InsuranceNewsNet Magazine - December 2015

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INSIDE Will the DOL fiduciary rule be a significant shift or a disastrous disruption?

PAGE 24

Rule Opponents Have A Few Arrows Left To Use PAGE 10

LIMRA: How the Rule Fails to Address the Big Picture PAGE 64

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Financial Insights

with Dean Zayed

Which RIA Trends and Opportunities Will Continue in 2016?

Dean Zayed, president and CEO of Brookstone Capital Management, shares his thoughts on current trends for registered investment advisors (RIAs) and their place in the ever-changing financial landscape today.

Dean, industry publications continually share stories about the trend in wirehouse advisors choosing to go independent. How do you see the RIA space evolving in 2016?

A: I think the reason you see so many advisors moving into the RIA space is because they’re realizing the need for flexibility and a much wider range of products in order to stay competitive in today’s volatile markets. Investors are demanding more choices and more active management from their advisors, and advisors find greater ability to provide those things when they’re independent of strict wirehouse formulas.

Moving forward, I think advisors will continue to see the need for being able to provide investment options from a more actively managed business model than they might find with wirehouses. I’m sure the recent extreme volatility has only served to reaffirm that many advisors need — and probably want — their independence and objectivity in order to achieve this. The RIA model is an ideal platform for allowing this to happen.

Many agents have a clientele that was originally built around insurance products. Their best clients could easily be another financial advisor’s best prospects. In your opinion, who are the insurance agent’s top competitors?

A: The insurance-only advisor is a rarity today, except in some specialized situations. The general public is demanding a larger selection of products and skill sets from advisors today.

They want to work with one person they trust to manage 100% of their assets. If you’re limited by being able to provide advice only as an insurance agent, you simply won’t be that person. This is where you come in direct competition with agents and advisors who are certified with their Series 65 financial advisor’s license.

To remain competitive, advisors are now required to wear multiple hats and provide access to several kinds of services. Becoming a Series 65 licensed financial advisor — preferably with

the support of a robust turnkey asset management platform (TAMP) behind you — will allow you to provide solutions that motivate clients to retain you to manage their entire portfolio. It’s easy to see how expanding your skills this way can help you add a new revenue stream to your current book of business and attract new clients, including high net worth clients.

Do you feel all insurance agents should have the ability to provide investment management services to clients? Why? A: I respect that some traditional insurance agents would choose not to provide investment services to clients. However, the majority of insurance agents could very well benefit by embracing the idea of providing investment management to their existing clients. Many insurance customers are also investors, so there is a logical transition between the two.

“advisors will continue to see the need for being able to provide investment options from a more actively managed business model than they might find with wirehouses” And just as important, insurance customers are constantly subject to big-brokerage advisors asking for their insurance business. Why wouldn’t insurance agents want to compete on a level playing field against financial advisors for investment business?

Advisors at the big financial services firms and agents at the big insurance firms have plenty of opportunity for training in practice management. RIAs and independent agents are often in small shops. How can they get practice management training?

A: This is one area where partnering with the right TAMP can be so important. While an advisor’s independence empowers them to make their own business decisions for their practice, they want to be careful about becoming too isolated.

Brookstone has always put a premium on providing our advisor network with the highest-quality, most comprehensive training possible. One of our top priorities is to continually equip them with up-to-the-minute investment intelligence and practice management skills. I would strongly suggest to any advisor that they make it a priority to find a reliable, continual SPONSORED CONTENT

source of training in both investment and practice management.

Assuming most RIAs will want to grow their practice in 2016, where do you see their new clients coming from?

A: Well, for those insurance agents who are considering adding financial advisory capabilities to their practice, their first new clients will be their existing clients! They would quite possibly experience a new revenue stream from their current book of business, especially with clients who usually prefer to continue working with a resource they’ve grown to trust.

Today, there are about 76 million baby boomers out there, and approximately 10,000 retire every day. Advisors who focus on this large segment of the population will need to become experts on income planning. They’ll be asked to guide clients from simply accumulating assets during their working years to properly distributing these assets over their lifetime.

What do you see for the RIA space moving forward?

A: It has become more and more apparent that advisors have deliberately left the big-firm model to run their own business, and more insurance agents are adding investment management to their service offerings. In either case, I think their next step — and it’s a very important one — is to choose their strategic partnerships with TAMPs or other service providers very carefully. This will have an immediate impact on the growth and success of their new endeavor as it will directly affect their access to the kinds of imperative operational support systems mentioned earlier.

Also, whether working alone or with a TAMP, advisors will be called upon to establish the best investment approach on a caseby-case basis for their clients. This is obviously where they earn their stripes, and rightfully so.

For years, the big brokerage firms have been recommending a buy-and-hold approach that was reinforced through a fixed allocation method of investing. This is most likely responsible for the recent flight to the flexibility of the RIA space, because independent advisors are exercising flexibility and creativity in building portfolios — and not because it is a personal preference on the part of the advisor to do so, but because clients are demanding a more nimble approach in today’s unpredictable markets.

KICK OFF 2016 WITH A WINNING GAME PLAN

Top Advisors Share Their Focus for 2016 2015 offered more than its share of challenges for advisors and clients. Will that change the way advisors approach and set goals for 2016?

We asked top financial advisors to share their focus for 2016.

venue and offer classes for the folks in this demographic to educate them on the potential unintended consequences of having too much money in traditional IRAs and ordinary taxable accounts.

Jeff Davis, Corpus Capital Management Our clients have been concerned with our current economy and the U.S. dollar devaluation. Our biggest goal is to focus on tightening up our risk management controls. I hope to do so by allocating funds to strategies with proven track records that are able to help control downside risk during volatile markets.

Walter West, West Advisory Group 2016 is fast approaching and is potentially a pivotal year. Our primary focus will be risk management. Uncertainty and volatility seem to be in the air, clients will be looking for safety. Managing client expectations will be another focus as we move into the New Year.

What a great time to be in the Financial Services business. Clients need our help more than ever right now. As more and more baby boomers approach retirement, risk management and income solutions become extremely important to those who strive for a meaningful and fulfilling retirement. As a holistic advisor, maintaining proper balance between income strategies using annuities and other investment solutions that focus on risk mitigation will be extremely important in 2016. As a wise man once said, it’s not the return on your money; it’s the return of your money that counts.

Jason Glisczynski, Glisczynski and Associates “It’s no secret that boomers are now retiring en masse. With growing concerns over retirement security and the uncertainty of whether or not they can retire has created a mob of tire kickers looking for silver bullets. Our focus in 2015 and into 2016 has been and will continue to be to streamline that process for our prospective clients so they can as quickly as possible determine if we are the firm for them, and they are the right client for us. This ensures we are spending our time with the people who are ready to take action, are a good fit, and want to work with us, not just kick the tires.”

Jeff Kennedy, Kennedy Wealth Group In 2016 I will be focusing on getting back to my roots where I started in the business: Life Insurance.

There is much that can be done with this powerful financial tool for Americans approaching or entering retirement to prepare them for what I see as the near certainty of higher taxes in the not-so-distant future.

I am going to use college campuses as the

John Eikenberry, Eikenberry Retirement Planning For calendar year 2016 our central focus is in retirement planning and how to use social security, should they claim now or delay. Our retirement software enhances our ability to assist in that determination. Another concern is the spike in volatility with the markets. Our enhanced platforms help us to minimize the valleys to our clients’ assets. We continue to educate potential clients at our Social Security workshops and our highly successful continuing education events with our various platform managers. This has been very helpful to our current clients, as well as those that are considering becoming a client of our firm.

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IN THIS ISSUE

View and share the articles from this month’s issue

» read it

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DECEMBER 2015 » VOLUME 8, NUMBER 12

ANNUITY

44 D oes Your FIA Index Crediting Strategy Swing for the Fences?

By Mike Scriver and Brendan Sheehan Some like a crediting strategy to be all-or-nothing, while others prefer a strategy that is less exciting and more consistent.

46

24 INFRONT

10 DOL Fiduciary Rule Opponents Have a Few Arrows Left to Use

FEATURE

24 Inside the DOL’s War on Annuities

By John Hilton For those who sell annuities, the Department of Labor’s proposed fiduciary rule will bring either a significant shift or a disastrous disruption to the way they serve their clients.

By John Hilton Although the final rule seems inevitable, opposition forces continue to lobby via several different avenues to alter, or even block, the impending fiduciary standard.

12

LIFE

36 Beating the Odds Twice: Getting Coverage for Cancer Survivors

By Brad Cummins It could be possible for a cancer survivor to qualify for life insurance via a traditionally underwritten policy.

However, it must be evaluated on a caseby-case basis.

INTERVIEW

4

By Linda Koco Clients need to learn about lifetime income, but advisors are stuck in the accumulation message.

HEALTH

50 T he Questions That Help Find the Right Disability Coverage

By Art Fries Selecting the right coverage means asking the right questions of your client as well as the carriers whose products you are considering.

56

38

12 How to Get Everyone on Your Sales Team

An interview with Todd Cohen Who is on your company’s sales team?

Everyone! Even if sales isn’t part of an employee’s job description, every person in your operation has an impact on the customer’s decision to buy from you. Todd Cohen, author of Everyone’s In Sales, has advised top companies on how to get everyone on board with improving the customer experience. In this interview with InsuranceNewsNet Publisher Paul Feldman, Cohen describes how to coach your team to sales victory.

46 A dvisors and Clients Stuck in Strategies Ignoring Longevity

38 Learning the Facts of Life — Whole Life, That Is

InsuranceNewsNet Magazine » December 2015

By Brad Crockett Sit down and set the record straight with your clients by discussing five facts about whole life that they may not realize.

FINANCIAL

56 Bigfoot Sighting? Tax-Free Roth Conversions Do Exist

By David Szeremet It’s a myth that every Roth conversion results in taxable income. Here are some scenarios that debunk that myth.

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ALSO IN THIS ISSUE DECEMBER 2015 » VOLUME 8, NUMBER 12

BUSINESS

58 How to Discover Your Niche and Grow Your Business

By Carleton Hollister Using a niche marketing approach in your practice allows you to grow your practice faster than if you use a shotgun approach.

INSIGHTS

62 T HE AMERICAN COLLEGE: Special-Needs Families Must Plan a Retirement Built for Three

By Adam Beck For parents of special-needs children, retirement may look different from the traditional vision, but the right planning can ensure a rewarding experience for everyone involved.

64

60 NAIFA: The Family Financial Dilemma: College vs. Retirement

By Brock Jolly The lost opportunity costs associated with funding children’s education can leave a major gap when it’s time for retirement.

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61 M DRT: Tips to Take the Stress Out of College Planning

By Adam Solano Being open, honest and realistic about finances will make it easier to navigate this family milestone.

64 LIMRA: Fiduciary Rule Fails to Address the Big Picture

By Stephen Selby The new rule would force advisors to abandon small investors, a group that stands to benefit most from financial advice.

EVERY ISSUE 8 Editor’s Letter 22 NewsWires

40 LifeWires 42 AnnuityWires

48 HealthWires 54 FinancialWires

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15 INN 12.15

WELCOME LETTER FROM THE EDITOR

Know Why the Black Swan Sings

B

uzzwords are the signposts along the flat earth of business theory.

The latest one is “Disruption.”

That’s down the road from “The Black Swan.” Which is just west of “Game Changer.” That was due south of “Paradigm Shifter.” And the whole trip is the search for “Excellence.”

You probably know many other variants, but they all describe an abrupt change where nothing is the same afterward.

Pretty much every conference I have attended lately addresses disruption. I go to meetings about insurance and media, both of which have been roiling for some time now.

In fact, when I started working in newspapers in the early 1980s, the old-timers were bewailing the state of the industry and craft. But here’s the thing — those guys went on to have a career and retire. By the time I left newspapers, it was like running out of a burning building.

As newspapers contracted, the unfilled jobs fell on the remaining employees. A former colleague just re-entered the newspaper world. He will be an associate editor at a small paper, covering county government, public affairs, special projects, enterprise, training others and writing a column. Each of those was likely a full-time job once.

Something good will grow from the ashes of these fires, like a rejuvenating forest after the dead wood has burned away. That’s the basis of creative destruction, where something dies for something else to live. The process is painful along the way, though.

The life insurance business is no stranger to disruption. It has been growing more difficult over the years to sell insurance products and run a business.

Old-school life insurance agents are finding their old school has been shut down and converted into condos. Thomas Wolfe said you can’t go home again, but when could you ever?

Even when you go back home tonight, it isn’t the same place you left this morning.

Your loved ones are just a little bit older and maybe a little different because of the events of the day. And yet another part of the house suddenly needs repair.

Change is imperceptible, like two tectonic plates rubbing against one another until the inevitable earthquake. The latest quake is the 8

Department of Labor’s fiduciary rule. The final version is expected in the spring, followed by an eight-month grace period for the industry to adopt it.

Any agent or advisor who has an effect on a client’s action with retirement money such as an IRA would fall under this rule. Specifically, any advisor dispensing “investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan” would be considered a fiduciary.

In an insurance agent’s case, that means a new regulator in addition to the state insurance department. And if that agent also holds a securities license, that would mean a third regulator in addition to at least the state securities department.

The rallying cry supporting the rule is to act in “the best interest of the client.” Few agents and advisors would have a problem with that.

Rogues would snicker at the notion, but they can be found under the fiduciary system of financial regulation as well as the suitability standard upheld by insurance regulators. Let’s put it this way — the fiduciary system did not miraculously make angels of the advisors who fell under it, as the news of advisor arrests attests to almost daily.

So, what is the problem? More paperwork, filings and disclosures would be one segment.

Estimates on the cost vary widely, partly because nobody has a definitive answer for what would be required.

It also depends on whether an agent or advisor would be eligible for a prohibited transaction exemption.

But what is the exemption all about, really? The prohibited transaction is the indirect payment — commissions and any other incentives. In fact, the DOL regulation’s very name points to this purpose, the Conflict of Interest Rule.

The conflict is the payment. Anything but

InsuranceNewsNet Magazine » December 2015

a fee paid by the client would interfere with advisors’ ability to act in the best interest of their clients. That is the real target.

This rule is the latest eruption from the tectonic plates of the commission-based and feebased continents shifting against one another.

The fee-based world seems to be winning in the public opinion and regulatory fights.

The DOL rule does little to ensure that clients are protected. The main purpose is to call attention to how agents and advisors are paid.

If advisors and the industry behave as though commissions and incentives are embarrassing, they will help their opponents. Being transparent about those methods of payment would take away that weapon. If some of the incentives are too shameful to reveal, then perhaps they should go.

This discussion is nothing new, but it is part of an ongoing struggle between these ways of thinking. Both have good points. Newer advisors tend to have a foot in both worlds.

Maybe they are the seedlings that grow from the ashes.

Is this really “disruption”? Or is it more like an inevitable eruption from inexorable, grinding change? Resistance breaks and dies; accommodation yields and lives.

At one of the conferences I attended lately, the LIMRA annual meeting in October, a veteran from a “new media” war addressed the old guard of the insurance industry. Bill Taylor, who co-founded Fast Company in 1995, spoke about being a “disruptor.”

He and his tiny team took on the titans of the business journalism world and thrived.

But it faced its own difficulties, such as during the dot.com bubble burst. Now online news is recrafting the industry so that individual publications themselves cease to matter.

He expressed the entire issue in five words: “The risk is the status quo.”

In that case, it doesn’t help to scout the horizon’s flat line to spot the disrupting, game-changing, paradigm-shifting black swan.

This world is round. Those who don’t move forward will fall backward.

Steven A. Morelli Editor-In-Chief

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INFRONT TIMELY ISSUES THAT MATTER TO YOU

Check out our timeline of events leading up to the signing of the DOL rule in our cover feature. » PAGE 24

DOL Fiduciary Rule Opponents Have a Few Arrows Left to Use he successful fight against T the Securities and Exchange Commission’s effort to regulate fixed index annuities provides a blueprint.

By John Hilton

O

Several appropriations bills expected this month offer possible openings for a similar rider stopping the fiduciary rule. However, Democrats appear reluctant to defy the administration, and a presidential veto is always possible. Prognosis: Fair.

pponents of the Department of Labor fiduciary rule face a daunting obstacle: President Barack Obama.

“When was the last time, if ever, that you heard of a president showing up for the announcement of a proposed rule by a federal agency?” asked James F. Jorden, a Washington attorney and shareholder of Carlton Fields Jorden Burt. “It’s clear that the administration is behind it. It’s a big deal.

There’s going to be a rule.”

Jorden made that observation during a session focusing on the DOL rule at LIMRA’s annual meeting in October. Even top insurance executives were surprised by the regulation’s potentially wide impact.

Although the final rule seems inevitable, opposition forces continue to lobby via several different avenues to alter, or even block, the impending fiduciary standard.

Many industry observers recall the late-in-the-game victories in summer 2010 that killed the SEC’s Section 151A regulation of indexed annuities.

In that context, let’s review the various strategies rule opponents could employ:

» Legislation. The Retail Investor Protection

» Amendment. In June 2010, Sen. Tom

» Lawsuit. The District of Columbia U.S.

10

Meanwhile, the SEC continues to work on its own fiduciary standard, David Grim, director of the agency’s Division of InvestJacquelyn Martin / Associated Press

Harkin, D-Iowa, introduced a late amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The amendment was successful and exempted indexed annuities from SEC regulation, ending a two-year fight with the SEC.

Act (RIPA), proposed by Rep. Ann Wagner, R-Mo., would prohibit the Labor Department from instituting new rules governing financial services before the SEC reviews the proposed regulations. The bill passed the full House Oct. 27 by a 245-186 margin.

on the assertion that the existence of a rule provides greater clarity to an arena that remained unclear in the absence of any rule.”

Observers disagree on the potential for a lawsuit against the DOL fiduciary rule, but the precedent would seem to favor at least an airing of arguments. Several organizations are at least considering lawsuits after the rule is published, industry insiders say.

Prognosis: Good.

Labor Secretary Thomas Perez and Sen. Elizabeth Warren, D-Mass., listen as President Obama announces the fiduciary rule.

A similar measure was passed by the House in 2013 but died in the Senate for lack of action. If the RIPA legislation were able to pass the Senate this time, Obama promised to veto the bill. Prognosis: Slim.

Court of Appeals vacated Rule 151A in July 2010, which, coming on the heels of the Harkin amendment, gave opponents a second win against the SEC. The three-judge panel ruled that the SEC “cannot justify the adoption of a particular rule based solely

InsuranceNewsNet Magazine » December 2015

ment Management, told House members at an October hearing. That rule is far from completion, he added.

Anyone looking to the SEC to trump the DOL with a less onerous rule would be wise to look elsewhere. The agency is split among Democrat and Republican appointees and has proven unable to agree on a fiduciary standard.

The Warren Effect

Standing in opposition to any softening of the DOL rule is Sen. Elizabeth Warren,

DOL FIDUCIARY RULE OPPONENTS HAVE A FEW ARROWS LEFT TO USE INFRONT

Kim O’Brien says proponents of the rule are painting agents as opposing the “best interest” of their clients.

D-Mass. The senator has adopted a populist tenor in taking on the insurance industry over annuity sales compensation.

The pro-rule side has a strong public relations angle, said Kim O’Brien, CEO of Americans for Annuity Protection, an annuity awareness group. By painting annuity sellers as opposing a “best interest” standard for their clients, the pro-rule group obfuscates the real negative impact, she said.

“The issue at hand is how do we address a marketplace with problems if we haven’t thoroughly analyzed what the problems are?”

O’Brien asked. “Public relations have no role in policysetting. This is a public policy that’s going to affect millions of Americans.”

