat License Is Needed to Sell Annuities Under DOL Rule?
8D OL Suit Decisions Unlikely Before 2017 By John Hilton As of press deadline, there was no resolution in sight to the many lawsuits seeking to stop the Department of Labor fiduciary rule. That presents a problem for all who are affected by the rule.
By Kim O’Brien A breakdown of what type of license will be needed to sell various products under the fiduciary rule.
LIFE
40 Second-to-Die Life Policies: Going Beyond Estate Taxes By Louis S. Shuntich This type of coverage has evolved into being useful for far more purposes than were ever imagined when it initially was developed.
HEALTH/BENEFITS
58 S elf-Insurance: Risks and Rewards
By Elie Harriett Prospects don’t need us, and a lot of them know it. We figured this out and changed our strategy because of it.
44 How Single Premium Whole Life Can Help Worried Clients By Eric Miller If you have older clients who are concerned about helping their children or grandchildren financially, having them put a portion of their assets toward a single premium whole life policy could be the solution.
INTERVIEW
10 The Science of Selling More
An interview with David Hoffeld Wouldn’t you like to get inside your prospect’s mind and know what they are thinking as they listen to your presentation? There’s a science behind why prospects say yes or no, and David Hoffeld writes about it in his book, The Science of Selling. In this interview with InsuranceNewsNet Publisher Paul Feldman, Hoffeld explains how you can tap into this science and guide your prospect to saying yes.
2
ANNUITY
50 A nnuities: Helping Clients in a Build-Your-Own Pension World
InsuranceNewsNet Magazine » November 2016
By Cyril Tuohy Advisors will need to educate clients how to use annuities for retirement funding now that traditional pensions are going by the wayside.
64 Same Sex, Different Needs: Serving the LGBT Community By Ellen DeSarno Although marriage is now a right guaranteed by law, it also poses additional financial planning opportunities and complexities for same-sex couples.
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ALSO IN THIS ISSUE
NOVEMBER 2016 » VOLUME 9, NUMBER 11
BUSINESS
69 N AIFA: Retirement Planning Threats Move to the State Level
56 F ive Steps to Heading Off a Potential Lawsuit
By Paul Dougherty State-run retirement programs are looking in the wrong direction for a solution.
By Jason Gould and Dawn Williams Class action filings involving the insurance industry have steadily increased over the past several years. Here is how you can steer clear of potential litigation.
72 LIMRA: Retirement Planning Becomes A Bigger Part of Advisor’s Job By Jafor Iqbal The role of advisors has evolved in recent years from financial product expert to financial planner to retirement income planning specialist.
INSIGHTS
68 MDRT: Beyond Competence: The Ethics of Implementation By Albert Gibbons Even when you think your work on behalf of your client is complete, there are double-checks to be done.
EVERY ISSUE 6 Editor’s Letter 18 NewsWires
38 LifeWires 48 AnnuityWires
56 Health/Benefits Wires 62 AdvisorNews Wires
INSURANCENEWSNET.COM, INC.
3500 Market Street, Suite 202, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli MANAGING EDITOR Susan Rupe SENIOR EDITOR John Hilton SENIOR WRITER Cyril Tuohy VP FINANCES AND OPERATIONS David Kefford VP MARKETING Katie Frazier CREATIVE STRATEGIST Christina I. Keith AD COPYWRITER John Muscarello CREATIVE DIRECTOR Jacob Haas SENIOR MULTIMEDIA DESIGNER Bernard Uhden
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WELCOME LETTER FROM THE EDITOR
What Red Rocks Say
E
ven mountains and monumental rock formations come and go. That scale of time humbles the hurtling mind at the foot of the Rocky Mountains. The speck of the moment adrift in an epic span of years is evident at the Garden of the Gods in Colorado Springs, near where the Insured Retirement Institute (IRI) had its annual meeting in late September. The theme of the meeting was “Capitalizing on Chaos,” and once you look for chaos, it becomes apparent in many forms. The chaos of plate tectonics pushed massive layers of rock to stand vertically in the eroded, soft-red formations that enthrall tourists today. It took hundreds of millions of years for the formations and the Rockies themselves to grow. If that half-billion years could be condensed into a 10-second video, the clip would show a terrifying eruption spewing mountains from the ground. Even that period is a fraction of the 4.5 billion years the Earth has existed. The pressure between plates builds until a snap reshapes the Earth bit by bit. Even though the changes are long in coming, we notice them only in precipitating events such as earthquakes. Helen Hunt Jackson, a 19th-century writer, described the formations as, “all bright red, all motionless and silent, with a strange look of having been just stopped and held back in the very climax of some supernatural catastrophe.” Jackson advocated for the Native Americans who lived in the area since at least 1500 B.C. Catastrophe befell them in the 1800s when whites started showing up in larger numbers. Within a few decades, thousands of years of Native American history ended.
The Current Quake
I was reminded of that history as I spoke with attendees during breaks at the IRI conference. Of course, the main topic
6
of conversation was the Department of Labor’s conflict of interest rule, which is clearly the disruption between the pressure to expand the fiduciary duty and to sustain the suitability standard, which has guided insurance sales for generations. People mostly were resigned that the fiduciary side will win out not only with the DOL rule, but also beyond that, with possible action from the Securities and Exchange Commission. Many said the changes would enhance the professionalism of annuity and brokerage sales. But for old-school insurance agents, the rule is another encroachment on their familiar territory. Yet another systemic change is the push for incorporating technology into practices for accountability. Tech, and its effect on practices, is the subject of our feature article this month. The evolving practice will benefit advisors and clients. But as I researched the article, I was taken by the poignancy of a way of life slipping away. I came to appreciate insurance agent culture in my previous job as an association vice president of communications. I learned independent agents tended to have small practices and often were the only agent in that practice. They knew about their clients and their families because they were in the same community, where agents often served as volunteer leaders. And just like the agents of old, many still visited prospects and clients to chat around the kitchen table.
Go Tech or Go Home?
That has slowly changed over the years, with agents morphing into advisors. They prefer to meet at their offices for efficiency and access to tech and data. And for all the talk about being more holistic, it seems that although advisors might be more focused on the spectrum of financial needs, they might also be losing sight of the person in front of them. Connecting with people is what the best agents do. Some agents will be able to take the best of their people skills and leverage them with the technology to help ensure consistency and transparency. The efficiency can also
InsuranceNewsNet Magazine » November 2016
free them to do what they love. Others will say that it is clearly time to move on, either to another field or to retirement. The insurance industry will still be going strong, but it will be different. For example, the feature article wraps up with the story of an advisor, David Holland of Florida, who focuses on fixed annuities but is a financial advisor. He has taken the best of both of those worlds and joined them in a system made possible by technology. That has also allowed him to grow his practice to incorporate a few disciplines and employ 20 people. That is the best case, what the IRI would call capitalizing on the changes.
On the Road to Where?
In Colorado Springs, not all of the Native Americans left. To travel from Manitou Springs and Colorado Springs, I used a bit of tech to hail a ride through Uber. The driver was Michelle, whose mother was a Native American from the area. Michelle didn’t know how far back her family went locally. It could be thousands of years. That is difficult to fathom in today’s America, where families go back only a couple of generations and then history is lost to the old country. Today’s America is suspended in a long, uncertain arc of change. Up? Down? It’s difficult to tell. So many people aren’t sure about their future. How will they pay for college, care for elderly parents and plan for their own retirement? And those are the people fortunate enough to be fully employed. Obviously, this is a clear case for advisors who can promise security. There are few better callings. On the road from Manitou to Colorado Springs, I asked Michelle about the changes she had seen in the area, which has grown from a sleepy military town to a booming region. She knows many people who don’t like the change. She said she tells them that no change is no life. Change is growth. Growth is life. Steven A. Morelli Editor-In-Chief
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INFRONT TIMELY ISSUES THAT MATTER TO YOU
DOL Suit Decisions Unlikely Before 2017 egal wrangling over the L Department of Labor fiduciary rule is expected to carry well into 2017. By John Hilton
A
s of press deadline, there was no resolution in sight to the many lawsuits seeking to stop the DOL rule. For agents/advisors, insurers, IMOs and everyone in between — that presents a problem. Only five months remain before the first mandates are due to take effect. The barrier to resolution isn’t just the hearings and rulings, but also the appeals that the losing side will inevitably file. The first lawsuit by the National Association for Fixed Annuities (NAFA) — requesting a preliminary injunction stopping the entire rule — was heard Aug. 25 in U.S. District Court for the District of Columbia. The judge’s decision was expected at the end of September, but as of early October, it had not been released. Erin Sweeney, a Washington lawyer who is not involved in the case, said she expects Judge Randolph D. Moss’ decision will be appealed. Even in the best-case scenario, that could drag the case out for months. “It is likely that the losing party will file a motion for an expedited appeal,” said Sweeney, of the firm Miller & Chevalier. “Even if the circuit court agrees to an expedited appeal, obtaining a decision on appeal would, at a minimum, take several months.” Sweeney attended the NAFA hearing and is among those who say the judge seemed unconvinced by the plaintiff’s case. If NAFA does not obtain an injunction from the district court, it “will find itself in front of the D.C. Circuit, which is unlikely to reverse the district court,” she explained. Another option may emerge as a middle ground of sorts. Plaintiffs could appeal to a judge to push back the applicability date on which the new rules take effect. Should 8
Hillary Clinton win the election, government attorneys might not be so opposed to that idea. If Donald Trump wins, he is expected to assist congressional Republicans in dismantling the rule.
BIC Compliance Affected
The second lawsuit to be heard — on Sept. 21 before Judge Daniel Crabtree in U.S. District Court for the District of Kansas — might be a bigger source of uncertainty for agents and insurers scurrying to comply with the DOL rule. Market Synergy Group is the plaintiff in this case.
The DOL rule is due to take effect in two parts — April 10, 2017, and Jan. 1, 2018. Commission-based sales of certain products, fixed indexed and variable annuities among them, will require the Best Interest Contract Exemption (BICE) starting in April. The BICE mandates hefty disclosures, a signed contract between financial institution and client, and a vow to accept no more than “reasonable” compensation. Agents and insurers need to proceed as if the BICE will be enforced as published. In the meantime, the Market Synergy lawsuit is aimed at overturning fixed indexed annuities’ (FIAs’) inclusion in the exemption.
Lawsuit
Court
Law Firm
Status
U.S. Chamber of Commerce v. Department of Labor and Secretary Thomas Perez (Consolidated case)
U.S. District Court for the Northern District of Texas
Gibson Dunn & Crutcher
Hearing scheduled for Nov. 17 in Dallas
The National Association of Fixed Annuities v. Department of Labor and Secretary Thomas Perez
U.S District Court for the District of Columbia
Bryan Cave
Hearing held Aug. 25 in Washington, D.C.
Thrivent Financial v. Department of Labor and Secretary Thomas Perez
U.S. District Court for the District of Minnesota
Cozen O’Connor
Hearing date not set as of early October
Market Synergy Group Inc. v. Department of Labor, Secretary Thomas Perez and Assistant Secretary Phyllis Borzi
U.S. District Court for the District of Kansas
Carlton Fields Jorden Burt
Hearing held Sept. 21 in Kansas City
InsuranceNewsNet Magazine » November 2016
DOL SUIT DECISIONS UNLIKELY BEFORE 2017 INFRONT
“Even if the circuit court agrees to an expedited appeal, obtaining a decision on appeal would, at a minimum, take several months.”
– Erin Sweeney, Miller & Chevalier
In its request for a preliminary injunction, Market Synergy cited irreparable harm if FIA sales require compliance with the BICE. Under the DOL’s preliminary rule, FIAs were placed under the Prohibited Transaction Exemption 84-24. When its final rule was published in April, FIAs surprisingly turned up under the more stringent BICE. Crabtree was receptive to the plaintiff’s arguments, said Sweeney, who also attended the Kansas City hearing. Changes in the regulatory regime must be “foreshadowed” by a regulatory proposal in order to provide adequate notice to stakeholders, according to Market Synergy’s attorneys. When government attorneys contended that notice was adequate, Crabtree expressed skepticism, Sweeney said. If the only notice an agency gives the public is that it seeks comments on whether the agency has “drawn the line in the right place,” Crabtree asked, “isn’t that notice of everything and notice of nothing at the same time?” The DOL contended that the court should invoke the doctrine of “harmless error,” which forgives an agency’s notice failure as long as public comments on a rulemaking were actually considered by the agency and the public was not prejudiced by the notice failure. Insurers will be given until Jan. 1, 2018, to implement the compliance, operational, technology, and process changes to support the exemption requirements and new advice standards.
A New Claim
In early October, Thrivent Financial filed a surprise lawsuit against the DOL rule. A Christian-based financial services company, Thrivent claimed the DOL rule will
render its dispute resolution mechanism obsolete. What makes Thrivent’s suit different is that the organization takes no issue with the overall rule. The complaint specifically asks the court to overturn the class-action component. “Nothing in ERISA gives DOL authority to preclude financial institutions and their clients from entering into and enforcing arbitration agreements that include class action waivers,” Thrivent’s complaint reads. Thrivent — represented by the Washington law firm Cozen O’Connor — seeks
annuity products unless IMOs with which agents have a relationship are granted “Financial Institution” status by the DOL. The BICE allows agents to accept “reasonable” commissions on recommendations for investment or insurance products to retirement plans or individual retirement accounts (IRAs). But it requires a contract signed by a Financial Institution. Only banks, insurance companies, broker-dealers and registered investment advisors (RIAs) were designated by the DOL as financial institutions. IMOs, who have contracts with independent agents, were left out, as they are not regulated in the same way. But they were allowed to apply for FI status. At least eight companies have made applications, including Clarity 2 Prosperity, Gradient Insurance Brokerage, Legacy Marketing Group, InForce Solutions, Financial Independent Group, Futurity First Financial, Brokers International and AmeriLife. More IMOs are expected to file for financial institution status, and IMO executives interviewed earlier over the summer
Only banks, insurance companies, broker-dealers and registered investment advisors (RIAs) were designated by the DOL as financial institutions. a preliminary and permanent injunction against the class-action provision of the DOL rule. Elsewhere, three lawsuits were consolidated in U.S. District Court for the Northern District of Texas, with a hearing date of Nov. 17. Plaintiffs in that case, led by the U.S. Chamber of Commerce, also seek a preliminary injunction and are challenging the entire rule.
Path for IMOs
In addition to looming decisions from the bench, the future of sales will be affected by whether independent marketing organizations (IMOs) can get a foot in the door. The new fiduciary rules prohibit agents from selling commission-based life and
said they expect an answer from regulators by the end of the year at the latest. “The most important aspect is what each of the [IMO] entities say about how they are going to supervise the agents that are going to work for them and whether an IMO can serve as a financial institution,” said Bruce L. Ashton, a partner with the law firm Drinker Biddle, which is representing several IMOs in their applications before DOL. InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john. hilton@innfeedback.com.
November 2016 » InsuranceNewsNet Magazine
9
INTERVIEW
10
InsuranceNewsNet Magazine » November 2016
THE SCIENCE OF SELLING MORE INTERVIEW
Y
ou know that many people like to talk about themselves, but maybe you didn’t realize how much they like to do it. Talking about themselves is worth more than money to some folks. That’s based on science, according to David Hoffeld, who says that knowledge is also money to you. David is a sales trainer who has been featured in many media, but he is also an eternal student of why people buy. He says that about 15 years ago, he began reading studies of neuroscience and behavioral psychology, and saw some themes in those studies that spoke to sales. He saw how sales theory usually has related to the salesperson’s perception of what works rather than to the science of how people actually make decisions. Now he has packaged his findings into a book, The Science of Selling, due out this month. Why do prospects seem to be on board with a product or service only to turn away at the last minute? It probably has to do with their emotional disposition at the moment. If you’re not asking the right questions, you won’t be able to detect and defuse that bomb long before it blows up the sale. Salespeople know they need to ask questions to understand clients and their needs, but they are often only on the first rung of the process. Are you asking the right questions and crafting an effective presentation? In this conversation with Publisher Paul Feldman, David reveals what science has to say about asking the right questions. FELDMAN: What makes your book, The Science of Selling, different from some of the other sales books that are out there? HOFFELD: The world of selling has changed. The way people buy has changed. The internet has given us easy access to information. Research over the last couple of years shows that salespeople are often entering into the buying process when approximately 60 percent of it is already done.
Buyers know who you are, and — even more concerning for sales professionals — they also know who your competitors are. It has become more challenging to sell, but we haven’t changed the way we sell. How do we upgrade our skills? A decade ago, I saw that there had been an explosion in scientific research explaining how our brains make buying decisions and how they are wired to be influenced. I saw early on how applicable this was in the world of selling. The closer your way of selling is to how the brain buys, the more effective you will be. This book connects the dots between this powerful science and the real-world sales situations that you face every day. It’s based on hard scientific evidence, and we cite more than 400 academic journals. So, if people want to go deeper into some of this science, they certainly can. We give them not only a little bit of the science but also how to apply it in the real world. I thought this science-based approach would help us sell more, but one thing I didn’t realize until I saw it in action was how much buyers love it. It allows salespeople to sell the way our brains make a buying decision. People enjoy it. FELDMAN: How does the brain make a buying decision? HOFFELD: In a couple of ways. One of the things behavioral science has fleshed out is there are certain commitments that must happen before our brain will say yes to something. We must make certain small, incremental commitments that guide our brain on a natural progression of consent. So we talk about what these commitments are and how to get to them. This flies in the face of what traditionally we’ve been taught as salespeople. I was taught early on that you start to ask for big commitments at the close. The research shows that is not how our brains make buying decisions. As we listen to a persuasive message, we are making small commitments throughout that message. Then, at the end of it, we say yes or no based on those previous commitments.