There is hope for more discussion and, possibly, tapping the brakes on the DOL rule. In an Oct. 20 letter, 47 House Democrats called on the agency to open a 15-to30-day comment period after a final rule is released, likely early next year.

In the letter, the Democrats said that another comment period can be held “without disrupting your intended timeline of implementing the rule by the end of 2016.” However, others say even the smallest of delays could prevent the administration from putting the rule in place before Obama leaves the White House in 2017.

Agents can still influence, or even defeat, the rule, O’Brien said. Social media feedback is important, she said, advising agents to leave comments on the Facebook pages of Senate Majority Leader Mitch McConnell, House Speaker Paul Ryan, House Minority Leader Nancy Pelosi and Senate Minority Leader Harry Reid.

Messages should focus on supporting another comment period, O’Brien said, as well

as focusing on the “double standard” facing annuity sales in 401(k) rollovers. Annuity sales in this space must comply with suitability and fiduciary standards, she explained, an unfair burden.

Last, comments should address the lack of regulatory studies of annuity sales. Most of the regulatory impact analysis completed by the DOL focuses on mutual funds, O’Brien said. There is no evidence of annuity clients being confused by their transactions, she said.

“We really need to conduct a thorough and empirical regulatory impact analysis before we decide what the solution is,” she added.

Agents can also sign a petition or write their representatives at www.aapnow.org, O’Brien said.

Training for Fiduciary

Barring a successful intervention by rule opponents, agents will spend 2016 adapting to a new fiduciary standard. The National Association of Insurance and Financial Advisors (NAIFA) will be ready to help, said Jules O. Gaudreau Jr., president of the organization.

“NAIFA will help our members to adapt by communicating the final rule, wherever it takes us,” he said. “The largest-growing segment of our membership marketplace is independents, so they’re going to need to develop their own business model solutions to the DOL.” Those expenses are going to cost the industry $5 billion, the Securities Industry and Financial Markets Association estimated.

Much of the agent education will pertain to the required disclosures. Agents will need to know how and when to make the disclosures available.

These include descriptions of material conflicts of interest, information about all fees related to an investment and a statement of whether the financial institution offers any proprietary products or receives any third-party payments with respect to any underlying investments.

Some of these requirements might end up getting cut from the final rule, industry officials say. For many insurance agents, the transition will require substantial work beyond the eight-month phase-in period.

The strong will make it, but difficult times are ahead for the industry, Gaudreau said.

Consumers will likely see fewer options as a result, he added.

“While our members can adapt to anything,” Gaudreau said, “there will be a large number of advisors who will consider moving away from the middle market or the rollover market.”

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.

Learn the Latest Join us for a free online event on Dec. 15 In all the back and forth about the DOL’s fiduciary rule, you want to know what you need to know when you need to know it.

That’s why we have put together this webinar for you. We will update you on: • The latest understanding of what the rule will finally be.

• The best chances to defeat or at least slow down the rule.

• The new reality agents and advisors will face if the rule goes into effect.

NOW is the time to jump on this important issue! Join moderator Kim O’Brien as she speaks with guests such as operatives at the National Association of Insurance and Financial Advisors (NAIFA) on what is happening on the inside and what is likely to happen in 2016!

Register today for this free online event:

insurancenewsnet.com/webinars

December 2015 » InsuranceNewsNet Magazine

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InsuranceNewsNet Magazine Âť December 2015

HOW TO GET EVERYONE ON YOUR SALES TEAM INTERVIEW

December 2015 » InsuranceNewsNet Magazine

13

INTERVIEW HOW TO GET EVERYONE ON YOUR SALES TEAM

T

hink back to your own experiences as a customer. The little things probably had the most impact on you. For example, if you liked a grocery store’s quality and prices, but found the clerks universally surly and unpleasant, wouldn’t that color your entire impression of the business? That’s what happens with your prospects.

If someone calls your office in response to a mailing and gets shoddy treatment on the phone, that will not reflect well on the salesperson. If the underwriting process is dehumanizing, then that prospect might not be in a good frame of mind to sign a contract.

The people in your business who aren’t in sales are not likely to think about their role in a sale unless you tell them.

But here is what Todd Cohen would say: Everyone’s in sales.

In fact, that’s the name of his book and the theme of his business. He speaks to and consults with businesses such as Xerox, Thomson Reuters and LexisNexis on how to get everybody in the enterprise on the sales team. Not only does it smooth the way for salespeople, it also gets the whole staff invested in the company’s success.

In this interview with Publisher Paul Feldman, Todd walks through the process of reshaping your company into your best sales tool.

sales culture, people thinking of you first.

Insurance agents, whether they work for a big company or they’re independent agents, rely on lots of other people to make sure that policy gets sold, activated, underwritten, funded — everything that goes along with that.

Every single person who touches your sales campaign is helping form an opinion for a customer to say yes or no. Most people say, “Sales, that’s not my job. I’m just the underwriter.” Well, when those underwriters say yes or no, or I need more information, they are at that moment the chief sales officer.

They’re affecting the customer’s decision to say yes or no.

FELDMAN: Would you explain the significance of the sales culture and why insurance agents should want to have it put into their practice?

COHEN: A sales culture means everyone is in sales. It means that everybody on your team is a sales agent. They are selling you and keeping you top of mind.

As a salesperson, especially insurance sales where there is so much competition and so little differentiation, you need people thinking of you first. That means they understand your value proposition.

How do you answer the question “What do you do?”

If I ask staff people what they do but they can’t give me a title or whom they work for, I have to be able to connect with that answer. That builds one part of the 14

InsuranceNewsNet Magazine » December 2015

It’s a mindset shift, and smart salespeople understand that every single person around them is impacting the customer’s decision to say yes.

When salespeople are struggling, the first thing I always say to them is, “Look at the people around you. Are they helping you, or are they putting up roadblocks?

And what are you doing about it? Are you fighting with people?” Are the salespeople telling people around them that they help the customer say yes?

When you tell people about their role, they light up. No one goes to work and says, “Hey, I’m proud to be overhead.”

People want to know that what they’re doing is impacting the business.

Questions to Think About • Do you know on whom you can depend to help you accomplish specific tasks that the customer needs done?

• Have you built an extended virtual team including the people who might need to support your primary virtual team?

• Did you make a mind map or flowchart depicting your sales process?

• Have you sometimes not asked people to help because you thought they would say “No”?

• Why are you selling by yourself?

• Who will you add to your virtual team now?

• Do you know your competition’s value proposition?

• Does your virtual team know your competition’s value proposition?

• Do you and your virtual team know your client’s value proposition?

• Do you think your competition knows your value proposition?

• How are you leveraging technology to build your sales culture and your virtual team?

• Why are you competing alone?

From Everyone’s in Sales: How to Unleash the Power of Sales Culture to Boost Your Revenues, Profits and Growth

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December 2015 » InsuranceNewsNet Magazine NFV-0890AO.2 15 (6/15) 1

What’s the Deal,

DOL?

You are probably aware that the Department of Labor’s fiduciary rule on retirement money is expected to upend your annuity business.

But in all the back and forth about the rule, we have had a pretty good idea what’s been on your mind: You want to know what you need to know when you need to know it.

That’s why we have put together this webinar for you. We will be updating you on: • The latest understanding of what the rule will finally be.

• The best chances to defeat or at least slow down the rule.

• The new reality agents and advisors will face if the rule goes into effect.

If you have been waiting for the moment to jump into this issue, now is it. The DOL is expected to unleash the final rule in spring and two things will happen: opponents of the rule will begin their next phase of the fight and the countdown will begin for you to comply.

• Find out how this rule will change how you relate to your annuity clients and how you get paid.

• Discover what practices and training that you are likely to need.

• Protect the business that you worked so hard to build.

Join moderator Kim O’Brien, an industry veteran who knows the company and association sectors, as she speaks with guests such as operatives at the National Association of Insurance and Financial Advisors (NAIFA) on what is happening on the inside and what is likely to happen in 2016!

Sign up for the FREE DOL webinar on Dec. 15 at: www.InsuranceNewsNet.com/Webinars

INTERVIEW HOW TO GET EVERYONE ON YOUR SALES TEAM FELDMAN: How do you get everyone into that mindset?

COHEN: On one hand, it’s the simplest thing in the world. On the other, it’s the hardest. But let me give you the simple side of it.

I don’t want anybody to do anything differently. I want everybody to think differently about what they’re doing. That’s one of the taglines from my keynotes in my workshops.

It doesn’t matter what your title is, you are impacting somebody’s decision somewhere down the line.

How do you get people onboard with that and feeling good and thinking differently? We must take the time to coach each other and draw that bridge. You know, when I was running big sales organizations, I never missed an opportunity to stop in somebody’s cube or pick up the phone and call somebody.

Or call somebody out and say, “Listen, I want to draw a bridge for you.

What you did six months ago today impacted a customer’s decision to say yes. You don’t realize the impact that you had.”

When you take the time to build that bridge between what they do and a customer signing an agreement, that person lights up, because all of the sudden they do matter. And you know what? They do it again, and again, and again.

At the end of the day, how do we know what counts? Because sales get made, revenue happens. The lights stay on and we all get paychecks, and every single person has a hand in that. If we miss the opportunity to draw that bridge for people, we miss an opportunity to build a sales culture.

FELDMAN: After you have told them, “Hey, we’re going to make this a sales culture,” what happens next?

16

COHEN: I do that in a couple of ways.

One is as a keynote speaker, where I speak to the entire organization. I want everybody to understand that they’re no longer a title, but what they do impacts a decision to say yes.

The keynotes are really effective, because people leave them saying, “Now I see how I make a difference.”

And you cannot put a dollar value on that.

FELDMAN: How do you do a keynote speech to your own team?

COHEN: Typically, it’s a national sales meeting or, for a smaller company, at an offsite retreat.

The second way I do this is through a series of workshops where people are shown the practical application of what it means to be in any sales culture. They come away realizing they have to think differently about what they are doing every day.

They understand how collectively a sale gets made. Selling will never again

InsuranceNewsNet Magazine » December 2015

ASK AND YOU SHALL RECEIVE INTERVIEW be just a linear experience between the insurance agent and the customer. There are a whole lot of people touching that process.

Every single person has to understand that when they touch that process, that’s their sales moment.

It’s also a life lesson, because in this day and age, when somebody asks what you do, that’s an opportunity to sell yourself.

To get ahead or to get what we want, everything has a selling component to it.

You want a promotion? You want a raise? You want to get your kid to eat strained peas? You want the dog to go out at a certain time? You want to talk your wife or husband into a certain color of a car? That’s all sales.

FELDMAN: When you train people who might not have thought of themselves in the sales process, do you teach them sales skills?

COHEN: Because I work with so many people who are non-selling professionals, I don’t do sales training. I’m teaching the accountants, the lawyers, the doctors, the finance people, the underwriters, the funder, whoever. I don’t take people out of their natural habitat and say, “OK, stop doing what you’re doing and go cold-call.”

If an agent says to an underwriter, “I want to do this policy,” and the underwriter says, “We can’t,” that’s a selling moment between those two. You could throw the wall up and make it a silo, or you could understand that there are elements of influence, negotiation, understanding, recognition, acknowledgement and objection handling.

We all do these things every day. I show people that they are already doing it. I just wake them up to it.

FELDMAN: What should insurance agents themselves be doing better?

COHEN: First of all, be aware of who you’re selling to and how people like to be sold. The best way to find that out is to ask, and you can ask as you build a relationship.

Two, have the patience to build the relationship. Three, make sure that you understand every single person who is engaged with you throughout the sales cycle and how they impact the customDecember 2015 » InsuranceNewsNet Magazine

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INTERVIEW HOW TO GET EVERYONE ON YOUR SALES TEAM

Increase Your RP I – Exercise 1

Relationship po ability (RP) is a ke sales professionrt y differentiat al cultivate long-ter s. A strong sales culture is mading factor that separates sales re relationship port m relationships and continually e of sales professionals who havps from great change over time.ability knows that those relation build on them. A sales professio e the ability to ships will stay wit nal with great h him or her as ca reers and jobs In any business cl im at e, g o o d or bad, change are replaced by is or merge. You mnewer, better products. Sometiminevitable. Products evolve, bec asset you have isay be offered new opportunitie es companies go out of businesome obsolete, and s. When all these your RP. changes happens, are bought out, , the strongest If you have a gre at R P Index (RPi) way to think of th is is: Your relation, your network and your virtual te ships are “platform am grows and gro ws. Another neutral.”

The ultimate ques ti o n is : C an you leverage you virtual sales team need to buy from ? Can they be part of your virtruexisting relationships to act as a al p you as they have your RPi? done in the past?team even if they do not have thart of your e ility or What is your rela tionship portabab ility index or Try this exercise.

Make a list of all of your business relationships.

From Everyone’s in

Sales: How to Unlea

sh the Power of Sa

er’s decision. Then take the time to build the relationships internally as much as you build the relationships externally.

Don’t turn to them when you need them. Turn to them when you don’t, and ask them what you can do for them. That comes back 1,000 times over. It’s good karma.

When I’m not delivering a keynote or doing a workshop or consulting, I’m networking. I’m out with people having breakfast, lunch, coffee, whatever it might be, getting to know them. And I end every conversation with “What can I do for you? Who do you need to meet?

What are you looking to accomplish?” I make it about them.

You become differentiated to them and not just another insurance salesperson.

Never miss an opportunity to build that bridge.

If an underwriter went above and beyond and said, “I’m just doing my job,” 18

les Culture to Boos

t Your Revenues , Pro

fits and Growth

you say, “Yes, you are. And by doing what you do, you helped influence this customer’s decision to say yes in a way that I could not. By doing that, we collectively have a sale. Thank you for being a salesperson with me.”

It’s about acknowledgement. It’s about helping people see that what they do counts. If we miss those opportunities to build that bridge, we sink back into the silo, where we say, “Oh, I just need those people when I need them. Let me just go do what I have to do.”

FELDMAN: Do you think cold-calling is still effective? Have you seen an increase in call reluctance among salespeople?

COHEN: I don’t see how a cold call is particularly effective anymore. People just don’t answer phones anymore. You might get lucky, because it’s all a numbers game.

InsuranceNewsNet Magazine » December 2015

You make a thousand cold calls a week, somebody is going to talk to you. I’d rather be out networking and building two or three meaningful relationships.

I’ll tell you how I built my business up to 90 appearances a year. I don’t make a single cold call. It’s just not effective for what I do. CEOs are not taking my calls and saying, “Oh yeah, I’m glad you called.

I was just about to hire a keynote today.”

It just doesn’t work.

I do the warm introduction, and my close rate is 80 to 90 percent. We all understand the principle of a warm intro versus a cold intro. I just work my virtual sales team. I work my sales culture to get a warm introduction.

FELDMAN: What are some effective ways of getting referrals today?

COHEN: Just ask and don’t feel bad about it. If you’ve built a relationship with

We’ve worked hard to become a stronger partner for you.

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December 2015 » InsuranceNewsNet Magazine

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INTERVIEW HOW TO GET EVERYONE ON YOUR SALES TEAM

Increase Your RPI – Exercise 2 After you have listed your business relationships, rate them on this relationship portability index (RPi): Reliable and Available. They will always refer you and believe in you as a selling professional. They will make it a priority to introduce you to people in their organization without question. They are consistently available to you and are strong advocates for you as a sales professional and as a business professional.

Available but not Reliable. They are available and will take your call and refer you, but not without some concern. They are not consistently reliable to be a part of your virtual team. Personal trust may be an issue.

Neither Reliable nor Available. They don’t see you as a part of their business and are not at all extendable.

Nonexistent. These are people you know — maybe from a community organization or your social group — that you have never thought of as a possible business associate. These are RP possibilities waiting to happen.

Nonexistent can also mean “not yet.”

A sales culture is powered by the virtual team and, by extension, your RPi. The virtual team is powered by your RPi. Make no mistake—if you can transport and leverage your business relationships with you throughout your professional career, you have a high degree of RP and the potential to be more successful is obvious.

If not, you will become stuck as you change and grow and find yourself starting over often.

From Everyone’s in Sales: How to Unleash the Power of Sales Culture to Boost Your Revenues, Profits and Growth

somebody and you feel comfortable, say, “I was checking your LinkedIn and I noticed that you know John Smith. I would love to meet John Smith. Would you feel comfortable making an introduction?”

If the person says yes, I make it easy for them to do it. If I wait for them to write the email, I’m waiting until I grow hair on my head again. It’s not happening. We get busy.

So, I have stock verbiage. I send it to people and say, “Just cut and paste this, add your own words around it, send it off, cc me, and I’ll pick up the phone and call.” Period. Or pick up the phone, call the person and see if it’s OK if I call.

You have to give them the call to action, which, by the way, is what’s missing in sales in general. A lot of sales don’t get closed because we don’t fricking ask for them.

We get to the 11th hour and we don’t tell people what to do. “Here is all the information. Here is the price. Here is the proposal. Hey, man, just get back to me.”

Well, what do you think the close rate is there? Pretty low. You have to give people a call.

If somebody doesn’t tell me what I have to do next, I won’t buy from them until they do.

FELDMAN: Referrals are the No. 1 source of leads for most people in this business. But I think because they got their teeth handed to them a couple of times early on that they are nervous about doing that. How should they get over that?

COHEN: Yes, it’s the fear of asking. Stop apologizing. Look, if you’ve done everything you’re supposed to do and the rela-

tionship is solid, you’ve earned the right to ask, and if you have your teeth handed to you, too bad.

You know what? You’re going to go on a lot of dates before you find the love of your life. What are you going to do, stop dating? Do you want to curl up into a ball, or do you want to keep moving?

The fact of the matter is, when you get that one success, you feel great. You’re re-energized and you’re right back in the game.

That’s not just sales, that’s life. That’s looking for a job. That’s looking for your next sale. That’s trying to find your next date. That’s why sales is a common thread of everything we do. That’s why everything has to be sold, starting with ourselves.

Like this article or any other?

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July 2012 issue

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InsuranceNewsNet Magazine » December 2015 Exclusive digital report for LIMRA Member Companies and

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December 2015 Âť InsuranceNewsNet Magazine

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NEWSWIRES

High-Income Social Security Filers May Lose $50K The Social Security claiming strategy known as file-and-suspend

is taking a hit in the new federal budget. Higher earners stand to lose up to $50,000 in Social Security benefits as a result.

The budget limits the file-and-suspend strategy, which has been used by married couples as a way to boost their benefits. However, one retirement expert said that fileand-suspend is used by a relatively small percentage of filers. Most Social Security recipients elect not to wait until full retirement age of 66 to collect their benefits.

Only 11 percent of new Social Security retirement beneficiaries delay collecting the benefit past their full retirement age, said Wade Pfau, a professor in the Retirement Income Program at The American College of Financial Services in Bryn Mawr, Pa. “It will affect more sophisticated individuals working with advisors, so it’s a relatively small percentage of the public delaying Social Security,” Pfau told InsuranceNewsNet. Estimates say millions of Americans who plan to claim Social Security but have not already done so would be affected. Retirees stand to part with as much as $9.5 billion in Social Security benefits that they might otherwise have received.

Advisors should consider advising clients who are eligible for file-and-suspend to do so within the next six months, said Marc Kiner, president of Premier Social Security Solutions. Filing within six months will also give an opportunity for spouses to eventually file a restricted application down the road.

ICAHN: AIG ‘TOO BIG TO SUCCEED’

Activist investor Carl Icahn wants to see AIG turn into a smaller version of itself. Icahn, who said he has a “large stake” in the insurer, said the company is “too big to succeed” and urged it to split up into smaller companies.

In a letter sent to AIG and posted on his website, Icahn said that AIG should separate the company’s life and mortgage insurance businesses and create three separate, publicly traded companies. Icahn said splitting up AIG would boost shareholder value and also make it more competitive.

When Icahn described the company as “too big to succeed,” it was a play on the phrase “too big to fail,” which was used during the financial crisis to explain why the government had to prevent the total collapse of AIG. The U.S. bailed out AIG at a cost of $85 billion, money the company has since repaid. However, it has had to cut its business dramatically to focus on its core insurance operations.

DID YOU

KNOW

?

22

PENSION ‘FIX’ BY CONGRESS COULD BACKFIRE

The latest effort by Congress to save pensions may be putting them further at risk.

Included in the 2015 federal budget deal was a provision to raise the premiums on a government-run fund to backstop private pension funds that go bust. With the fund falling deeper in the red, the higher premiums charged to companies offering traditional defined benefit pensions are intended to help put the Pension Benefit Guaranty Corp. back on a solid financial footing.

But critics say the higher premiums — set to rise from $57 per covered worker this year to $78 in 2019 — could prompt even more companies to freeze or close out their traditional defined benefit pensions that pay retirees a guaranteed monthly check for life.

Long before premiums began rising, companies that offer defined benefit pensions plans had been moving to freeze them (fixing participants’ retirement benefits no matter how much longer they work) or closing them to new workers.

Former Sen. Ben Nelson will step down as CEO of the National Association of Insurance Commissioners (NAIC) on Jan. 31, 2016. Source: NAIC

InsuranceNewsNet Magazine » December 2015

QUOTABLE The opportunity I see is the same as the threat: The industry needs to find the answer to the threat, and that will uncover the opportunity.

— Francois Gardena, founding chairman, Retirement Income Industry Association, on the DOL fiduciary rule

A survey released earlier this year by benefits consultant Aon Hewitt of nearly 250 employers representing 6 million employees found that of the roughly three-quarters who still offer a defined benefit plan, a third were closing them and another third had frozen them.

Of the companies with plans that remained open, 14 percent of companies said they were “very likely” to close them this year, 9 percent said they were “very likely” to freeze them and 5 percent said there were very likely to terminate them.

FEDS MAKE MYRAS OFFICIAL

It has been about a year since the Obama administration launched the retirement savings plan known as myRA. Now the pilot phase is over, and the Treasury Department announced that myRA has become official.

The myRA is aimed at workers without access to 401(k)s or similar retirement savings plans at their employers.

It has been in the pilot phase with 60 employers since December 2014. But beginning this week, any American earning less than $131,000 a year — or $193,000 if they are married and filing taxes jointly — will be able to start saving money from their paycheck, bank account or even tax refund in the government-backed account. AARP estimates that 55 million Americans are eligible to participate in myRA. A myRA is a Roth IRA, with all the same rules regarding withdrawals, contributions and income thresholds as its private-sector counterpart. But a myRA is simpler and invested only in a U.S. Treasury security created for the program that is guaranteed to never fall in value.

Savers can contribute up to $5,500 a year or $6,500 if they are at least 50 years old by the end of 2015.

[NEWSWIRES]

How Do You Instantly Earn Credibility And Trust With A Prospect? Hand Them Your Best-Selling Book...

JACK CANFIELD, THE LEGENDARY CREATOR OF THE CHICKEN SOUP FOR THE SOUL SERIES, IS LOOKING FOR FINANCIAL ADVISORS TO CO-AUTHOR HIS NEW BOOK ...That He GUARANTEES Will Be His Next Best-Seller!

Nick Nanton, Esq. Best-Selling Author® and 3x Emmy Award Winning Director & Producer

Nick Nanton here, and I wanted to talk to you about the power of being an author and what it will do for your financial practice or insurance business. I want to start by sharing an underdog story my friend Jack Canfield told me a few years ago.

Jack was a speaker, out on the circuit, as was his soon to be partner, Mark Victor Hansen. They would run into each other and start talking about how they both wanted to impact billions of people around the world. When they looked around at the events they were speaking at, continuing on this path was just not going to cut it.

So they called on some of their friends with a crazy idea. The crazy idea was pulling together the most heart-felt stories that their friends could tell and compiling them all into a book. You may have heard of it. It was called Chicken Soup For The Soul.

This is the same strategy that we have used here at the Agency, ever since we published Big Ideas For Your Business back in 2008. We called upon 22 of our top clients to tell their best piece of business advice and turned it loose into the world. More on this in a minute.

From the day Jack Canfield and Mark Victor Hansen decided to put these stories into a book, everyone called them crazy. The book was turned down by every major publisher, some multiple times.

Even after being rejected over 100 times, they pressed on.

Finally the book was picked up by a small, self-help publisher in Florida called HCI. And they only took the book on one condition: Jack and Mark had to pre-sell thousands of books before it ever went to print.

Jack and Mark agreed, and an iconic brand was born.

Since that time back in 1993, they have gone on to sell more than 500 million copies worldwide with more than 200 titles in the Chicken Soup For The Soul series.

In fact, Jack Canfield has sold more books than almost anyone on the planet. He created an iconic brand, and in doing so, he became a household name.

The Chicken Soup for the Soul brand has grown far beyond a book of stories. It has generated hope, motivation and world-changing advice for millions of people all over the world. It has also spawned spin-off products that continue to extend the brand, from dog food to coffee mugs and gifts for any occasion in life.

Today I want to invite you to associate yourself with that alltoo familiar brand, by co-authoring a brand new book with the legend himself, Jack Canfield, titled The Success Blueprint.

But I want to do more than just extend to you an invitation to co-author this new book with Jack Canfield. I want you to understand the power of being an author.

It is the power to command respect from your market. It is the power to have your market pay attention to you, when they otherwise would have turned a deaf ear. It is the power to have prospects hang on every word and follow every piece of advice you give to them. This is the power we’ve helped more than 1,800 authors find since 2008.

And it’s not because you are changing your message. It’s because they see you in a new light. As an author.

As a credible authority on finances. But my team takes it one step further. We guarantee that you are not only going to publish a new book alongside Jack Canfield, but that the book becomes an instant Best-Seller on Amazon.com and/or BarnesandNoble.com, forever giving you the title of Best-Selling Author®.

Now, as a financial advisor, your clients may not instantly recognize the name “Jack Canfield,” but they absolutely know about Chicken Soup For The Soul. It was a cultural phenomenon. Someone has probably given them a copy as a gift. Or they’ve given a copy to their children after graduation or to a friend who’s retiring.

When you co-author Jack Canfield’s next Best-Selling Book, you’re aligning yourself with the Chicken Soup name.

Now, you can hand your prospects and clients your new Best-Selling Book that you co-authored with Jack Canfield of Chicken Soup For The Soul. They’re going to instantly see you as the credible expert, the authority in your field because this legendary author has selected you to co-author his new book.

Before we get to that day, Jack wants to make sure this is the right fit for you. SO he’s teamed up with the Dicks + Nanton Celebrity Branding® Agency and CelebrityPress® Publishing to put out this book.

As part of that, we want to send you a free a digital copy of one of my own Best-Selling books, Celebrity Branding You!®. In this book you will see how to build your own Celebrity Brand, something that cannot be taken from you by competitors and the only thing that really distinguishes you from your competition.

We also want to send you a special report titled “Write A Book...Grow Your Financial Empire,” which details exactly how to utilize your book and your Best-Selling Author® status to attract endless prospects and referrals.

To gain instant access to these 2 practice-building resources and to speak with one of my Publishing Agents on a noobligation Author Consultation, simply call our offices at (888) 820-6955 or visit us online at: www.celebritybrandingagency.com/blueprint.

When you do, I’ll also share how you can join the National Academy Of Best-Selling Authors® at their annual awards gala in Hollywood, CA, where you could be honored with your very own Quilly® Award to mark your achievement.

But you have to act now. Visit us online at www.celebritybrandingagency.com/blueprint or call (888) 820-6955 today. Here’s to bringing out the author in you!

To Claim Both Free Resources And Find Out How You Can Co-Author Jack Canfield’s Next Best-Seller, Call Us Today At (888) 820-6955 Or Visit www.celebritybrandingagency.com/blueprint December 2015 » InsuranceNewsNet Magazine 23

Read the latest on the fight over the Department of Labor’s fiduciary rule in InFront » PAGE 10

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InsuranceNewsNet Magazine » December 2015

B

WAR ON ANNUITIES FEATURE

usiness for annuity agents will change under the Department of Labor’s fiduciary rule — but will it be a significant shift or a disastrous disruption?

That’s the question many are asking as the DOL prepares the final version of its rule. More than five years after the regulation was first proposed and then re-proposed, it appears the DOL will publish its final rule in 2016.

It is designated the “Conflict of Interest” rule by the DOL, a reference to how financial professionals are compensated. In fact, many of the rule’s opponents say the department is trying to force everyone — agents, broker/dealers and advisors — into a ubiquitous, fee-based system. And it seems that rule proponents are saying that’s not such a bad outcome.

The DOL fiduciary rule was released in April and vetted throughout the summer, culminating with the department’s own four-day public hearing in August.

DOL staffers are secluded with more than 391,000 comments and petitions, having vowed to take every one seriously and amend the rule accordingly.

December 2015 » InsuranceNewsNet Magazine

25

FEATURE WAR ON ANNUITIES Although opponents of the rule are fighting the regulation in the Obama administration and in Congress, the consensus seems to be that the rule will go into effect in some form.

The rule is expected to be published in the spring, followed by an eight-month transition period. That would put the regulation in line to become effective before President Barack Obama leaves office in January 2017.

Annuity products are specifically targeted by the rule. In particular, the sale of fixed index annuities (FIAs) and variable annuities (VAs).

Under current rules, commissions and other compensation are permissible if the conditions of Prohibited Transaction Exemption (PTE) 84-24 are met.

For insurance agents who don’t sell annuities, your life will basically remain the same. But if you offer annuities, here are the significant changes: » Fixed annuities, including FIAs, will remain covered by PTE 84-24, and agents can continue accepting commissions. However, the exemption is beefed up to include an “impartial conduct standard” that bans all other forms of compensation, including incentives, revenuesharing and bonuses. In the new rule, agents would need to provide disclosures

covering fixed products and total compensation received.

»VAs were removed from 84-24. In order to sell VAs with commissions, financial professionals need to adhere to the Best Interest Contract exemption, which includes a signed contract with the client and several disclosures on the product and any compensation received.

“The proposed changes to how annuities are sold will unnecessarily burden agents and cause many to leave the business,” said Kim O’Brien, CEO of Americans for Annuity Protection, an organization advocating for annuity access. “Study after study of annuity purchases demonstrates higher consumer satisfaction with both the product and the sales process than any other financial product.”

The DOL might not stop there. The department’s staffers have indicated that they might pull FIAs from the 84-24 exemption and treat them the same as VAs, according to an insurance executive who met with top-level staff members.

“Basically, they said that four days after they released their proposal in April,

» Fiduciary Timeline 1934-40: Investment advisors are subjected to a fiduciary standard under the Investment Advisors Act of 1940.

However, broker/ dealers are only held to a suitability standard under the Securities Exchange Act of 1934, even when they provide investment advice services.

1974: The Employee Retirement Income Security Act of 1974 (ERISA) is passed into law. ERISA defines a plan fiduciary to include anyone who gives investment advice for a fee or other compensation with respect to any money or other property of a plan, or has any authority or responsibility to do so.

26

The regulation is in line to become effective before President Barack Obama leaves office in January 2017.

InsuranceNewsNet Magazine » December 2015

they realized they had made a mistake and that indexed annuities shouldn’t have been treated like fixed annuities in their rule proposal,” said John E. Dunn, who is vice president and investment products and services counsel at Northwestern Mutual.

For agents, the fiduciary rule brings a substantial regulatory burden to the selling process. If the DOL goes all the way and removes FIAs from PTE 84-24, it will add one more hurdle: A signed contract must be executed before the agent can talk specifics.

Although the DOL may delay when a contract would have to be signed, the impact on agents and clients is undeniable, O’Brien said.

For small savers, it “will mean the loss of crucial retirement saving options at a time when they need them most,” she said.

1975: The Department of Labor issues a five-part regulatory test for “investment advice” that gives a very narrow meaning to this term. Under the regulation, before a person can be held to ERISA's fiduciary standards, they must (1) make recommendations on investing in, purchasing or selling securities or other property, or give advice as to their value (2) on a regular basis, (3) pursuant to a mutual understanding that the advice (4) will serve as a primary basis for investment decisions (5) and will be individualized to the particular needs of the plan. All five elements must be present for the person to be held to the fiduciary standard.

1978: The DOL is given fiduciary oversight responsibility under Title I of ERISA. As part of Title I, the agency tackles oversight of most privatesector employee benefit plans.

1981: U.S. workers are introduced to 401(k)-style retirement plans. This starts the beginning of the shift away from defined benefit, or pension, plans to defined contribution vehicles. The 401(k) plans give the employees control over investment decisions and ownership over their retirement nest eggs. According to the DOL, it also leads to a need for greater regulation of retirement financial planning.

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Read the latest on the fight over the Department of Labor’s fiduciary rule in InFront » PAGE 10

FEATURE WAR ON ANNUITIES

‘Am I now a fiduciary?’

The foremost concern for anyone working in the retirement plan space hangs on one question. Every impact of the new rule on agents hinges on this distinction.

“There’s probably some hoops that they’re going to have to jump through.

And the first one is, ‘Am I now a fiduciary?’” said Cathy Weatherford, president and CEO of the Insured Retirement Institute, which opposes the rule.

The proposed new rules broaden the circumstances under which an advice provider will be treated as providing investment advice in a fiduciary role.The broader scope of the rule also covers advice to individual retirement accounts (IRAs) and their owners.

In short, any individual being paid for providing advice that is “individualized or specifically directed” to a retirement plan sponsor, plan participant or IRA owner that affects a retirement investment decision is a fiduciary. The fiduciary status applies for each transaction only, unless an exemption is granted.

Such decisions can include what assets to purchase or sell, whether to roll over from an employer-based plan to an IRA, and recommending an advisor. The seller can be a broker, registered investment advisor, insurance agent or other type of advisor.

Being a fiduciary under the new rule does not mean a seller has to recommend the lowest-fee option, experts say. Fiduciary means acting in a client’s best interest, and other factors such as risk tolerance can be part of the recommendation.

Many rule opponents say the suitability standard already requires many elements of the best-interest standard.

Compensation Changes The rule prohibits a fiduciary from accepting any payment creating a conflict of interest, unless the fiduciary qualifies for an exemption. Examples of what the DOL considers “conflicted” compensation include brokerage or insurance commissions, mutual fund fees and revenue-sharing payments.

This is a big change driving concern throughout the industry. While many financial firms have been migrating toward a “hybrid” model combining commission and fee-based components, the DOL would accelerate the fee model.

Sixty-six percent of financial advisors charge some combination of fees and commissions, according to 2014 research

» Fiduciary Timeline 1986: Congress acts to replace the defined benefit plan for federal civilian workers (CSRS) with a less generous defined benefit plan (FERS) and a generous 401(k)-type plan (TSP). The action is received as an “endorsement” by the government of “shifting” from traditional DB plans to defined contribution plans, to which employees can contribute any amount.

1997: The Roth IRA is established by the Taxpayer Relief Act of 1997. It allows taxable compensation to be invested in a retirement account, with gains that are generally tax-free upon withdrawal.

28

With its 2010 fiduciary rule, the DOL received about 300 comments.

With its 2015 fiduciary rule, the DOL received 391,621 comments.

InsuranceNewsNet Magazine » December 2015

by Cerulli Associates.

At the firm level, a major decision will be necessary on whether to abandon the commission-based system for fees. The rule allows those companies servicing retirement accounts to continue under the former system, as long as they comply with the BIC. If FIAs are treated the same as VAs in the final rule, insurance firms will be facing this decision as well.

What the BIC ends up mandating will be crucial in making that call. As written, its arduous disclosure requirements will require companies to add technology and hire extra staff to keep up with compliance regulation.

Jules O. Gaudreau Jr. is president of

2000s: Momentum grows among some lawmakers and administration officials for an expanded fiduciary standard. Growth of 401(k) and Roth IRA contributions is cited as the main reason. The total amount in 401(k) accounts grows from $384.9 billion in 1990 to $3.2 trillion in 2011, according to the Employee Benefit Research Institute.

July 2010: The Dodd-Frank Act is signed into law and gives the SEC the authority to establish a fiduciary standard for brokers and investment advisors if it determines there is a need.

The SEC has yet to act on that authority.

October 2010: The DOL announces plans to redefine when a person providing investment advice becomes a fiduciary under ERISA.

What do you What do you WAR ON ANNUITIES FEATURE

The Gaudreau Group, a multiline insurance and financial services agency based in Wilbraham, Mass. The agency insures more than 5,000 businesses and families in 12 states and has annual sales of more than $80 million.

Gaudreau, who recently took over as president of the National Association of Insurance and Financial Advisors (NAIFA), has long-term concerns about the financial services industry if its compensation model is changed so drastically. After all, the commission-based formula has long been the way the industry attracts and retains new financial experts, he said.

The insurance business already has a high attrition rate without adding another factor, Gaudreau said.

The DOL rule stipulates that agents collect “no more than reasonable compensation,” be it fees or commissions, but the department has not clarified further how it will define that standard.

“What is ‘reasonable compensation?’”

Gaudreau asked. “Everybody is so concerned about what everybody is making … but I don’t know how you decide that.”

Many financial professionals say the DOL’s stifling regulation will leave low-income savers on the outside.

“Certain broker/dealers or large institutions would simply say to their advisors or their representatives that due to the litigious nature of our society and our fear of liability that we’re just simply not going to allow our reps to work with clients below a certain number of assets,” Gaudreau said.

Carl Wilkerson, vice president and chief counsel of securities and litigation for the American Council of Life Insurers, pointed to the ongoing problems the United Kingdom is experiencing after abolishing commissions in 2012.

Studies show 11 million small savers have fallen through the cracks since the UK adopted a similar fee-based system, he told the DOL at an August public hearing.

The DOL fiduciary rule includes several waivers, known as “carve-outs.” These are designed to exempt certain individuals and activities from the rule, as well as to allow commission-based compensation structures to continue.

The carve-outs and exemptions are focused on allowing four significant activities to continue:

What do you

think matters think matters most to clients most to clients searching for searching for

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life insurance? life insurance? www.sellwhatmatters.com www.sellwhatmatters.com

Push to Fees?

Labor Department foes say the Obama administration is trying to push the financial services industry into a fee-based model.

Cerulli Associates’ data shows the industry is already moving in that direction.

January 2011: The SEC releases a staff study recommending a uniform fiduciary standard of conduct for broker/dealers and investment advisors.

March 1-2, 2011: two-day PL AG. 10A4 09

» Order takers. When a customer calls a broker and tells the broker exactly what to buy or sell without asking for advice,

March 2013: The SEC issues a Request for Data and Other Information: Duties of Brokers, Dealers, and Investment Advisers.

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public hearing is held by the DOL For Professional Use Only. For Financial Professional Use Only. to gatherFinancial input for its fiduciary Not for Use With Consumers.

Not for Use With Consumers. proposal. The agency hears from 38 speakers and receives more June 14, 2013: Rep. Ann Wagner, R-Mo., than 300 written comments. introduces the Retail Investor Protection Act (RIPA) to govern retirement investing. Seen September 2011: The DOL as an alternative to the fiduciary rule, the withdraws its fiduciary-only bill would bar the DOL from establishing a rule, vowing to re-propose the fiduciary-only rule until the SEC acts. rule in the future.

life insurance?