FELDMAN: A lot of people would think of incremental commitments as getting a yes throughout the process. That would be asking questions that you know they are going to answer yes to. Is that what you are referring to, or is there more to it? HOFFELD: Much more. That’s the old sales strategy of getting them to say yes so many times that they forget how to say no. It doesn’t really work. People remember how to say no and affect the close. You can get the “no” commitment to a lot of things that really don’t matter. But what you want to focus on are the six specific commitments, the Six Whys. Each question begins with the word “why.” No longer is the close such a highpressure, stressful event for you and your buyer. You naturally advance the sale, and then at the close, it’s that final commitment that is intertwined and even dependent on the previous commitments. Think of closing holistically, as something that’s happening throughout the entire sale. I’m not asking to ABC — always be closing. I’m asking for certain commitments that really help clients make that buying decision. These commitments are really the building blocks of the sale. If you have a process that allows you to get these commitments, you will be extremely successful. And you will make buying a pleasant experience. If you have a process that doesn’t do this, then people have to do that mental work on their own and it often creates problems that are revealed at the close. What happens at the close is a symptom, not a cause. Often we look at the close as this event that is independent from the rest of the sale, which is why most books on closing focus on two things: what you say at the close and how you handle the objections. Decades of research in behavioral science confirmed that the best way to get someone to do something big, like make a positive buying decision, is to first get them to make a small commitment that’s consistent with the big one. FELDMAN: What are the “Six Whys” to ask? HOFFELD: These are the six commitments that people have to go through.
November 2016 » InsuranceNewsNet Magazine
11
INTERVIEW THE SCIENCE OF SELLING MORE I’ll list them and talk about a couple of them. The foundational one, the one we always want to focus on first, is “Why change?” We break through status quo bias. Our brains have a natural aversion to doing nothing rather than something. We assign a high level of risk to change. All of us do. So, buying anything, regardless of what it is, has an inherent risk in it: I might make a bad decision. And so we must first of all create a very compelling case for why the client should change. Presenting a solution when people haven’t committed to making a change will make you seem irrelevant. Then the second is “Why now?” In our process, we must talk about that. The third is “Why your industry solution?” Fourth is “Why you and your company?” Fifth is “Why your product or service?” Sixth is “Why spend the money?” If they buy something from you, they are not buying something else. So you are talking to someone about insurance and they say, “Boy, this sounds great. We need it. But, man, if I do this, I’m not going to be able to buy my jet ski.” Now you are competing with jet skis or fixing the roof or whatever it may be. Compelling research guides us in creating a process with evidence and value statements. FELDMAN: How do emotions work in that decision-making process? HOFFELD: There is research from neuroscience that shows how emotions matter. The first thing that really opened my eyes was some of the research on people who had brain injuries and had limited to no access to their emotions. They have a terrible time making decisions. They will think through logically a simple decision, as simple as “which restaurant?” And they will spend hours thinking about it and still not be able to decide. Why? Emotions are how we assign value. One neuroscientist puts it this way, and it’s my favorite way of thinking about emotions. He said the logical part in your brain allows you to look at a person walking toward you and say, “She’s my cousin.” But it’s the emotions that allow you to say, “And I can’t stand her.” 12
InsuranceNewsNet Magazine » November 2016
THE
SIX WHYS
The Six Whys are six specific questions, each beginning with the word “why,” that represent the mental steps all potential customers go through when making a purchasing choice. #1: WHY CHANGE? Answering this question lays the foundation for the entire sale; it equips you to defuse any bias your buyers may have toward keeping things in line with the status quo. #2: WHY NOW? To be successful in selling, you must be able to build urgency, but not cause buyers to feel that you are pressuring them to buy. In fact, countless sales have been lost when salespeople try to create urgency, but instead trigger reactance. #3: WHY YOUR INDUSTRY SOLUTION? To be truly successful in answering this Why, you may need to rethink your definition of a competitor. Many salespeople consider a competitor to be an organization that provides a similar product or service. However, such a shortsighted view leaves these salespeople vulnerable to competitors outside of their industry, which are often the most challenging and difficult to compete with because they fly under the radar. #4: WHY YOU AND YOUR COMPANY? This Why is so important and must be attended to in the sale, because without a commitment to you and your company, potential customers will not buy from you. #5: WHY YOUR PRODUCT OR SERVICE? The answer to this is found in knowing the competitive advantage your product or service offers. That’s how you will demonstrate that your product or service is the best one for your potential customers and gain commitment from them. #6: WHY SPEND THE MONEY? It’s important to realize that regardless of the type of sale, anytime you ask buyers to purchase your product or service, you are asking them not to do something else. Whether making a purchase for themselves or on behalf of their employer, buyers have access to a limited amount of funds. 2016, The Science of Selling, TarcherPerigee
Uprootedophobia:
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Health care practitioner must state informal care is appropriate in the plan of care. Nationwide YourLife CareMatters may not be available in every state. Please contact Nationwide to determine product availability in your state. Guarantees and protections are subject to the claims-paying ability of the issuing insurance company. When choosing a product, make sure that life insurance and long-term care insurance needs are met. CareMatters is not intended to be a primary source of life insurance protection, so make sure life insurance needs have been covered by appropriate products. Because personal situations may change (i.e., marriage, birth of a child or job promotion), so can life insurance and long-term care insurance needs. Care should be taken to ensure these strategies and products are suitable. Associated costs as well as personal and financial objectives, time horizons and risk tolerance should all be weighed before purchasing CareMatters. Life insurance, and long-term care coverage linked to life insurance, has fees and charges associated with it that include costs of insurance, which varies based on characteristics of the insured such as gender, tobacco use, health and age, and additional charges for riders that customize a policy to fit individual needs. Life Insurance is issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company, Columbus, Ohio. Let’s Face It Together is a service mark of Nationwide Life Insurance Company. Nationwide, the Nationwide N and Eagle, Nationwide is on your side and YourLife CareMatters are service marks of Nationwide Mutual Insurance Company.© 2016 Nationwide. NFV-0890AO.2 (6/15) November 2016 » InsuranceNewsNet Magazine
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INTERVIEW THE SCIENCE OF SELLING MORE Emotions give you preference and sway every decision. One thing I couldn’t account for in building this sales process with the commitments was that once in a while people still would not buy. They would say things like “It doesn’t feel right,” or they just couldn’t give me a logical reason. Here’s why: because the emotions you are feeling at any given time heavily shape your perspective. It’s the rose-colored glasses. So to you, the whole world is rosy. Or negative. You view the world that way. People don’t attribute their outlook to their emotions. They simply believe that’s how the world is. If you’ve been in sales for any period of time, you can relate to talking to potential customers a couple of times, but this time, they seem uninterested. Often, they are stuck in a negative emotional state. And it’s very hard for your brain to make a positive buying decision or a positive decision in general when it’s in a negative emotional state. Children know this intuitively. I have two children, 8 and 10 years old. My son and daughter know that when I’m in a good mood, a positive emotional state, this is a great time to ask me for stuff. They also know when I’m not in a good mood, it’s not the best time to ask Dad for anything. Sometimes as adults, we forget that.
kinds of things. They would give them more breaks, they would give them fewer breaks. Change the lights in the room, make them brighter and then dimmer. Give them vacations, take away vacations. With each change, productivity went up. The researchers asked, “What in the world is going on there? We make the lights brighter, productivity goes up. Then we make them dimmer and productivity goes up again.” What they found would become known as the Hawthorne effect — when you tell people they are being watched, just saying that you are going to be monitoring their productivity makes them more productive. FELDMAN: How do you apply that to the emotional state? HOFFELD: This is a very compelling way to shift someone’s emotions. You
GREETING
FELDMAN: How do you get people out of a negative emotional state? HOFFELD: It’s easier said than done, and this is one of the parts of the book where I say you’ll need to deploy numerous strategies, depending on how deep the mood is. Let me give you a couple of ways to do this. Often, you will want to use some of these back to back to back. We can leverage something called the Hawthorne effect [based on experiments during the 1920s and ’30s at a Western Electric factory in the Chicago suburb of Hawthorne]. They did research where they put workers from the plant into a special room. The researchers asked about changing work conditions to increase productivity. Over a couple of years, they would switch out the workers and change all 14
they are going to judge you and your product through the lens of the negative emotions. FELDMAN: Many people would still press it at that point and not walk away. Is that a mistake? HOFFELD: Yes, if they are in a deep negative state. But if not, you can try a couple of things before you walk away. The thing about these negative emotional states that really kills us as sales professionals is that we don’t know what’s going on. And it’s hard to fight against the unknown. We just think, “Boy, they are not receptive today.” Well, why is that? We don’t know. You do have a couple of strategies you can deploy to help guide them out of the negative emotional state, which is good for them, too. People don’t want to be in
WHY WHY WHY WHY WHY WHY #1 #2 #3 #4 #5 #6
SALE
Breakdown causes an objection and halts the decision process.
call attention to the negative emotional state, respectfully. You would say for example, “John, it seems like you are a little distracted today. Is now still a good time to go over this proposal?” And what people will do almost every time is one of two things. They will deny it, which happens the majority of the time. They’ll say, “Oh, no. I’m sorry, I was just thinking about something that happened earlier today. Please go on.” You call attention to the negative emotional state respectfully, with concern. You always need to make sure you have concern. You’re not trying to get into a confrontation. Sometimes, if they are really distracted by something else in this negative emotional state, they’ll ask if you wouldn’t mind rescheduling. That is in your favor, because if you present and try to sell to them while they are in a negative emotional state, the likelihood of your getting that sale is diminished. And the likelihood of them taking your calls later is also diminished because
InsuranceNewsNet Magazine » November 2016
negative emotions. And if you can help get people out of it, it’s better for them and you. FELDMAN: What are some of the ways to change their emotional state? HOFFELD: One way is to focus them on things that are naturally linked with positive emotion. I do some pre-call planning by looking at LinkedIn or their Twitter or their Facebook account. I know they coach Little League. They are involved in the local Toastmasters. I know they just went on vacation to Disney World with their family. Any of these things are rife with positive emotions that I can bring up early in the call and get them to focus on something that’s linked with positive emotions. If I just got back from a wonderful vacation with my children and we talk about that for three or four minutes, all those positive emotions will affect my emotional state. Another way is to ask second-level questions. That is asking someone to assess or explain something about themselves.
NOTICE FOR ADVISORS
The #2 title on Amazon’s ‘Top Releases in Retirement Planning’ has prospects and clients taking shots at advisors. Consumers’ trusted financial thought leader, David Scranton, released his new book on September 13, and you need to know what he’s telling your clients and prospects to do. The host of a national TV show received by 40 million homes, who’s a regular guest on CNBC, Fox Business and Bloomberg, is giving his vast audience a list of pointed questions to ask their financial advisors.
Be ready. Make the save. And make the sale. Get your copy of the book your prospects are reading at www.ReturnOnPrinciple.com or call 866.913.1234 today. November 2016 » InsuranceNewsNet Magazine
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INTERVIEW THE SCIENCE OF SELLING MORE They’ve done research at Harvard University with FMRI machines to show what’s going on in the brain when people explain things about themselves. The pleasure centers in the brain light up. In fact, they’ve even done research on this in which people have been offered money or the ability to talk about themselves, and some will choose to talk about themselves instead of choosing to get money. It’s that pleasurable of an experience. One last thing I will share with you is if you are face-to-face with your buyers, get them to shift their body language.
GREETING
COMMITMENT
COMMITMENT
Often when someone is in a negative emotional state, they will portray that in their body language. They will cross their arms or they will slouch. Just like when someone is depressed. If you or I were depressed, we would move differently than if we just had a wonderful day and we just made a big sale and things are going great. So get people to move their body, and that will often help shake them out of the emotions. But usually, as I mentioned, it’s not one strategy. It’s one, two, three strategies back to back to back. So if I’m face-to-face with someone and they are in a negative emotional state, I might ask them a question about their vacation or about Little League that they coach or something like that. And then I might ask them a question about themselves. And then I might try to shift their emotional state by asking them to move, “but John, leaving here, I want to show you this chart that I think might answer a question you had last time.” Oh, and John is going to lean in. Or I’m going to say, “Let me show you this. Do you have a minute? I think the report is out in the other room and I think” — or show something on the computer. “If you look over here, if you lean in, you can see this chart.” Boom. So I’m getting them to move even slightly. And if that doesn’t work, I might deploy that Hawthorne effect and call attention to it. 16
But using a few of these in a row will weaken that emotional state to where you can start to have a really productive interaction. And it’s amazing. The sale is really simple. And it is, once you know what you’re dealing with. But using the back-toback-to-back strategy will create a profound difference. I’ve had salespeople tell me it’s like a magic trick. They see it happening right in front of them. Because the person is one way and five minutes later they have a whole different perspective because they shifted those emotions that they are dealing with. The salesperson weakens that
COMMITMENT
SALE
emotional state and injects them with some positive emotions, which make them much more receptive to you and to what you say. FELDMAN: You talked about the second level of questions. And in your book, you discuss a third level. Would you tell us more about those? HOFFELD: Absolutely. Because our brains disclose information in layers or levels, we ask questions that way. The first level is where most salespeople, most types of questions, are. That is where you ask questions about a thought, a fact, a behavior or a situation. What we found is, most poor salespeople primarily ask levelone questions and that’s it. To get to the powerful information that could really shape the sale, you need more than just introductory or basic information. You need to go to level two, which is asking for assessments or an explanation of a level-one response. It’s very intuitive. We found that for top salespeople, this is where they live, on level two. They ask people to assess or explain more than they ask any other type of question. And this does two things. As a sales professional, it gives you the information you need to find out what matters to these individuals and helps you customize your presentation to make it meaningful. And
InsuranceNewsNet Magazine » November 2016
it helps your potential customer think through the information. When you ask people to assess or explain things, it gets them to think through the things that are relevant to the sale, and it helps them make a good decision. Before they meet with you, they’ve given only a basic thought to insurance. People begin to think through and go, “Yeah, I never thought about that.” Now it gives you an unfair advantage. Why? Because most of your competitors are asking only first-level questions and you are asking mostly second-level questions, you know what matters to these people. First-level questions introduce a topic. Second-level questions are always where the gold is. The third level is where you focus specifically on fear of loss or desire for gain. We call that a dominant buying moment. There’s some really compelling research that shows that loss aversion and desire for gain are very potent motivators of human behavior. And we as salespeople know that. But when you have this question model, it allows you to ask questions that deal with that specifically. FELDMAN: Do you see a dramatic difference when people start thinking about this structure of questions? HOFFELD: I have taken salespeople who have very little experience and gotten them to be expert question-askers, sometimes shaving off years or possibly decades of learning. Someone who’s seasoned with 25 years of experience might be doing something like this that they’ve learned on their own. They haven’t quantified it as levels, but they are asking a lot of second-level questions. We are able to take people who have very little experience to get them to that level in a matter of hours. And when you give it to seasoned professionals who are already expert questionaskers, it takes their ability to the next level because now they have a structure that guides them to be even more productive. The reason it works is it’s all based on how the brain discloses information. It always starts with the buyer, not with the seller. That’s why this way of asking questions is radically different and will give you an unfair advantage over your competitors.
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NEWSWIRES
QUOTABLE
Feds Pick Health Plans For Displaced Consumers
A new president can change the game by being willing to negotiate on things the Obama administration was unwilling to.
Would you want the government picking a health plan for you? That’s exactly what the Obama administration wants to do. The administration is concerned that consumers will bail out of the health care marketplace as health insurers stop offering coverage on the exchanges. So it plans to do some matchmaking between consumers whose insurers have left them high and dry, and insurance companies that are remaining in the market. Some consumer advocates worry that this effort to keep people in coverage may result in confusion. Others say it’s a good idea that will keep people from losing their health insurance through no fault of their own. “The way it is presented could be interpreted as ‘This is a plan we recommend’ or ‘This is a plan we think will work for you’ or ‘This is one of the better plans,’” said Elizabeth Colvin, director of Insure Central Texas. The administration doesn’t have an estimate of how many people will receive notices about their new plans. It could range from several hundred thousand to 1 million or more, say independent experts.
NATIONWIDE ACQUIRES JEFFERSON NATIONAL
In the latest blockbuster insurance deal, Nationwide will further its growth in the fixed indexed annuity arena by its acquisition of Jefferson National. The deal gives Nationwide an opening in the fee-only advisor space. Nationwide said the move will increase its ability to sell financial service products through Jefferson National’s network of registered investment advisors and feebased advisors. Jefferson National currently serves nearly 4,000 RIAs and feebased advisors. Nationwide has been rocketing up the fixed annuity sales board in recent years. In the most recent sales figures, from the second quarter of 2016, the company came in sixth place with $1.5 billion in year-to-date indexed annuity sales, according to Wink’s Sales & Market Report. DID YOU
KNOW
?
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As recently as 2014, Nationwide was outside the top 20 in indexed annuity sales. The Jefferson acquisition will further that growth, executives said.