December 2015 » InsuranceNewsNet Magazine

29

Flip to Flip to reveal... reveal...

FEATURE WAR ON ANNUITIES that transaction does not constitute investment advice. In such circumstances, the broker has no fiduciary responsibility to the client. » Education. As written, the rule permits advisors and plan sponsors to continue to provide general education on retirement saving across employment-based plans and IRAs without triggering fiduciary duties. As an example, education could consist of general information about the mix of assets an average person should have based on their age, income and other circumstances, while avoiding suggesting specific stocks, bonds or funds that should constitute that mix.

The education aspect is under scrutiny, and changes are expected here. » BIC exemption. Also expected to change in the final rule, the BIC allows members of the industry to continue to set their own compensation practices so long as they, among other things, commit to putting their clients’ best interests first and to disclose any conflicts that may prevent them from doing so. Common forms of compensation in use today in the financial services industry, such as commissions and revenue sharing, will be permitted under this exemption, whether paid by the client or a third party such as a mutual fund.

» Sales pitches. Most large-plan sponsors (with more than 100 employees) are managed by financial professionals acting as fiduciaries. With that in mind, this carve-out will permit brokers to make sales pitches to these large plan sponsors in a nonfiduciary role.

The DOL opened the door for another exemption that would permit “conflicted” compensation to financial professionals recommending “certain low-fee investments.” While the idea appears aimed at small savers, it is unknown whether the DOL will follow through and offer this exemption in the final rule.

A DOL spokesman declined comment on any possible changes to the rule.

Labor Secretary Thomas Perez frequently touts online investment advice as a way to serve people with small accounts in rural America and elsewhere. During a June 17 congressional hearing, he called technology “a linchpin to the innovation that’s enabling more people to get access to advice.”

The secretary’s message is clear: Robo-advisors can fill the void for small savers needing financial advice. Industry observers, even some who support the rule, do not agree.

In addition to being a law professor, Mercer Bullard has testified before Congress on a number of regulatory reform

» Fiduciary Timeline Oct. 29, 2013: The House passes the RIPA by a 254-166 vote, but the Senate refuses to take up the legislation.

January 2015: A White House Council of Economic Advisors’ memo endorsing a conflict of interest standard for retirement savers is leaked.

February 2015: The White House releases the CEA report, “The Effects of Conflicted Advice on Retirement Savings”; President Obama signals a push for a fiduciary standard in an address to AARP.

30

InsuranceNewsNet Magazine » December 2015

February 2015: The DOL sends a retooled fiduciary rule to the Office of Management and Budget for review.

initiatives. As the vice president of Plancorp, Bullard calls himself “a leading advocate for investors.”

“I disagree with the idea that roboadvisors are a relevant substitute for services provided by financial advisors,” Bullard said. “Robo-advisors are simply an inferior choice compared to an insurance agent, broker or financial planner.”

Educational Aspect Tied to fiduciary status is the education aspect. In the new fiduciary world, all agents selling in the retirement planning space need to behave cautiously while discussing saving and investing.

Particularly in the early era of the new rules, the line between education and advice will take getting used to. Further clarification from the DOL will be helpful, experts say.

As it stands, providing general investment information does not trigger fiduciary status. Anything beyond that has financial professionals nervous. It is permissible under current FINRA rules to provide information about the options a person has when leaving an employer as long as there is no “call to action.”

“I think they will be using the FINRA definition of recommendation, so I think they will expand the definition of education,” said Judi Carsrud, a legislative analyst for NAIFA, which opposes the rule.

May 2015: The public comment period on the DOL proposal is extended from 75 to 90 days.

Feb. 25, 2015: Wagner reintroduces the RIPA to the House.

April 2015: The DOL officially re-proposes a fiduciary-only rule, which is followed by a public comment period. The DOL proposal is actually three rules: extending the fiduciary standard to anyone who gives retirement plan advice, the Best Interest Contract Exemption (BICE) and changes to other exemptions.

May 2015: FINRA Chairman and Chief Executive Officer Richard Ketchum states support for a uniform fiduciary standard under the SEC and FINRA, and not the DOL. July 21, 2015: Public comments are due on the DOL rule.

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December 2015 Âť Use InsuranceNewsNet 31

Read the latest on the fight over the Department of Labor’s fiduciary rule in InFront » PAGE 10

FEATURE WAR ON ANNUITIES At a recent LIMRA conference in Boston, James Jorden, a shareholder in Carlton Fields Jorden Burt law firm, said many innocuous day-to-day educational activities must be viewed through fiduciary eyes once the rule becomes law.

He gave an example: “An employee who is 90 percent invested in company stock receives a flier detailing the benefits of diversification and the risks associated with individual securities.”

Fiduciary act or not? The activity “could be interpreted as rendering advice for a fee,” said Jorden, who represents financial institutions in securities, corporate and pension litigation.

As long as financial professionals steer clear of specific recommendations, the rule does allow for a bevy of educational activities seen as crucial to the industry business model. They include: » Information about a retirement plan or IRA, such as information about the costs and benefits of rollovers, risk and return characteristics and historical return information of investments within the plan. » Information about various financial, investment and retirement concepts, such as diversification, dollar cost averaging, compound interest, tax deferral,

» Fiduciary Timeline Aug. 7, 2015: In a letter to Rep. Ann Wagner, R-Mo., DOL Secretary Thomas Perez assures fiduciary opponents that the agency “will move forward with issuing a final rule that balances the input we have received.”

historic differences in performance among asset classes, effects of inflation and risk tolerance. » Asset allocation models that portray portfolios of hypothetical individuals with different time horizons and risk profiles. » Interactive investment materials that estimate future retirement income needs and assess the impact of different asset allocations on retirement income.

Three Possible Penalties Among things to be revealed in the final rule are specifics on compliance terms.

Some believe that the DOL will expect compliance during the eight-month implementation period but will not enforce penalties during that period.

Attorneys on all sides are wondering if the DOL will grant any “grandfathering” terms for ongoing accounts. Otherwise, the department has not communicated how existing accounts and relationships will be treated under the new rule.

The rule subjects financial professionals to three possible compliance actions, the DOL said: » DOL enforcement. The department has the right to bring enforcement actions against fiduciary advisors who do

not provide advice in their clients’ best interests. » Arbitration. The BIC allows customers to hold fiduciary advisors accountable for providing advice in their best interests through a private right of action for breach of contract. This feature of the best-interest contract exemption is modeled on the rules under FINRA, which is a nongovernmental organization that regulates advice by brokers to invest in securities but not other types of retirement savings covered by ERISA. » An IRS “excise tax.” The IRS can impose a tax on transactions based on conflicted advice that is not eligible for one of the many proposed exemptions. The rule does not indicate how these fines would be calculated.

Foes on both sides of the fiduciary debate generally agree it will lead to lawsuits. But rule proponents say that’s a good thing.

“Consumer litigation firms will have a better understanding as they bring lawsuits against investment advisors who violate this, and they will be able to use the books and records of the companies to build a case,” said Bartlett Naylor, financial policy advocate for Public Citizen,

Sept. 7, 2015: The DOL publishes the hearing transcript, which kicks off a second two-week comment period. The rule could be further revised based on the public hearing and the second comment period.

Mid-September 2015: Ninety-six House Democrats sign a letter to Perez asking for “improvements” to the rule. The move is touted by Republicans as evidence of bipartisan opposition to a rule.

Sept. 30, 2015: The House Financial Services Committee passes the RIPA. Only one Democrat votes with the majority.

Aug. 10-13, 2015: DOL holds a fourday public hearing on the fiduciaryonly rule. About 75 speakers address the agency over the four days. Written comments and petitions number more than 391,000, Perez has said.

32

Oct. 6, 2015: In a letter signed by 105 GOP House members, Reps. Sam Johnson, R-Texas, and Mike Kelly, R-Pa., urge the DOL to correct “shortcomings” in its proposal. The writers demand the DOL release its expected changes to the rule

by Oct. 21. The DOL ignores the request.

October 2015: Several industry groups say they are switching efforts from trying to defeat the rule to trying to change troublesome aspects. Analysts say a final rule is inevitable.

InsuranceNewsNet Magazine » December 2015

WAR ON ANNUITIES FEATURE which supports the rule. “Presumably, the existence of that litigation machinery will itself be a deterrent and a remedial factor.”

DOL’s stifling fiduciary-only rule will discourage investors from buying retirement savings products at all.

to do that,” said Fred Reish, a partner at Drinker Biddle & Reath and a longtime industry analyst.

Small Plan Issues

Potential Changes

Even proponents of the DOL’s efforts say its treatment of small plans needs to be changed to better serve small investors.

The fiduciary rule applies without exception to all plans with fewer than 100 participants, while larger plans can qualify for “carve-outs” exempting them from the regulations. To the DOL, the thought is that bigger plan sponsors have existing internal fiduciary protections.

Critics have said the fiduciary-only mandate will deter small employers from even offering retirement plans. Those smaller employers don’t want to have to pay advisors out of company funds. As a result, plan compensation tends to be commission-based, opponents have said.

Both sides say the DOL is likely to tweak the rule to permit more flexibility for small-plan investing.

Restrictions on proprietary products are another area critics are hoping the department pays heed to the comments it received.

On one side, the DOL insists that offering a limited range of proprietary products cannot serve the best interests of the client. The industry maintains that the

While Secretary Perez remains coy on possible changes, a consensus of sorts has emerged on what to look for. InsuranceNewsNet talked to several advisors, consultants, analysts and other industry officials, and they expected changes including:

» Relaxing some of the education definitions. Under the proposed rule, some common planning tools such as asset allocation models could trigger fiduciary status.

Oct. 27, 2015: The RIPA passes the House by a 245-186 margin. Three Democrats vote with the majority, while two Republicans vote against the bill. Obama says he will veto the RIPA if it passes the Senate.

Fall 2015: Speculation centers on opposing lawmakers inserting a “rider” crippling the DOL rule into a broader budget bill that Obama cannot afford to veto.

Spring 2016: Analysts say the DOL needs to publish a final rule by May in order to meet Obama’s goal of having a new rule in place before he departs the White House in January 2017. A final rule would go to the Office of Budget and Management before being published in the Federal Registry within 30-60 days.

» Delaying signature of the Best Interest Contract (BIC) Exemption. Atop the list of industry concerns, the BIC proposal would require a contract with clients before any financial discussions take place. It appears the DOL recognizes how paralyzing that could be for the industry and will push the contract signing deadline back. » Streamlining some of the disclosure requirements. During public hearings with the DOL, industry representatives said the disclosure information — which includes descriptions of material conflicts of interest, a statement about all fees and any third-party payments, among others — would be very costly and time consuming to track.

“I believe the DOL has been convinced that there just aren’t the systems in place Summer to Fall 2016: The financial services industry prepares for full compliance with the new rule. Decisions must be made — the biggest being whether to take the Best Interest Contract Exemption and to continue the commissionbased model. Firms and banks that reject the BIC exemption must convert to a fee-based model. That means retraining and changes to procedures and recordkeeping requirements.

New employees may be needed.

Jan. 1, 2017: The projected date the new fiduciary rule will go into effect.

Regardless of the changes, Gaudreau of NAIFA said the fiduciary rule occupies the top three most important items on his agenda. He predicts “unforeseen consequences” two or three years down the road that will lead to “everything being redefined again.” The cost to the industry will be significant, he added.

“The increased cost of business as a result of that liability and compliance with the rule is really what has frightened our members,” said Gaudreau, adding that agents always put clients first and the debate over the rule has never been over whether they should “act in the best interest.”

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.

» What’s the Deal, DOL? Join us for a free webinar on Dec. 15, 2015 In all the back and forth about the DOL’s fiduciary rule, you want to know what you need to know when you need to know it.

That’s why we have put together this webinar for you. We will be updating you on: • The latest understanding of what the rule will finally be.

• The best chances to defeat or at least slow down the rule.

• The new reality agents and advisors will face if the rule goes into effect.

Join moderator Kim O’Brien as she speaks with guests such as operatives at the National Association of Insurance and Financial Advisors (NAIFA) on what is happening on the inside and what is likely to happen in 2016!

Register at insurancenewsnet.com/webinars

December 2015 » InsuranceNewsNet Magazine

33

LIFEWIRES

Industry Must Change Course to Reach New Customers Today’s ways of doing business won’t be enough to reach the customers of tomorrow.

If the life insurance industry is going to turn around the declining percentage of people who own individual life insurance, the entire industry must change direction.

That was the word from Brooks Tingle at the LIMRA Annual Conference. Tingle is senior vice president for marketing and strategy at John Hancock Insurance.

He emphasized that the industry must be more involved in customers’ lives, partnering with customers in ways that support customer efforts to improve their day-today healthy living.

One example of this is the program that Hancock debuted earlier this year in partnership with the Vitality Group. Called the John Hancock Vitality Program, it provides coaching, education, incentives, rewards and premium discounts to Hancock life insurance policyholders who take steps to live healthier lives.

During its first six months, the program received a “tremendous response,” Tingle said, noting that “we already have several hundred members.” As for advisors, “they say it has completely changed their conversations with clients. Now they’re talking with clients about healthy living, not just dying.”

MERGERS HIT THE LIFE BUSINESS

A number of mergers and acquisitions have hit the life insurance industry. Here are a few deals that have been in the news recently.

Ameritas Life will acquire Security Life in a deal that will take effect Dec. 31. Security Life specializes primarily in the ancillary benefits market, serving consumers and employer groups. The company is based in Minnetonka, Minn. Ameritas provides a variety of life insurance products, annuities and group benefits. Its headquarters is in Lincoln, Neb. John Hancock Financial Network announced it will acquire certain assets of Transamerica Financial Advisors (TFA).

After the deal closes, up to 1,100 TFA advisors and 90 support staff will become affiliated with Signator Investors, John Hancock’s broker/dealer.

Pan-American Life and Mutual Trust have completed the merger of their holding companies. The combined company, which retains the name of Pan-American Life Mutual Holding Co., will continue to operate as a mutual insurance holding company with DID YOU

KNOW

?

34

approximately $1 billion in revenues and $5.5 billion in total assets.

NEW YORK LIFE TO HONOR OTTOMAN ERA POLICIES

If you had been paying attention in history class, you might remember that the Ottoman Empire, spanning much of Eastern Europe and the Middle East, was in existence for about 600 years. What they didn’t tell you in history class was that New York Life began selling life insurance policies in the Ottoman Empire in 1882. However, with the outbreak of World War I, the company stopped selling coverage in Europe and in the Ottoman Empire after 1914.

Certain New York Life policies were issued to persons of Assyrian heritage in the Ottoman Empire and appear to have been in effect after 1914. The company’s records show that it paid benefits on many of these policies. But the company says it has no record of claims being made or benefits paid on the rest of these policies, which New York Life refers to as the “Assyrian policies.”

65% of people who don’t have life insurance say the reason they don’t is because they believe it is too expensive. Source: LIMRA

InsuranceNewsNet Magazine » December 2015

QUOTABLE

The single most important element to reaching the middle market is recruiting the next generation of agents.

— Vic Verchereau, vice president-marketing, Farm Bureau Insurance of Michigan, Lansing, Mich.

More than a century after it stopped selling coverage in the Ottoman Empire, New York Life said it has established the Assyrian Life Insurance Policy Program to encourage claims on these policies. Descendants of persons insured under the Assyrian policies may find information on how to submit claims for benefits at www.assyrianinsuranceclaim.com.

MASSMUTUAL LOOKING TOWARD MILLENNIALS

Attention, under-40s! MassMutual invites you to join the Society of Grownups.

That’s the name the life insurer has given to its startup aimed at millennials.

MassMutual started the Society of Grownups with a $10 million investment in the hope of better understanding the financial needs of millennials so it could design products for them. The company is trying to appeal to consumers who are in their 20s and 30s, an 80-million-strong generation that insurers anticipate will have sizeable assets and purchasing power.

The Society of Grownups holds financial planning classes, supper clubs and discussions about how to save for a home or afford rent aimed at adults under 40 years old, charging fees that range from $10 for group chats about finances to $100 for one-on-one, 90-minute sessions with a certified financial planner.

December 2015 Âť InsuranceNewsNet Magazine

35

LIFE

Beating the Odds Twice: Getting Coverage for Cancer Survivors client’s cancer diagnosis doesn’t A necessarily mean they no longer qualify for life insurance coverage.

Here is how you can help them through the application process.

By Brad Cummins

A

s life insurance agents, we know how difficult it can be for those who have ever been diagnosed with cancer to qualify for life insurance. In fact, because of their diagnosis, many cancer survivors may not even take the steps to apply for the protection they need.

But what I have found is that many cancer survivors believe it isn’t possible to qualify for coverage because somewhere along the line they were told this information by a life insurance agent.

Unfortunately, many captive agents who are locked in to only their own company’s underwriting guidelines are led to believe that if their insurer won’t accept a cancer survivor, then no other insurer will either.

But this isn’t necessarily the case.

In fact, depending on the type of cancer the client was diagnosed with — as well as the amount of time that has passed since the diagnosis — it could be possible for a client to qualify for coverage via a traditionally underwritten policy. However, it must be evaluated on a case-by-case basis.

While not all life insurers will be receptive to those who’ve had a cancer diagnosis, we have had a great deal of success with several of the top-rated carriers.

Presenting a Client to the Insurer

In addition to the basic information requested on the application for coverage, a life insurance applicant who either has cancer at the present time or had cancer previously may be asked to provide information on their disease.

This information includes when the initial diagnosis was made, the type of cancer diagnosed, and the types of treatments the applicant has undergone and the types of medications that have been prescribed.

36

In addition, the applicant may be asked the grade or stage of cancer diagnosed, whether the applicant has experienced any relapses, and whether the applicant has been in remission and for how long.

The applicant also may be asked when treatment began and when it ended.

In most cases, the life insurance underwriters also will want to review copies of the applicant’s medical records, as well as records from any medical specialists they see for their condition. This will help the insurers obtain a more accurate picture of the applicant’s overall health situation.

Therefore, prior to moving forward with an application, it will be important to have your client gather as much of their medical information and health records as possible, as the insurance underwriters likely will want to review it.

How an Agent Should Prepare a Cancer Survivor for the Process

Cancer survivors as well as those who currently are in remission could possibly qualify for a fully underwritten life insurance policy. But in order for the survivor to prove to the life insurer that they are a good risk to take on, the underwriters typically will want to review current records from the applicant’s primary care physician, as well as their most recent pathology reports. As with most other medically underwritten policies, a full paramedical exam usually will be required.

Because of the applicant’s condition, it’s important to have the client provide as many details as possible about their health and medical issues. This way, the underwriters can get the most detailed picture possible about the applicant’s health.

Due to the additional record review, the underwriting of a cancer survivor’s application will typically take longer than normal — so the client should be prepared for the longer wait time during the application process. And regardless of the individual’s current situation, there is still

InsuranceNewsNet Magazine » December 2015

Male, age 62 This client was diagnosed with prostate cancer in October 2009 and had his last treatment in June 2010, using radiation. He applied for coverage in June 2014 and was approved in September 2014 for a 15-year, $50,000 term life insurance policy.

He was rated standard, with a $20 flat extra per $1,000 for four years.

Female, age 36 This client was diagnosed in July 2013 with renal cell carcinoma, and her last treatment was also in July 2013, when she had surgery to remove the cancer.

She also had a history of tobacco use, and took Zoloft. At the time of her application in December 2014, she had no recurrence of the cancer. She was approved in May 2014, at a standard plus rating with no flat extra. the possibility of being declined. Therefore, preparing your client for both the best-case and the worst-case scenarios is always a good idea.