AIG EX-CHIEF IN COURT
Nearly a decade after AIG almost collapsed, the insurance giant has reinvented itself Maurice Greenberg as the top seller of fixed and variable annuities in the U.S. But the legal woes of the company’s former CEO continue. Maurice “Hank” Greenberg faces civil charges from alleged accounting fraud at AIG some 16 years ago. The 91-year-old testified in his trial in a New York state court in Manhattan. Greenberg is charged with orchestrating a $500
83% of workers covered under their employers’ health plans face an average deductible of $1,478 for single coverage. Source: Kaiser Family Foundation
InsuranceNewsNet Magazine » November 2016
— Mike Leavitt, former Secretary of Health and Human Services
million transaction to inflate AIG’s reserves and a $200 million transaction to hide underwriting losses. Former AIG Chief Financial Officer Howard Smith is also a defendant in the case. The two men “designed, created, negotiated and implemented every major aspect” of the two fraudulent transactions in the case, New York Assistant Attorney General David Ellenhorn said in his opening statement. Greenberg nearly settled the case in 2008 with a $100 million gift to charity, his attorney told Reuters, but the market crashed that year, along with the value of Greenberg’s AIG stock holdings.
SEC PROPOSAL COULD COST ADVISORS BIG BUCKS
The Securities and Exchange Commission has proposed that financial advisors implement written business continuity and transition plans. And those plans will come with a price tag — an average one-time cost ranging anywhere from $30,000 to $1.5 million. The costs would pay for developing internal policies and procedures related to separate components of business continuity and transition plans, the SEC said. In addition, annual ongoing costs would range on average from $7,500 to $375,000, the SEC estimated. About 12,000 SEC-registered investment advisors operate under the Investment Advisers Act of 1940, and the proposed changes do not apply to stateregulated insurance agents.
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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. Guarantees are based on the claims-paying ability of the issuing company. Š 2016 Prudential Financial, Inc. and its related entities. FOR THE EDUCATION OF PRODUCERS/BROKERS ONLY. NOT FOR USE WITH THE PUBLIC. 0292779-00001-00 November 2016  InsuranceNewsNet Magazine
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FEATURE
Armor Yourself With Technology For The
New World
by steven a.
morelli
20
InsuranceNewsNet Magazine Âť November 2016
DOL READY? FEATURE
J
eff Mose admits he is just a little old-fashioned, even though he does have a customer relationship management system. CRM software systems enable agencies to keep files electronically and analyze customer data. The systems have been around for decades. Although agents and advisors have long been advised to adopt CRMs to expand their businesses, many have not done so. That urging to adopt CRMs has become more insistent because the Department of
it’s sort of like breaking into the bank and stealing quarters. I want to stay hard-copy as long as possible.” Mose said he knows it might not be all that possible to continue that way in selling fixed indexed annuities when the DOL rule goes into effect in April. The rule would require the best-interest contract exemption for FIA transactions if the advice affected retirement money. He said he is not opposed to using technology in general. For example, he records conversations with clients, with their permission, and converts that to text with an app on his phone. (He uses Notability but
“If someone broke into your office to steal paper files, it’s sort of like breaking into the bank and stealing quarters. I want to stay hard-copy as long as possible.” – Jeff Mose Labor conflict of interest rule requires documentation demonstrating that advisors act in the best interest of clients. Financial institutions, such as insurance companies, that sign contracts with advisors will be liable for violations. That means they have a vested interest in consistent recordkeeping that they can review. Marketing organizations and agency technology experts say a CRM system has to be at the core of that accountability, but that is not how Mose uses CRM at his practice, Retirement Life Advisors in Maryland. He emphasizes the “relationship” aspect of the system. “I found it to be so impersonal that I use it for things like birthdays, anniversaries and that type of thing,” Mose said, adding that he gets alerts on his phone notifying him of the events. He is not so sure that putting his clients’ information into his system or in a cloud is in their best interest. “With all this hacking into [the Democratic National Committee headquarters] and Hillary Clinton’s files, how safe are financial files?” Mose asked. “If someone broke into your office to steal paper files,
many apps, such as Microsoft’s OneNote, are available.) Legal experts have suggested recording will help protect advisors if clients sue many years later, as the rule allows, and as memories of the conversations are hazy. Mose is working with a marketing organization that he expects will be able to help him with the transition. But many say he and others will be unable to avoid picking up tools such as CRMs and becoming comfortable with electronic forms and web portals.
There Will Be SuiTs
Kim O’Brien, CEO of the Americans for Annuity Protection, puts it bluntly. “They will be sued,” she said of advisors who don’t get with tech. “The whole core of the fiduciary duty is not just a duty to provide a solution that O’Brien meets your client’s objectives, risk tolerance and time horizon, but to document the rationale for that
recommendation on how you determined what they needed and how you assessed their needs and opportunities.” O’Brien has been at the forefront of the effort to reverse or blunt the DOL rule’s most damaging effects. But she said she believes the fiduciary standard will expand through the DOL rule and other efforts to come – and that advisors must be ready. The annuity business often has been product-focused and will need to move toward advising, she said. “There’s been too much ‘I have this new product with this new bell, so let’s get together and talk about that.’” To be effective, advisors will need not only a CRM to house data but also an assessment system, O’Brien said. “You need an assessment program to assess your clients’ needs and risk tolerance, but also to demonstrate how you understood that assessment,” she said. “And you also have to demonstrate that your client understood.” The challenge in getting a system is finding one that incorporates insurance options, because the existing assessment programs are used primarily in finance. Many efforts are underway to provide systems with a larger insurance component. O’Brien is developing one called AssessBest in partnership with InsuranceNewsNet Publisher Paul Feldman. As systems become available, O’Brien said advisors should evaluate them against their business model, which a CRM can help define. If clients fall within a certain age, income and asset mix, that can form an important part of the definition. Also, if clients tend toward particular businesses and industries, that also defines the client base. And, finally, what kind of products and services the advisor has offered them also enters into the picture. Taken together, those factors can shape what the assessment program will need to take into account. But as other experts have attested, options are slim at the moment. Hardware might also need to be updated. It isn’t just a matter of up-to-date computers, although those are important. But also simpler items. “Most systems are cloud-based,” O’Brien said. “So you will need Wi-Fi. It’s surprising how many agents go to Starbucks to get Wi-Fi.” And say good-bye to paper.
November 2016 » InsuranceNewsNet Magazine
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FEATURE DOL READY? “You are probably going to need a tablet or iPad, because the days of sitting at the kitchen table with a legal pad are over,” O’Brien said. “Because even if you go back to your office and input that information, the problem most lawyers and carriers would have is that they would not know if you input it wrong intentionally because you wanted to sell them something or unintentionally because you just wrote it down wrong or you couldn’t read what you wrote.”
GeTTing WiTh The Program
Entering data right into the system with clients has other benefits, too. Take it from somebody who started in insurance sales when technology still smacked of science fiction. John Gilliam is Dr. Gilliam, now with a doctorate in personal financial planning and teaching at Texas Tech University. But
ing in and the filing taken care of, but the seller can sell more and office personnel can help with other things to help sales. “If it’s a sole practitioner who’s been doing everything,” he said, “they need to start at the point of greatest pain. What do you hate doing the most? And how can we use technology to make your life easier?” And advisors who already have tools, such as a CRM, already have the solution for their future problem. “The agent who has a CRM and is using it for anniversaries and maybe birthdays and they’re not fully utilizing the technology that’s available, I think that’s a learning curve,” Gilliam said. “Once they understand the amount of documentation that's going to be required, they’re going to want a vehicle that will help them do that. The technology is going to be a solution to that.” And they will need a solution, because Gilliam agrees with O’Brien that the fiduciary standard will expand. Companies are
gosh, I forgot to get this form signed’ or ‘I missed a signature here.’ The software does all that for you.” Other technology agents and advisors can expect to see is one they might already use if they have grandkids who don’t live nearby. It’s a way of serving clients who are more comfortable with an electronic chat rather than visiting the office. “They may say, ‘Why do I have to drive to your office?’ Or ‘Why do you have to come into my home?’” Gilliam said of younger clients. “’Can't we just do this via Skype?’” Speaking of younger people, advisors will need them even if they expect to leave the business rather than deal with the new order, Gilliam said. If they bring in younger advisors, they will expect to be working with the tools that those young advisors take for granted. As far as cybersecurity, Gilliam shares the concern expressed by Mose, the Maryland insurance agent. In fact, Gilliam and his wife recently were talking about storing pictures. When Gilliam said he just puts them into Dropbox, his wife asked if he was worried Dropbox could crash and he could lose them forever. But the advisor’s financial institution is likely to call that tune. For example, if a distributor or carrier wants the ability to inspect an advisor’s records, they might want to be able to access them in the cloud, rather than visit an advisor’s shop. The financial institution will have plenty of programs to choose from. Gilliam said Texas Tech has in its computer lab for students about 60 software packages that represent more than $6 million in annual fees.
“It wouldn't surprise me that this [the fiduciary standard] is something that will spread to other forms of insurance before it's all said and done.” – John Gilliam he started out in the dark ages of selling when a phone had a round thing in the middle of it and a computer was exotic. He remembers what it was like keeping track of a lot of paper, a situation that has not changed dramatically over the years for many agents. He would have loved to have been able to plug in data right from the field. “I grew up during a period when if you check this box, that means I have to go back to the office and I have to get another form, assuming that we have copies of the form in the storage room,” Gilliam said. Paperwork is often the biggest pain in an advisor’s life. Technology can smooth out the process so that not only are the fill22
not going to follow two standards. “It wouldn’t surprise me that this [the fiduciary standard] is something that will spread to other forms of insurance before it’s all said and done,” he said. “It may take 10 years. It may take 20 years.” Under that standard, the most difficult thing for companies to control is what is actually said to the client. A uniform system helps ensure the right things are said, which is already happening with insurance e-applications. “It has been slowly changing over the last 10 years with e-applications,” Gilliam said. “And the wonderful thing about eapplications is the next day after you go back to the office, you’re not saying, ‘Oh,
InsuranceNewsNet Magazine » November 2016
The RighT Pieces in The RighT Places
Chances are good that not many of those systems at Texas Tech, or anywhere, are a perfect fit for the new needs in compliance. Gregg Griffin knows that, because he has been looking for one as the vice president of technology at Unkefer & Associates, a marketing organization in Phoenix. “The platform that manages all this and gives us a certain level of oversight does
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FEATURE DOL READY? not exist,” Griffin said, adding that vendors have parts of different systems but nothing unified yet. “They’re scrambling right now to put these pieces together. And some of them are for sales systems, some of them are presentations. Some of them are needs analysis or risk analysis systems.” The DOL rule and greater fiduciary standard would require more analysis of annuity performance for the underlying data leading to a best-interest recommendation. “What’s their ability to guarantee an income stream over the next three decades?” Griffin asked. “Annuities are rated in the risk tolerance spectrum like a bond, but are actually radically different than a
Most of them do not have what Griffin called a soup-to-nuts capability to allow customer screening, the recommendation and then the submittal of the recommendation to an overseeing party. The system would need to help keep tabs on the responsibilities presented by the DOL rule: compliance, workflow and recordkeeping. But the first challenge, as others have said, will be upgrading advisors’ office tech. “There are more guys right now who are managing their clients through paper files or at best Excel spreadsheets than who are using something like SalesForce or Goldmine or Act,” Griffin said. The system that Unkefer is looking for
“Some of these guys who are still into paper filing ... They are super professional. They’ve just lost track of technology.” – Andrew Unkefer bond, which is the asset class they typically fall into.” The system would also need more data on commissions because “reasonable compensation” is a key DOL requirement, said Andrew Unkefer, president of Unkefer & Associates. “You’ve got to have some type of benchmarking capture of compensation so that you can also defend that the compensation itself did not influence a negative recommendation to the client,” Unkefer said. “That there was enough line of sight there that the competition was reasonable and it can be proved at a later date. That’s the level of intensity we want to get to.” Unkefer’s own system is pretty intense on comparing features and compensation in-house, with more than 1,000 products in a searchable database. A key issue with current financial planning systems is that they don’t have annuity producers in mind, Griffin said. 24
is not a CRM but would be a stand-alone that can link to a CRM. If advisors use it as a stand-alone, Unkefer will be able to supervise the sale. But advisors would not get all the benefits of the data without a CRM. “The best interest tracking and oversight is on us,” Unkefer said. “The sales and data mining aspect of the CRM is on you. It’s like all the good stuff in life. If you put in the heavy lifting in the beginning, the rest of it is easy.”
Begin AT The Beginning
Better processes start at the data collection phase, Griffin said. “An easy way to collect client information involves the clients themselves,” he said. “We have offices where the client goes through a data collection when they visit the agent, much like you would a doctor’s office. You get that clipboard and you fill it out. But they’re doing it on tablets
InsuranceNewsNet Magazine » November 2016
and it’s feeding into a central CRM that that has all those metrics available.” The initial questions would focus on areas such as risk tolerance, financial position, tax status, personal goals and family situations. “That’s the kind of data that can lead toward a best interest recommendation,” Griffin said. “It’s quantifiable, and we can relate it to products and financial options that are out there.” If it’s a different way of onboarding a client for insurance agents, it is not unfamiliar for consumers used to filling out forms whenever they visit a professional. The information helps not only the current sale but also better informs agents for follow-ups. “Getting the client bought into the process is far more important than getting bought into a product,” Griffin said. “The process identifies problems, and we can deliver solutions. That’s the key.” Systematizing also makes client relations much easier, Unkefer said. “When you do that, you will find that you can handle far more volume of activities and results, which means you get more productivity per employee, even if you’re the only employee,” he said. “You’ll become more productive, and higher productivity creates more value. More value creates more revenue. More revenue creates more profits.” More value can be in the form of content that an advisor sends to clients and prospects. When the process is a chore, good material doesn’t get sent as often. Tasks such as creating a high-quality newsletter get buried under the daily grind, Unkefer said. “Systematizing these routine daily activities allows you to write a nice newsletter and stay in front of people,” he said. “You get far more referrals. Clients come back and look forward to that next visit. The amount of resources you manage for each customer goes up dramatically, and you’ll do three to four times as much business.” When the process is difficult, advisors seem to feel they need to “get” something for content. “People try to gate-keep stuff and say, ‘I’ve got this incredible report but I’m not going to let you have it until you let me meet with you,’” Unkefer said. “It’s conditional in its nature. That client says, ‘This guy is putting his interest ahead of mine.’”
DOL READY? FEATURE Unkefer said that he is not questioning the professionalism of people who have not adopted technology in their processes. “Some of these guys who are still into paper filing, they’re the most professional, the most capable of writing a great statement of purpose to the client. They’re intellectually gifted and highly educated. They are super professional. They’ve just lost track of technology.” But he and Griffin said they understand the anxiety of bridging to a new system. “The transition of anything when you break one system to use a more efficient one is always a moment of panic for everybody,” Griffin said. “But the one thing that we’re trying to help them understand
also has a daily radio show and is dipping into TV.
When Process, PracTice and Tech Align
Holland is a fee-based advisor, working primarily with no-load and exchange-traded funds. On the insurance side, he sells annuities, focusing on fixed indexed, along with long-term care and life insurance. He started as a CPA so he has a documentation mindset. He started his own insurance agency in 1997 and later became an RIA. He’s used to rigorous processes because RIAs get audited. It’s a discipline that he sees carrying over to the
“If an agent’s going to become a hybrid ... then he has to have a process” – David Holland is that when you go through that transition and you accelerate anything that you can turn into a routine system, you’ll find you’re doing a one-to-many type of relationship.” The reward can be paid in lifestyle or growth. “With that productivity, they’ll either enjoy a lot more free time or if they’re willing to work with that time to lift their income,” Griffin said. “One of the great things about being an independent agent is the lifestyle. But actually achieving a lifestyle that has a lot of free time and a high income, that’s acquired through the use of technology. “ Unkefer and Griffin said advisor David Holland of Holland Financial in Ormond Beach, Fla., is an example of someone who has leveraged technology to propel his organization. They call him the advisor of the future because he’s an insurance agent, an RIA and a CPA. He
non-RIA world. He believes agents should become hybrids so they can advise across the service and product spectrum, which entails a whole new mindset and practice. “If an agent’s going to become a hybrid and get away from the swashbuckling, ‘Just put me in front of ‘em and I’ll close ‘em’ attitude and become an advisor-fiduciary,” he said, “then he has to have a process.” He has 20 people in his practice, which includes an insurance agency, fee-based advisor, reverse-mortgage division, mortgage broker, tax department and a trust department. When prospects call the office, they get the receptionist, who transfers them to Holland’s assistant, who also coordinates new business. His assistant briefly interviews the caller, sets the appointment in the CRM’s calendar and sends out a packet of information. She will also add notes
into the file in the CRM, which is Redtail. He houses it on a server in his office, which he prefers to a cloud. Holland reviews the notes, so he understands their particular concerns and who may have referred them. His staff gathers data by sending people a questionnaire and Holland asks prospects to bring in particular documents. The first appointment is a fact-finding interview. It’s a bit of a way-finding discussion, as well. “You have to be flexible because sometimes people will fill out your questionnaire, bring all the documents, and say, ‘Here’s what we want,’” Holland said. “And, a lot of times, they come in just to interview you and find out who you are before they’re willing to share any information. Some will come in and they don't know what they want, and they haven’t brought half the documents.” Holland tells clients he is going to examine their situation and help them with a better understanding of their position. At this point, he also gives them the option of compensation. He tells them the advice is free and he can be paid by commission or they can just do a plan and pay a fee. “The end of the first meeting is not, ‘Hey, would you like to buy an annuity?’ or ‘I really believe this or that,’” Holland said about the meeting wrap-up. “It’s, ‘Let me start with looking at where you are. Let’s see what’s working, what’s not. Then I'll tell you what I think.’ That lends itself to the more sophisticated buyer, or people with more money, which is who agents want to work with.” He takes whatever documents are available and places them along with his notes into a folder that he gives to his assistant. She scans the material because they have a paperless office. Holland suggests advisors invest in a high-quality multipurpose printer. Once the material is scanned in, it goes to his planning department. His vice president of planning, who has been with him for eight years, is a Chartered Financial Consultant, Chartered Life Underwriter, national certified Social Security advisor and annuity specialist. She reviews his notes and assists in analysis for the second meeting. “One of the things that an agent should not do is jump the gun,” Holland said. “A lot of times, I am helping the client analyze
November 2016 » InsuranceNewsNet Magazine
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FEATURE DOL READY?
Many experts say that client relationship management (CRM) software is at the center of any sales system that requires consistency, scalability and transparency. It can also be a portal for the future. That is how Andrew Unkefer, president of Unkefer & Associates, and his technology vice president, Gregg Griffin, see the evolution of CRMs. They expect that someday prospects and clients will be able to log into an advisor’s CRM for a number of tasks and services. For one thing, a client might be able to meet virtually, Griffin said. “I could see my CRM having a consumer portal where we could set an appointment and look at each other in a tiny little box on the screen while we complete the data,” he said. “Maybe we’ll come back with another meeting and show them the recommendation and the stress test on their risk level and things like that.” Consumers are already used to portals for their finances, whether it’s a bank or investment institution. Advisors might be concerned that companies could lure potential clients away with robo-systems, but Unkefer said he sees how advisors could make such systems work. • Consumer access: Clients would be able to see what insurance and investments they have in place. Instead of digging information out of their own filing cabinet if they need it, they would be able to log into the advisor’s system. • Performance monitoring: Clients could see how their investments are performing. • Cost control: If clients can find answers to common questions in the portal, advisors and their staff will not have to provide the answers. • Client training: Clients might be able to learn how to plan for college and retirement financing along with other important subjects. “We won’t have to stop everything we’re doing and then do a private presentation for them,” Unkefer said. “Those sorts of things are exactly what you want the consumers to do when they engage in your platform so that they can gain knowledge, they can gain more value and that makes the relationship far more sticky.” Unkefer added that the access also builds a client’s confidence and a sense of trust. And not only does the access save resources for the advisor’s practice, it also allows the advisor to redirect effort to what really matters. “That’s the stuff the bank got right,” Unkefer said. “I mean if you’ve got a big enough account, your bank still tries to get in front of you a lot.” He said these are just some of the things advisors and clients might be able to do in the near future. But a centralized system has to come first. “Without capturing that data,” Unkefer said, “you’ll never be able to do any of those things.” — Steve Morelli
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InsuranceNewsNet Magazine » November 2016
what they've got now before I start talking about what they should do. It's a second opinion. I'm using Morningstar, primarily, to do that and then I make it pretty by putting it into PowerPoint.” The second meeting is for further clarity and maybe some potential solutions. He presents the PowerPoint on a 32-inch TV in a conference room. But it is not a closing meeting. “If you're competing against somebody else, the incumbent, you could be driving a humungous wedge between them and that relationship,” Holland said. “If they're not really happy and they're not sure why, they feel like they're lagging. You can give them clarity on what's going on.” Holland enters notes from that meeting and consults with his planning department. That resulting plan may include a mix of investments, insurance and maybe a reverse mortgage, he said. After each meeting, it is critical to enter notes into the CRM as soon as possible. “Maybe somebody wants to get out and play golf,” Holland said, “but you have to put your notes in.” During the third appointment, Holland presents the recommendations, which include an income plan and asset reallocation. He explains the details, answers questions and presents the plan in a wirebound color binder organized in sections. “That does so many different things,” Holland said. “One, it gives them something to review. It also takes care of compliance because if I've got an annuity brochure and the statement of understanding for the product, that all gets bound into that presentation.” He tells them to take the plan home to review it and says, “I expect you to have at least 10 questions. Let's get back together and we'll talk about what I've presented.” At the fourth meeting, he expects questions but he does not move to a sale. “I might be throwing it back up on the machinery to change the plan,” Holland said. “They might say, ‘We love everything you're doing here, but we think we want to have more like 60 percent in annuity, as opposed to 40 percent,’ or ‘We decided we want to hold on to a little more cash. What would that do to the plan?’” He will make adjustments and perhaps set up another meeting. But even then, there is no paperwork. That’s a separate meeting. “I never ever have paperwork ready
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November 2016 » InsuranceNewsNet Magazine
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FEATURE DOL READY?
Older Clients Comfortable With Tech
Contrary to what you may believe, it’s not just younger clients who want to engage electronically. Investors over the age of 55 are increasingly tech-savvy and seek not only to communicate with their advisors, but to collaborate with them as well. Understanding how your clients of every age interact with technology and how they want to interact with you — their advisor — is essential. They might surprise you. 100%
High Net Worth Mass Affluent
85% 75%
46% 33%
0%
41% 31%
Video Conference
Computer Screen Sharing
26%
21%
Text Message
5%
8%
Social Media
Source: CEB TowerGroup Wealth Management Client Experience Survey, 2013
when I present the recommendation,” Holland said, acknowledging that is unusual. “I really want them to go home and think about it.” If during the meeting, clients say they want the plan, Holland opens the calendar in the CRM right in the conference room and sets the next meeting. Holland said that in his 20 years, he’s had only four people walk away from the deal, so he is not worried about losing them during the process. To make a process like Holland’s work requires some basic tools. “They're going to need an actual phone system,” he said. “They're going to need a real presentation system, a computer system, screen on the wall. They will need the software and the tools, so, for example, they're going to need a Morningstar subscription so they can go in and do an analysis of the portfolios. They will need a calendar-integrated system, a CRM.” They are also going to need a shift in thinking. “I am in a much better place because I do more than one thing,” Holland said. “That doesn't mean I have to be an expert in all of them, but it does mean that I have latitude. I build a financial plan that has multiple pieces to it and the person sees me as much more of a planner. And the irony is that you will sell more annuities doing this. Is it easy and free? No, it takes time and it takes en28
ergy, but a lot of agents put a lot more time and energy into vacationing and watching sports teams than furthering their education.” Holland also said agents and advisors should take a good look at their marketing organization and see if they are getting what they will need for the future. “I think a lot of marketing organizations and insurance companies have put way too much emphasis, energy and money on trying to train agents to be better salespeople and how to overcome client objections than on how to actually be better planners and better financial advisors,” Holland said. “So here we have the DOL saying, ‘OK, well, we'll fix it for you then. We're going to make you fiduciaries.’”
DefiniTely NoT OuT
Andrew Unkefer sees Holland and other multi-faceted advisors as the future, but he has faith in the resilience of insurance-only veterans. “What I’ve learned about these really good producers who didn’t adopt technology is that they don’t worry about the same things you or I might,” Unkefer said. “They have always been able to figure out stuff and they’ve always been able to make a living, because they have these great personalities. So they may worry a little bit but they say, ‘I know my abilities. I’m not that worried about it.’”
InsuranceNewsNet Magazine » November 2016
Mose, the insurance agent in Maryland, is among those not too worried because he has had many evolutions in his 63 years, from sales rep for Nike and Hiram Walker, to on-air talent for several TV stations and corporate communications director, among other careers. He has seen the economic gyrations from the dot.com crash through the trying times since. And he has seen how annuities helped average Americans ride out those storms. When the DOL started talking about its rule, Mose had hopes that it would help the industry. But what came out in the end wasn’t quite what he expected. “A friend of mine who works on the Hill suggests what comes in as steak goes out as sausage,” Mose said. He still is bullish about the role annuities have in improving consumers’ financial health. “It’s all about individual income now, because pensions are going away. This is why annuities are so important,” Mose said. “We are going to find a way.” Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@insurancenewsnet.com.
November 2016 Âť InsuranceNewsNet Magazine
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Special Sponsored Section
Tech isn’t always about gadgets and gizmos. Some of the best tech in existence is untouchable — literally. It’s software. It’s communication. It’s data. This year’s Tech Guide covers future-forward digital inventions that give consumers unprecedented access to products, services and information, as well as those that give agents and carriers unprecedented access to consumers. CONTENTS The Life Agents’ Wish-Granter...................... 31 The Digital Revolution Threatens the Way Insurance Carriers to Business..............32
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InsuranceNewsNet Magazine » November 2016
Technology Issue • Special Sponsored Section
The Life Agents’ Wish-Granter You asked for it, and Bill Levinson delivered — again.
On Oct. 1 of this year, well-known technology profit to reinvest into their agent value proposition. innovator Bill Levinson, managing partner of “What we do that’s a lot different from our comLevinson & Associates, announced the release petitors is we’re able to take up to half of our profits of brand-new technology designed to make life and put them back into our sales platform, so insurance sales more effortless than ever. agents can have a turn-key system without havThe new release is the latest in a string of new ing to spend hundreds out of their own pockets innovations that directly answer the demands of every month. That’s the secret sauce,” Levinson agents. Bill Levinson, who essentially serves as says. The result is their successful completion a “wish-granter” in the industry due to his levof a simple, user-friendly platform that not only el of agent advocacy, says, “I’m constantly asktailors CRM functions to the unique needs ing myself, if I were an agent just out of school of life insurance agents, but also delivers leads or looking to switch IMOs, what would define right in their laps, and it’s available at zero cost a successful relationship? This is how I identify to active Levinson agents. the gaps in what other IMOs are offering.” And it doesn’t simply stop at adding thou“Agents can have a Levinson noticed a huge gap in client managesands of new prospects to agents’ books. The ment software. While CRM tools have long been turn-key system without integrated tools available through Levinson’s having to spend hunavailable for life insurance agents, he noticed combined Agency Automator and I-Genius dreds out of their own they were lacking in some very important ways. platform will take these prospects all the way to pockets every month. First, there existed no CRM designed specifical- That’s the secret sauce.” the sale with zero agent involvement. ly for the life insurance agent, a fact that inspired The system includes multiple pre-built email Levinson to offer a one-of-a-kind platform that is designed for the marketing campaigns (in addition to a multitude of other digital unique needs of the life agent. Along with this, he accounted for touch points), with several dedicated to Levinson’s exclusive “Sell another substantial omission from CRM systems — an integration While You Sleep” (SWYS) products. This 10-product line includes that actually helps agents sell. This revolutionary feature of the proeverything from whole life to short-term medical. prietary Levinson & Associates CRM software is a complete, turnThe most famous of the SWYS products is Lightning Term Life™, key prospecting and lead generation tool. which debuted in 2013 and has since accounted for tens of thouThe one-stop-shop dashboard that grants easy access to all sands of zero-agent-involvement product sales. The way it works is, components is called Agency Automator, and it enables agents agents receive a custom link, post it on their website, and literally not only to manage day-to-day business and client tracking do nothing while consumers are driven to their site via social meneeds, but also to fill their prospecting funnels with customdia, automated email marketing and other sources. The approval selected leads. Simply enter the preferred sales territory parameter; is lightning-fast (hence the product name), and policies are mailed choose an age range; even select income, business type and number within 48 hours. Consumers can even pay online. of employees; and instantly receive names and contact information While agents have been quite happy with the success of Lightdirectly from a database of 20 million consumers and six million ning Term Life, they had been asking for a level term product that businesses. Send them unlimited emails through Agency Automathey could sell the same way. So earlier this year, Levinson introtor, and have full analytics on exactly who opened and clicked on duced Lightning Level Term, and it has your emails. successfully given thousands of agents acAnother huge perk rarely available to the life agent for CRMs cess to an additional revenue stream that is the help desk. Whereas other tech companies offer support satisfies consumer demand and requires only via email or will outsource to a call center abroad, Agency no extra effort on the part of the agent. Automator comes with U.S.-based support; you can call during “We get a lot of feedback from agents,” Eastern-time business hours, and a live person will walk you Levinson says. “I love to be creative, to through what you need. take their wishes — no matter how imposThe path to such a monumental tool did not come without certain sible they seem — and push the envelope to design new, cuttingsetbacks. The Agency Automator is actually Levinson’s second atedge products and tools. The reward is getting to see an agent come tempt to create a best-available CRM tool for life insurance agents. onboard, implement the technology that we provide and come back The first attempt, while it had many unique and powerful features, six months later saying, ‘I’m now an MDRT producer, and it’s all proved to be cumbersome to some agents, and Levinson finds any because of what you put together.’” feedback that is less than superior to be unacceptable. So it was back to the drawing board and a mandate to tap into LevinAccess Agency Automator, Sell While You Sleep son & Associates’ secret weapon that has enabled them to develop all products and more at their trailblazing technology and products: their radical business practice of carving out an unprecedented percentage of their business’s own .
www.LevinsonFastLane.com
November 2016 2016 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine November
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Technology Issue • Special Sponsored Section
The Digital Revolution Threatens the Way Insurance Carriers Do Business Everyday life has become more digital than ever before. This consumer-led approach has disrupted most industries, and the insurance space is no exception. Insurance carriers who do not embrace the digital revolution are in danger of being left behind. If carriers want to keep up, then they need to find ways to meet — and even exceed — consumer expectations. That’s why Michael Babikian, President and CEO of LegacyShield, helped co-found an easyto-use, cloud-based legacy planning system that provides carriers and advisors a solution to thrive in the digital revolution. In this interview, he reveals why consumer engagement is essential for customer retention and growth, and how carriers can quickly adapt to the digital revolution. Q: What inspired you to create LegacyShield?
current processes. The solution provider would need to complement and not disrupt our sales model. Working with experts who could customize a solution allowed us to save money and get to market faster. Q: Did you take this into consideration when creating LegacyShield?
One of the best solutions I found was partnering with existing technology. It allowed us to solve problems at a lower cost and implement solutions much quicker and more efficiently.
A: I have a technology background and a financial services background. I spent over a dozen years at Transamerica as the chief marketing officer and chief product officer, and then later as CEO of Transamerica Brokerage. All of my experiences have led me to see that the financial services model that’s typically in place is largely broken on a consumer level. Consumer relationships with advisors, distributors and carriers are far too often more transactional in nature. Communication usually occurs when there’s a problem or question about the policy after the sale. LegacyShield is a digital ecosystem that allows all the stakeholders, from consumer to manufacturer, to coexist within a platform. It allows advisors, distributors, and carriers to better serve and engage with consumers throughout their life cycle and to offer additional products based on consumers’ current needs. Q: Why didn’t you develop a system like LegacyShield when you had all the resources behind you at Transamerica? A: Our main focus was administering in-force business and delivering solutions for our current product portfolio. Dedicating alreadystretched resources on projects that didn’t have an immediate impact on our business tended to take a back seat.
Q: What was one of the most important criteria you used to evaluate potential software partnerships when you were at Transamerica? A: Without a doubt, it was understanding of our industry. This is often manifested in how easily the solutions would be implemented into
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InsuranceNewsNet Magazine » November 2016
A: Yes. We designed LegacyShield to have a very simple interface that would be able to work with a variety of systems. It allows carriers to seamlessly integrate our software into their current processes without any disruption. It was also created to overcome the challenges that carriers are facing and with an appreciation of their distribution nuances, in order to create a benefit for all stakeholders involved. Q: Why do you believe a system like LegacyShield is so important?
A: Most of the innovation in our industry is inwardly focused and primarily addresses efficiencies. It isn’t effective in solving the needs and issues consumers are facing today. I believe consumers want and need better collaboration, transparency, and customized solutions with their advisors, distributors and product providers. LegacyShield is the culmination of decades of industry knowledge to ensure that alignment amongst consumers, advisors, distributors and product manufacturers is highly efficient and effective. Customers are unlikely to wait for insurance carriers to catch up with other companies they interact with digitally. To effectively serve today’s socially connected policyholder, carriers need to transform themselves into a digital enterprise. Q: How does LegacyShield meet the needs of today’s consumer? A: Consumers want to be able to get educated, get a quote and buy a policy from the comfort of their home 24/7. There is a lot of research that substantiates that. And yet because of the economic conditions in the environment that we’re in, carriers aren’t able to do that. LegacyShield provides a very economical way to offer solutions very quickly so a carrier can engage through distribution all the way to a consumer and provide what consumers are raising their hands and asking for. Q: What benefits are advisors using LegacyShield experiencing? A: LegacyShield makes the consumer-and-advisor relationship less transactional in nature. One huge benefit is natural fact-finding. Within 15 minutes of setting up your clients with LegacyShield,
Technology Issue • Special Sponsored Section
you’ll start to notice planning gaps. This gives advisors the opportunity to provide solutions to fill in those gaps that they’d otherwise not know about. The second big benefit is referrals. We’ve found that advisors who use LegacyShield will typically end up getting a number of referrals that they normally would not get. There is a natural inclination for clients to go back to the advisor and ask, “Hey, can you get this service for my parents? Can you get this for my uncle? Can you get this for my brother?” We’ve found that most advisors are getting 10-12 referrals for every client who is on the system. Q: Why do you believe so many carriers are interested in using LegacyShield’s platform? A: Many executives are focusing on consumer engagement and are eager to deliver consumer-centric solutions. However, the consensus is that developing solutions like LegacyShield on their own will take time and resources that cannot be spared. Most carriers today have multiple products and multiple differentiated product lines, but most consumers purchase only one product from carriers. Until LegacyShield, there was no good solution that didn’t disenfranchise advisors and distributors. Now there is, and it’s one that allows their sales channel to engage with consumers and show them how the other products they offer could help them. Most important, LegacyShield is carrier-agnostic and can be customized to meet the specific goals of different stakeholders. Q: What carriers are using this software? A: SBLI has integrated with our digital legacy planning platform (see more to the right) to embrace the digital revolution and as a way to meet and exceed consumers’ expectations. We’re currently in talks with many other carriers that we cannot reveal right now. Our biggest goal is to provide the best enterpriselevel solutions for all stakeholders involved, including the advisor, the distributor, the carrier and, most important, the end consumer. More families need to know about the solutions our wonderful industry provides. I want to make sure the solution comes from within our industry rather than from outside.