Alternatives to Medical Underwriting

In some cases, a policy that does not require medical underwriting may be the best alternative. With these “no medical exam” policies, an applicant will not be required to go through the paramedical examination that is a necessary part of

BEATING THE ODDS TWICE: GETTING COVERAGE FOR CANCER SURVIVORS LIFE most traditional life insurance policy procedures. There is also no requirement for the applicant to submit blood and urine samples.

Because of this, many of those who apply for a no medical-exam-policy will be guaranteed the coverage they apply for.

However, because these individuals are considered to be more risky to the insurer, the premium on these types of policies does tend to be higher than that of a medically underwritten plan.

Preparing the Client for the Price

The premium charged for a life insurance policy on someone who has a history of cancer may vary based on the type of cancer and a number of other factors. These other factors may include the type of coverage chosen, as well as the amount of protection. It also may be depend on the individual carrier.

Some carriers may place the client into a substandard rate class with a table rating, while others may charge a temporary or a flat extra premium rate. With either

Let’s

of these, you should prepare the client for the extra price.

A flat extra, for example, entails an additional amount of premium that is charged per $1,000 of coverage. So if a client is applying for $100,000 in coverage and he is charged a flat extra of $2.50, then the policy would cost an additional $250 per year ($2.50 x 100). Flat extras often may be charged only for a certain period of time such as five or six years, and then they drop off.

Table ratings are also a way to charge additional premium in order to compensate for the additional risk the insurer is taking on. These are identified in various ways, such as Table 1, 2 and 3, or Table A, B and C. As an example, if the standard premium for a term insurance policy is $200 and a client has a table rating of A, then they may be charged 25 percent more than the standard rate, or $250, for their coverage.

The premium charged on someone with a history of cancer may vary based

together.

on several other factors. Two of the biggest factors will be the stage or grade of the cancer when it was diagnosed and the amount of time since the last treatment.

These factors also may depend on the individual carrier.

Taking the Next Step

Make sure you are upfront with your clients, and never give false hope. It’s true some people with cancer will never qualify for a fully underwritten life insurance policy. The more you know about the underwriting guidelines of each carrier, the better chance you have to get your clients covered. Knowing the key questions to ask can ensure that you give your clients the best shot at getting covered.

Brad Cummins is an independent life insurance agent and founder of Local Life Agents, a top independent life insurance agency that offers life insurance products in all 50 states. Brad may be contacted at brad.cummins@innfeedback.com.

A moment like this won’t last.

But we can help your clients make a financial difference that will.

An affiliate of Securian Financial Group, Minnesota Life is one of the nation’s largest life insurance companies.1 Learn why so many financial professionals trust us as their partner of choice. Call our Life Sales Support Team today: 1-888-413-7860, option 1

m As of December 2014. Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Guarantees are based on the claims-paying ability of the issuing insurance company.

1

Securian Financial Group, Inc. www.securian.com 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2015 Securian Financial Group, Inc. All rights reserved.

F82624-23 10-2015 DOFU 10-2015 26709

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.

December 2015 » InsuranceNewsNet Magazine

37

LIFE

Learning the Facts of Life — Whole Life, That Is

Don’t let whole life insurance fade like the ’80s show “The Facts of Life”. Like the guy on the far left, the product can become a star.

ive facts about whole life inF surance that may help “seal the deal” when your client must choose the type of coverage to buy.

By Brad Crockett

P

undits continue to discount the benefits of whole life insurance in favor of term policies. Because of this, your client might not realize the broad range of financial benefits whole life insurance provides, the most important of which is a guaranteed death benefit. This is why you need to sit down with your client and talk about the facts of life — whole life, that is.

While many investments faltered in the financial crisis a few years back, whole life insurance provided families and small38

business owners with a much-needed source of funds and gave retirees access to additional income — while building guaranteed cash values and paying death benefits to beneficiaries.

So sit down and set the record straight with your clients by discussing five facts about whole life that they may not realize, and that may help “seal the deal” when selecting coverage.

Fact #1: Whole life policy owners enjoy substantial “living” benefits during their lifetime of coverage.

“Participating” (or “par”) insurance company policy owners generally receive annual dividends after the first policy year. This is the result of prudent investments that allow policyholders to receive a share of the companies’ growth. Your

InsuranceNewsNet Magazine » December 2015

client can use these dividends to pay policy premiums or to buy more permanent increments of death benefit, which results in additional cash value.

Your client typically can obtain access to the policy’s cash value through withdrawals and income-tax-free loans. In addition, your client can use the policy’s cash value as collateral for a loan from a financial institution. If your client is a small-business owner who needs working capital, they may borrow from their inforce policies to obtain those funds.

A wealthy client can use whole life in their estate planning by setting up an insurance trust that will use the policy’s payout to cover estate taxes.

If your client is retired, they can use permanent life insurance to generate more cash flow from their other assets

Keep it simple with an uncomplicated Indexed Universal Life product

Simplistic Indexed Universal Life insurance from Kansas City Life Insurance Company offers: • Simple product design • Simple low-cost policy • Simple to explain and sell • Simple to understand and buy

For information about a career with Kansas City Life Insurance Company, call Ryan Beasley, MSFS, CFP®, CLU®, ChFC®, LLIF, Vice President, Agencies

800-258-4525, ext. 8120 December 2015 » InsuranceNewsNet Magazine

39

LIFE LEARNING THE FACTS OF LIFE — WHOLE LIFE, THAT IS because of the certainty and inevitability that the death benefit ultimately will deliver to their heirs. Your client may choose higher-paying annuities or spend down their other retirement assets instead of living only on the required minimum distributions from their retirement funds.

Fact #2: Whole life is a smart and stable place for your clients to put their money.

If your client is worried about the future performance of the stock market, they may not realize that the value of a whole life insurance policy is not related to the stock market. Neither the policy’s death benefits nor its cash values are affected by declining markets. Therefore, a whole life policy can serve as the stable component of your client’s overall financial strategy.

Your client already knows that whole life insurance is purchased to protect their family in the event of the client’s death. But your client may not realize that whole life does much more than that. A whole life insurance policy has a real return that performs competitively with other high-quality, fixed-return assets. And depending on how your client uses it, whole life can end up being two assets and two returns — a living asset with tax-advantaged distributions, as well as an income-tax-free and potentially estate-tax-free death benefit.

Fact #3: Once your client retires, whole life insurance can offer an additional level of financial security, financial freedom and a legacy for loved ones.

Retirement is no longer the appropriate time for your client to drop their life insurance. Instead, retirement is the time when many people realize the importance of already having life insurance or, in some cases, buying coverage at that point.

Your client’s estate may face a liquidity problem that can be solved only through the availability of immediate cash. Families with real estate, closely held businesses, leveraged investments or margined stock portfolios — to name just a few categories — often use life insurance to offset the significant cash liquidity demands on their estates. Heirs of particularly high-net-worth clients can use the proceeds of a whole life policy to pay estate taxes.

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If your client needs funds for big-ticket items that could put a dent in a tight retirement budget — such as paying for a grandchild’s college tuition or a wedding — whole life provides a good source of income-tax-free funds for this purpose.

Through the loans and withdrawals available to whole life policy owners, your client can supplement retirement income with income-tax-free funds if the distribution is structured properly and the policy is not a modified endowment contract.

Whole life insurance is ideal for establishing and funding a special-needs trust if your client has family members with health issues and wants to provide for their care.

Because whole life insurance puts in place a financial foundation for the next generation, whole life can offer your client the luxury of being able to spend down other assets.

Fact #4: Whole life offers a good value for lifetime coverage.

When your client considers whether to purchase whole life or to “buy term and invest the difference,” they must consider not only the premium cost, but also the length of time they want coverage and their ability to “invest the rest” efficiently.

Your client may not realize that term insurance isn’t designed for lifetime coverage. In fact, term insurance is prohibitively expensive to maintain for the average U.S. life expectancy of 78.9 years — never mind if your client reaches age 100. Term costs can average a staggering $700,000 per $1 million of death benefit, and more than $4 million to age 100 for a

InsuranceNewsNet Magazine » December 2015

$1 million policy.

For longer periods — an entire lifetime — whole life insurance is substantially less costly than a lifetime of premiums paid for term. If the well-defined needs for life insurance will not exceed 30 years, a term insurance policy often will be “cheaper.”

Your client may find that term life is typically affordable during the primary premium guarantee period (five to 30 years). But your client may not realize that the annual premiums will escalate quickly to an unaffordable level once the guarantee period ends.

With term insurance, your client will not accumulate any lasting cash value.

Your client could be surprised to learn that at the expiration of the term, they will own nothing. This is in contrast to whole life insurance, where premiums build cash value that belongs to the policy owner.

However, term insurance does have an important place in a financial portfolio.

If your client is young and has a young family, term may be the only type of life insurance they can afford to own. But it is important to have a term conversion feature in the policy so that your client can convert to a permanent life policy such as whole life.

Whole life insurance provides a disciplined means of accumulating cash values that are guaranteed (with respect to the base policy) and subject to the declaration of dividends for the non-guaranteed portion of a long-term policy’s projected values.

Whole life insurance has flexibility in how your client’s contract initially is structured. Whether structured around

long-term premiums or blending in term within the same policy, your client may get a product premium that is competitive with an extended level-term product, while creating the potential for long-term increases in death benefit.

Are you caught up on the latest IRA rollover regulations?

Fact #5: You and your client should review coverage on a periodic basis.

Just as your client periodically checks the performance of other investments, they need to review their life insurance with you as well. Don’t let your client throw their life insurance policy in a drawer and forget about it for decades. Whole life generally is designed with the built-in flexibility to make modifications.

Performing due diligence also is critical. Reviewing a policy sometimes can result in a reduction in your client’s premium. Positive changes in your client’s health also may lower premiums.

Loans and withdrawals on policies, if not managed, may jeopardize some longterm provisions or guarantees in your client’s coverage. Policies held in trusts also need to be reviewed. Tell your client that just because a policy is out of their estate doesn’t mean it should be out of their mind!

Performing policy maintenance can help link your client’s advisors together, strengthening the relationships among all of them. Cross-check ideas among your client’s investment, tax and estate advisors.

If your client purchased term insurance, discuss their options soon! When the term period runs out, premiums will escalate and conversion may not be a viable option.

Carriers continue to launch new whole life riders that can offer your client sound investment options. For example, new riders offer the ability to use the accumulated cash value within the policy to buy into an index tied to stock market performance, with a downside protection guarantee. This ensures that even in “down” markets, the policy’s cash value will grow.

Brad Crockett, CLU, ChFC, is national sales director, risk products distribution, with Guardian Life. Brad may be contacted at brad.crockett@ innfeedback.com.

With the new year will come new regulations. Get up to speed fast with the just-released “IRA Rules & Guidelines for Producers (2016).”

This exclusive, complimentary report outlines the latest legislation on topics such as: •

Eligibility, maximum contribution limits, transfers and distributions information for traditional IRAs, Roth IRAs, SEP-IRAs and Simple IRAs

•

At-a-glance overviews for each of these IRA types to make it easier for you to reference

•

Traditional IRA deductibility phase-out information for single or joint filers

•

Rules on IRA distributions prior to age 59½

Get the latest facts on IRAs and rollover regulations in this complimentary report at

www.2016IRArules.com.

This guide is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. Please note that Insurance Network America and its representatives do not give legal or tax advice.

Agents are ultimately responsible for the use of any materials or services and agree to comply with the requirement of their broker/dealer or registered investment advisor (if applicable), and the insurance carrier(s) they represent.

Please note: In order to make a recommendation to a client about the liquidation of a securities product including those within an IRA, 401(k) or other retirement plan, to purchase a fixed or variable annuity or for other similar purposes, you must hold the proper securities registration and be currently affiliated with a broker/dealer or registered investment advisor. If you are unsure whether or not information you are providing to a client represents general guidance or a specific recommendation to liquidate a security, please contact the individual state securities department in the states(s) in which you conduct business.

December 2015 » InsuranceNewsNet Magazine INA41241

ANNUITYWIRES

FIAs Give Traditional VAs a Jolt The growth in fixed index annuity (FIA) sales is closing in on traditional variable annuities, thanks in large part to the living benefit features in FIAs. This is according to a new report from Cerulli Associates.

Living benefit features in FIAs are driving this trend, Cerulli said. From 2007 to 2014, the compound annual growth rate for FIAs was 9.7 percent. Much of this growth came from consumers buying FIAs with guaranteed living withdrawal benefits (GLWBs), some with benefit base roll-ups as high as 8 or 9 percent and withdrawal rates higher than those in variable annuities, the report said.

Meanwhile, traditional variable annuities went in the opposite direction.

Their flows peaked in 2007 and then “plunged” after the financial crisis of 2008-2009, Cerulli said. And when the variable carriers later moved away from selling living benefits, growth in variable annuity flows became “nonexistent.”

By 2014, the annuity market felt the jolt as variable annuity sales dropped by more than 3 percent compared with the year earlier. FIAs mainly fueled the total annuity industry sales growth in 2014, according to Cerulli director Bing Waldert.

INCOME RIDERS SPELL RISK FOR FIA CARRIERS

But the rise of FIAs comes with an increased risk profile, according to Fitch Ratings.

The guaranteed income rider is a key factor in this trend. Ever since these riders debuted in 2006, they have been contributing to FIAs’ sales growth as well as their risk profile increase, Fitch said.

This growth in income riders has not been without side effects. For instance, their incorporation in FIA products has increased the carriers’ “exposure to tail risk,” Fitch said.

In addition, according to the report, the riders have added asset-liability management challenges for carriers due to the riders’ impact on both the “duration and convexity of liability.”

And since use of riders is a relatively new trend, not yet a decade old, “there is limited long-term industry experience around policyholder behavior,” the researchers said.

NEW PRODUCT WRAP-UP

New products continue to shower the DID YOU

KNOW

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47%

marketplace. Here are details on some of the latest.

OneAmerica has launched Freedom Builder Plus. This is an indexed guaranteed income rider available with the fixed indexed annuity Freedom Builder. Freedom Builder Plus, available to individuals in 47 states, is an option that offers guaranteed growth toward a lifetime income payment and potential for increased payments tied to future U.S. Treasury rates.

Western & Southern has entered the pension risk transfer market with the introduction of a new guaranteed single-premium group annuity called PensionAssist from subsidiary Western & Southern Life. PensionAssist allows plan sponsors to replace pension benefits paid to pension participants with annuity payments from Western & Southern Life. The company marked its entry into the pension risk transfer market in August with a $14.7 million transaction placed through Buck Consultants at Xerox, covering about 280 retired participants from an Ohio

of Americans regret not saving more for retirement in the past five years.

Source: Merrill Edge

InsuranceNewsNet Magazine » December 2015

QUOTABLE

Financial professionals may not be recommending annuities as often as they could for preretirees.

— Mark Fitzgerald, national sales manager for Saybrus Partners

manufacturing company.

Principal Financial Group has created Principal Pension Builder, an option that allows a deferred income annuity to be purchased while the buyer is participating in a retirement plan.

Columbus Life introduced Advantage, the company’s first single-premium deferred fixed indexed annuity. Clients can allocate their funds between four allocation options, including three indexed interest options with rates based in part on positive changes — if any — in specified indexes.

AMERICANS CONTINUE TO PUT OFF RETIREMENT SAVING

A majority (59 percent) of Americans set a 2015 goal to save for retirement, but less than one-third (31 percent) achieved that goal, according to a survey by Bank of America and Merrill Edge.

Why the procrastination? It’s because issues such as paying down debt are more urgent for consumers than saving for retirement.

Overall, more than two in five (42 percent of) Americans say the economy most impacts their spending habits.

Many admit their finances could have been in better shape recently, with 36 percent of respondents saying they wish they had stuck more to a budget in the past five years. Only 38 percent have paid down debt thus far in 2015, despite more than half (51 percent) of Americans setting a goal to do so.

Even though they haven’t kept their retirement saving resolutions, Americans seem to think that they will live the good life once they leave the workforce. Half of those who are saving for retirement want to upgrade their lifestyle in retirement, as opposed to just affording the basics.

THERE’S NO FUTURE IN INCOME RIDER ANNUITIES…

UNTIL NOW! IT’S ABOUT TIME THE INDUSTRY FINALLY SOLVED THE INCOME RIDER TRAP.

This is the first time in decades that advisors have a solution for the major flaws that have doomed income rider annuities – not to mention their damaging effects on your practice.

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• Settling for inferior products that never go beyond the guarantees

• Your clients having no other options the rest of their lives

• Your clients being taxed 100% of non-qualified money in retirement

THE NEXT GENERATION OF INCOME RIDER SOLUTIONS IS HERE.

Download our FREE REPORT NOW to learn how you can free your practice, and your clients, from the income rider trap that been holding our industry hostage!

Don’t wait. Take back control of your current book of annuity business. You owe it to your clients and the future of your practice.

Download our FREE REPORT now at www.IncomeRiderSolution.com or call us directly at 866-268-2640 December 2015 » InsuranceNewsNet Magazine

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ANNUITY

Does Your FIA Index Crediting Strategy Swing for the Fences?

Home Runs Versus Singles — Which May Be Appropriate for Your Client?

A strategy can aim either for steady low returns or occasional high returns. Here is how to think about the risk/reward trade-off found in fixed index annuity crediting strategies.

By Mike Scriver and Brendan Sheehan

B

Index crediting strategies with high averages are like New York Babe Ruth. They are more likely to have a few “home run” years, with the majority of the years’ performance below the average, or worse — a “strikeout” year with zero interest credit.

By contrast, index crediting strategies with more conservative averages have performed more consistently, just as singles are more frequent than home runs.

or more variable interest credits.

This historical analysis highlights some interesting patterns: » Index crediting strategies that pay off the highest amount on average tend to fluctuate most often.

Average Interest Credit

abe Ruth began his baseball career » High-average strategies are difficult to in Boston as a pitcher. In 1919, he predict and can have larger swings than switched to a field position in order the more conservative strategies. to bat on a daily basis. He batted extremely well, leading the league in home runs and » The actual average for these highruns batted in, but it wasn’t until he average strategies is driven by the While the maximum past credit for some strategies is “home run” years; the interest credits joined the New York Yankees in 1920 high, the frequency of a zero interest credit in a that he became the home run hero he in most years are less than the average. given year is also high. is known as today.

Maximum However, it’s important to underThe most volatile strategies can be 23.3% 44.2% 4.0% 53.8% credit stand that Ruth’s evolution to beidentified by their higher zero interest 4.0% coming a home run specialist for the credit frequency and higher poten3.5% Yankees came at a cost. In the season tials. The three most volatile strate3.0% after he joined the Yankees, his home gies — monthly sum, annual pointrun tally rose from 29 to 54 — an 86 to-point with a spread and monthly 2.5% percent increase — but his strikeouts average — would have returned ze2.0% increased 48 percent, from 58 to 80. ro-percent credit more than half the 1.5% Like most things, there are risks and time. This reflects the trade-off be1.0% rewards in pursuing a new stratetween performance and risk, the risk gy. Put into investing terms, Boston here being low or less-than-expected .5% Babe Ruth achieved steady low recredited interest rather than actual 0% turns, while New York Babe Ruth loss of principal. In contrast, annual Frequency 64.3% 50.9% 59.3% 27.0% of 0% credit achieved occasional high returns. point-to-point with a cap offers a lowAnnual Monthly Monthly Annual Babe Ruth’s transformation from er expected interest credit but would point-to-point sum average point-to-point a steady hitter to an all-or-nothing have provided at least some interest with spread with cap slugger can be a useful analogy Maximum credit: Highest interest credit any contract would have credit in more than two-thirds of the when considering how to think received in the back test. years. about the risk/reward trade-off Frequency of 0% credit: How often (percentage of a contract issue Allocating to a fixed interest found in fixed index annuity (FIA) date) would have received no interest credit (0%) for the year. strategy, of course, would have elimcrediting strategies. In an FIA, inated the possibility of no interest “Babe-like” performance is not enThe continuum of risk and reward with credited but would have offered limited sured; different results may arise from the various index crediting strategies for interest potential. different crediting strategies.