Learn more about LegacyShield today! Download the new white paper Offering Digital Legacy Planning Gives You the Ultimate Edge at
www.EngageAndSellMore.com or call 844-308-0707.
SBLI will now offer LegacyShield’s core service, “Shield,” with every issued policy. SBLI realizes that having the ability to interact with their consumers in collaboration with their distributors and advisors at every touch point throughout the entire buying/servicing process is extremely important for growth and customer retention.
“Customer experience has become the new strategic battleground. LegacyShield allows us to quickly create a unique customer experience for all of our stakeholders.” — Jim Morgan, President & CEO, SBLI
LegacyShield is providing SBLI with an easy way to create a unique client experience, which consumers are demanding and receiving from other industries. IMPLEMENTING DIGITAL LEGACY PLANNING INCREASES … » Engagement With Consumers: A digital platform allows all stakeholders to engage with customers beyond the transaction by changing the relationship and providing for a better overall experience, resulting in greater long-term value. » Customer Retention and Growth: LegacyShield’s platform creates an environment that increases the lifetime value of a policyholder by increasing customer satisfaction and retention and by offering additional services.
To learn more about LegacyShield and start meeting the needs of today’s consumer, go to www.EngageAndSellMore.com.
November 2016 » InsuranceNewsNet Magazine
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This innovation produces the opportunity for the income Benefit Base to grow faster. The Benefit Base is used for computing the GMWB and is not available in a lump sum. 1 When High Fees Stink Up Your 401(k), What Can You Do?, NPR.com, October 30, 2015 2 If you elect annuitization under your policy, you must elect a lifetime only payment option as defined in the policy in order to receive payments for life. Annuitization amount may be different than the Guaranteed Withdrawal Payment Amount. For Producer Education and Use Only. Not For Use in Solicitation to Consumers. “FGL”, when used herein, refers to Fidelity & Guaranty Life, the marketing name for Fidelity & Guaranty Life Insurance Company issuing insurance in the United States outside of New York. FG Retirement Pro policy form numbers: API-1074(01-15), ACI-1074(01-15); et al. 16-831
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InsuranceNewsNet Magazine Âť November 2016
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Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods. Please keep in mind that the primary reason to purchase a life insurance product is the death benefit.
Life insurance products issued by: Minnesota Life Insurance Company I Securian Life Insurance Company 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. Minnesota Life is not an authorized New York insurer and does not do insurance business in New York. Both companies are headquartered in St. 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 ©2016 Securian Financial Group, Inc. All rights reserved. F88056-1 Rev 9-2016 DOFU 9-2016 69289
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. November 2016 » InsuranceNewsNet Magazine
39
LIFE
Second-to-Die Life Policies: Going Beyond Estate Taxes A number of uses for secondto-die policies have been developed since the product’s inception. By Louis S. Shuntich
S
econd-to-die life insurance originally was designed to provide liquidity for federal estate taxes and other estate needs. However, the life insurance industry is unrivaled for its creativity in applying its product offerings. As a result, a number of uses for second-to-die policies have been developed since the product’s inception. Here are some situations in which second-to-die insurance is a solution for a client need.
Business Sale
A husband and a wife own a business, and both intend to stay active in that business until they die. The sale 40
of the business to a new owner should take place after both members of the couple die. In such a situation, the husband and the wife would enter into a buy/sell agreement with the prospective purchaser, and the agreement would say that the sale would take place upon the second death of either the husband or the wife. To fund the purchase, the prospective buyer would acquire a second-to-die policy on the husband and wife. Then, upon the second death in the couple, the purchaser would collect the death proceeds and consummate the sale.
Special Needs
The greatest risk to a special-needs child comes upon the death of the second parent, when neither is left to look after their child. To alleviate this risk, the parents could create a special-needs trust funded with a second-to-die policy on their
InsuranceNewsNet Magazine » November 2016
lives. The next step is to make the child a discretionary beneficiary of the trust, which means that the child can receive only what the trustee chooses to give the child. Consequently, the child cannot demand any benefits from the trust. This prevents the assets of the trust from being considered the child’s assets, the existence of which would disqualify the child from receiving needs-based government benefits such as Medicaid. The bottom line is that the child could qualify to receive basic support from government needs-based programs, while the trust provides the child with the extras that make for a better quality of life.
By-pass Trust
Ma rried couples f requent ly use the by-pass trust/marital deduction approach in drafting their wills. This approach will postpone all federal estate taxes until
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To learn more visit metlife.com/enrollmentsolutions * MetLife internal data, 2015. ** Certain MetLife benefit solutions that are delivered by an enrollment firm and/or a broker who offers enrollment and communication services through an in-person one-on-one or telephone consultation, or through a technology-based guided experience with dedicated support may be eligible for heaped commissions. Speak with your MetLife representative for more information. 1608-667478 CS
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November 2016 » InsuranceNewsNet Magazine
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LIFE SECOND-TO-DIE: GOING BEYOND ESTATE TAXES the second death. Consequently, they need a life insurance contract that pays the death benefit upon the second death, when the tax becomes due. A second-todie contract is perfect for this purpose. It usually is purchased through an irrevocable life insurance trust to avoid estate tax on the death proceeds.
Dynasty Trust
For the first time in American history, the “American dream” is gone from the younger generations’ minds — they are unsure if they will do as well as their parents. This means that parents must be concerned about more than simply educating their children. Parents also should start thinking about establishing dynasty trusts to help ensure their children and subsequent generations have a better chance at a good life. That can be accomplished by having the parents establish an irrevocable life insurance trust funded with a second-to-die policy on the parents. In such a situation, after both parents are dead, the trustee would collect the death proceeds and use the funds as a form of family bank to benefit generation after generation of their family. For example, the trust could loan money to the insureds’ descendants to purchase homes or start businesses. Further, the trust could provide funds for educational or medical expenses or any other family needs.
College Funding
Due to the tremendous cost of a college education, some grandparents may be concerned about their children’s financial ability to provide such an education to the next generation. Certainly, while the grandparents are alive, they can assist in paying for their grandchildren’s higher
education. But what happens after the grandparents are gone? To make sure that the grandchildren will receive an education, the grandparents could set up an irrevocable life insurance trust funded with a secondto-die policy on the grandparents’ lives. That way, the death proceeds would be available to cover the grandchildren’s educational costs after both grandparents are gone.
Spendthrift Trust
Some children, even as adults, simply are not good at handling money. While the parents are alive, they can provide financial support to that child. But what happens after both parents are dead? The solution is for the parents to set up a “spendthrift trust” funded with a second-to-die policy on the parents’ lives. Then, after the parents are gone, the trustee collects the death proceeds and uses the funds to take care of the child’s needs. Under such circumstances, the child’s creditors will not be able to touch the funds in the trust. In addition, to prevent those creditors from taking money given directly to the child, the trustee instead purchases goods and services for the child. For example, the trustee could pay the child’s rent directly to the landlord, preventing the creditors from accessing the rent money.
Charitable Giving
Some parents hesitate to make charitable gifts because they are concerned their children will resent having a part of their inheritance given away. To deal with this issue, the parents could establish an irrevocable life insurance trust funded with a second-to-die policy on their lives. That way, when the parents die, the children
Second-to-die policies may be issued even when one of the two prospects is uninsurable. 42
InsuranceNewsNet Magazine » November 2016
would receive proceeds from the trust, free of income and estate taxes, instead of the property being given to charity.
Equitable Estate
Parents who own a family business tend to want to treat each child equally. However, some children may not want the business or may not be suited to receiving an interest in the business. That presents a problem if the parents want the children to have equal shares of their estate. The solution is for the parents to purchase a second-to-die policy on their lives. The child who is not receiving a share of the business can be made a beneficiary of the policy. That way, each child can receive a fair inheritance, with one getting the business while the other receives the life insurance proceeds.
Young Children
For parents with young children, the greatest risk to the children comes if both parents die. To deal with that risk effectively, the parents can establish a revocable trust, and make the trust the owner and beneficiary of a second-to-die policy on their lives. In that way, if both the parents die, the trustee can collect the death proceeds and provide for the children’s needs from the trust funds. These examples make it clear that second-to-die policies have uses beyond paying estate liquidity needs. Further, such policies may be issued even when one of the two prospects is uninsurable. In addition, since the death benefit is not payable until the second death, the coverage tends to be more cost-effective than single life policies. The bottom line is that this type of coverage has evolved into being useful for far more purposes than were ever imagined when it initially was developed. Louis S. Shuntich, J.D., LL.M., is director, Advanced Consulting Group, Nationwide Financial. Louis may be contacted at louis.shuntich@ innfeedback.com.
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November 2016 » InsuranceNewsNet Magazine
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LIFE
How Single Premium Whole Life Can Help Worried Clients y transferring a portion of B their savings to single premium whole life, clients can grow cash value, pass an inheritance directly to a chosen beneficiary and potentially have access to living benefits. By Eric Miller
W
ith a precarious job market, fewer pensions and declining wages, today’s young families are unlikely to enjoy the same standard of living as their parents did. As a result, many older Americans are helping their adult children with living expenses and are looking for ways to help ensure a better future for their grandchildren. If you have clients in this situation, you can help them immediately increase their estate by suggesting they reallocate a portion of their assets toward a single premium whole life (SPWL) insurance policy. Despite its obvious and unique advantages, SPWL is often misunderstood and rarely recommended. However, when matched with the right client, it can provide tremendous leverage that could take years to achieve through other methods. And by transferring a portion of their
income level, but they tend to be older Americans who are already retired or are within 10 years of retirement. They likely have funds sitting in money market accounts, certificates of deposit or other savings products. Most important, they must be able to come up with a lump sum single premium payment. Most SPWL policies require a minimum single premium of $5,000, but the
Three Key Clients for Single Premium Whole Life
A grandparent who wants to provide for a grandchild with special needs
44
Older clients who want to leave money to children but want to maintain control of their funds during their lifetime in case of illness
average payment is between $40,000 and $50,000. Let’s discuss some of the ideal clients for this approach. One such client would be a grandparent who has a specific beneficiary in mind. This type of beneficiary could be a grandchild with special needs who will require financial assistance to help get established and become financially secure in adulthood. By allocating a portion of their savings to SPWL, this client can immediately increase the amount they are able to leave to their loved one. A financially healthy client who already donates to a favorite charity and would like to leave a substantial endowment to the organization upon their death would be another good prospect
Single premium whole life is often misunderstood and rarely recommended. savings to SPWL, clients can grow cash value, pass an inheritance directly to a chosen beneficiary and potentially have access to living benefits. So, who is the ideal client for this approach? Prospects range in age and
for SPWL. By transferring a portion of their savings to SPWL, these clients can experience tax-sheltered growth and a tax-free payout to the charity. You may have older clients who are eager to improve the prospects of their children and grandchildren but still want to maintain control of their money during their lifetime in case of illness or another unexpected event. With the cash value
InsuranceNewsNet Magazine » November 2016
A financially healthy client who wants to provide an endowment for a favorite charity
portion of SPWL, these older clients can have access to their funds, should they need them. Once you have established that they have the means to take advantage of this opportunity, you can speak with both existing and potential clients about the many benefits of transferring some of their savings to an SPWL policy. These benefits include: Estate liquidity — Your client’s savings are sheltered from tax, and the full face amount is generally paid out to the beneficiary tax-free without potentially going through probate. Convenience — Clients appreciate the lack of maintenance required once an SPWL policy is established. Because the single premium is paid in full up front, there is no danger that the policy will accidentally lapse. If a client’s financial situation changes, they will not need to
HOW SINGLE PREMIUM WHOLE LIFE CAN HELP WORRIED CLIENTS LIFE worry about covering future premiums. Tax advantages — Cash values grow tax-deferred until funds are accessed or the policy is surrendered. Cash value — In the event of a serious illness or other unexpected financial setback, policyholders may be able to access
(called paid-up additions). Dividends have the potential to grow cash value and death benefit. Although there are many benefits to transferring a portion of savings to SPWL, this approach is not for everyone. In addition, clients may be understandably reluctant to transfer their hard-earned funds out of vehicles they consider safe. Recom mend i ng this approach requires a thorough understanding of a client’s situation and an ability to explain the benefits (and any potential drawbacks) in detail. As with all conversations about estate planning and wealth transfer, there is a layer of complexity that is not usually part of a traditional life insurance discussion. Even after you establish that a potential client has the portfolio flexibility to transfer a lump sum of money to an SPWL policy, it is essential for the client
Most SPWL policies require a minimum single premium of $5,000, but the average payment is between $40,000 and $50,000. cash value and still keep the life insurance in effect. It also may be possible to borrow against the policy, using the cash value as collateral. Dividends — Some SPWL products have the potential to pay dividends, which can be paid out in cash, left on deposit to accumulate with interest or used to purchase additional paid-up insurance
to understand that many of the most attractive benefits and tax advantages of SPWL are conditional. For example, if the suggested product is a modified endowment contract, the loan amount is taxable. In addition, borrowing from the policy reduces the net tax benefit, and complete surrender of the policy could have implications for federal or state taxes. Once clients fully understand the immediate and long-term benefits of this approach, they appreciate that they can make one payment and then reap the benefits of life insurance and retirement savings in one product. For the right clients in the right situation, this option could be the ideal solution for maximizing their estate. Eric Miller is chief distribution officer, U.S. life and annuities, at Foresters Financial. Eric may be contacted at eric.miller@ innfeedback.com.
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Illinois Court Declares FIAs Are Not Securities The fixed index annuity industry and the 20,000 advisors licensed to sell FIAs in Illinois received a major court victory after three years of litigation. The Illinois Appellate Court for the 4th District has ruled that under Illinois law, fixed indexed annuities are to be regulated only as insurance products and not as securities. The case began as an administrative action brought by the Illinois secretary of state against Richard Van Dyke. The secretary eventually ruled that FIAs should be regulated not only as insurance, as they had been for almost 50 years, but also as securities under the Illinois Securities Department. Miscategorizing the product in this way would have added another complex layer of regulation to indexed annuity sales and created an unworkable environment for agents, ultimately hindering consumer access to these products. The secretary of state’s ruling was later affirmed by the Sangamon County (Ill.) Circuit Court. Then a three-judge panel of the 4th District Appellate Court of Illinois unanimously reversed the circuit court’s decision and the secretary’s final order. In doing so, the court stated clearly that FIAs “are not securities under Illinois law.”
58% Confident on
GAO REPORT ENCOURAGES ANNUITIES IN 401(K)S
Many 401(k) plans have few annuity or guaranteed income options for workers. The Department of Labor could do more to encourage employers to adopt lifetime income options, a report by the Government Accountability Office has found. Employers have limited safe harbor provisions from liability when it comes to investments in the accumulation phase of an employee’s lifetime. But GAO researchers said, “No such incentive exists from plan sponsors offering a mix of lifetime income options.” As a result, many employers are deterred from offering annuities in their plans because companies don’t want to be found liable in the future if an insurer or annuity company stops paying claims. The GAO report was titled “401(k) Plans: DOL Could Take Steps to Improve Retirement Income Options for Plan Participants.” DID YOU
KNOW
?
48
retirement income
46%
Have no idea
RETIREMENT INCOME: EXPECTATIONS VS. REALITY
Americans want to turn their retirement savings into lifetime income, but few know how they’ll do it. More than half (58 percent) of American adults feel confident that they can successfully turn their retirement savings into income after they stop working, according to the 2016 TIAA Lifetime Income Survey. But much of that confidence could be misplaced. Fewer than half (46 percent) even know how much they have saved in their retirement savings accounts, and just 35 percent know how much monthly income they’ll have
“Keeping clients from running out of money in retirement” was listed as the No. 1 answer given by financial professionals when asked the most valuable service they provide. Source: LIMRASource: LIMRA survey
InsuranceNewsNet Magazine » November 2016
There arethe 11 companies Without guaranteedoffering lifetime QLAC (qualifying longevity income that annuities provide,annuity many will contract) products. While this be unprepared for retirements thatiscould a small andyears neworpart of the DIA last 20, 30 more. market, we expect to see an uptick — Dirk Kempthorne, president in sales in 2016. and CEO, American Council of Life Insurers
in their post-employment years. Nearly half of those surveyed said their retirement plan’s No. 1 objective should be to provide guaranteed monthly income in retirement. However, 41 percent aren’t sure whether their current plan provides a lifetime income option.
POST-DOL DESIGN: SIMPLER WILL BE KEY
Simplicity is the operative term as experts consider the potential impact of the Department of Labor fiduciary rule on annuities. The drive to simplicity can start with how annuities are described by the industry, all the way down to advisors, according to panelists at the Insured Retirement Institute’s annual meeting. “We should remove the word ‘complicated’ from our lexicon,” said Stephen Truso, senior vice president, U.S. Bancorp Investments. “Complex” is unpopular not only with regulators but also with advisors, said Bernie Gacona Sr., vice president, director of annuities, Wells Fargo. Paula Nelson, head of annuity distribution, retirement, Global Atlantic Financial, prefers the term “guaranteed lifetime income” and the perspective of “tax efficiency.” Her company also is seeking simplicity in annuity design. Global Atlantic is considering fee-only options, as are many other companies. During the conference, other company executives said they were looking at a range of not just fee-only annuities, but also no-fee annuities.