FIAs is illustrated nicely in the graphic beSo, which strategy may be appropriate low. Although looking to the past should not Coaching Opportunity: for your client? Ultimately, a good strate- be used to predict the future, history can Explaining the Benefits of a gy for each client will vary based on their provide insights into the various charac- Balanced Approach individual goals and objectives, and their teristics of an index crediting strategy. The Returning to our baseball analogy, some tolerance for variable outcomes. Using this different index crediting strategies available of the best baseball teams are made up baseball analogy may be a useful way to in FIAs are designed to give consumers a of individuals with various strengths, approach the topic and make a more in- variety of options to manage volatility and where players can balance their strengths formed decision. choices among strategies for either steadier against the weaknesses of other players.

44

InsuranceNewsNet Magazine » December 2015

DOES YOUR FIA INDEX CREDITING STRATEGY SWING FOR THE FENCES? ANNUITY A mixed allocation of 25% to each index crediting strategy has a higher interest credit ratio than any of the pure strategies.

Low tolerance

High tolerance

Medium tolerance

Interest Zero credit Average credit credit ratio frequency

Annual point-to-point with a spread

64.26%

3.73%

5.80%

Monthly sum

50.94%

3.45%

6.78%

2) The low risk offsets the lower expected interest credit.

Average Interest Credit

Looking historically, the mixed allocation strategy 4.60% 2.73% 59.27% Monthly average would have offered some10.26% 2.77% 27.02% Annual point-to-point with a cap thing for almost everyone.

For a low-risk-tolerance 11.87% 3.17% 26.69% Mixed allocation (25% each) client, this strategy would Most teams try to create a balance, having have had a lower frequency of zero interplayers who consistently hit singles and est credits than a 100 percent allocation doubles and have high batting averages to any of the four crediting strategies. For along with power hitters who hit more the medium-risk-tolerance client, this home runs. Similarly, some types of inter- strategy would have provided the highest est crediting strategies emphasize higher interest crediting ratio. And for a highly returns but also pose a greater risk of a risk-tolerant individual, it would have prozero return; others may have steadier but vided an increased average interest credit lower likelihood of returns. over monthly average and annual point-toCreating a balanced index crediting point with a cap. team with equal weighting given to each The following graphic shows a comof the four index crediting strategies is a pletely hypothetical historical breakdown way to help even out the potential for of the performance of the mixed allocation strategy, highlighting elA mixed allocation strategy had a high maximum historical credit ements of both the single and home run strategies. but with lower frequency of zero interest credit in a given year.

Some people prefer Maximum 4.0% 53.82% 23.28% 44.15% 26.88% their interest crediting credit to be all-or-nothing, like 4.0% the Yankees Babe Ruth.

3.5% Others prefer their in3.0% terest crediting to be 2.5% less exciting and more consistent, like the Red 2.0% Sox Babe Ruth. The 1.5% key is identifying your 1.0% clients’ preferences and .5% then working together 0% to choose their strateFrequency gies accordingly.

26.7% 64.3% 50.9% 59.3% 27.0% of 0% credit Although not a guarMixed Annual Monthly Monthly Annual antee of performance, point-to-point sum average point-to-point allocation (25% each) with spread with cap balancing exposure to a variety of index risk and reward, and could appeal to a crediting strategies may be a winning broad segment of clients. The graphic approach for your clients because it may above gives a visual sense of how the help avoid a full allocation to the worstdifferent strategies carry varying levels performing strategy, while likely of risk and return. maintaining some exposure to the betterInterest Credit Ratio = This ratio gives or best-performing strategies each year. a measure of the expected interest credit As a financial professional — the coach compared with the chance of disappoint- in this scenario — you have a tremendous ment, i.e., no interest credit. A high ratio opportunity to deliver value to your cliwill indicate one of two things: ents by understanding the different index crediting strategies available in FIAs and 1) The expected interest credit outweighs providing guidance on what may be the the corresponding risk of a low or zero most effective strategy for their retirement interest credit, or income goals. Whatever your clients’ spe-

cific needs and tolerance for zero interest credits may be, the differing index crediting strategies are designed to provide a variety of options so you and your clients can create a solid team.

Mike Scriver is senior vice president, hedge design management, for Allianz Investment Management. Mike may be contacted at mike. scriver@innfeedback.com.

Brendan Sheehan is assistant actuary for Allianz Life.

Brendan may be contacted at brendan.sheehan@innfeedback.com.

A look at different index crediting strategies FIAs are long-term insurance products designed for retirement income purposes. They provide guarantees against the loss of principal and credited interest and a death benefit for beneficiaries. FIAs offer the potential to earn interest based on positive changes in a selected market index, or a fixed interest allocation. Interest potential for FIAs may be limited by caps, spreads or participation rates, so clients may not realize all of the gains the chosen market index may earn.

Although an external index may affect your interest credited, the annuity does not directly participate in any equity or fixed-income investments. Clients are not buying shares in an index.

While the FIA industry offers many index crediting strategies, this article focuses on the following four common strategies. The strategies determine a consumer’s interest potential while providing the floor guarantee of an FIA; interest will never be less than zero due to market conditions: » Point-to-point (cap): A cap is declared at the beginning of a crediting period. At the end of the crediting period, the percent change in the underlying index is observed. The interest rate will be the index change up to the cap, or zero if the index change is negative. » Point-to-point (spread): A spread is declared at the beginning of a crediting period. At the end of the crediting period, the percent change in the underlying index is observed. The interest rate will be the index change minus the spread, or zero if the result is negative. » Monthly sum (cap): A cap is declared at the beginning of a crediting period. Each month the percent change in the underlying index is observed. The capped monthly change is the index change up to the cap (possibly negative). At the end of the crediting period, the interest rate will be the sum of the capped monthly changes, or zero if the sum is negative. » Monthly average (spread): A spread is declared at the beginning of a crediting period. At the end of each month, the index value in the underlying index is observed, and at the end of the period they are averaged. The interest rate is the percent change between the average and the starting index value minus the spread, or zero if the result is negative.

Distributions are subject to ordinary income tax and, if taken prior to age 59½, may be subject to an additional 10 percent federal tax.

December 2015 » InsuranceNewsNet Magazine

45

ANNUITY

Advisors and Clients Stuck in Strategies Ignoring Longevity

Clients need to learn about lifetime income, but advisors are stuck in the accumulation message.

F inancial professionals are still pushing accumulation strategies when older clients are most worried about outliving their funds, a survey says.

By Linda Koco

A

nnuities are the answers to the biggest concern older clients in their 50s and 60s have about their retirement portfolios.

They just don’t know it yet. So said Mark Fitzgerald, national sales manager at Saybrus Partners, a subsidiary of The Phoenix Companies.

The problem is that financial professionals and clients are stuck in old retirement strategies that do not address longevity, he explained. Education is needed for both sides, he added.

Saybrus decided to survey financial professionals about what worried their older clients most. The survey was conducted among advisors who were attending this year’s annual conference of the Financial Planning Association in Boston.

The answers revealed a puzzling picture on the advisory front, but one where “tremendous upside opportunity” lies 46

ahead in the annuity future with both manufacturers and wholesalers providing more comprehensive support for financial professionals, Fitzgerald said.

The puzzle is that clients see the financial risks they face in retirement, but advisors are still focusing their attention mostly on helping clients with accumulation strategies.

The Survey

The survey sampled the views of 141 financial professionals. They included registered investment advisors, bank financial advisors, advisors affiliated with an independent broker/dealer, advisors affiliated with a national wirehouse and advisors affiliated with an insurance company.

Given the pronounced investment orientation of the group, one might think that “market volatility” might top the list of retirement portfolio risks that are on the minds of older clients. But only 16 percent of the advisors said their 50- and 60-year-old clients believe volatility is the biggest risk to their retirement portfolios.

Might taxes be the lead concern? Or inflation? Nope. Just 6 percent and 1 percent, respectively, named these exposures.

InsuranceNewsNet Magazine » December 2015

How about a major health crisis? Only 17 percent chose that answer.

Instead, the top risk among older clients is something very familiar to insurance and annuity professionals — outliving their savings. Nearly 60 percent of advisors said their clients see outliving their savings as the biggest risk to their retirement portfolios.

That dovetails with another finding — that well over half (65 percent) of advisors believe “retirement income distribution planning” will be the biggest goal for 50- and 60-year-old clients in the next five years.

However, there was a disconnect too.

This has to do with the products that the advisors said they actually recommend.

Product Recommendation Problem

Specifically, only 35 percent of the advisors said they “most frequently recommend” variable annuities to their 50- and 60-year-old clients as part of their retirement plans. Only 27 percent said they most frequently recommend fixed or indexed annuities.

By comparison, more than half (60 percent) said they most frequently recommend mutual funds, and 60 percent also said they most frequently recommend advisory services/actively managed funds.

The comparatively small percentage of advisors giving annuity recommendations is surprising. After all, more than half the advisors had noticed their older clients’ concern about outliving savings, and more than half had predicted that retirement distribution planning will be their older clients’ main goal in five years.

Since an annuity is the only financial product that can guarantee lifetime income, more advisors should be focusing on recommending annuities to this segment of clients.

Fitzgerald is not discouraged, however.

He told InsuranceNewsNet that he sees growth ahead for annuity sales, not only

ADVISORS AND CLIENTS STUCK IN STRATEGIES IGNORING LONGEVITY ANNUITY because of the increased retirement needs of the aging marketplace, but also because of the expanded portfolio of products available to meet those needs.

He gave FIA sales as an example. As noted, only 27 percent of advisors said they frequently recommend fixed indexed annuities (FIAs) or fixed annuities. But in the bank and broker/dealer (B/D) channels — where FIAs are still in the early stages of distribution — their FIA market share rose by 10 percent in 2014, Fitzgerald said. He cited data from LIMRA Secure Retirement Institute (SRI).

He predicted these channels will continue to grow in both FIA recommendations and FIA sales, due in part to the evolution in FIA designs and in part to education.

Today’s FIA products offer not only upside potential and downside guarantees but also additional benefits and features that are of “strategic” interest to the more mature customers that tend to use banks and B/Ds, he explained. Examples include lifetime guaranteed income riders, critical illness riders, riders that pay for care in the

event of two of six activities of daily living, and guaranteed rollup death benefits.

If advisors in banks and B/Ds learn more about how the new FIA features address retirement needs, he reasoned, the advisors will likely start using FIAs more frequently.

The Accumulation Hurdle

That said, Fitzgerald noted that many advisors who sell FIAs are doing so to address the accumulation needs of clients as opposed to their retirement needs. Case in point: In banks, even when FIAs with lifetime income riders are available, fewer than 30 percent of FIAs sold in that channel have the rider attached, he said, citing LIMRA statistics.

That could be happening because clients may be more focused on accumulation or because clients may think that they’ve already addressed their retirement issues, Fitzgerald said.

“This is where education needs to come into the picture,” he said. Clients may need help with understanding the distri-

bution issues they will face in retirement, and how these differ from the issues with accumulating assets for retirement.

Also, increased education about living benefits in that channel may bring about greater interest in purchasing an FIA to meet retirement income needs in addition to accumulation needs.

As for variable annuities and traditional fixed annuities, the specific design and positioning issues may differ, but the importance of education and innovation is the same.

As Fitzgerald presented it, the innovation in annuity features and the need for more education of advisors and clients about annuities are keys to future opportunities. The education will help build greater awareness of the features, and that will trigger more recommendations by advisors — and more purchases by customers.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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TriVysta Fixed Indexed Annuity and/or certain product features may Guggenheim Life consult and Annuity Company, whose officeregarding is in Indianapolis, Indiana,The issues the TriVysta Fixed Indexed Annuity.

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Guggenheim Life is notinlicensed in New York. This contract is issued on form numberity GLA-INDEX-01 or antvariation of such. DBA racts co ntSOLICITING co nu FOR AGENT USE ONLY. NOT FOR PURPOSES. 051503A An . ity nu An ed AGENT USE ONLY. NOT FOR Guggenheim Life and Annuity Insurance Company in California y tures ma fea SOLICITING PURPOSES. 101502A Vysta Fixed Index uctSOLICITING FORFOR AGENT USE PURPOSES. 051503A prodFOR rtainNOT ceONLY. d/or iana, issues the Tri

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47

HEALTHWIRES

QUOTABLE

Where Have All the Co-Ops Gone?

Remember health insurance co-ops, those entities that were designed to give for-profit health insurers some competition in the brave new world of the Affordable Care Act (ACA)? As it turns out, those co-ops aren’t performing quite as well as their creators originally had thought.

Not only are most of them awash in red ink, but 12 of them either have stopped writing new policies or have shut down completely, leaving as many as a half-million customers to find health insurance somewhere else.

Of the 23 health co-ops that were established under the ACA, only 11 are still in existence. In the month of October alone, co-ops in Kentucky, Colorado, Oregon and Tennessee announced they would close, while New York officials ordered the Health Republic Insurance of New York to close.

Part of the problem with the co-ops’ insolvency is that Republican lawmakers have forced Congress to cut funding to the co-ops from the originally promised $6 billion to $2.4 billion.

WALGREENS/RITE AID MERGER COULD CREATE HEALTH DESTINATIONS

When the nation’s No. 1 drugstore chain, Walgreens, completes its takeover of No. 3 chain Rite Aid, the result will be an expansion of the Walgreens philosophy that its stores should be more than just a place to stop to get a prescription filled. The major drugstore chains want to be one-stop shops for customers looking to stay healthy.

Analysts say shoppers may see more clinics in Rite Aid stores and more products like vitamins and supplements aimed at keeping them healthy.

All the major drugstore chains — Walgreens, CVS Health and Rite Aid — have been revamping their stores for the past few years to make them bigger providers of health care products and other services. Drugstores also are shifting to serve the aging baby-boom population and its health needs, as well as the growing number of people who are shopping around more for health care instead DID YOU

KNOW

?

48

of simply visiting their family doctors.

Meanwhile, they’re fending off competition from grocery chains and big retailers like Wal-Mart that have added thousands of pharmacies to their stores and offer steep discounts on some drugs.

CVS, in fact, is partnering with the retailer Target to run its in-store clinics and pharmacies.

All this competition, plus the growing mail-order business for prescriptions, is expected to keep the pharmacy market fragmented even after this deal closes.

DRUGMAKERS TALK MERGER

Merger mania isn’t just for drugstores.

Drugmakers Pfizer and Allergan are discussing a potential deal that could be the biggest health care merger of 2015.

A merger could enable Pfizer, the world’s second-biggest drugmaker by revenue, to surpass Novartis and regain the industry’s top spot.

Allergan, based in Dublin, is in the process of selling its generics unit to Israel’s Teva Pharmaceuticals Industries, the

Rates for individual marketplace health plans went up an average of 7.5 percent nationally.

Source: U.S. Department of Health and Human Services

InsuranceNewsNet Magazine » December 2015

We are going to need to be patient until this works itself out.

— Anthem chief financial officer Wayne DeVeydt, speaking on his company’s decision to sacrifice market share to keep its health plans profitable.

world’s top generic drugmaker.

Generic competition to its blockbuster drugs, like cholesterol fighter Lipitor, is expected to cut Pfizer’s sales by $28 billion from 2010 through next year. It’s done three sizeable deals since 2000 to boost revenue.

FAMILIES GOING BROKE DEALING WITH DEMENTIA

What disease involves the greatest cost in the final five years of someone’s life? Cancer? Nope. Heart disease? Not even close.

Dementia is the ailment that is breaking the bank for American families, according to researchers who looked into the amount of money that Medicare paid to care for those with heart disease, cancer and dementia. The researchers found that the average total cost of care for a person with dementia over those five years was $287,038. For a patient who died of heart disease it was $175,136. For a cancer patient it was $173,383.

But those numbers don’t tell the entire story. For many families, the cost of caring for a dementia patient often “consumed almost their entire household wealth,’’ said Dr. Amy S. Kelley, a geriatrician at Icahn School of Medicine at Mount Sinai in New York and the lead author of a paper published in the Annals of Internal Medicine.

On average, the out-of-pocket cost for a patient with dementia was $61,522 — more than 80 percent higher than the cost for someone with heart disease or cancer. The reason is that dementia patients need caregivers to watch them, help with basic activities like eating, dressing and bathing, and provide constant supervision to make sure they do not wander off or harm themselves.

Medicare covers none of those costs.

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HEALTH

The Questions That Help Find the Right Disability Coverage It’s not enough to convince your client to purchase disability insurance. You also must match the correct options to your client’s needs.

By Art Fries

S

electing the right disability insurance policy for your client requires that you consider everything from how the carrier interprets the contract language to their overall attitude toward handling claims.

You must determine which aspects of the disability contract are the most important, and which options you should emphasize for your client. Here are some issues that must be considered.

Look at guarantees. You must consider whether the premium is guaranteed and how important that guarantee is to your client. You also must determine whether the policy is guaranteed renewable and whether the wording is guaranteed as well.

The definitions of both partial and total disability must be examined. Must partial disability follow total disability?

Your client’s occupation also must be taken into account. Does the policy have a “your occupation” definition (substantial and material duties or important duties)?

Does this definition apply to both total and partial disability? You also must consider whether the policy has a modified “your occupation” definition with additional wording that states your client is not working in that occupation or any occupation.

And if partial disability is not included in the policy, does the insurance company interpret it differently than it would if your client did have a partial disability benefit? Does partial disability relate only to “your occupation,” or does it include any occupation?

Look at how the carrier defines total disability. Some policies change the definition of total disability after a period of, say, two years or five years. Then after 50

that time, some policies indicate that your client is not working at any occupation related to their education, training or experience.

Consider whether the policy has any mental limitations or substance abuse limitations. If so, your client could be limited to a maximum benefit period of one or two years.

Look at whether the insurance company may apply any waivers and refuse to pay for a particular medical condition after the underwriting on the application has been completed. And consider whether the waiver can be removed at a future date.

Discuss with your client whether the policy has a fraud clause or an incontestability clause, and make sure your client understands what they mean.

Pre-existing conditions are another issue to consider. Examine how the carrier specifies pre-existing conditions in terms of years — for example, less than one year, two years, five years or no years indicated.

Your client may need to know whether there are any territorial restrictions on them if they are on claim.

Look at whether optional benefits — such as automatic increases, future insurability or cost-of-living adjustments — are available. Discuss which benefits are most cost-effective.

Your client’s earnings make up another

InsuranceNewsNet Magazine » December 2015

area of concern.

What is the earnings percentage (loss of earnings your client must incur) as it relates to a partial, residual or proportionate disability claim? Is there a “pure earnings” definition for all disability (including total disability), or does it relate to “your occupation” for both total and partial disability?

What about restrictions? Does the policy put restrictions on back pain, chronic fatigue, fibromyalgia or any other medical symptoms whereby your client is limited to payment for only one or two years? Or are conditions in which there are no “objective findings” not covered by the policy?

At the time a disability policy is purchased, your client may not think about the questions that will arise if a claim is submitted. You need to look at which insurance companies are best for paying claims. In addition, your client should consider the issues that may arise in the event of a claim.

Your client will need to know what the carrier considers to be appropriate care by a physician and what the carrier considers to be an appropriate physician.

Make sure that in the event of a claim, your client understands the “tools” used by insurance companies related to a field investigation, such as IME (independent medical evaluation), FCE (functional capacity evaluation) or audits by forensic accountants.

In case of a claim, your client will need to know how to complete claim forms properly, how to have their attending physician complete the forms properly and

THE QUESTIONS THAT HELP FIND THE RIGHT DISABILITY COVERAGE HEALTH how to communicate with the attending physician or medical examiner. You also should discuss with your client how to appeal a claim denial or when to use an attorney.

Although at one time there were more than 550 insurance companies offering disability policies, today only about 25 companies offer this coverage. There is no such thing as a “standard” disability contract, and the wording is all over the map with add-on options and various restrictions and limitations. A lifetime benefit is no longer available from any insurance company.

I was approached recently by someone who had two proposals provided to him by two advisors. This man was earning approximately $300,000 per year and wanted to make the correct coverage choice, so he asked me for my opinion.

Both proposals were from “major league” carriers with strong reserves.

After reviewing both proposals, I underlined all the good wording in green and the less favorable wording in red. I saw that one company had a lot of green

!

underlined and the other had a lot of red.

I then spoke with the prospect. I instructed him to create three columns on a large pad, write down the amount of annual premium for each of the two companies and then write the following: Benefit, Insurance Company #1, Insurance Company #2.

I then explained the key benefits and differences for each of the two companies so that he could see which of the two provided the most competitive benefits and offered the best value for his situation.

The key items are in the charts below.

I conducted an audit of both policies and made the following recommendations:

BENEFIT

INSURANCE COMPANY #1

INSURANCE COMPANY #2

Annual premium

$2,447

$2,499

Monthly benefit

$8,700

$10,100

Benefit period

To age 65

To age 65

Waiting period

1 year

180 days

Guarantees

Noncancellation (premium guarantee Guaranteed renewable and guaranteed renewability)

Renewable how long past age 65

For life (age 65 – two year payout Age 75 – one year payout)

To age 75 – two year payout

Definition of total disability

Substantial and material duties

Principal duties and not gainfully employed

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December 2015 » InsuranceNewsNet Magazine

51

HEALTH THE QUESTIONS THAT HELP FIND THE RIGHT DISABILITY COVERAGE

BENEFIT

INSURANCE COMPANY #1

INSURANCE COMPANY #2

Partial disability (residual)

15% loss of earnings Loss of time or duties

20% loss of earnings Loss of time or duties

Additional options

Automatic monthly increases 5% each year for five years (minimum and maximum)

Automatic monthly increases 6% maximum each year for five years Related to CPI (Consumer Price Index) – minimum For example: If CPI is 2%, increased 2%

F.I.O. (Future insurability option) $1,000 per month each year, up to $6,000 per month aggregate

No F.I.O.

Mental condition restriction

No

Yes – two years maximum for mental and substance abuse

Exclusions

Incarceration, intentionally selfinflicted injury, war (declared or undeclared)

Incarceration, attempt to commit felony, war (declared or undeclared)

Incontestability clause

Two years

Two years

Fraud clause

Yes

Yes

Pre-existing condition clause and prudent person clause

Yes – two years

Yes – five years

Care by a physician

Appropriate care Appropriate physician

Appropriate care Appropriate physician

If you live outside U.S. possessions or Canada

Maximum payout – two years (OK to live in U.S. possessions or Canada)

Maximum payout – six months (aggregate) if you live outside the U.S.

1) Apply for Insurance Company No. 1’s disability policy, since overall value, contractual wording and benefits were considerably to the prospect’s advantage.

2) Lower the waiting period to either 180 days or 90 days, since a one-year waiting period was not cost-effective: 180-day wait, annual premium: $3,388; 90-day wait, annual premium: $4,247.

Although the prospect would save about $859 per year with the 180-day wait, if he had a claim he would lose about $26,000 in benefits (the difference between the 180day wait and the 90-day wait). We agreed that a 90-day wait would be the “best value” since just one claim over the next 30 years would wipe out the difference.

I further recommended that he increase the monthly benefit with Insurance Company No. 1 from $8,700 to $10,000 a month based upon his earnings, which would have enabled him to purchase the higher amount.

In helping the prospect make a decision, I asked him the key questions to find out what was the most important for him in terms of contractual wording as well as add-on benefits. Often a carrier will be stronger in one area but not as strong in 52

another area. In this particular situation, the carrier I recommended was not the one I would have recommended a dozen years ago. My prior first-choice company had added more restrictive wording in recent years, whereas the company I recommended in this case had broader overall wording and better add-ons that made it a simple choice. It was clear that the prospect had not understood the significance of these differences. But once I pointed them out to him and explained the meaning of the differences, he agreed wholeheartedly.

As your client’s earnings increase, the amount of personal disability insurance they can purchase decreases. A person earning $100,000 per year can purchase approximately $4,800 of monthly benefit, which is about 58 percent of their monthly earnings. Someone earning $300,000 per year can purchase approximately $10,000 monthly, which is about 40 percent of their monthly earnings.

Often there is an association policy available to members of your client’s profession through which they can purchase coverage of up to 75 percent of their annual earnings. But these policies often have a

“cap” on how much they will issue (for example, $6,000 per month) and a cap on how much monthly benefit your client can receive from all insurance companies. So your client purchases an additional amount to bring them up to the maximum overall amount, which is often $15,000 per month.

The association plan, typically purchased by mail, gives your client the opportunity to buy more coverage, but it often comes with hidden hooks such as a “relation to earnings” clause. This clause states that at claim time, the insurance company will consider not only what your client was earning prior to going on disability claim, but also how much disability coverage your client has in force with other companies. As a result, your client may be paying an additional premium for a supposedly increased monthly benefit but ending up collecting a lesser amount than they had expected from the association plan.

I’ve seen plans in which a client had $5,000 per month coverage with their personal disability insurance carrier and $5,000 per month coverage through their association plan. Their personal carrier paid the full $5,000 monthly benefit and the association plan paid only $400 monthly.

In that particular case, I was able to negotiate a buyout of the first policy, enabling the client to have their monthly association plan increase from $400 to $4,700.

Ideally, your client should buy disability insurance at the beginning of their career, with the monthly benefit increased as their income increases (and including an “insurability option” so that they can purchase increased coverage regardless of their health). But even if your client is in mid-career, a disability policy purchase is viable before your client’s health changes and the choice of obtaining coverage no longer is theirs. A client may not be able to obtain coverage for certain pre-existing conditions.

Sometimes a disinterested third party knowledgeable in disability contractual wording can offer security and an unbiased opinion to help your client decide on the best coverage for their needs.

Art Fries is a disability claim consultant based in Nipomo, Calif. Art may be contacted at art. fries@innfeedback.com.

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FINANCIALWIRES

Americans Struggle With Money Habits Paying down debt, saving for emergencies and building a

retirement nest egg are the money habits that continue to plague Americans’ financial well-being, according to a number of surveys. But there are some signs that consumers are doing a better job of managing their money.

Consumers are doing a better job of paying off debt in a timely fashion, according to the American Bankers Association. The share of closed-end loans, such as car and personal loans, that were late by 30 days or more dropped dramatically in the second quarter to 1.36 percent of accounts, far below the 15-year average of 2.27 percent. Credit card delinquencies rose slightly to 2.52 percent in the second quarter but were still below the long-term average of 3.74 percent. And more college graduates are taking advantage of flexible payment options to pay down their student loans.

But it’s becoming more costly for Americans to keep a roof over their heads. About half of all renters spent more than 30 percent of their income on housing in 2013, according to a report from the Harvard Joint Center for Housing Studies. For homeowners, monthly housing costs took up about 36.5 percent of the average national wage in the first quarter of 2015, down from 37.4 percent a year earlier, according to a report from RealtyTrac and Clear Capital.

Savings rates are taking a hit. Some 62 percent of Americans have less than $1,000 in their savings account, according to a survey of 5,000 consumers by GoBankingRates.

WHAT SCARES AMERICANS ABOUT FINANCES

Eighty-three percent of Americans have at least one financial fear keeping them up at night, according to the latest COUNTRY Financial Security Index.

Topping the list — 30 percent of Americans say their biggest fear is being able to retire comfortably, followed by health care expenses (19 percent) and affording their rent or mortgage (11 percent).

Money worries change as Americans get older. For example, 43 percent of those aged 65 and older say health care expenses are their greatest worry. Meanwhile, millennials are more concerned about job security and paying for housing.

Nearly four in 10 Americans (39 percent) feel pressure to contend with family and friends financially. Sometimes that pressure leads people to lie about their financial situation. Among those who admitted they have fibbed about their finances, 45 percent said they lied about the amount of debt they had while 39 percent lied about the size of their paycheck.

DID YOU

KNOW

?

54

WHY AMERICANS DON’T SEEK HELP

So why don’t Americans get professional help in putting their finances in order? For most people, it’s because they don’t think they have enough money to do so.

Nearly half of Americans believe they need a sizable nest egg to justify working with a financial advisor, according to TIAACREF’s fourth annual Advice Matters survey. In fact, 45 percent of respondents think they need at least $50,000 in savings to merit that meeting. Of those who have never received professional financial advice, 63 percent listed “I don’t have enough money to invest” as a reason.

However, the survey also found that respondents who have met with an advisor are significantly more confident in their retirement savings plan than those who have not (78 percent versus 43 percent) ­— a strong motivation for Americans to seek financial advice regardless of how much they have saved.

Although 49 percent of all respondents report that they have received financial advice, significantly more men (56 percent)

Nearly one-third of those who said they consulted with a financial advisor

THE AVERAGE RETURN ON AN INITIAL PUBLIC OFFERING was 20 percent made positive steps toward improving their financial situation, including this year. The average increase in the first day (or “pop”) is 13 percent.

increasing their savings or establishing a plan to pay off debt.

Source: TIAA-CREF

Source: Renaissance Capital

InsuranceNewsNet Magazine » December 2015

QUOTABLE

It’s a positive sign to see millennials are saving and thinking about retirement as early as right out of college.

— Edward Farrington, Natixis Global Asset Management

than women (43 percent) have taken this important step. Women who have not received professional financial advice also are more likely (41 percent) to say the primary reason that they haven’t worked with a financial advisor is that they don’t have enough money to invest, while only 30 percent of men report the same.

HEALTH INSURANCE COSTS ARE AFFECTING RETIREMENT SAVINGS Many workers are facing a dilemma: pay for health insurance or put more money aside for retirement.

LIMRA research reveals that 59 percent of workers say that what they pay for medical/health insurance benefits directly affects how much they will put aside for retirement.

That finding is part of a larger study on financial stress among employees that estimates between a quarter and half of fulltime employees experience high levels of financial stress.

While 95 percent of employees say financial literacy is important, only 28 percent are very confident in their ability to make important financial decisions.

In looking at the impact of financial stress, nearly 20 percent of employees said their personal financial situation took a toll on relationships and on their health. Only one in eight said financial stress hurt their ability to concentrate at work.

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FINANCIAL

Bigfoot Sighting? Tax-Free Roth Conversions Do Exist » The client is a participant in a qualified retirement plan such as a 401(k) or profit-sharing plan, or owns a traditional IRA; and » The client has some after-tax (nondeductible) money in the account.

One: Backdoor Roth

Which do you believe in more, Bigfoot or a Roth IRA conversion without tax impact? Prepare to be astounded!

J ust as there are those who believe Bigfoot exists, there are also those who believe that every Roth conversion results in taxable income. However, there are some strategies to use a Roth IRA to create tax-free retirement money for your client.

By David Szeremet

I

n 1967, Robert Patterson and Robert Gimlin released a grainy film showing an apelike humanoid striding along Bluff Creek in California. It was the first moving picture of “Bigfoot.”

The iconic Patterson-Gimlin film has appeared in countless programs sensationalizing the Bigfoot myth. Purported Bigfoot sightings date back to the 1850s (and even earlier, based on native storytelling traditions). Even President Theodore Roosevelt allegedly was fooled by the Bigfoot myth.

Just like Bigfoot, there are myths in the financial planning industry. One such myth surrounds Roth IRA conversions.

The idea of a Roth conversion often generates a great deal of interest from clients because of the Roth IRA’s three major ad56

vantages: (1) tax-deferred growth within a Roth, (2) qualified distributions from a Roth are income tax-free, and (3) no lifetime required minimum distributions (RMDs) for the Roth owner. But contrary to the accepted wisdom that all Roth IRA conversions are taxable, three tax-free conversion opportunities exist.

All three opportunities share two characteristics:

InsuranceNewsNet Magazine » December 2015

This backdoor Roth may be appropriate for clients who are not permitted to contribute to a Roth IRA. In 2015, individuals with adjusted gross incomes over $131,000 ($193,000 for married couples filing jointly) cannot contribute to a Roth IRA. Simply put, clients who earn “too much” may not walk in the front door of a Roth IRA. Fortunately, there is more than one door into a Roth IRA. Anyone with an income may contribute on a non-tax-deductible basis to a traditional IRA — there is no income limit. The backdoor Roth IRA is simple: An individual contributes to a traditional, nondeductible IRA; they subsequently convert the traditional IRA into a Roth IRA. There is no income limitation for a Roth conversion. Assuming the conversion takes place shortly after the contribution

Some commentators believe the Internal Revenue Service (IRS) may look unfavorably on the backdoor Roth strategy. Some experts worry that the government may apply what is known as the “step transaction” doctrine to treat the entire strategy as a Roth IRA contribution, resulting in adverse tax consequences. Many commentators believe the risk of adverse action by the IRS is low, but cautious planners believe it is prudent to allow some passage of time before converting the traditional IRA. Clearly, a gap of a year is safe, but even a month or two would be helpful. It is even better if the two moves take place in different years. Establishing the traditional IRA in December and then converting to a Roth in January might make sense. Of course, this may result in a taxable gain if the IRA increased in value during the time before the conversion (but that would be a “good” problem).

TAX-FREE ROTH CONVERSIONS DO EXIST FINANCIAL

of 2005 removed income • The Tax Increase Prevention and Reconciliation Act limits on Roth conversions (for 2010 and after).

If success is your objective, make MDRT your goal.

• IRS Notice 2014-54 allows for allocating pretax and after-tax amounts among multiple disbursements from a qualified retirement plan — including 401(k), 403(b) and 457(b) plans — that are made to multiple retirement accounts. The aggregated disbursements will be treated as a single distribution. In simple terms, it allows for the money to be split into pretax and after-tax amounts and then moved. pretax funds from • Revenue Ruling 2014-9 allows for the “rolling in” of a 401(k) plan. as such plan, a traditional IRA to a qualified retirement

while there is no gain in the account, the conversion is tax-free.

To avoid unintended taxation, the backdoor Roth IRA strategy works best if the client does not have other deductible IRAs (including traditional, SIMPLE and SEP IRAs). If other deductible IRAs exist, a portion of the conversion would become taxable under the aggregation rule.

Two: Split Conversion

This option is available to clients who are separating from service (job changers or retirees) and have made after-tax (nondeductible) contributions to a qualified retirement plan.

If the retirement plan allows, the participant can direct the plan administrator to segregate the after-tax dollars and send them to a Roth IRA, income tax-free. The pretax dollars in the qualified plan are then rolled over or transferred to a traditional IRA. In years past, due to a lack of guidance from the IRS, the idea of a split conversion lurked in the gray areas of tax planning. Without firm guidance, it required a leap of faith to attempt the strategy.

Fortunately, in fall 2014, the IRS released guidelines allowing for this strategy.

Three: “Upstream” Conversion

Suppose your client is approaching age 70½ and is still working. Your client has a 401(k) with their current employer and a rollover IRA from a previous employer.

Suppose further that your client wants to minimize required minimum distributions (a common desire for good savers).

If their traditional IRA has after-tax dollars, your client may have an opportunity to complete an “upstream” conversion.

With an upstream conversion, your client moves the pretax IRA balance “upstream” into their existing 401(k) and leaves the after-tax amount in their rollover IRA. The client then converts the IRA to a Roth IRA, income tax-free. Roth IRAs do not require the owner to take lifetime RMDs. Also, because your client continues to work, RMDs on the 401(k) do not start until your client retires (assuming they are not the owner of the business).

This strategy often is referred to as an upstream conversion because a portion of the IRA funds is being rolled “upstream” into the retirement plan as opposed to the more common rollover out of a retirement plan.

As in the case of a split conversion, the retirement plan document controls what is permitted. The upstream conversion is available only if your client’s retirement plan allows for roll-ins. Check with the plan administrator to see whether this option is available.

These three options are opportunities for a tax-free Roth conversion. If you come across them in your practice, you are in an excellent position to help your clients create tax-free retirement money.

Of course, you should urge your clients to consult with their tax advisors prior to attempting any of these strategies. There are possible tax traps that fall outside the scope of this article.

David Szeremet, JD, CLU, ChFC, is second vice president, advanced marketing, at Ohio National Financial Services, Cincinnati, Ohio. David may be contacted at david. szeremet@innfeedback.com.

December 2015 » InsuranceNewsNet Magazine

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The benefits of MDRT membership are now even better. Members now have online access to careershaping insights in the Resource Zone on the new mdrt.org.

To learn how to become a member of MDRT, visit joinmdrt.org.

BUSINESS

How to Discover Your Niche and Grow Your Business W hen you narrow your target market, you will escape your crowded field.

By Carleton Hollister

Y

ou’ve probably be en told many times that establishing and working a niche market is one of the fastest ways to grow your practice. But how do you find that niche and reach that market?

One of the greatest misconceptions about niche marketing is thinking that this is all you do — that you put all your time into a particular market and have all your clients come out of the same market. When you establish a niche market, you are putting focus on your time, marketing dollars and energy. Using a niche marketing approach in your practice allows you to grow your practice faster than if you use a shotgun approach. At the same time, you still can serve your existing clients and find new opportunities outside the niche.

In addition, opportunities will come your way because you are paying special attention to your market. Information that may not mean much to someone else suddenly impacts you because your antennas are up and you are in tune with your market.

What Is Niche Marketing?

Marketing is the process of building name recognition through a variety of means, such as personal contact, direct mail or email. However, niche marketing is the organized, step-by-step process of building name recognition and referrals in a defined marketplace. The entire idea is to build word-of-mouth referrals in a defined work space, driving business to you without contacting people directly.

58

Be Specific

Many advisors discuss the markets that they serve, such as preretirees, retirees or the newly married. However, this is too general for a niche market. You want to narrow down your target market and be specific. For example:

Review Your Client Base

Look for common issues you have discussed with clients, or common problems you have seen or solutions that you have provided for clients. Are there common threads with all those clients that you can use to expand and grow your practice?

Here are some other questions that might help you find and serve your niche market.

Using a niche marketing approach in your practice allows you to grow your practice faster than if you use a shotgun approach.

» Pre-retirees: People ages 55-65 with an annual household income of $75,000 or more. » Retirees: People ages 60-80 with investable assets of at least $100,000. » The newly married: Professional couples with at least $100,000 in annual household income.

You specify the market based on the demographics that provide you the most success. Then you determine how to target that market and understand the needs and desires of that target group.

InsuranceNewsNet Magazine » December 2015

» Have you done an in-service rollout from a client’s 401(k) plan? Would you be able to provide that service for several others who work for that client’s company? » Have you helped several clients retire with a state pension plan or from a large corporation in your area? Could you reach out to future retirees from those same employers and provide education and information to them?