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November 2016 » InsuranceNewsNet Magazine
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ANNUITY
Annuities: Helping Clients in a Build-Your-Own Pension World W ith fewer clients having a pension available to fund their retirements, the opportunity is there for advisors to build retirement income streams using annuities. By Cyril Tuohy
C
lose to 80 percent of retirees will be without pension income in the future. So they will need financial advisors to help them build their own pensions. That’s according to “It’s All About Income,” a report released by the Insured Retirement Institute (IRI). The report is IRI’s first study on the American retirement experience. How will advisors help build pensions for their clients? Through annuities and Social Security claiming optimization, the report said. Popular finance voices ranging from Suze Orman to Ken Fisher, both of whom disparage annuities, violate the first rule in the book because they lead with product, said Rodney Allain, senior vice president and head of sales for Prudential Annuities. “These public figures are marketing programs,” he said, but they don’t address specific needs to fill the income gap in retirement. Advisors simply need to be clear about annuity costs, said financial advisor Julie Casserly. This is because high costs have made people gun-shy about annuities and have made advisors uncomfortable selling them. Pension income, along with Social Security and savings, make up the pillars of the three-legged retirement income stool. But with the decline in private-sector pensions, Americans need ways to shore up or rebuild the income guarantees provided by that pension leg. A retired married couple age 65 with income of $50,000 a year would need to invest $485,000 in a life-only annuity to generate $25,008 in annual pension income, the IRI report said. A 65-year-old woman would have to invest $425,000 in 50
a life-only annuity to generate $24,960 in annual pension income, and a 65-year old man would have to invest $395,000 in a life-only annuity to generate $24,948 in annual income, according to the report. But tens of millions of Americans are expected to reach age 65 with nowhere near the $485,000 a married couple would need to invest to generate $25,008 in annual in-
Casserly described talking to clients as a “very soulful process,” because it is one in which clients will reveal more than they ever thought possible. But once the need is identified, she said, then it’s critical to explore a client’s trigger point: How much is a client willing to pay for peace of mind and income guaranteed by the annuity?
72%
of retirees receiving income from an annuity were satisfied with their investment. This was higher than any other type of investment or retirement savings vehicle.
3 in 10 retirees receive income from an annuity, with two-thirds of them receiving life or life-contingent payments.
CREDIT: “It’s All About Income,” Insured Retirement Institute
come, according to retirement statistics. That leaves two choices for retirees: either taking less income and settling for a lower standard of living, or opting for higher withdrawals from savings and risking outliving their money’s ability to generate an adequate income stream. Casserly and fellow financial advisor Greg Naples said they sit down for three or four hours with clients to earn their trust before even talking about a product.
InsuranceNewsNet Magazine » November 2016
“The amount of information that comes out of people is unbelievable,” said Naples, senior vice president of Naples Wealth Management Group. With the disappearance of defined benefit plans, defined contribution plans will have to pick up the slack. But data show millions of Americans aren’t properly funded to supply themselves with a “paycheck” in a retirement that may last 30 years or more.
Indexed UL Can’t Should Be Sold to Seniors IT’S ABOUT TIME SOMEONE SET THE RECORD STRAIGHT.
Nobody can deny that seniors dominate as the biggest and most sought-after market for agents and retirement planners. But advisors are getting some bad advice these days when it comes to selling Indexed UL to this lucrative group.
MORE THAN 90% OF THE AGENTS WE TALK TO BELIEVE THE SAME MYTHS: • “Seniors simply can’t get approved”
• “Underwriting on an IUL policy takes too long”
• “There’s not enough time for the policy to grow”
• “IULs are best sold to Gen Xers and Millennials”
• “Fees are too high to capture gains”
WHAT AGENTS NEED TO KNOW.
Agents are being done a huge disservice by excluding Indexed UL for their senior clients. If this is your mindset, make no mistake: you’re missing out on one of the best ways to fulfill your moral obligation to senior clients by offering them a way to control their taxes and their losses, receive tax-free income and have a tax-free benefit to pass on to their heirs.
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November 2016 » InsuranceNewsNet Magazine
51
ANNUITY ANNUITIES: HELPING CLIENTS IN A BUILD-YOUR-OWN PENSION WORLD
Retirees Receiving Annuity Payments Age 65-69
different name. “I never use the ‘A’ word,” Lehri said of annuities.
Social Security as a Default Pension Plan
21%
Age 70-74
35%
Age 75-80
40%
Lifetime Payments
69%
Fixed Period Payments
31%
Very/Somewhat Satisfied With Investments 72%
Annuities – Receiving Income IRA
67%
Stocks/Bonds/Mutual Funds Held Outside IRA/410(k)
63% 62%
Annuities – General Real Estate/Rental Property
61%
401(k)
60%
Cash Value Life Insurance
39%
Full or Partial Business Ownership
39% 36%
Hard Assets (e.g., Gold) Savings Accounts/CDs
35%
CREDIT: “It’s All About Income,” Insured Retirement Institute
Although 401(k) plans held $4.4 trillion in assets on June 30, 2014, the median 401(k) account balance was just $18,127 at the end of 2014, according to an analysis by the Employee Benefit Research Institute. “The significance of pensions for this group [retirees] cannot be overstated; without them, retirees would have a lower standard of living and/or be far less confident in their ability to sustain their savings in retirement,” the IRI report found. Generation X and millennials appear more open to financing their basic needs in retirement though an annuity, compared 52
with baby boomers, some of whom have been burned by annuities carrying 20-year expense charges, advisors said. Many annuity products also have changed in the past 30 years, and carriers have done a good job developing a range of annuity products to fit every need. Zahira Lehri, senior vice president with SunTrust Investment Services, said she uses the “Heather dating parallel” to overcome an objection to using annuities. That parallel states if Heather meets her prospective spouse’s every conceivable requirement except for her name, then use a
InsuranceNewsNet Magazine » November 2016
As the pension leg of the retirement income stool wobbles ever more precariously in the face of eroding privatesector defined benefit plans, Social Security appears to have become a de facto pension plan for millions of retirees. Social Security was designed as a floor to secure a basic level of support for retirees. It was never designed to be a primary source of pension income, yet this is what it has developed into for too many people. Indeed, Social Security provides between 25 percent and 50 percent of income for 41 percent of retirees, the IRI report found. By comparison, pensions provide between 25 percent and 50 percent of income for only 24 percent of retirees. Despite 81 percent of current retirees benefiting from pension income, more than six in 10 have filed for their Social Security benefit before age 65, a finding the report calls “a bit stunning.” Social Security benefits increase 8 percent a year for every year the benefit is delayed. Filing early for Social Security benefits may indicate that a retiree has a shortage of other financial resources. Retirees have numerous reasons for taking Social Security early. Some retirees may want to begin collecting benefits before they die, while others may not realize that it makes sense to draw on savings in the early years of retirement in order to delay receiving the Social Security benefit. “In either case, this highlights the opportunity financial professionals have to provide significant value to their clients by incorporating Social Security claim strategizing into the planning process,” the report said. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@ innfeedback.com.
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ANNUITY
What License Is Needed to Sell Annuities Under DOL Rule? B eing properly licensed to sell annuities under the fiduciary rule is easier than you think.
H
By Kim O’Brien
ere is a question I have been asked frequently since the Department of Labor’s fiduciary rule was announced: Do I need a Series 65 license to sell a qualified annuity individual retirement account? The short answer is no. I will explain why later in this article. But first, let’s understand what licenses are available to annuity advisors and what they authorize the licensee to do. We’ve compiled information from the Financial Industry Regulatory Authority, Securities and Exchange Commission and Investopedia websites. There are three categories of regulators who oversee the licensing: state insurance departments, FINRA and the North American Securities Administrators Association. Of course, all annuity advisors must hold an insurance license from the state in which they sell annuities. The licensing state usually is determined based on the annuity buyer’s address. So if the annuity buyer lives in Arizona, you must hold a valid life insurance license issued by the state of Arizona. As an advisor or agency holding a valid state insurance license, you are authorized to sell only fixed annuities — including fixed indexed annuities.
FINRA Licensing Breakdown
FINRA offers several different types of licenses needed by both representatives and supervisors. Each license corresponds to a specific type of business or investment. Although there are several licenses that focus on specific types of securities, 54
there are three general licenses that the majority of representatives and advisors usually obtain. Series 6: The Series 6 license is known as the limited-investment securities license. It allows its holders to sell “packaged” investment products such as mutual funds, variable annuities and unit investment trusts. Principals who supervise representatives holding a Series 6 license must
The only major types of securities or investments that Series 7 licensees are not authorized to sell are commodities futures, real estate and life insurance. Those who carry this license are officially listed as registered representatives by FINRA, but they are generally referred to as stockbrokers. Many insurance agents and other types of financial planners and advisors also carry the Series 7 license to facilitate certain types of transactions inherent in their businesses. Principals of general representatives holding a Series 7 must also obtain the Series 24 license. Series 3: The Series 3 license auYou know thorizes representatives to sell comyou need a Series 65 to modity futures contracts, which are generally considered the riskiest pubcharge flat licly traded investments available. fees, right? Representatives who carry the Series 3 license tend to specialize in commodities and often do little or no other type of business.
NASAA Licensing Breakdown
obtain the Series 26 license in addition to already having obtained the Series 6. Series 7: The Series 7 license is known as the General Securities Representative license. It authorizes licensees to sell virtually any type of individual security. This includes common and preferred stocks, call and put options, bonds and other individual fixed income investments, as well as all forms of packaged products (except those that also require a life insurance license to sell).
InsuranceNewsNet Magazine » November 2016
Not all securities licenses are administered by FINRA. NASAA oversees the licensing requirements of three key licenses: Series 63: The Series 63 license, known as the Uniform Securities Agent license, is required by each state. This license authorizes licensees to transact business within the state. All Series 6 and Series 7 licensees must carry this license as well. Series 65: The Series 65 license is required by anyone intending to provide any kind of financial advice or service on a non-commission basis. Financial planners and advisors who provide investment advice for an hourly fee or a flat fee percentage of assets fall into this category, as do stockbrokers and other registered representatives who deal with managed-money accounts. Series 66: This Series 66 is the newest exam offered by NASAA. It combines
WHAT LICENSE IS NEEDED TO SELL ANNUITIES UNDER DOL RULE? ANNUITY the Series 63 and 65 exams into one 150-minute exam.
Broker/Dealer Sponsorship Versus RIA Requirements
Licensees must register their securities licenses with an approved broker/dealer. Those who intend to hold themselves out to the public as registered investment advisors must register with the state they do business in if their assets under management are less than $100 million, or they must register with the SEC if the assets exceed $100 million. RIAs do not need to associate themselves with a broker/dealer. So what license must you have to sell compliantly under the DOL’s fiduciary rule? That depends on the products and services you offer. If you offer ongoing financial planning and charge a flat fee for your planning services, you will need a Series 65. If you want to sell variable annuities or mutual funds, you will need a Series 6 and a Series 63. If you simply want to offer fixed annuities and life insurance products for guaranteed income or asset protection needs, you will need only a life insurance license in the
states in which you intend to do business. However, if you want to give specific, individualized and tailored advice regarding the securities, mutual funds or variable annuities your client owns, you will need the appropriate additional license to do that. On the other hand, if you limit your advice to general information about diversification, various investment markets, market risk and recent or historic economic activities, your state insurance license authorizes you to have those general conversations. You do not need additional FINRA or NASAA licenses to do so. Of course, the insurance-only advisor must and should discuss client objectives, needs, risk tolerance, liquidity and time horizon as required by suitability and, if applicable, fiduciary compliance. You may ask, why am I so sure that you don’t need a Series 65 to continue selling annuities in a DOL fiduciary world? Because the DOL states just that in the rule. Here is what the DOL had to say:
The Department published proposed new and amended exemptions from ERISA’s and the
Code’s prohibited transaction rules designed to allow certain broker-dealers, insurance agents and others that act as investment advice fiduciaries to nevertheless continue to receive common forms of compensation that would otherwise be prohibited, subject to appropriate safeguards. While a recommendation to move (or not move) qualified money to an annuity triggers the fiduciary duty, that does not mean you must now be Series 65 licensed. Don’t be lured by misleading marketing or opportunistic recruiters. Get the license(s) you need to help the clients you choose with the products and services you offer. Kim O’Brien is the vice chairman and CEO of Americans for Annuity Protection. She has 35 years of experience in the insurance industry. O’Brien served The National Association for Fixed Annuities (NAFA) for almost 12 years. She may be contacted at kobrien@innfeedback.com.
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November 2016 » InsuranceNewsNet Magazine
55
HEALTH/BENEFITSWIRES
Fewer Choices On Exchanges For 2017
31%
of the nation’s counties would have only one health insurer offering exchange coverage in 2017
For one-third of the nation, selecting a health insurance option on the exchange will mean having no choice at all. Nearly 36 percent of the nation’s Affordable Care Act (ACA) exchange-market-rating regions may have only one participating insurance carrier offering plans for the 2017 plan year, according to an analysis by the consultant Avalere. Earlier this year, Kaiser Family Foundation research found that 31 percent of the nation’s counties would have only one health insurer offering coverage on the exchange for 2017. Seven states (Alaska, Alabama, Kansas, North Carolina, Oklahoma, South Carolina and Wyoming) will have just one health insurance carrier in each rating region in the state in 2017, according to Avalere.
SIMPLE CHOICE PLANS MAKE THEIR DEBUT
The news about consumer choice in selecting health coverage isn’t all bad. The federal government is encouraging health insurers to offer “simple choice plans” as an option on the federally-run exchanges in 36 states. Under the “simple choice” program, insurers have six new standardized plan designs. The purpose is to try to make it easier for consumers to make an “apples to apples” comparison of plans. These standardized plans will eliminate many of the details that have confused consumers as they try to make an accurate comparison among plans. The government is providing guidelines for a simple choice plan at each of the “metal” levels - bronze, silver and gold – as well as three more silver options for people who qualify for subsidies. These plans will have standardized deductibles and annual limits on out-ofDID YOU
KNOW
?
56
pocket spending, as well as standardized consumer payments for medical services. For example, a simple choice silver plan would have a deductible of $3,500 and a maximum out-of-pocket annual cost of $7,100. For many specific services – such as primary care visits or urgent care – consumers will have flat dollar copayments for services up front rather than having to meet their deductible before the plan picks up the cost.
HIGH-DEDUCTIBLE PLANS HAVE A HITCH
Some insurers and employers are easing the pain of high-deductible health plans by covering certain benefits such as generic drugs or annual physicals before consumers reach their plan’s deductible. But IRS rules put a hitch to this. According to the IRS, high-deductible plans that are set up to link to health savings accounts can only cover preventive services until patients buy enough services on their own to pay down their deductible. Now a bill was introduced in Congress to allow high-deductible plans that link to health savings accounts to cover care for chronic conditions like diabetes and heart disease before plan members have
29% percent of workers with employer-sponsored coverage are enrolled in a high-deductible plan with a savings account of some sort. Source: Kaiser Family Foundation
InsuranceNewsNet Magazine » November 2016
QUOTABLE The private sector can deliver solutions. A government-run plan cannot.
met their deductibles. Health savings accounts must be linked to plans that meet certain federal standards. These standards include having minimum deductibles of $1,300 for individuals and $2,600 for families in 2016. The plans are required to cover preventive services without additional cost to the consumer, but consumers must pay for all other services until they meet their deductible. But many high-deductible plans don’t meet that standard. The proposed legislation would lift the IRS restrictions to some degree, but its passage is not certain.
SOME INSURERS STICKING WITH THE EXCHANGES
Not every health insurer is fleeing the exchanges. Some have announced they are sticking with the exchanges or even expanding their territories. Among those who decided to stay: • Centene wants to sell coverage on the exchanges in two Arizona counties. In addition, Magnolia Health, a unit of Centene, announced it will expand into the exchanges in the Mississippi delta region. • Highmark announced it will continue selling exchange plans in Delaware, Pennsylvania and West Virginia, despite having lost more than $800 million on its exchange business since 2014. • Blue Cross and Blue Shield said it will continue to offer coverage in all 100 counties of North Carolina, an announcement that came after Aetna and UnitedHealthcare said they would exit the North Carolina exchange.
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Get additional information about the Solstice Marketplace Easy Enroll platform by downloading the Easy Open Enrollment Guide at www.OpenEnrollmentMadeEasy.com or calling 844.588.2772
HEALTH/BENEFITS
Self-Insurance: Risks and Rewards Self-funding health coverage can keep your clients from walking away. By Ron E. Peck
Y
ou walk into a doctor’s office and step up to the check-in window. The receptionist asks, “Do you have insurance?” Long ago, this question would have had a simple answer. Individuals whose employers provided health insurance could respond with a simple “Yes. I have health insurance.” This seemingly normal exchange hides many complicated arrangements and moving parts that, until now, were ignored by most people. But as the price of health care and health insurance skyrockets, employers and employees alike are digging deeper and asking, “What is health insurance? Is it all the same? Can we do something to save money but maintain benefits?” Health insurance generally comes in two flavors — self-funded and “traditional” fully funded insurance. Fully funded insurance is the type of coverage most people are accustomed to — from automobile to homeowners insurance. People are accustomed to having an agent assessing them and the risk they pose, then charging a premium to provide coverage. Many employers who previously had purchased fully funded insurance are contemplating dropping their coverage, paying a penalty (per the Affordable Care Act) and allowing their employees to secure individual insurance on the exchanges. That cuts agents out of the mix, and they lose business. Therefore, agents who rely solely upon fully funded insurance risk losing many of their employer clients. Enter self-funding. A self-funded health plan is established when an employer — the primary plan sponsor — sets aside some of its funds to pay for its employees’ medical expenses. Those workers contribute to the plan instead of paying premiums — although the similarity of the actions means it’s not uncommon to hear employees and employers refer to such contributions as “premiums.” 58
Here are some reasons why an employer would self-fund.
Plan Control
Self-funding begins with drafting a plan document or summary plan description. This is where the employer chooses what to cover and what to exclude. Within parameters set by federal law, the employer customizes the plan to be generous where their particular workforce needs it, and stingy where benefits aren’t needed. For example, if someone owns a yoga studio where the workforce is in tip-top shape, they can go lean on benefits meant to help those who are suffering from morbid obesity.
to the employer. Likewise, the money is in hand and usable where needed, when needed.
Federal Preemption and Lower Taxes
In the United States, we are governed by both federal laws and state laws. However, when you can’t comply with a state law without violating a federal law, the state law is moot and federal law preempts the state. The Employee Retirement Income Security Act of 1974 states that a private, self-funded health plan is administered in accordance with its terms and federal rules. As such, these plans are not subject to conflicting state health insurance
Partially or Fully Self-Funded Plans 1999
2005
2010
2015
3-199 Workers
13%
13%
16%
17%
200-999 Workers
51%
53%
58%
56%
1,000-4,999 Workers
62%
78%
80%
82%
5,000 or More Workers
62%
82%
93%
94%
ALL FIRMS
44%
54%
59%
63%
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits. Percentage of workers by firm size, 1999-2015.
In addition to customizing the benefits, the employer can customize the partnerships. Fully funded carriers have selected their provider networks, vendors and other programs that they package and force upon policyholders. A self-funding employer, however, can shop around and select partners to customize their team.
Interest and Cash Flow
When an employer purchases fully funded insurance, they pay premiums when they are told to pay. That money is gone. It sits in the carrier’s account until it’s needed to pay claims. While it sits, it’s working for the carrier. With self-funding, the funds are in the employer’s hands until they’re needed, meaning interest on those assets belongs
InsuranceNewsNet Magazine » November 2016
regulations or benefit mandates. Likewise, such self-funded plans are also not subject to state health insurance premium taxes.
Data
These days, everyone talks about “big data” and leveraging data to predict future needs and expenses. A fully funded insurance carrier owns the claims data they receive and produce. Employers with self-funded plans, however, can examine the claims data, study trends, allocate resources and form partnerships to address their actual needs.
Sharing Risk
A fully funded insurance carrier not only sets premiums based on what they anticipate you will cost them, but also adds a
SELF-INSURANCE: RISKS AND REWARDS HEALTH/BENEFITS buffer to cover other employers’ employees, to soften the pain of underestimating how much one of those other policyholders will cost. In other words, all policyholders are contributing toward their own expenses and the expenses of others. As such, the steps an employer takes to make their own population healthy don’t much affect the bottom line unless all other policyholder employers do the same thing. With self-funding, the employer pays only the claims of their own population — so steps taken to reduce the cost directly impact the employer’s bottom line. Employees of self-funded companies generally have lower single and family premiums than those with fully funded insurance. Many people — even experts within the self-insurance industry — believe a “minimum” number of lives are required to self-fund a health plan. They certainly are justified in thinking so. Indeed, one
of the pillars upon which insurance rests is the idea that a bigger risk pool (more people enrolled in a plan or with an insurance carrier) means there is more money (premiums or contributions) being “dumped into the bucket” and made available to pay the occasional highdollar “catastrophic” claim.
Would you rather self-fund a plan for five healthy yoga instructors or 500 daredevils? Risk and the health of the population play a role as well. You can’t prevent some unforeseen losses from occurring (such as cancer, premature birth, etc.), but size is only one factor when assessing self-insurability.
Employees of self-funded companies generally have lower single and family premiums than those with fully funded insurance. With self-insurance, however, plan sponsors and participants have more direct control over their costs. Indeed, the bigger the plan, the tougher it is to control its health and wellness. If I am selffunding a smaller group of enthusiastic participants, I can more easily implement wellness programs, analyze the claims data and take active steps to contain costs.
Overall, these benefits result in net savings for the self-funded plan over a three-to-five-year span, compared with a comparable fully funded insurance policy. Yet there are risks. Among them: the threat of catastrophic claims, inability to fund claims and new fiduciary responsibilities to the members of the plan.
November 2016 » InsuranceNewsNet Magazine
59
HEALTH/BENEFITS SELF-INSURANCE: RISKS AND REWARDS
Stop-loss Insurance
Ordinarily, a self-funded benefit plan will obtain an insurance policy meant to protect the plan. This form of reinsurance is called “stop-loss.” Like most insurance, stop-loss includes its own policy and a deductible. A self-funded plan may be forced to pay a substantial amount of money to treat a participant’s costly illness or injury. Any amount that the plan pays in excess of the stop-loss deductible is — after having been paid by the self-funded plan to the medical services provider(s) — submitted to the stop-loss insurance carrier for reimbursement. Imagine your self-funded plan has a stop-loss policy and a deductible of $100,000. One of your plan participants is diagnosed with a rare disease; it’s treatable, but the cure costs $250,000. Your plan pays the $250,000 to the doctor. That $250,000 exceeds the $100,000 deductible by $150,000, so you submit a claim for $150,000 reimbursement to the stop-loss carrier. Finally, a self-funded employer is — or appoints — a plan administrator. That administrator is a fiduciary of the plan and its members. Applicable law dictates the fiduciary must act prudently, protect the plan and apply its terms judiciously. Failure to comply with these terms, mismanaging plan assets or otherwise doing something not in the plan’s best interest could expose the plan sponsor to claims of fiduciary breach, resulting in steep penalties. Fortunately, there are third-party organizations that will step in, aid in decision-making and act as a fiduciary as it relates to those decisions. This indemnifies the self-funded plan administrator.
Personal Health Information
Self-funded health plans operate within the scope of federal law, and in some cases, state insurance laws as well. As such, there are many protections in place to secure patient information. For instance, the Health Insurance Portability and Accountability Act ensures that participants’ health information is kept secure. Self-funded employers appoint a plan administrator to serve as a fiduciary decision-maker for the plan, and most (if not all) sensitive information is limited to 60
that entity. Additionally, most plans hire an insurance carrier to provide administrative services, or a third-party administrator to process the claims. In other words, the self-funded employer is hiring an objective third party to receive medical bills, process claims and pay the bills with the employer’s money — without sharing personal health information with the employer. When deciding what to cover or where to focus their efforts, employers will generally look at data freed of personal information. In other words, as an employer, I may
our plan certainly has helped. We’ve drafted terms into plan documents empowering participants to notify the plan administrator anytime a costly procedure is being sought. We also reward participants for collaborating with the plan sponsor to identify the most effective yet cost-efficient options. Our health plan already has saved thousands of dollars this year, and awarded employees thousands in incentives as well. A plan member recently sought to obtain surgery with an anticipated fee of $60,000 for the facility, and another
Would you rather self-fund a plan for five healthy yoga instructors or 500 daredevils? Risk and the health of the population play a role as well. see that half my staff is pre-diabetic, and decide that a weight-loss benefit is called for. I don’t see any individual employee’s information; I view the plan as a whole.
Risks and Rewards
Self-funding has its risks, but also presents numerous rewards. As the price of health care continues to increase, many employers who previously had been too risk-averse are second-guessing their decision — and self-funding. My company, for example, made the decision to self-fund our health plan nearly a decade ago. Although selffunding is an obvious choice for employers with more than 1,000 lives that can spread the risk among their employees, employers with 100 or fewer workers are at greater risk. If one catastrophic claim is submitted, and the company lacks the population or assets to absorb the hit, the results can be devastating. Yet my company — with fewer than 100 lives at the time — made the leap. Over the time we have been selffunding, our contributions dropped drastically from the premiums we had been paying — by nearly 30 percent in two years. Since then, they haven’t increased by more than a few percentage points annually, and we have yet to submit a single stop-loss claim. Our ability to customize and control
InsuranceNewsNet Magazine » November 2016
$10,000 for the surgeon. After research, we determined the fee was on the high end of the spectrum. We communicated with some area hospitals and found one facility that would take $20,000 cash upfront for everything involved — with the procedure being performed by the same surgeon. We saved more than 70 percent, and a portion of that savings was given to the participant as a reward. Self-funding isn’t for everyone. But for employers willing to get hands-on about their health care, the savings could be monumental — enough, in fact, to save the employer-based health benefits industry. Agents who educate themselves about self-funding and its benefits can steer their employer clients away from the scenario described above. Agents can use self-funding as a means to keep their employer clients as clients — purchasers of insurance. Ron E. Peck is senior vice president and general counsel at The Phia Group. Ron may be contacted at ron. peck@innfeedback.com.
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November 2016 Âť InsuranceNewsNet Magazine
61
NEWSWIRES
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QUOTABLE
DOL Rule Could Push Advisors Into Retirement
Gen Xers need encouragement and they need some tough love.
The Department of Labor fiduciary rule could be the final nudge that pushes a portion of the financial advisor population into retirement. That prediction came out in several recent surveys. A LIMRA Secure Retirement study revealed that 54 percent of broker/ dealers surveyed believe some of their advisors will retire rather than sell under the new business rules to comply with the fiduciary rule. Fidelity Investments conducted a similar survey and found that 10 percent of advisors plan to leave or retire from the field earlier than expected, and 18 percent are reconsidering whether they want to continue as advisors at all. The National Association of Insurance and Financial Advisors surveyed its members and found 16 percent said they will no longer provide any retirement plan products or services to individual or business clients.
10% of advisors plan to leave the field. 18% are reconsidering their careers.
HALF OF WORKING WOMEN TAKE LEAVE FOR CAREGIVING
Between young children, aging parents and ill spouses, working women are finding themselves caught in a time squeeze. Half of all working women who have left their employment to care for a family member are worried about how their exit from the workforce will impact their retirement savings, according to LIMRA SRI. The MetLife Mature Market Institute estimates that women in their 50s who had to stop working could lose as much as $324,044 in lost wages and Social Security benefits.
SINGLE ADULTS FEEL FINANCIALLY INSECURE
Single men and women report feeling generally happy with their lives, but their finances are another story. A Northwestern Mutual survey revealed that single adults are feeling higher levels of anxiety over their DID YOU
KNOW
?
62
finances compared with their married counterparts. More than half of single women (55 percent) and nearly half of single men (49 percent) are unhappy with their financial situations, compared with onethird of married women and even fewer married men. Singles are nearly twice as likely as married people to feel “not at all” financially secure (38 percent of single men and women combined, versus 23 percent of married men and women combined).
Millennials who are currently employed report an average annual salary of $48,146.
THE AVERAGE RETURN ON AN INITIAL PUBLIC OFFERING was 20 percent this year. The average increase in the first day (or “pop”) is 13 percent. Source: LendingTree Source: Renaissance Capital
InsuranceNewsNet Magazine » November 2016
— Catherine Collinson, president of the Transamerica Institute and the Transamerica Center for Retirement Studies
That financial anxiety extends into their retirement planning, with half of all singles reporting they have not spoken to an advisor about retirement. That’s double the percentage of married individuals who reported the same thing. What’s more – two-thirds of singles do not even have a financial advisor.
GEN X IN BAD SHAPE GOING INTO RETIREMENT Two years ago, the oldest members of Generation X — people born between 1964 and 1978 — turned 50. Now retirement is beginning to appear on the horizon and loom larger by the year. For experts who study these trends, Gen Xers are not in good shape going into retirement. They have not saved nearly enough to seal a comfortable retirement for themselves. Consider these statistics from the Transamerica Retirement Survey of Workers. The median total retirement savings for a Gen X household in 2016 is $69,000; 30 percent of Gen Xers report having taken a loan or an early or hardship withdrawal from a 401(k) plan or a retirement account. For Gen Xers who are married, the estimated median in retirement savings in all accounts is $81,000 versus only $48,000 for savings in all accounts for Gen Xers who are not married or divorced.
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November 2016 Âť InsuranceNewsNet Magazine
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Same Sex, Different Needs: Serving the LGBT Community T he legalization of same-sex marriage led to some financial planning challenges for the gay and lesbian community, as well as opportunities for those who wish to serve this group. By Ellen M. DeSarno
F
inancial planning is always a complex process, with each market segment having specific needs and considerations. Financial matters for many lesbians and gays changed greatly following the Supreme Court decision in the case of Obergefell v. Hodges in 2015. This court ruling made marriage equality the law of the land in the U.S. Although marriage is now a right guaranteed by law, it also poses additional financial planning opportunities and complexities for same-sex couples. Many of these same opportunities and complexities also pertain to heterosexual married couples; however, samesex couples have had little experience with them until recently. 64
Legalizing Same-Sex Marriage: Welcome Opportunities and Thorny Challenges
Further complicating the issue is the fact that many states still have laws on the books that allow employers to fire people for being gay. In addition, some gays and lesbians have a deeply ingrained reluctance to be completely “out,” especially to their workplace colleagues. These factors have led some gays and lesbians to confide personal and financial information only to those whom they trust completely. The recipients of this trust frequently were not their employers’ benefits administrators. Another factor in the same-sex population segment is that its members generally have a significant level of affluence. Over the years, gay individuals have tended to be well-educated, childless and not affected by hits to their assets from costly divorces. Lesbians may not have taken time off from a career to raise children, and thus may have enjoyed more seniority and salary increases at their work.
InsuranceNewsNet Magazine » November 2016
Even though many gay or lesbian couples are childless, that is changing. Starting a family is becoming more commonplace, with two moms or two dads are showing up at PTA meetings. And although starting a family under any conditions is expensive, same-sex couples likely have the additional cost of sperm donors, egg donors, surrogacy or adoption, and the legal contracts associated with each. Legal arrangements must be made for guardianship and support of children in the event of a marriage — or a death or divorce. Couples who were in a long-term relationship before they were married, and may have adopted children individually, now have more at stake. Because marriage recognized at the federal level is so new, gay couples frequently are unaware of Social Security survivor benefits that married couples can take advantage of. When your client applies for Social Security, the spouse is entitled to a spousal benefit — a monthly check that could be equal to 50 percent
SAME SEX, DIFFERENT NEEDS: SERVING THE LGBT COMMUNITY of the monthly check. This could add significant retirement income. If your spouse predeceases you, you may collect a survivor benefit each month. Spousal and survivor benefits can now be a part of a same-sex couple’s retirement plan. Before same-sex marriage was recognized at the federal level, partners had no right to these benefits.
Financial Professionals: Do Your Homework
throws a couple into a higher tax bracket than each spouse might have enjoyed when they filed singly at a lower income level. Take the example of a couple — one of whom is an assistant professor, the other a partner in a law firm — who may have a substantially higher joint income. Marriage also phases out many deductions that people are entitled to when filing singly. For example, a combined adjusted gross income of $311,300 begins to phase out your itemized deductions. Before same-sex marriage was legal, each individual could have an adjusted gross income of $258,250 before phaseout, giving the household $516,500 in
an unmarried couple could be exposed to challenges from the decedent’s blood relatives if the predeceasing member died intestate (without a will). Couples should meet with their legal professionals in order to create documentation of their wishes — wills, trusts, powers of attorney, health care proxies, etc.