» Are there pending rule changes that are affecting your clients? Are these changes causing them anxiety? Do they need your help making a sound decision? Can you be the voice of reason in a sea of confusion?

In all three examples, there is a niche market opportunity waiting for you. You can organize a direct mail or email campaign to reach out to these prospects. Better yet, you already have satisfied clients at these firms who can refer you and make introductions. You know what to do when you meet with the client, so your confidence is high, and you come highly recommended.

Invest in Yourself and Become the Expert

Once you determine your niche market

DISCOVER YOUR NICHE AND GROW YOUR BUSINESS BUSINESS and the issues at hand, then do the research and build the resources so you know exactly what you are talking about. Be able to answer the tough questions, based on the research you have done.

When you understand the issues and problems faced by your niche market, and the solutions you can bring to the table, then it’s time to invest in marketing materials that you can place in front of your prospects. Raise questions in their minds to help them realize that you understand the issues, and that you may have solutions. You will need to be able to answer client questions such as “When I retire, how will my family get health insurance?” or “Once I am retired, what happens to my pension when I die?”

Lunch and Learn

Sponsoring an event at the company or offering an informational presentation at a local library or country club may be a way to reach your audience. People are much more likely to attend a group presentation where they can get information. My experience shows that you do not need to feed people if they are interested in your subject matter. Light refreshments and snacks may be all that are needed.

Remember, your presentation is only about giving information, not making a sales pitch. You are there to inform them of issues they are concerned about and help them realize they need your help.

The more questions you raise in their minds, the more likely they are to believe they need your assistance. The goal is to get an appointment and have the opportunity to close at that appointment. As you serve these clients, your reputation precedes you and people will call you.

“You took good care of Bill, and I need your help.” This is a salesperson’s dream come true.

If You Are a New Advisor

New advisors can have a difficult time determining a niche market, and this results in a shotgun approach to sales.

Waste no time figuring out what opportunities may be out there. Research your area, and figure out how to network with those around you.

Do you have experience in an industry, such as the trades, where you can speak comfortably with business owners and

listen to their issues? Is there a business association or chamber of commerce where you can meet people and build relationships? Are there a number of school employees or state employees in your region? Can you build expertise in their retirement planning issues?

Market Versus Product

The most successful niche marketers market to a group of people first, and then offer an array of products. This is a more successful approach than focusing on a single product, such as long-term care insurance, and then trying to find a group of people who need that product, leaving other opportunities on the table.

For example, if you are speaking to a group of future retirees, those who are ages 55-65 and will be retiring in the next few years, you are probably speaking to them about their pension or retirement program from their employer. That often leads to a 401(k) rollover as the initial transaction.

However, the prospect may have other accounts with no advisor serving them.

The prospect’s spouse may be retiring in a couple of years and also may need help. They may need to have their life insurance reviewed, and they may want to open 529 accounts for their grandchildren. After they are retired, a discussion on long-term care insurance may be appropriate. In addition, they may receive an inheritance that needs your oversight.

Marketing to people provides more opportunities than marketing a specific product. If your client needs a specific product, then make sure you do a proper fact finder when you meet, so you are aware of other needs they may have in the future.

Establishing and working a niche market can be rewarding and can help you build your practice rapidly. In addition, it will provide you the opportunity to serve many more people with a high degree of confidence. As this happens, you will build a referral base and expertise that will drive clients and prospects to your door.

Carleton “Holly” Hollister is a registered representative and financial advisor with Savage and Associates, Toledo, Ohio. Holly may be contacted at holly.hollister@ innfeedback.com.

December 2015 » InsuranceNewsNet Magazine

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How to Generate an Endless Flow of Referrals from CPAs and Attorneys

How to Generate an Endless Flow of Referrals from CPAs and Attorneys

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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.

Tips to Take the Stress Out of College Planning M ost parents dream of sending their children to college, but the college planning and selection process can be a major source of family stress. Here are some hints to smooth the journey.

By Adam Solano

I

have seen many of my clients put their children through college during my 23 years in the financial industry. I’m thankful that I was able to draw on my clients’ experiences to develop a financial plan for my own family, and now I’m ready to send my own children off to school. The following are five tips to keep in mind as you navigate the expense, the stress and the promise of your children’s — or your clients’ children’s - college education.

Talk to Your Children About College Sooner Rather Than Later

Although this is simple and obvious, it is difficult to do. I can’t say with authority the ideal age to have the conversation, but I began discussing this with my oldest child when she was in the seventh or eighth grade. However, my youngest child benefited from overhearing that conversation even though he was only eight years old. In fact, I also sat down with all my children and gave each of them the statements of the college investment accounts I started for them when they were born. It took only eight seconds for one of them to shout, “I’m rich!” At that moment, I placed next to their statement a report on the total cost of a four-year college degree.

It took another eight seconds for one of them to do the math. “I don’t have enough money!” Who knew this simple life lesson would take only 16 seconds, yet probably last a lifetime?

Find Ways to Talk Honestly With Your Children About Money, but Remember Honesty Doesn’t Mean 60

You Have to Disclose Crucial Details

I may deal with financial decisions regularly in my vocation, but it was rather difficult for me to be transparent and vulnerable with my children on this topic. There are multiple ways to approach the topic of money with children based on values from your own experience growing up. In my situation, my parents chose to keep me out of the equation when it came to financial matters, even though they directly affected my future. On the other side, there are some parents who choose not to pay for their child’s education, even though they may have the means, simply because their own parents didn’t pay for their education. Some hold this philosophy because they believe they became a better person for having struggled on their own to pay their way, and they want to instill this in their own children. Whatever the situation may be, it’s important to be specific and honest to help your children understand how you grew as a person and how those benefits or struggles have impacted you.

Place Your Child’s Interests Ahead of Your Own Desires

I went to a small, Catholic liberal arts university in the upper Midwest. I believe with all my heart that all my children should have the same experience I did.

After my daughter returned from her first college fair, she said, “Hey, Dad, do you want to see the one school I know I’m not going to?” She then showed me a picture of the booth from my alma mater.

Lesson learned.

Coach, Counsel, Advise; Don’t Dictate

After the aforementioned college fair experience, I regularly remind myself to be more of a coach and counselor during this process. It’s easy for me to tell my sons and daughters what to do and how to do it. It has not been easy to hand

InsuranceNewsNet Magazine » December 2015

over control and enjoy the ride as they make their own decisions. However, as the parent, the one thing you do dictate is finances.

You Must Be Realistic About Your Financial Situation

Even if you have the means to pay for a more expensive school, it’s wise to let your children know that they can spend time completing courses at a community college before committing to a university. There isn’t a mandated timetable for success or learning, and it’s imperative to instill that thought in your children. Additionally, your son or daughter may have the expectation you are going to pay for their schooling when the financial realities in your home are different.

Too often, feelings of shame and embarrassment will keep the weight of certain financial burdens on the parents’ shoulders, and we wait far too long to be direct about how a financial situation has changed in the home because of a job loss, a divorce or a disability.

Whether you provide for your children’s education or they pay for it on their own or finance it through loans, being open, honest and realistic about your financial situation will ease the stress of planning.

Adam Solano is a financial advisor with Lakeside Financial Group, Grayslake, Ill. He was a main platform speaker at the 2015 MDRT Annual Meeting and was recognized by the National Association of Insurance and Financial Advisors as one of its “4 Under 40” award recipients in 2009. Adam may be contacted at adam.solano@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.

The Family Financial Dilemma: College vs. Retirement F or most families, saving for college affects their ability to save for retirement. But there are a number of financial tools available to help them fund both.

By Brock Jolly

W

hat keeps your clients awake at night? For many families, their biggest financial fear is not retirement saving, premature death or disability, or the effects of oil prices. The topic that elicits tremendous anxiety is paying for their children’s college education.

When they first entered the workforce, many were encouraged to begin saving for retirement through an employer-sponsored plan. Some heeded this advice and saved diligently; however, when children arrived, the money often was stretched so thin between retirement savings, a mortgage, diapers and baby formula that there was little room for funding higher education. Often it is not until their children reach the threshold of college that parents realize their oversight.

For most families, saving for college is actually a retirement problem. The lost opportunity costs associated with funding children’s education can leave a major gap at the time of a planned retirement. Viewed differently, the tremendous sticker price of a college education causes some otherwise savvy consumers to panic and do nothing.

Further complicating the problem is the fact that the average cost of attending an American university has increased much more than inflation. According to the College Board, over the 30 years from 1984-85 to 2014-15, average published tuition and fees at private four-year institutions rose by 146 percent, from $12,716 (in 2014 dollars) a year to $31,231 a year. The average increase for in-state students at public four-year institutions during that same time period was 225 percent, from $2,810 a year to $9,139 a year.

Frequently, we see families borrow money from home equity and retirement plans — decisions made out of convenience rather than from a position of financial strength. These

decisions could have a potentially disastrous impact on an overall financial plan due to the costs, tax implications and penalties.

Addressing the Issue

So what do you advise a family to do? For starters, anything. Simply taking action and choosing to save is almost always better than doing nothing. By saving $152 per month for 10 years (total investment of $18,240) at an interest rate of 6 percent, a client can save more than $25,000.

By comparison, if a family borrows $25,000 and repays that money over the next 10 years at an interest rate of 6 percent, the repayment would be $278 per month (total repayment of $33,360).

Think about it. This differential has a tremendous potential impact on our clients’ ability to retire.

Financial Tools to the Rescue

There are myriad financial tools at our disposal as advisors. The most prevalent are Section 529 plans. These state-sponsored plans allow for tax-deferred growth and tax-free distributions, assuming the funds are used for qualified educational expenses.

Many states offer tax incentives for contributions, making Section 529 plans one of the only tools that include triple tax-advantaged savings (tax-deductible contributions, tax-deferred growth and tax-free distributions).

Other college savings vehicles include custodial accounts established under the Uniform Gift to Minors Act or Uniform Transfer to Minors Act, as well as education savings bonds, Coverdell savings plans and even individual retirement accounts.

Each has unique characteristics making them attractive or not, depending upon a family’s particular situation. When evaluating these options, consider tax implications, risk tolerance, time horizon, funding limits and control.

For military service members (and potentially their family members), the Post9/11 GI Bill can pay for tuition, housing,

books and supplies. The benefit can cover in-state tuition and fees at public institutions, but it may not cover all costs at private or out-of-state schools. The Yellow Ribbon Program provides additional support in these situations.

An underserved college funding strategy utilizes cash value life insurance. Unfortunately, unscrupulous advisors use this product nefariously. While permanent life insurance has many wonderful attributes, it is often positioned in the college funding discussion as a vehicle to be used to improve the likelihood of qualifying for needbased financial aid.

While life insurance is a non-assessable asset for purposes of the expected family contribution (EFC) calculation, many families who purchase permanent life insurance for the purpose of reducing their EFC will never qualify for need-based aid because of their high income.

More appropriately, cash value life insurance can be positioned in two tremendously effective ways. Because of the guarantees in many policies, these instruments can be used as a bucket from which to take distributions if market-linked investments such as Section 529 plans or Roth IRAs are down. Second, because of the economics of cash value life insurance policies, they can be used to repay student loans upon graduation.

Many advisors fail their clients by overlooking the exorbitant costs of paying for college. While many families plan to use income or take out student loans, their ability to save ahead of time pays significant dividends at retirement. By focusing on the critical details of college funding, we can change our clients’ lives for the better.

Brock Jolly , CFP, CLU, ChFC, CLTC, CASL, CFBS, is the founder of The College Funding Coach. He was the 2011 NAIFA Young Advisor Team Leader of the Year, and is on NAIFA’s National Board of Trustees.

Brock may be contacted at brock.jolly@innfeedback.com.

December 2015 » InsuranceNewsNet Magazine

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THE AMERICAN COLLEGE INSIGHTS

With over 87 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

Special-Needs Families Must Plan a Retirement Built for Three T he right kind of planning can create a rewarding retirement for parents while making sure that their special-needs child will be cared for.

By Adam Beck

W

hen you run a Google Image search for the word “retirement,” you’re flooded with images that reflect a pretty common theme.

A couple, presumably a husband and a wife, smiling and walking on a beach as they stare off into the sunset.

Retirement advisors know that for most of their clients, these sorts of utopian expectations must be tempered by income realities. But what if a client’s vision for retirement must be adjusted for a different reason — not because the client won’t have enough money to live out a relaxing retirement, but because there are three people instead of two sharing in that retirement?

This situation is familiar to older parents who have spent much of their lives raising a child with special needs. Most children, especially typically developing children, usually are expected to move out of the house by the time they are in their 20s. However, for a special-needs child, living independently of their parents may never be realistically achievable.

There is no simplistic answer to a question about what parents of special-needs children must do or should envision for their retirement. Much of that varies depending on their child’s disability, whether they have other children who are able to assist, what kind of financial resources they have, what the child wishes to do and what sort of facilities are available in their area. Here are some topics to discuss with your clients.

Different Expectations

Expect your client’s retirement to look different from that of most people. I have yet to meet any parents of a special-needs 62

child (I’ve particularly come to like the term “exceptional parent”) who feel that their lives have been anything but enriched by the presence of that child. Most of these parents not only accept but embrace that many aspects of their life will be different because of their role in their child’s life.

Schooling will be different, their careers will be different, even their vacations may have unique aspects to them that other people wouldn’t understand.

Retirement also will be different. But clients should expect a three-person retirement and discuss with an advisor how savings, spending and lifestyle expectations should be altered. It is not only the parents’ longevity in retirement that is a factor, but also the longevity of the special-needs person that require a more complex approach to financial planning for the future. The retirement nest egg must be much larger, and it will have to last over an additional lifetime, the lifetime of the special-needs family member.

Possible Support Systems

When a special-needs child has siblings, some of the responsibilities can be taken off the parents. A retirement plan for parents of special-needs children must plan for the typically developing children, the special-needs children and the parents. Make sure that all involved parties are aware of your plan and their possible parts in implementing it. Along the way, the plan must anticipate scenarios where the other siblings may be a source of financial and decision-making support for a special-needs sibling.

There are numerous tools and financial vehicles available that can be considered and possibly woven into the complex planning for a special-needs person.

Consult experts in this area, as a wrong move or hasty decision can dismantle existing government benefits that are available. Consider setting up a special-needs trust, or investigate ways that the Achieving a Better Life Experience (ABLE) Act

InsuranceNewsNet Magazine » December 2015

may be helpful in a particular situation.

Location

Many couples on the brink of retirement may consider downsizing and relocating.

Parents of special-needs children may not be able to downsize. They may need to consider whether facilities and services are available for their child in the particular location where they may wish to retire. Services for the disabled vary widely from county to county, or state to state. Any relocation decisions must take into account the unique needs of the child and the support that might be needed.

Plan, Save, Invest Today!

That’s sound advice for any person of any age. But having income in place for a special-needs child who may outlive parents for an additional 20 years or more makes this advice even more crucial. Parents will need to save more, regardless of their circumstances. Having a written plan in place is critical. Where a special-needs child is concerned, that plan must be overseen by an expert to avoid what could be costly, even life-altering, errors. Seek out experts with appropriate financial and legal credentials to develop a plan for the future of the retirees as well as for the future of the special-needs child. Consult insurance professionals to find out how life insurance might be used in the plan.

Tax implications also should be understood and addressed.

With the right planning, retirement can be among the best years of anyone’s life.

For parents of special-needs children, retirement will look very different, but it can still be a very rewarding experience for everyone involved.

Adam Beck, Esq., is director of The American College MassMutual Center for Special Needs. Adam may be contacted at adam.beck@ innfeedback.com.

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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

Fiduciary Rule Fails to Address the Big Picture T he Department of Labor’s proposal would force advisors to abandon the investors who would benefit most from financial advice and guaranteed income products.

By Stephen Selby

T

he Department of Labor (DOL) grabbed ever yone’s attention when they proposed an expanded definition of “fiduciary” that could fundamentally change the retirement industry.

The DOL argues in their proposal that consumers are sold retirement products carrying high fees or commissions when simpler and less expensive options are available. Under the expanded rule, financial professionals would be legally bound to “manage plan assets prudently and with undivided loyalty to the plans and their participants and beneficiaries” [ERISA section 404(a)]. The expanded definition of fiduciary applies when advising on 401(k) accounts, other qualified plans and individual retirement accounts. The new rule not only expands the types of accounts covered, but also narrows what the DOL defines as loopholes. The net effect is that virtually anyone who provides services to the retirement market will be deemed a “fiduciary.” The new rule is expected to go into effect in the first quarter of 2016, with full implementation likely by late 2016.

A new prohibited transaction exemption (PTE) known as the “best interest contract exemption,” or BICE, is also proposed with the expanded rule. Under this exemption, firms and individual advisors may receive commissions and revenue sharing, but must sign a contract requiring the fiduciary to put the client’s best interests first. The BICE also has complex disclosure and reporting requirements that many industry watchers 64

believe are unworkable. The DOL has indicated that they may make adjustments to the final version of the BICE to ensure it is workable.

Industry advocates are concerned the new rule would cause a sharp increase in regulatory and liability costs. This would force advisors to abandon small investors, a group that would benefit most from financial advice and guaranteed income products.

DOL Secretary Thomas Perez has said publicly that small savers’ needs are best served by simple investments.

Perez cited variable annuities (VAs) as an example of expensive and complex products that are not appropriate for many consumers.

Yet LIMRA Secure Retirement Institute research finds that seven in 10 retirees’ and pre-retirees’ top financial priority is to have enough money to last their lifetime. Thirty-five percent of retirees (annual household income of $35,000 and up) receive income from annuities.

Of this group, 40 percent receive regular payments guaranteed for life.

Industry representatives have countered that while small savers’ needs may be simple, a “one-size-fits-all” approach is not in the best interests of consumers. For those who want a guaranteed income in retirement, annuities can be effective options.

According to the LIMRA Secure Retirement Institute, Americans’ primary retirement savings vehicle is an employer-sponsored defined contribution plan.

For many retirees, the assets in these accounts will be needed to fund their retirement for 20-30 years.

Some 401(k) plans do not offer a way to receive guaranteed income payouts.

If a client wants a guaranteed income stream, an advisor could suggest rolling retirement plan assets to an IRA. Annuities can be used as a funding vehicle for IRAs, which can provide guaranteed income in retirement, improving

InsuranceNewsNet Magazine » December 2015

overall retirement security. Since annuity fees are generally higher than those of 401(k) plans, the fiduciary will need to demonstrate clearly why the transaction is in the client’s best interest — carefully weighing the value of the guarantee and liquidity concerns.

There is a concern in the industry that the rule emphasizes fees and investment returns, while failing to consider the larger picture of risk management and the peace of mind the annuity provides as also being in the client’s best interests.

The rollover market is projected to grow to $515 billion by 2018, according to LIMRA Secure Retirement Institute.

Institute research finds that the majority of VA buyers purchase the product to supplement their Social Security or pension income. In fact, six out of 10 dollars invested in variable annuities are qualified dollars — in other words, rolled over from qualified retirement savings plans such as a 401(k).

DOL officials claim the new rule protects retirees from aggressive advisors.

Yet our research shows that 82 percent of VA buyers age 60 and over were satisfied with their product. In addition, LIMRA Customer Assurance Program data finds that 97 percent of recent VA buyers found their advisor very helpful, while 98 percent planned to keep their products. This suggests that consumers overall do not feel victimized by their advisors as DOL depicts.

LIMRA will stay close to any further developments regarding the DOL fiduciary rule and continue the conversation with the industry to seek common solutions during this period of historic change.

Stephen Selby, CRCP, is the assistant vice president of regulator relations and social media for LIMRA. Stephen may be contacted at stephen.selby@innfeedback. com

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