A Respectful and Inclusive Environment
Perhaps most important, like all customThe same-sex community has special ers, gay clients want to know they can concerns that financial professionals receive the individualized financial guidmust be prepared to address. For examance they need in a safe, sensitive and ple, make sure you get off on the right respectful environment. That begins by foot when you’re meeting with same-sex fostering a corporate culture of diversity clients. Make sure you’ve done and inclusion as an integral part your fact-finding and that you of your practice’s core values. avoid language such as “husband Let same-sex clients know and wife” with a gay couple. Just about your commitment. Inask them if they prefer “spouse” clude some kind of inclusive or “husband/wife.” And it’s also message in your literature and important to keep in mind that on your website. just because same-sex marriage Financial professionals should Ask them whether Assume that every sameis legal, not every gay couple is further demonstrate support of they prefer to be called sex couple is married or “spouse” or wants to be married married or wants to be married. the community by holding edu“husband/wife” Don’t make assumptions. cational meetings or workshops Fail to consider children If a same-sex couple is not (which also showcase finanor other family Ask whether they married, they need to be aware cial professionals’ knowledge members when drawing have a will of the laws pertaining to inand experience), and by being up a financial plan dividual retirement account involved in LGBT-sponsored Make them aware of Assume that the client rollovers, a lack of automatic activities and professional orSocial Security and tax is fully “out” to inheritance rights, the need for ganizations in the communities considerations co-workers and others medical powers of attorney and where both your clients and many other issues. your employees live and work. Beyond having a will, same-sex mar- income. There’s also a “marriage penalWhether they realize it or not, most ried couples may need to consider cre- ty” in the tax brackets for couples mak- financial professionals will likely have at ating trusts in order to distribute assets ing more than approximately $170,000. least one gay client. If you do an excelafter one spouse’s death. For example, For further information and specifics, it lent job for these individuals, they will each partner in the marriage may want would be wise to consult a tax advisor. most likely refer friends and family to assets to go to various family members If couples choose not to get married, you because of that extra level of trust. instead of automatically going to the they’re exposed to estate taxes and tax Regardless of their status, same-sex surviving spouse, who may prefer to on the transfer of retirement assets. For couples of all ages need to prepare for leave their estate to their own side of example, there’s an unlimited marital and specify their future financial plans the family. deduction to surviving spouses, so you to help create a dignified retirement and A case in point would be, for example, have to be married in order to take ad- to help ensure that their beneficiaries a spouse with a $1 million life insurance vantage of that. If you’re not married, receive their intended legacies. policy. If they die without having creat- your partner would have to pay an estate ed a trust, the $1 million death benefit tax on the inheritance. For example, in Ellen M. DeSarno, CFP, would go to the surviving spouse, possi- New Jersey, where I live, the estate tax CLU, ChFC, is a retirement planning specialist with bly to distribute exclusively to their own threshold is $675,000 — lower than the AXA Financial Advisors in side of the family. cost of many homes in some parts of New York City. Ellen may the country. There are also states with be contacted at ellen.deTaxing Matters an additional “inheritance tax” for non- sarno@innfeedback.com. Regarding taxes, getting married is blood relatives. now a bigger decision for same-sex In addition to being denied Social Secouples, because marriage frequently curity benefits, the surviving member of
Do’s and Don’ts in Serving the LGBT Community DO DON’T
November 2016 » InsuranceNewsNet Magazine
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BUSINESS
Five Steps to Heading Off a Potential Lawsuit C onducting sales practice reviews can minimize legal exposure for insurers and agents alike. By Jason H. Gould and Dawn B. Williams
E
veryone has heard the saying that “an ounce of prevention is worth a pound of cure.” For insurers, marketing organizations and agencies, that “ounce of prevention” includes establishing compliance procedures to ensure the propriety of their policy sales and to avoid litigation. Periodic internal audits are among the tools used to make sure these compliance procedures are successful. More recently, these efforts also have included having outside counsel review current sales practices to help identify and avoid problems — or at least minimize them. Embracing an ounce-of-prevention approach, and budgeting legal department funds for such reviews, is an effective practice that can minimize legal exposure for insurers and agents alike.
An Ounce of Prevention …
Class action filings involving the insurance industry have steadily increased over the past several years, currently making up 7 percent of all class actions handled last year, according to the 2016 Carlton Fields Class Action Survey. In the past 10 years, many of the class action suits filed against the insurance industry have focused on alleged “common” agent or insurer actions. This is a way of maximizing the possibility of having a lawsuit certified as a class action. In addition to class action filings, lawsuits brought on an individual basis against the insurance industry also have continued unabated in recent years. A sales practices review conducted by knowledgeable outside counsel can identify and address problems and prevent both class action and individual lawsuits before they are filed. For example, a review might 66
identify problematic sales materials or uncover improper communications, such as faxes sent in violation of the Telephone Consumer Protection Act (a basis for recent litigation against insurance producers and issuers). By conducting this review, the salesperson, agency, marketing organization and insurance company could save hundreds of thousands, if not millions, of dollars. A sales practices review is a form of compliance audit that can be accomplished in multiple ways, depending on the specific concerns and sensitivities of the distributor or company. Typically, a review involves analyzing an agency’s or marketing organization’s sales materials and compliance processes, and then preparing a report identifying areas of concern. A typical review usually involves five fundamental steps. [1] Defining the engagement. At the outset, outside counsel would meet with the insurer or marketing organization. The purpose of this initial meeting is to identify particular topics and practices to review, and to identify applicable privileges (such as the attorney-client privilege, the attorney work-product doctrine and other protections) and ensure that protocols are in place to preserve them. Key areas of analysis might include Department of Labor fiduciary rule issues such as disclosures regarding compensation and potential conflicts of interest; privacy and cybersecurity; compliance with the Do Not Call Registry and the TCPA; suitability; advertising; potential unfair trade practices; sales to seniors; exchanges and replacements; complaint monitoring and resolution; unauthorized practice of law; tax advice and financial planning; and Financial Industry Regulatory Authority issues, if applicable.
InsuranceNewsNet Magazine » November 2016
[2] Background work. In this preliminary phase, outside counsel will discuss relevant operations and sales practices with the insurer and the marketing organization. Counsel also would review the distributors’ publicly available information such as any publicly available filings with their state or federal regulator and materials on their website. [3] Desk review of information. Outside counsel will analyze information obtained from the distributor to develop targeted questions for the on-site review and to understand any potential areas of concern. Depending on the volume of material, counsel may focus on certain areas or identify “representative” items. [4] On-site review. After review of written materials, outside counsel will visit the organization and conduct interviews of key staff to gain a complete understanding of their operations. [5] Assessment. Finally, outside counsel will communicate their findings and recommendations.
The cost of undertaking such a review varies depending on the size of the organization and the volume of materials. But the financial outlay involved is modest compared with the cost of defending even one lawsuit or arbitration proceeding. In-house counsel at marketing organizations and insurers should consider the money spent upfront as an ounce of prevention. If the engagement avoids even one instance of litigation, it is all but certain to pay for itself and achieve considerable savings for all potential defendants.
â&#x20AC;Ś Is Worth a Pound of Cure
Regardless of who may be named as a defendant in a sales practices-related lawsuit, the benefits of undertaking sales practices reviews outweigh the risk of not doing so for all involved parties. The insurer benefits by avoiding significant litigation, reputational risk and a strained relationship with its distributors or agents. The individual producers, marketing organizations and insurance agencies benefit as well. Even when they are not named in the lawsuit itself, identifying and addressing compliance issues before a lawsuit is filed mitigates friction between insurers and producers, and helps avoid commission chargebacks on challenged sales. For all these reasons, insurers and marketing organizations/general agencies should strongly consider partnering to conduct reviews of their sales practices. Ensuring that rigorous procedures for insurance sales are both established and followed provides competitive advantages. In addition, it reduces legal and regulatory exposure for marketers/distributors as well as issuers of insurance products. Jason H. Gould and Dawn B. Williams are shareholders in the Washington, D.C., office of Carlton Fields, where they represent a variety of clients, including insurance companies, in class action and other complex commercial litigation disputes as well as regulatory enforcement proceedings. Jason may be contacted at jason.gould@ innfeedback.com and Dawn may be contacted at dawn. williams@innfeedback.com.
November 2016 Âť InsuranceNewsNet Magazine
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MDRT INSIGHTS
The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.
Beyond Competence: The Ethics of Implementation A ttention to detail is what sets the outstanding advisors apart from the merely competent ones.
T
By Albert Gibbons
he estate planning recommendations have been accepted. Wills and trusts have been drafted. Life insurance has been placed. Fees and commissions have been paid. Another successful estate plan has been completed, and the client has been served. Right? Wrong! In estate planning, the devil is in the details. Below are four examples that prove even when you think a job may be complete, there are double-checks to be done. Case One: A client asked me to review his existing estate plan and life insurance. I found inconsistent ownership and beneficiary designations. There were no Crummey notices, and premiums were being paid by the insured/grantor directly to the life insurance company. Case Two: An attorney requested my opinion regarding an existing estate plan, buy/sell and split dollar agreements, and existing life insurance for a new client. Surprisingly, trustee inconsistencies and buy/sell and split dollar issues showed up again. Case Three: A new client wanted to add additional second-to-die life insurance to his existing irrevocable life insurance trust (ILIT). I knew the client, and knew that he paid attention to detail. Gifts were being made to the ILIT, and the trustee was paying the premiums. This solution was an easy one. I called the attorney to find out the exact name of the trust, the date and the identification number. There was no existing secondto-die ILIT. Instead, two individual trusts had been drafted, and already existing 68
individual policies were to have been transferred. That wasn’t done, however, and now there is a second-to-die policy in an ILIT that was drafted for an individual, single life policy. Case Four: An accountant acted as trustee for an ILIT that has a split dollar agreement with a closely held corporation on the life of the majority shareholder. The CPA/trustee was responsible for sending out the Crummey notices and did so — except that the amounts were wrong. The notices reflect the whole premium being paid, not the Table 2001 rates or the insurer’s term rate. The common theme in each of the situations described above is that mistakes were made even though competent professionals were involved. How do competent, reputable, good professionals find themselves in these circumstances? Whose fault is it that these things hap-
life insurance solution. However, it is the attention to detail that makes it all work. It is where the rubber meets the road, where it all comes together. It is in the inglorious, plodding work of implementation that we serve our clients and demonstrate our care and concern. It is in the mistake-free implementation of our recommendations that we keep the promises we made to the client in the initial meeting — when we were “selling” ourselves and our services. We are talking about promises being fulfilled by performance, by our doing for the clients what we said we were going to do. That is integrity and professionalism — the ethics of implementation. What is the answer? It is a change of attitude, a paradigm shift. It is moving away from the notion that responsibility for and commitment to the client can be divided, e.g., if there are four advisors working for the client, then each is 25 percent responsible. That’s not good enough. Ethical advisors know that each of us is 100 percent responsible for our client and the proper implementation of the plan. None of the advisors should sleep at night until all the i’s have been dotted and all the t’s have been crossed. When flawless implementation has been achieved, then the client has been served and we, the advisors, prove our care and concern, and showcase true professionalism at our ethical best.
It is the attention to detail that makes it all work. It is where the rubber meets the road, where it all comes together. pen? Who is liable — the attorney, the accountant, the life insurance agent or some other advisor? I’m not talking about legal liability. I’m talking about moral, professional and ethical liability. Clients are paying for solutions to their problems. They are paying for results, yet some advisors say the clients are the ones to blame when something goes wrong. Creative planning is much more fun than the actual drafting of documents, arranging for notaries and witnesses, etc. I know that checking ownership and beneficiary designations and making sure the Crummey letters are sent are not nearly as exciting as designing and underwriting the
InsuranceNewsNet Magazine » November 2016
Albert Gibbons specializes in estate planning and life insurance planning for high-net -worth individuals, high-level corporate executives and successful entrepreneurs. He is a Life Member of the Million Dollar Round Table and the Top of the Table. Albert may be contacted at albert.gibbons@innfeedback.com.
NAIFA INSIGHTS
Founded in 1890, NAIFA is one of the nation’s oldest and largest associations representing the interests of insurance professionals from every congressional district in the United States.
Retirement Planning Threats Move to the State Level P olitical advocacy has become a mandatory part of the advisor’s job. By Paul R. Dougherty
W
ith whom would you prefer to invest your retirement savings: a trained and licensed professional financial advisor or the state of California? I know how I would answer that question. Yet more and more, government officials at state and federal levels are encroaching on the role of the advisor by dictating in strict terms how advisors should deal with clients. In some cases, states are even competing directly with the products and services advisors provide. In the face of these and other threats, political advocacy has become a mandatory part of the insurance and financial advisor’s job.
State-Run Retirement
California and seven other states have passed mandatory state-run retirement plans that will compete with the private market. Other states are considering similar legislation. The state legislators behind these laws have a noble objective: to increase the retirement savings of workers who are not preparing for a financially secure future. This is a goal shared by financial professionals as well. All the insurance and financial advisors I know would love nothing more than for each and every one of their clients to enjoy a happy, healthy and financially secure retirement. We get tremendous job satisfaction from knowing that we help people who have worked hard their entire careers and have taken responsibility for providing for themselves and their families. Unfortunately, state-run retirement programs are looking in the wrong direction for a solution. Availability of and access to retirement savings options are not the problem. A strong, vibrant private-sector retirement plan market already offers diverse,
affordable options to individuals and employers. Nearly 80 percent of full-time workers have access to retirement plans through their employers, and more than 80 percent of workers with workplace access to plans participate in them. A better approach for states would be to devote resources encouraging workers to participate in already existing plans. Washington state and New Jersey, with the grassroots encouragement of advisors led by the NAIFA associations in those states, have set up marketplaces designed to bring together employers and private-market plan providers. This arrangement allows the state to promote increased savings by workers and help employers participate, while giving consumers access to the quality and variety of plans offered by the private market. It’s not too late. Many states have shelved legislation that would create staterun retirement plans, opting instead to commission studies to determine whether such plans are feasible. Even in the eight states that have passed legislation to establish such programs, none of the plans has yet been enacted.
DOL Rule Limits Retirement Planning
As many of you know, it is not only state governments that are coming between advisors and retirement savers who need their advice. The Department of Labor’s fiduciary rule for advisors who serve retirementplan clients threatens to limit the availability of advice, services and products for workers preparing for retirement. A recent NAIFA survey found that 78 percent of advisors believe the rule will increase their compliance costs, and 84 percent believe it will have some negative effects on their ability to serve clients. The NAIFA survey and other studies have found that the rule will likely leave many middle- and lower-income consumers with limited or no access to retirement
advice and products. It seems as if some state and federal policymakers are intent on cutting advisors out of the retirement planning business. This would be a really bad idea. Studies show that consumers who work with financial professionals are more likely to have retirement plans than those who do not. They also tend to save more for retirement and find themselves in a better financial situation when they do retire.
Advisor Activism is Key
Government decisions loom large in the professional life of every insurance and financial advisor. Organizations like NAIFA and the American Council of Life Insurers actively promote the interests of the industry in Washington, D.C., and in state capitals around the country. But grassroots activists, such as agents and advisors working directly with clients, often can make impressions on lawmakers and regulators many times greater than those made by professional lobbyists. That’s why political advocacy, on both state and federal levels, is an important part of the advisor’s job description. Paul R. Dougherty, LUTCF, FSS, HIA, is the president of the National Association of Insurance and Financial Advisors. Paul may be contacted at paul. dougherty@innfeedback.com.
November 2016 » InsuranceNewsNet Magazine
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InsuranceNewsNet Magazine Âť November 2016
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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
Retirement Planning Becomes A Bigger Part of Advisor’s Job A s the population ages and accumulates more assets, the advisor’s focus shifts to planning for clients’ postemployment years.
R
By Jafor Iqbal
etirement planning has become a much larger part of an advisor’s business over the past five years. A LIMRA Secure Retirement Institute study found that half of advisors estimate that 50 percent or more of their business activities come from retirees and preretirees. This compares with only three in 10 advisors who said this in 2011. This is certainly not surprising when considering an earlier LIMRA SRI analysis
leads to clients consolidating assets with the advisor. Six in 10 advisors recognize that they cannot meet their clients’ retirement goals without compiling a retirement income plan. Nearly two-thirds of advisors agree that not doing retirement income planning would threaten their practice, because clients would switch to firms or advisors specializing in that service. Most advisors use “bucket” or a systematic withdrawal plan (SWP) strategy for their clients. More than 50 percent of advisors named a bucket or an SWP approach as the two most frequent income strategies they recommend for their clients’ withdrawals in retirement. A bucket approach is typically an income strategy to allocate and manage assets
Forty percent of advisors agree that “the guaranteed income products compromise my ability to manage a client’s portfolio as circumstances and needs change.” showing Americans ages 55 and older own 70 percent of the total investable assets. Our study on retirement income planning revealed several key insights from the advisors we surveyed. From a “big picture” perspective, 60 percent of advisors believe minimizing client risk of running out of money is the most valuable service they provide. Only 44 percent said this in 2011. Here are some other insights revealed by the advisors we surveyed. Advisors get it: Retirement income planning is good for business growth. Nearly half of advisors surveyed strongly agree that retirement income planning is vital for growing their practices. Six in 10 advisors link retirement income planning with improved client loyalty and confidence. Four in 10 advisors strongly agree that retirement income planning 72
in three staggered time frames. These are short-term/fixed-return investments used to generate current income, intermediate-term investments gradually converted into short-term investments, and long-term investments gradually converted into intermediate-term investments. Both of these strategies are easy to explain and are used widely by advisors due to their flexibility and ability to retain assets under management. Advisors agree on the benefits of guaranteed lifetime income products, but resist recommending them due to product inflexibility. Although nine out of 10 advisors agree that guaranteed lifetime income products provide clients peace of mind in retirement and believe it is important for clients to own them, they also resist using
InsuranceNewsNet Magazine » November 2016
them in client portfolios. This attitude toward guaranteed lifetime income products remains even though many suggest that one-quarter to one-third of a client’s portfolio be invested in these products. Advisors struggle to incorporate more guaranteed income solutions in client portfolios due to the products’ lack of flexibility. Forty percent of advisors agree that “the guaranteed income products compromise my ability to manage a client’s portfolio as circumstances and needs change.” In addition, at least 30 percent believe the products are too complicated to explain to their clients. These sentiments are particularly prominent among fee-only advisors. The study also found an increased demand for training. Half of advisors said they want more training in Social Security claiming strategies and four in 10 want to know more about health care planning in retirement. Regulatory training has emerged as one of the top areas of interest because of the Department of Labor’s recent fiduciary rule. Forty percent of advisors said they seek training on regulation. The role of advisors has evolved in recent years from financial product expert to financial planner to retirement income planning specialist. Retirement income planning involves many complicated decisions, including making trade-offs among client options and preferences. Our study shows that although creating a written, formal retirement income plan is demanding on advisors’ time and resources, it’s well worth the boost in client confidence about retirement security. Retirement income planning is emerging as the cornerstone for building trust and value between advisors and their clients. Jafor Iqbal is an assistant vice president with LIMRA Secure Retirement Institute. Jafor may be contacted at jafor. iqbal@innfeedback.com.
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